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FORM 10-K
___________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ____________
Commission file number 0-6983
COMCAST CORPORATION
[GRAPHIC OMITTED - LOGO]
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1709202
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1500 Market Street, Philadelphia, PA 19102-2148
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
___________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
___________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A Common Stock, $1.00 par value
Class A Special Common Stock, $1.00 par value
3-3/8% / 5-1/2% Step-up Convertible Subordinated Debentures Due 2005
1-1/8% Discount Convertible Subordinated Debentures Due 2007
___________________________
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No _____
___________________________
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
___________________________
As of February 1, 1997, the aggregate market value of the Class A Common Stock
and Class A Special Common Stock held by non-affiliates of the Registrant was
$567.5 million and $5.091 billion, respectively.
___________________________
As of February 1, 1997, there were 283,488,179 shares of Class A Special Common
Stock, 33,508,729 shares of Class A Common Stock and 8,786,250 shares of Class B
Common Stock outstanding.
___________________________
DOCUMENTS INCORPORATED BY REFERENCE
Part III - The Registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders presently scheduled to be held in June 1997.
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<PAGE>
COMCAST CORPORATION
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business...........................................................1
Item 2 Properties........................................................21
Item 3 Legal Proceedings.................................................22
Item 4 Submission of Matters to a Vote of Security Holders...............22
Item 4A Executive Officers of the Registrant..............................22
PART II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters...................................24
Item 6 Selected Financial Data...........................................25
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations.................26
Item 8 Financial Statements and Supplementary Data.......................40
Item 9 Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure............72
PART III
Item 10 Directors and Executive Officers of the Registrant................72
Item 11 Executive Compensation............................................72
Item 12 Security Ownership of Certain Beneficial
Owners and Management.........................................72
Item 13 Certain Relationships and Related Transactions....................72
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K...................................................73
SIGNATURES..................................................................81
___________________________
This Annual Report on Form 10-K for the year ended December 31, 1996, at the
time of filing with the Securities and Exchange Commission, modifies and
supersedes all prior documents filed pursuant to Sections 13, 14 and 15(d) of
the Securities Exchange Act of 1934 for purposes of any offers or sales of any
securities after the date of such filing pursuant to any Registration Statement
or Prospectus filed pursuant to the Securities Act of 1933 which incorporates by
reference this Annual Report.
This Annual Report on Form 10-K contains forward looking statements made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned that such forward looking statements
involve risks and uncertainties which could significantly affect expected
results in the future from those expressed in any such forward looking
statements made by, or on behalf of the Company. Certain factors that could
cause actual results to differ materially include, without limitation, the
effects of legislative and regulatory changes; the potential for increased
competition; technological changes; the need to generate substantial growth in
the subscriber base by successfully launching, marketing and providing services
in identified markets; pricing pressures which could affect demand for the
Company's services; the Company's ability to expand its distribution; changes in
labor, programming, equipment and capital costs; the Company's continued ability
to create or acquire programming and products that customers will find
attractive; future acquisitions, strategic partnerships and divestitures;
general business and economic conditions; and other risks detailed from time to
time in the Company's periodic reports filed with the Securities and Exchange
Commission.
<PAGE>
PART I
ITEM 1 BUSINESS
Comcast Corporation and its subsidiaries (the "Company") is principally engaged
in the development, management and operation of wired and wireless
telecommunications and the provision of content (see "Description of the
Company's Businesses"). The Company was organized in 1969 under the laws of the
Commonwealth of Pennsylvania and has its principal executive offices at 1500
Market Street, Philadelphia, Pennsylvania, 19102-2148, (215) 665-1700.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Note 10 to the Company's consolidated financial statements for information
about the Company's operations by industry segment.
GENERAL DEVELOPMENTS OF BUSINESS
E! Entertainment
As of December 31, 1996, the Company owned a 10.4% interest in E! Entertainment
Television, Inc. ("E! Entertainment"), an entertainment programming service that
currently is distributed to more than 42 million subscribers. The Company has
the right, by virtue of various agreements among the shareholders of E!
Entertainment, to purchase an additional 58.4% interest in E! Entertainment from
Time Warner, Inc. ("Time Warner") for $321.1 million. In January 1997, the
Company and The Walt Disney Company ("Disney") entered into an agreement to form
a new limited liability company ("Newco") that will be owned 50.1% by the
Company and 49.9% by Disney. Pursuant to the agreement, the Company will
contribute to Newco its 10.4% interest in E! Entertainment, the right to
exercise its option to purchase the Time Warner interest and $132.3 million in
cash. Disney will contribute to Newco $188.8 million in cash. Newco will use the
cash contributed by the Company and Disney to purchase the Time Warner interest.
Following such purchase, Newco will own a 68.8% interest in E! Entertainment. To
fund the cash portion of its contribution, the Company will borrow $132.3
million from Disney in the form of two 10-year, 7% notes. These transactions are
expected to close in the first quarter of 1997, subject to regulatory approval
and certain other conditions.
Scripps Cable
In November 1996, the Company acquired the cable television operations ("Scripps
Cable") of The E.W. Scripps Company in exchange for 93.048 million shares of the
Company's Class A Special Common Stock, par value $1.00 per share (the "Class A
Special Common Stock"), valued at $1.552 billion (the "Scripps Acquisition").
Scripps Cable passed more than 1.3 million homes and served more than 800,000
subscribers as of December 31, 1996, with 60% of its subscribers located in
Sacramento, California and Chattanooga and Knoxville, Tennessee. The Company has
accounted for the Scripps Acquisition under the purchase method and Scripps
Cable was consolidated with the Company effective November 1, 1996.
Comcast-Spectacor
In July 1996, the Company completed its acquisition (the "Sports Venture
Acquisition") of a 66% interest in the Philadelphia Flyers Limited Partnership,
a Pennsylvania limited partnership ("PFLP"), the assets of which, after giving
effect to the Sports Venture Acquisition, consist of (i) the National Basketball
Association ("NBA") franchise to own and operate the Philadelphia 76ers
basketball team and related assets (the "Sixers"), (ii) the National Hockey
League ("NHL") franchise to own and operate the Philadelphia Flyers hockey team
and related assets, and (iii) two adjacent arenas, leasehold interests in and
development rights related to the land underlying the arenas and other adjacent
parcels of land located in Philadelphia, Pennsylvania (collectively, the
"Arenas"). Concurrent with the completion of the Sports Venture Acquisition,
PFLP was renamed Comcast Spectacor, L.P. ("Comcast-Spectacor").
<PAGE>
The Sports Venture Acquisition was completed in two steps. In April 1996, the
Company purchased the Sixers for $125.0 million in cash plus assumed net
liabilities of $11.0 million through a partnership controlled by the Company. To
complete the Sports Venture Acquisition, in July 1996, the Company contributed
its interest in the Sixers, exchanged approximately 3.5 million shares of the
Company's Class A Special Common Stock and 6,370 shares of the Company's newly
issued 5% Series A Convertible Preferred Stock (the "Preferred Stock"), and paid
$15.0 million in cash for its current interest in Comcast-Spectacor. The
remaining 34% interest in Comcast-Spectacor is owned by a group, including the
former majority owner of PFLP, who also manages Comcast-Spectacor. In connection
with the Sports Venture Acquisition, Comcast-Spectacor assumed the outstanding
liabilities relating to the Sixers and the Arenas, including a mortgage
obligation of $155.0 million. The Company accounts for its interest in Comcast-
Spectacor under the equity method.
Sprint Spectrum
The Company, Tele-Communications, Inc. ("TCI"), Cox Communications, Inc. ("Cox,"
and together with the Company and TCI, the "Cable Parents") and Sprint
Corporation ("Sprint," and together with the Cable Parents, the "Parents"), and
certain subsidiaries of the Parents (the "Partner Subsidiaries") engage in the
wireless communications business through a limited partnership known as "Sprint
Spectrum," a development stage enterprise. The Company owns 15% of Sprint
Spectrum and accounts for its investment in Sprint Spectrum under the equity
method.
Sprint Spectrum was the successful bidder for 29 personal communications
services ("PCS") licenses in the auction conducted by the Federal Communications
Commission ("FCC") from December 1994 through mid-March 1995. The purchase price
for the licenses was $2.11 billion, all of which has been paid to the FCC. In
addition, Sprint Spectrum has invested, and may continue to invest, in other
entities that hold PCS licenses, may acquire PCS licenses in future FCC auctions
or from other license holders and may affiliate with other license holders.
The Partner Subsidiaries have committed to contribute $4.2 billion in cash to
Sprint Spectrum through 1999, of which the Company's share is $630.0 million. Of
this funding requirement, the Company has made total cash contributions to
Sprint Spectrum of $452.8 million through December 31, 1996 and issued a $105.0
million guaranty on a portion of Sprint Spectrum's outstanding debt. The Company
anticipates that Sprint Spectrum's capital requirements over the next several
years will be significant. Requirements in excess of committed capital are
planned to be funded by Sprint Spectrum through external financing, including,
but not limited to, vendor financing, bank financing and securities offered to
the public. In August 1996, Sprint Spectrum sold $750.0 million principal amount
at maturity of Senior Notes and Senior Discount Notes due in 2006 in a public
offering. In October 1996, Sprint Spectrum closed three credit agreements which
provided $2.0 billion in bank financing and $3.1 billion in vendor financing.
The timing of the Company's remaining capital contributions to Sprint Spectrum
is dependent upon a number of factors, including Sprint Spectrum's working
capital requirements. The Company anticipates funding its remaining capital
commitments to Sprint Spectrum through its cash flows from operating activities,
its existing cash, cash equivalents, short-term investments and lines of credit
or other external financing, or by a combination of these sources.
Repurchase Program
Concurrent with the announcement of the Scripps Acquisition in October 1995, the
Company announced that its Board of Directors authorized a market repurchase
program (the "Repurchase Program") pursuant to which the Company may purchase,
at such times and on such terms as it deems appropriate, up to $500.0 million of
its outstanding common stock, subject to certain restrictions and market
conditions. During the years ended December 31, 1996 and 1995, the Company
repurchased 10.5 million shares and 680,000 shares, respectively, of its common
stock for aggregate consideration of $180.0 million and $12.4 million,
respectively, pursuant to the Repurchase Program. During January 1997, the
Company repurchased an additional 450,000 shares of its common stock for
aggregate consideration of $7.6 million. The Repurchase Program will terminate
in May 1997.
As part of the Repurchase Program, the Company sold put options on 1.0 million
and 3.0 million shares of its Class A Special Common Stock during the years
ended December 31, 1996 and 1995, respectively. The put options give the holders
the right to require the Company to repurchase such shares at specified prices
on specific dates in January through March 1997. As of December 31, 1996, the
Company has reclassified $69.6 million, the amount it would be obligated to pay
to repurchase such shares upon exercise of the put options, to a temporary
equity account in its
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<PAGE>
consolidated balance sheet. The temporary equity related to these shares will be
reclassified to additional capital in the first quarter of 1997 upon expiration
or settlement of the options.
DESCRIPTION OF THE COMPANY'S BUSINESSES
WIRED TELECOMMUNICATIONS
Wired telecommunications includes cable and telecommunications services in the
United States ("US") and the United Kingdom ("UK") (see "Cable Communications -
Company's Systems" and "- UK Activities"). The Company also owns a 50% interest
in Garden State Cablevision L.P. ("Garden State"), a cable communications
company serving portions of southern New Jersey, and a 16.1% interest in
Teleport Communications Group, Inc. ("TCGI"), one of the largest competitive
alternative access providers in the US in terms of route miles.
CABLE COMMUNICATIONS
General
A cable communications system receives signals by means of special antennae,
microwave relay systems, earth stations and fiber optics. The system amplifies
such signals, provides locally originated programs and ancillary services and
distributes programs to subscribers through a fiber optic and coaxial cable
system.
Cable communications systems generally offer subscribers the signals of all
national television networks; local and distant independent, specialty and
educational television stations; satellite-delivered non-broadcast channels;
locally originated programs; educational programs; audio programming; electronic
retailing and public service announcements. In addition, each of the Company's
systems offer, for an extra monthly charge, one or more premium services ("Pay
Cable") such as Home Box Office(R), Cinemax(R), Showtime(R), The Movie
Channel(TM) and Encore(R), which generally offer, without commercial
interruption, feature motion pictures, live and taped sporting events, concerts
and other special features. Substantially all of the Company's systems offer
pay-per-view services, which permit a subscriber to order, for a separate fee,
individual feature motion pictures and special event programs. The Company has
also started offering or is field testing other cable-based services including
cable modems (see "Description of the Company's Businesses - Wired
Telecommunications - Online Services"), video games and data transfer.
Cable communications systems are generally constructed and operated under
non-exclusive franchises granted by state or local governmental authorities.
Franchises typically contain many conditions, such as time limitations on
commencement or completion of construction; conditions of service, including
number of channels, types of programming and provision of free services to
schools and other public institutions; and the maintenance of insurance and
indemnity bonds. Cable franchises are subject to the Cable Communications Policy
Act of 1984 (the "1984 Cable Act"), the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act," and together with the 1984 Cable
Act, the "Cable Acts") and the Telecommunications Act of 1996 (the "1996 Telecom
Act"), as well as FCC, state and local regulations (see "Legislation and
Regulation").
The Company's franchises typically provide for periodic payment of fees to
franchising authorities of 5% of "revenues" (as defined by each franchise
agreement), which fees may be passed on to subscribers. Franchises are generally
non-transferable without the consent of the governmental authority. Many of the
Company's franchises were granted for an initial term of 15 years. Although
franchises historically have been renewed and, under the Cable Acts, should
continue to be renewed for companies that have provided adequate service and
have complied generally with franchise terms, renewal may be more difficult as a
result of the 1992 Cable Act and may include less favorable terms and
conditions. Furthermore, the governmental authority may choose to award
additional franchises to competing companies at any time (see "Competition" and
"Legislation and Regulation"). In addition, under the 1996 Telecom Act, certain
providers of programming services may be exempt from local franchising
requirements.
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<PAGE>
Company's Systems
The table below sets forth a summary of Homes Passed and Cable Subscriber
information for the Company's domestic cable communications systems for the five
years ended December 31, 1996:
<TABLE>
<CAPTION>
1996 (5) 1995 1994 (4) 1993 1992
(In thousands)
<S> <C> <C> <C> <C> <C>
Homes Passed (1)(3) 6,975 5,570 5,491 4,211 4,154
Cable Subscribers (2)(3) 4,280 3,407 3,307 2,648 2,583
- ---------------
<FN>
(1) A home is deemed "passed" if it can be connected to the distribution
system without further extension of the transmission lines.
(2) A dwelling with one or more television sets connected to a system is
counted as one Cable Subscriber.
(3) Consists of systems whose financial results are consolidated with
those of the Company. Amounts do not include information for the
Company's investment in Garden State or in other systems managed by
the Company in which the Company has less than a 50% interest. As of
December 31, 1996, total Homes Passed and Cable Subscribers for such
entities were 331,000 and 227,000, respectively.
(4) In 1994, the Company acquired the US cable television operations of
Maclean Hunter Limited.
(5) In 1996, the Company acquired Scripps Cable.
</FN>
</TABLE>
Revenue Sources
The Company's cable communications systems offer varying levels of service,
depending primarily on their respective channel capacities. As of December 31,
1996, a majority of the Company's subscribers were served by systems that had
the capacity to carry in excess of 60 channels.
Monthly service and equipment rates and related charges vary in accordance with
the type of service selected by the subscriber. The Company may receive an
additional monthly fee for Pay Cable service, the charge for which varies with
the type and level of service selected by the subscriber. Additional charges are
often imposed for installation services, commercial subscribers, program guides
and other services. The Company also generates revenue from pay-per-view
services, advertising sales and commissions from electronic retailing.
Subscribers typically pay on a monthly basis and generally may discontinue
services at any time (see "Legislation and Regulation").
Programming and Suppliers
The Company generally pays either a monthly fee per subscriber per channel or a
percentage of certain revenues for programming. Programming costs increase in
the ordinary course of the Company's business as a result of increases in the
number of subscribers, expansion of the number of channels provided to customers
and contractual rate increases from programming suppliers.
The Company seeks and secures long-term programming contracts with suppliers,
some of which provide volume discount pricing structures and/or offer marketing
support to the Company. The Company anticipates that future contract renewals
will result in programming costs exceeding current levels, particularly for
sports programming.
National manufacturers are the primary sources of supplies, equipment and
materials utilized in the construction, rebuild and upgrade of the Company's
cable communications systems. Construction, rebuild and upgrade costs for these
systems have increased during recent years and are expected to continue to
increase as a result of the need to construct increasingly complex systems,
overall demand for labor and other factors.
The Company anticipates that its programming and construction, rebuild and
upgrade costs will be significant in future periods. The amount of such costs
will depend on numerous factors, many of which are beyond the Company's control.
These factors include the effects of competition, whether a particular system
has sufficient capacity to handle new product offerings including the offering
of communications services, whether and to what extent the Company will be able
to recover its investment under FCC rate guidelines and other factors, and
whether
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<PAGE>
the Company acquires additional systems in need of upgrading or rebuilding.
Increases in such costs may be significant to the Company's financial position,
results of operations and liquidity.
UK Activities
The Company beneficially owns a 25.7% equity interest and controls 77.6% of the
total voting power of Comcast UK Cable Partners Limited, a consolidated
subsidiary of the Company ("Comcast UK Cable"). As of December 31, 1996, Comcast
UK Cable has equity interests in four operating companies (the "UK Operating
Companies"): Birmingham Cable Corporation Limited ("Birmingham Cable"), in which
Comcast UK Cable owns a 27.5% interest, Cable London PLC ("Cable London"), in
which Comcast UK Cable owns a 50.0% interest, Cambridge Holding Company Limited
("Cambridge Cable"), in which Comcast UK Cable owns a 100.0% interest, and two
companies holding the franchises for Darlington and Teesside, England
("Teesside"), in which Comcast UK Cable owns a 100.0% interest. The UK Operating
Companies hold exclusive cable television licenses and non-exclusive
telecommunications licenses and provide integrated cable television, residential
telephony and business telecommunications services to subscribers in their
respective franchise areas. When build-out of the UK Operating Companies'
systems is complete, these systems will have the potential to serve over 1.6
million homes and the businesses within their franchise areas.
Based on closed and announced transactions, it is apparent that the UK cable and
telecommunications industries are undergoing a significant consolidation, which
trend the Company expects to continue in the coming months. The Company has
engaged an investment advisor to assist it in evaluating the current state of
the UK marketplace, the position of other participants and its alternatives with
respect to Comcast UK Cable. There can be no assurance that the Company will
take any action, or in what time frame any such action, if undertaken, might be
accomplished.
UK Operating Companies' Systems
The table below sets forth Homes Passed, Telephony Subscriber and Cable
Subscriber information for the UK Operating Companies' cable communications
systems for the five years ended December 31, 1996:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
(In thousands)
<S> <C> <C> <C> <C> <C>
Homes Passed (1) (2)
Birmingham Cable 374 292 227 156 104
Cable London 312 246 171 121 78
Cambridge Cable 188 151 115 75 36
Teesside 100 40
Telephony Subscribers (2) (3)
Birmingham Cable 108 83 59 36 23
Cable London 60 41 32 18 12
Cambridge Cable 58 44 34 12
Teesside 50 20
Cable Subscribers (2) (4)
Birmingham Cable 111 88 73 55 35
Cable London 67 52 42 30 20
Cambridge Cable 45 36 30 16 6
Teesside 30 14
<FN>
(1) A home is deemed "passed" if it can be connected to the distribution system
without further extension of the transmission lines.
(2) Homes Passed, Telephony Subscribers and Cable Subscribers have not been
adjusted for the Company's proportionate ownership interests in the
respective UK Operating Companies.
(3) A dwelling with one or more telephone lines connected to a system is
counted as one Telephony Subscriber.
(4) A dwelling with one or more television sets connected to a system is
counted as one Cable Subscriber.
</FN>
</TABLE>
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<PAGE>
Competition
Cable communications systems face competition from alternative methods of
receiving and distributing television signals and from other sources of news,
information and entertainment such as off-air television broadcast programming,
newspapers, movie theaters, live sporting events, interactive online computer
services and home video products, including videotape cassette recorders. The
extent to which a cable communications system is competitive depends, in part,
upon the cable system's ability to provide, at a reasonable price to consumers,
a greater variety of programming and other communications services than are
available off-air or through other alternative delivery sources (see
"Legislation and Regulation") and upon superior technical performance and
customer service.
The 1996 Telecom Act makes it easier for local exchange telephone companies
("LECs") and others to provide a wide variety of video services competitive with
services provided by cable systems and to provide cable services directly to
subscribers (see "Legislation and Regulation - The 1996 Telecom Act"). Various
LECs currently are providing video services within and outside their telephone
service areas through a variety of distribution methods, including both the
deployment of broadband wire facilities and the use of wireless transmission
facilities. Cable systems could be placed at a competitive disadvantage if the
delivery of video services by LECs becomes widespread since LECs are not
required, under certain circumstances, to obtain local franchises to deliver
such video services or to comply with the variety of obligations imposed upon
cable systems under such franchises (see "Legislation and Regulation"). Issues
of cross-subsidization by LECs of video and telephony services also pose
strategic disadvantages for cable operators seeking to compete with LECs which
provide video services. The Company cannot predict the likelihood of success of
video service ventures by LECs or the impact on the Company of such competitive
ventures.
Cable communications systems generally operate pursuant to franchises granted on
a non-exclusive basis. The 1992 Cable Act prohibits franchising authorities from
unreasonably denying requests for additional franchises and permits franchising
authorities to operate cable systems (see "Legislation and Regulation").
Well-financed businesses from outside the cable industry (such as public
utilities that own certain of the poles on which cable is attached) may become
competitors for franchises or providers of competing services (see "Legislation
and Regulation - The 1996 Telecom Act"). Competition from other video service
providers exists in the areas served by the Company. In addition, LECs in
various states either have announced plans, obtained local franchise
authorizations or are currently competing with the Company's cable
communications systems in various areas.
The availability of reasonably-priced home satellite dish earth stations
("HSDs") enables individual households to receive many of the
satellite-delivered program services formerly available only to cable
subscribers. Furthermore, the 1992 Cable Act contains provisions, which the FCC
has implemented with regulations, to enhance the ability of cable competitors to
purchase and make available to HSD owners certain satellite-delivered cable
programming at competitive costs. The 1996 Telecom Act and FCC regulations
implementing that law preempt certain local restrictions on the use of HSDs and
roof-top antennae to receive satellite programming and over-the-air broadcasting
services (see "Legislation and Regulation - The 1996 Telecom Act").
Cable operators face additional competition from private satellite master
antenna television ("SMATV") systems that serve condominiums, apartment and
office complexes and private residential developments. The 1996 Telecom Act
broadens the definition of SMATV systems not subject to regulation as a
franchised cable communications service. SMATV systems offer both improved
reception of local television stations and many of the same satellite-delivered
programming services offered by franchised cable communications systems. SMATV
operators often enter into exclusive agreements with building owners or
homeowners' associations, although some states have enacted laws to provide
franchised cable systems access to such private complexes, and the 1984 Cable
Act gives a franchised cable operator the right to use existing compatible
easements within its franchise area under certain circumstances. These laws have
been challenged in the courts with varying results. In addition, some companies
are developing and/or offering packages of telephony, data and video services to
these private residential and commercial developments. The ability of the
Company to compete for subscribers in residential and commercial developments
served by SMATV operators is uncertain.
The FCC and Congress have adopted policies providing a more favorable operating
environment for new and existing technologies that provide, or have the
potential to provide, substantial competition to cable systems. These
technologies include, among others, the direct broadcast satellite ("DBS")
service whereby signals are transmitted by satellite to receiving facilities
located on customer premises. Programming is currently available to the owners
of HSDs through conventional, medium and high-powered satellites. In 1990,
Primestar Partners, L.P. ("Primestar"),
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<PAGE>
a consortium comprised of cable operators, including the Company and a satellite
company, commenced operation of a medium-power DBS satellite system using the Ku
portion of the frequency spectrum and currently provides service consisting of
approximately 95 channels of programming, including broadcast signals and
pay-per-view services (see "Wireless Telecommunications - DBS Operations"). In
January 1997, Primestar launched a replacement medium-power DBS satellite which
will enable it to increase its capacity to approximately 160 channels. In
addition, through one of its owners which is also a Primestar affiliate,
Primestar has obtained the right to provide service over a high-power DBS
satellite and, using video compression technology, intends initially to offer
approximately 70 channels of video programming in the future. This programming
is intended to be offered to existing cable subscribers as an addition to their
cable service. DirecTV, which includes AT&T Corp. as an investor, began offering
nationwide high-power DBS service in 1994 accompanied by extensive marketing
efforts. Several other major companies, including EchoStar Communications
Corporation ("EchoStar") and American Sky Broadcasting ("ASkyB"), a joint
venture between MCI Telecommunications Corporation and News Corp., have begun
offering or are currently developing high-power DBS services. EchoStar has
already commenced its domestic DBS service and offers approximately 120 channels
of video programming. ASkyB is constructing satellites that reportedly, when
operational, will provide approximately 200 channels of DBS service in the US.
The recently announced plans of News Corp. to purchase an interest in EchoStar
may, if consummated, create a more significant competitor to cable and DBS
service providers, including the Company.
DBS systems are expected to use video compression technology to increase the
channel capacity of their systems to provide movies, broadcast stations and
other program services comparable to those of cable systems. Digital satellite
service ("DSS") offered by DBS systems currently has certain advantages over
cable systems with respect to programming capacity and digital quality, as well
as certain current disadvantages that include high up-front customer equipment
costs and a lack of local programming, local service and equipment distribution.
While DSS presents a competitive threat to cable, the Company currently is
increasing channel capacity in many of its systems and upgrading its local
customer service and technical support. The Company is currently in the process
of implementing ten regional customer service call centers. As of December 31,
1996, three of these call centers were in operation, servicing more than 950,000
subscribers. These upgrades will enable the Company to introduce new premium
channels, pay-per-view programming, interactive computer-based services and
other communications services in order to enhance its ability to compete.
Cable communications systems also compete with wireless program distribution
services such as multichannel, multipoint distribution service ("MMDS") which
use low-power microwave frequencies to transmit video programming over-the-air
to subscribers. There are MMDS operators who are authorized to provide or are
providing broadcast and satellite programming to subscribers in areas served by
the Company's cable systems. Several Regional Bell Operating Companies ("BOCs")
have acquired significant interests in major MMDS companies operating in certain
of the Company's cable service areas. Recent public announcements by Bell
Atlantic Corporation ("Bell Atlantic"), a BOC operating in the northeastern US,
indicate that plans to compete with the Company through the use of MMDS
technology may be revised. Additionally, the FCC recently adopted new
regulations allocating frequencies in the 28-GHz band for a new multichannel
wireless video service similar to MMDS. The Company is unable to predict whether
wireless video services will have a material impact on its operations.
Other new technologies, including internet-based services, may become
competitive with services that cable communications systems can offer. The FCC
has authorized television broadcast stations to transmit textual and graphic
information useful both to consumers and businesses. The FCC also permits
commercial and non-commercial FM stations to use their subcarrier frequencies to
provide non-broadcast services including data transmissions. The FCC established
an over-the-air Interactive Video and Data Service that will permit two-way
interaction with commercial and educational programming along with informational
and data services. LECs and other common carriers also provide facilities for
the transmission and distribution to homes and businesses of interactive
computer-based services, including the Internet, as well as data and other
non-video services. The FCC has conducted spectrum auctions for licenses to
provide PCS. PCS will enable license holders, including cable operators, to
provide voice and data services (see "Wireless Telecommunications - Cellular
Telephone Communications - Competition").
Advances in communications technology as well as changes in the marketplace and
the regulatory and legislative environment are constantly occurring. Thus, it is
not possible to predict the effect that ongoing or future developments might
have on the cable communications industry or on the operations of the Company.
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Legislation and Regulation
The Cable Acts and the 1996 Telecom Act amended the Communications Act of 1934
(as amended, the "Communications Act") and established a national policy to
guide the development and regulation of cable systems. The FCC and state
regulatory agencies are required to conduct numerous rulemaking and regulatory
proceedings to implement the 1996 Telecom Act, and such proceedings may
materially affect the cable communications industry. The following is a summary
of federal laws and regulations materially affecting the growth and operation of
the cable communications industry and a description of certain state and local
laws.
The 1996 Telecom Act. The 1996 Telecom Act, the most comprehensive reform of the
nation's telecommunications laws since the Communications Act, became effective
in February 1996. Although the long-term goal of this act is to promote
competition and decrease regulation of these industries, in the short-term, the
law delegates to the FCC (and in some cases the states) broad new rulemaking
authority. The 1996 Telecom Act deregulates rates for cable programming service
tiers ("CPSTs") in March 1999 for large Multiple System Operators ("MSOs"), such
as the Company, and immediately for certain small operators. Deregulation will
occur sooner for systems in markets where comparable video services, other than
DBS, are offered by the LECs, or their affiliates, or by third parties utilizing
the LECs' facilities or where "effective competition" is established under the
1992 Cable Act. The 1996 Telecom Act also modifies the uniform rate provisions
of the 1992 Cable Act by prohibiting regulation of non-predatory, bulk discount
rates offered to subscribers in commercial and residential developments and
permits regulated equipment rates to be computed by aggregating costs of broad
categories of equipment at the franchise, system, regional or company level. The
1996 Telecom Act eliminates the right of individual subscribers to file rate
complaints with the FCC concerning certain CPSTs and requires the FCC to issue a
final order within 90 days after receipt of CPST rate complaints filed by any
franchising authority. The 1996 Telecom Act also modifies the existing statutory
provisions governing cable system technical standards, equipment compatibility,
subscriber notice requirements and program access, permits certain operators to
include losses incurred prior to September 1992 in setting regulated rates and
repeals the three-year anti-trafficking prohibition adopted in the 1992 Cable
Act. FCC regulations implementing the 1996 Telecom Act preempt certain local
restrictions on satellite and over-the-air antenna reception of video
programming services, including zoning, land-use or building regulations, or any
private covenant, homeowners' association rule or similar restriction on
property within the exclusive use or control of the antenna user.
The 1996 Telecom Act eliminates the requirement that LECs obtain FCC approval
under Section 214 of the Communications Act before providing video services in
their telephone service areas and removes the statutory telephone company/cable
television cross-ownership prohibition, thereby allowing LECs to offer video
services in their telephone service areas. LECs may provide service as
traditional cable operators with local franchises or they may opt to provide
their programming over unfranchised "open video systems," subject to certain
conditions, including, but not limited to, setting aside a portion of their
channel capacity for use by unaffiliated program distributors and satisfying
certain other requirements. Under limited circumstances, cable operators also
may elect to offer services through open video systems. The 1996 Telecom Act
also prohibits a LEC from acquiring a cable operator in its telephone service
area except in limited circumstances. The 1996 Telecom Act removes barriers to
entry in the local telephone exchange market by preempting state and local laws
that restrict competition and by requiring all LECs to provide nondiscriminatory
access and interconnection to potential competitors, such as cable operators,
wireless telecommunications providers and long distance companies (see "Wireless
Telecommunications Cellular Telephone Communications - Legislation and
Regulation").
The 1996 Telecom Act also contains provisions regulating the content of video
programming and computer services. Specifically, the new law prohibits the use
of computer services to transmit "indecent" material to minors. Several special
three-judge federal district courts have issued preliminary injunctions
enjoining the enforcement of these provisions as unconstitutional to the extent
they regulate the transmission of indecent material. The US Supreme Court
recently announced that it would review one of these decisions. In accordance
with the 1996 Telecom Act, the television industry recently adopted a voluntary
ratings system for violent and indecent video programming. The 1996 Telecom Act
also requires all new television sets to contain a so-called "V-chip" capable of
blocking all programs with a given rating.
Rate Regulation. The 1992 Cable Act authorized rate regulation for cable
communications services and equipment in communities that are not subject to
"effective competition," as defined by federal law. Most cable communications
systems are now subject to rate regulation for basic cable service and equipment
by local officials under the oversight of the FCC, which has prescribed detailed
criteria for such rate regulation. The 1992 Cable Act also requires the FCC
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to resolve complaints about rates for CPSTs (other than programming offered on a
per channel or per program basis, which programming is not subject to rate
regulation) and to reduce any such rates found to be unreasonable. The 1996
Telecom Act provides for rate deregulation of CPSTs by March 1999 (see "The 1996
Telecom Act").
FCC regulations, which became effective in September 1993, govern rates that may
be charged to subscribers for basic cable service and certain CPSTs (together,
the "Regulated Services"). The FCC uses a benchmark methodology as the principal
method of regulating rates for Regulated Services. Cable operators are also
permitted to justify rates using a cost-of-service methodology. In 1994, the
FCC's benchmark regulations required operators to implement rate reductions for
Regulated Services of up to 17% of the rates for such services in effect on
September 30, 1992, adjusted for inflation, programming modifications, equipment
costs and increases in certain operating costs. In July 1994, the Company
reduced rates for Regulated Services in the majority of its cable systems to
comply with the FCC's regulations. The FCC has also adopted comprehensive and
restrictive regulations allowing operators to modify their regulated rates on a
quarterly or annual basis using various methodologies that account for changes
in the number of regulated channels, inflation and increases in certain external
costs, such as franchise and other governmental fees, copyright and
retransmission consent fees, taxes, programming fees and franchise related
obligations. The Company cannot predict whether the FCC will modify these "going
forward" regulations in the future.
Franchising authorities are empowered to regulate the rates charged for
additional outlets and for the installation, lease and sale of equipment used by
subscribers to receive the basic cable service tier, such as converter boxes and
remote control units. The FCC's rules require franchising authorities to
regulate these rates on the basis of actual cost plus a reasonable profit, as
defined by the FCC.
Cable operators required to reduce rates may also be required to refund
overcharges with interest. Rate reductions will not be required where a cable
operator can demonstrate that existing rates for Regulated Services are
reasonable using the FCC's cost-of-service rate regulations which require, among
other things, the exclusion of 34% of system acquisition costs related to
intangible and tangible assets used to provide Regulated Services. The FCC's
cost-of-service regulations contain a rebuttable presumption of an industry-wide
11.25% after tax rate of return on an operator's allowable rate base, but the
FCC has initiated a further rulemaking in which it proposes to use an operator's
actual debt cost and capital structure to determine an operator's cost of
capital or rate of return.
The Company has settled the majority of outstanding proceedings challenging its
rates charged for regulated cable services. In December 1995, the FCC adopted an
order approving a negotiated settlement of rate complaints pending against the
Company for CPSTs which provided $6.6 million in refunds, plus interest, given
in the form of bill credits during 1996, to 1.3 million of the Company's cable
subscribers. As part of the negotiated settlement, the Company agreed to forego
certain inflation and external cost adjustments for systems covered by its
cost-of-service filings for CPSTs. The Company currently is seeking to justify
rates for basic cable services and equipment in certain of its cable systems in
the State of Connecticut on the basis of a cost-of-service showing. The State of
Connecticut has ordered the Company to reduce such rates and to make refunds to
subscribers. The Company has appealed the Connecticut decision to the FCC.
Recent pronouncements from the FCC, which generally support the Company's
position on appeal, have caused the State of Connecticut to reexamine its prior
ruling. While the Company cannot predict the outcome of this action, the Company
believes that the ultimate resolution of these pending regulatory matters will
not have a material adverse impact on the Company's financial position, results
of operations or liquidity.
"Anti-Buy Through" Provisions. The 1992 Cable Act requires cable systems to
permit subscribers to purchase video programming offered by the operator on a
per channel or a per program basis without the necessity of subscribing to any
tier of service, other than the basic cable service tier, unless the system's
lack of addressable converter boxes or other technological limitations does not
permit it to do so. The statutory exemption for cable systems that do not have
the technological capability to offer programming in the manner required by the
statute is available until a system obtains such capability, but not later than
December 2002. The FCC may waive such time periods, if deemed necessary. Many of
the Company's systems do not have the technological capability to offer
programming in the manner required by the statute and thus currently are exempt
from complying with the requirement.
Must Carry/Retransmission Consent. The 1992 Cable Act contains broadcast signal
carriage requirements that allow local commercial television broadcast stations
to elect once every three years to require a cable system to carry the station,
subject to certain exceptions, or to negotiate for "retransmission consent" to
carry the station. A cable system
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generally is required to devote up to one-third of its activated channel
capacity for the carriage of local commercial television stations whether
pursuant to the mandatory carriage or retransmission consent requirements of the
1992 Cable Act. Local non-commercial television stations are also given
mandatory carriage rights; however, such stations are not given the option to
negotiate retransmission consent for the carriage of their signals by cable
systems. Additionally, cable systems are required to obtain retransmission
consent for all "distant" commercial television stations (except for commercial
satellite-delivered independent "superstations" such as WTBS), commercial radio
stations and certain low-power television stations carried by such systems after
October 1993. The US Supreme Court is currently reviewing the constitutional
validity of the 1992 Cable Act's mandatory signal carriage requirements. The
Company cannot predict the ultimate outcome of this litigation. Pending action
by the US Supreme Court, the mandatory broadcast signal carriage requirements
remain in effect.
Designated Channels. The Communications Act permits franchising authorities to
require cable operators to set aside certain channels for public, educational
and governmental access programming. The 1984 Cable Act also requires a cable
system with 36 or more channels to designate a portion of its channel capacity
for commercial leased access by third parties to provide programming that may
compete with services offered by the cable operator. The FCC has adopted rules
regulating: (i) the maximum reasonable rate a cable operator may charge for
commercial use of the designated channel capacity; (ii) the terms and conditions
for commercial use of such channels; and (iii) the procedures for the expedited
resolution of disputes concerning rates or commercial use of the designated
channel capacity. The US Supreme Court recently held parts of the 1992 Cable Act
regulating "indecent" programming on local access channels to be
unconstitutional, but upheld the statutory right of cable operators to prohibit
or limit the provision of "indecent" programming on commercial leased access
channels.
Franchise Procedures. The 1984 Cable Act affirms the right of franchising
authorities (state or local, depending on the practice in individual states) to
award one or more franchises within their jurisdictions and prohibits
non-grandfathered cable systems from operating without a franchise in such
jurisdictions. The 1992 Cable Act encourages competition with existing cable
systems by (i) allowing municipalities to operate their own cable systems
without franchises; (ii) preventing franchising authorities from granting
exclusive franchises or from unreasonably refusing to award additional
franchises covering an existing cable system's service area; and (iii)
prohibiting (with limited exceptions) the common ownership of cable systems and
co-located MMDS or SMATV systems. In January, 1995, the FCC relaxed its
restrictions on ownership of SMATV systems to permit a cable operator to acquire
SMATV systems in the operator's existing franchise area so long as the
programming services provided through the SMATV system are offered according to
the terms and conditions of the cable operator's local franchise agreement. The
1996 Telecom Act provides that the cable/SMATV and cable/MMDS cross-ownership
rules do not apply in any franchise area where the operator faces "effective
competition" as defined by federal law.
The Cable Acts also provide that in granting or renewing franchises, local
authorities may establish requirements for cable-related facilities and
equipment, but not for video programming or information services other than in
broad categories. The Cable Acts limit the payment of franchise fees to 5% of
revenues derived from cable operations and permit the cable operator to obtain
modification of franchise requirements by the franchise authority or judicial
action if warranted by changed circumstances. The Company's franchises typically
provide for periodic payment of fees to franchising authorities of 5% of
"revenues" (as defined by each franchise agreement), which fees may be passed on
to subscribers. The 1996 Telecom Act generally prohibits franchising authorities
from (i) imposing requirements in the cable franchising process that require,
prohibit or restrict the provision of telecommunications services by an
operator, (ii) imposing franchise fees on revenues derived by the operator from
providing telecommunications services over its cable system, or (iii)
restricting an operator's use of any type of subscriber equipment or
transmission technology.
The 1984 Cable Act contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. The 1992 Cable Act made
several changes to the renewal process which could make it easier for a
franchising authority to deny renewal. Moreover, even if the franchise is
renewed, the franchising authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchising
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for such consent.
Historically, franchises have been renewed for cable operators that have
provided satisfactory services and have complied with the terms of their
franchises. The Company believes that it has generally met the terms of its
franchises and has provided quality levels of service. As such, the Company
anticipates that its future franchise renewal prospects generally will be
favorable.
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Various courts have considered whether franchising authorities have the legal
right to limit franchise awards to a single cable operator and to impose certain
substantive franchise requirements (e.g. access channels, universal service and
other technical requirements). These decisions have been somewhat inconsistent
and, until the US Supreme Court rules definitively on the scope of cable
operators' First Amendment protections, the legality of the franchising process
generally and of various specific franchise requirements is likely to be in a
state of flux.
Ownership Limitations. Pursuant to the 1992 Cable Act, the FCC adopted rules
prescribing national subscriber limits and limits on the number of channels that
can be occupied on a cable system by a video programmer in which the operator
has an attributable interest. The effectiveness of these FCC horizontal
ownership limits has been stayed because a federal district court found the
statutory limitation to be unconstitutional. An appeal of that decision has been
consolidated with appeals challenging the FCC's regulatory ownership
restrictions and is pending. The 1996 Telecom Act eliminates the statutory
prohibition on the common ownership, operation or control of a cable system and
a television broadcast station in the same service area and directs the FCC to
review its broadcast-cable ownership restrictions to determine if they are
necessary in the public interest. Pursuant to the mandate of the 1996 Telecom
Act, the FCC eliminated its regulatory restriction on cross-ownership of cable
systems and national broadcasting networks.
LEC Ownership of Cable Systems. The 1996 Telecom Act makes far-reaching changes
in the regulation of LECs that provide cable services. The new law eliminates
federal legal barriers to competition in the local telephone and cable
communications businesses, preempts legal barriers to competition that
previously existed in state and local laws and regulations, and sets basic
standards for relationships between telecommunications providers (see "The 1996
Telecom Act"). The 1996 Telecom Act generally limits acquisitions and prohibits
certain joint ventures between LECs and cable operators in the same market. The
FCC adopted regulations implementing the 1996 Telecom Act requirement that LECs
open their telephone networks to competition by providing competitors
interconnection, access to unbundled network elements and retail services at
wholesale rates. Numerous parties have appealed these regulations. The appeals
have been consolidated and will be reviewed by the US Court of Appeals for the
Eighth Circuit, which has stayed the FCC's pricing and nondiscrimination
regulations (see "Wireless Telecommunications - Cellular Telephone
Communications - Legislation and Regulation"). The ultimate outcome of these
rulemakings, and the ultimate impact of the 1996 Telecom Act or any final
regulations adopted pursuant to the new law on the Company or its businesses
cannot be determined at this time.
Pole Attachment. The Communications Act requires the FCC to regulate the rates,
terms and conditions imposed by public utilities for cable systems' use of
utility pole and conduit space unless state authorities can demonstrate that
they adequately regulate pole attachment rates, as is the case in certain states
in which the Company operates. In the absence of state regulation, the FCC
administers pole attachment rates on a formula basis. In some cases, utility
companies have increased pole attachment fees for cable systems that have
installed fiber optic cables and that are using such cables for the distribution
of non-video services. The FCC concluded that, in the absence of state
regulation, it has jurisdiction to determine whether utility companies have
justified their demand for additional rental fees and that the Communications
Act does not permit disparate rates based on the type of service provided over
the equipment attached to the utility's pole. The 1996 Telecom Act and the FCC's
implementing regulations modify the current pole attachment provisions of the
Communications Act by immediately permitting certain providers of
telecommunications services to rely upon the protections of the current law and
by requiring that utilities provide cable systems and telecommunications
carriers with nondiscriminatory access to any pole, conduit or right-of-way
controlled by the utility. Additionally, within two years of enactment of the
1996 Telecom Act, the FCC is required to adopt new regulations to govern the
charges for pole attachments used by companies providing telecommunications
services, including cable operators. These new pole attachment rate regulations
will become effective five years after enactment of the 1996 Telecom Act, and
any increase in attachment rates resulting from the FCC's new regulations will
be phased in equal annual increments over a period of five years beginning on
the effective date of the new FCC regulations.
Other Statutory Provisions. The 1992 Cable Act, the 1996 Telecom Act and FCC
regulations preclude any satellite video programmer affiliated with a cable
company, or with a common carrier providing video programming directly to its
subscribers, from favoring an affiliated company over competitors and requires
such programmers to sell their programming to other multichannel video
distributors. These provisions limit the ability of program suppliers affiliated
with cable companies or with common carriers providing satellite delivered video
programming directly to their subscribers to offer exclusive programming
arrangements to their affiliates. The Communications Act also includes
provisions, among others, concerning horizontal and vertical ownership of cable
systems, customer service,
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subscriber privacy, marketing practices, equal employment opportunity, obscene
or indecent programming, regulation of technical standards and equipment
compatibility.
Other FCC Regulations. The FCC has numerous rulemaking proceedings pending that
will implement various provisions of the 1996 Telecom Act; it also has adopted
regulations implementing various provisions of the 1992 Cable Act and the 1996
Telecom Act that are the subject of petitions requesting reconsideration of
various aspects of its rulemaking proceedings. In addition to the FCC
regulations noted above, there are other FCC regulations covering such areas as
equal employment opportunity, syndicated program exclusivity, network program
non-duplication, registration of cable systems, maintenance of various records
and public inspection files, microwave frequency usage, lockbox availability,
origination cablecasting and sponsorship identification, antenna structure
notification, marking and lighting, carriage of local sports broadcast
programming, application of rules governing political broadcasts, limitations on
advertising contained in non-broadcast children's programming, consumer
protection and customer service, ownership of home wiring, indecent programming,
programmer access to cable systems, programming agreements, technical standards,
consumer electronics equipment compatibility and DBS implementation. The FCC has
the authority to enforce its regulations through the imposition of substantial
fines, the issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in connection with cable
operations.
Other bills and administrative proposals pertaining to cable communications have
previously been introduced in Congress or considered by other governmental
bodies over the past several years. It is probable that further attempts will be
made by Congress and other governmental bodies relating to the regulation of
communications services.
Copyright. Cable communications systems are subject to federal copyright
licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenues to a federal copyright royalty pool, cable operators can obtain blanket
permission to retransmit copyrighted material on broadcast signals. The nature
and amount of future payments for broadcast signal carriage cannot be predicted
at this time. The possible simplification, modification or elimination of the
compulsory copyright license is the subject of continuing legislative review.
The elimination or substantial modification of the cable compulsory license
could adversely affect the Company's ability to obtain suitable programming and
could substantially increase the cost of programming that remained available for
distribution to the Company's subscribers. The Company cannot predict the
outcome of this legislative activity.
Cable operators distribute programming and advertising that use music controlled
by the two major music performing rights organizations, ASCAP and BMI. In
October 1989, the special rate court of the US District Court for the Southern
District of New York imposed interim rates on the cable industry's use of
ASCAP-controlled music. The same federal district court recently established a
special rate court for BMI. BMI and cable industry representatives recently
concluded negotiations for a standard licensing agreement covering the
performance of BMI music contained in advertising and other information inserted
by operators into cable programming and on certain local access and origination
channels carried on cable systems. The Company's settlement with BMI did not
have a significant impact on the Company's financial position, results of
operations or liquidity. ASCAP and cable industry representatives have met to
discuss the development of a standard licensing agreement covering
ASCAP-controlled music in local origination and access channels and pay-per-view
programming. Although the Company cannot predict the ultimate outcome of these
industry negotiations or the amount of any license fees it may be required to
pay for past and future use of ASCAP-controlled music, it does not believe such
license fees will be significant to the Company's financial position, results of
operations or liquidity.
State and Local Regulation. Because a cable communications system uses local
streets and rights-of-way, cable systems are subject to state and local
regulation, typically imposed through the franchising process. Cable
communications systems generally are operated pursuant to non-exclusive
franchises, permits or licenses granted by a municipality or other state or
local government entity. Franchises generally are granted for fixed terms and in
many cases are terminable if the franchisee fails to comply with material
provisions. The terms and conditions of franchises vary materially from
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing cable service rates, franchise fees, franchise term, system
construction and maintenance obligations, system channel capacity, design and
technical performance, customer service standards, franchise renewal, sale or
transfer of the franchise, territory of the franchisee, indemnification of the
franchising authority, use and occupancy of public streets and types of cable
services provided. A number of states subject cable communications systems to
the jurisdiction of centralized state governmental agencies, some of which
impose regulation of a character similar to that of a public utility.
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Attempts in other states to regulate cable communications systems are continuing
and can be expected to increase. To date, those states in which the Company
operates that have enacted such state level regulation are Connecticut, New
Jersey and Delaware. State and local franchising jurisdiction is not unlimited,
however, and must be exercised consistently with federal law. The 1992 Cable Act
immunizes franchising authorities from monetary damage awards arising from
regulation of cable systems or decisions made on franchise grants, renewals,
transfers and amendments.
The foregoing does not purport to describe all present and proposed federal,
state, and local regulations and legislation affecting the cable industry. Other
existing federal regulations, copyright licensing, and, in many jurisdictions,
state and local franchise requirements, are currently the subject of judicial
proceedings, legislative hearings and administrative proposals which could
change, in varying degrees, the manner in which cable communications systems
operate. Neither the outcome of these proceedings nor their impact upon the
cable communications industry or the Company can be predicted at this time.
UK Regulation. The operation of a cable television/telephony system in the UK is
regulated under both the Broadcasting Act 1990 (the "Broadcasting Act") (which
replaced the Cable and Broadcasting Act 1984 (the "UK Cable Act")) and the
Telecommunications Act 1984 (the "Telecommunications Act"). The operator of a
cable/telephony franchise covering over 1,000 homes must hold two principal
licenses: (i) a license (a "cable television license") issued in the past under
the UK Cable Act or since 1990 under the Broadcasting Act, which allows the
operator to provide cable television services in the franchise area, and (ii) a
telecommunications license issued under the Telecommunications Act, which allows
the operator to operate and use the physical network necessary to provide cable
television and telecommunications services. The Independent Television
Commission ("ITC") is responsible for the licensing and regulation of cable
television. The Department of Trade and Industry ("DTI") is responsible for
issuing, and the Office of Telecommunications ("OFTEL") is responsible for
regulating the holders of, the telecommunications licenses. In addition, an
operator is required to hold a license under the Wire- less Telegraphy Acts of
1949-67 for the use of microwave distribution systems. Any system covering 1,000
homes or less requires a telecommunications license but not a cable television
license, and a system that covers only one building or two adjacent buildings
can operate pursuant to an existing general telecommunications license.
The 1996 Broadcasting Act (the "1996 Act") became law in July 1996. The 1996 Act
amends the Broadcasting Act and makes provision for the broadcasting in digital
form of television and sound program services and broadcasting in digital form
on television. The 1996 Act also addresses rights to televise sporting or other
events of national interest. In addition, cable operators must comply with and
are entitled to the benefits of the New Roads and Street Works Act 1991, the
principal benefit of which is to allow cable operators to "piggy back" their
construction on that of local utilities. However, the aggressive build schedules
followed by the UK Operating Companies make waiting for local utilities to
undertake construction impractical.
The cable television licenses held by the relevant subsidiaries of the UK
Operating Companies were issued under the UK Cable Act for 15-year periods. The
majority of the UK Operating Companies' cable television licenses have been
extended to run for 23 years and are scheduled to expire beginning in late 2012.
The telecommunications licenses held by these subsidiaries of the UK Operating
Companies are for 23-year periods and are scheduled to expire beginning in late
2012.
ONLINE SERVICES
In December 1996, the Company began marketing high-speed cable modem services in
areas served by two of its cable systems. High-speed cable modems are capable of
providing access to online information, including the Internet, at much faster
speeds than that of conventional or Integrated Service Digital Network ("ISDN")
modems. In August 1996, the Company invested in the At Home Corporation
("@Home"), which offers a network that distributes high-speed interactive
content over the cable industry's hybrid-fiber coaxial distribution
architecture. The Company's @Home package includes a high-speed cable modem;
24-hour-a-day unlimited access to the Internet; electronic mail and chat; an
Internet guide designed by @Home, featuring a menu of local community content,
in addition to the vast Internet content already available. @Home is owned by
the Company, TCI, Cox and Kleiner Perkins Caufield & Byers. The Company expects
to expand the marketing of such services in selected cable systems during 1997.
The Company anticipates that competition in the online services area will be
significant. Competitors in this area include LECs, long distance carriers and
others, many of whom have more substantial resources than the Company.
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WIRELESS TELECOMMUNICATIONS
The Company's wireless telecommunications operations primarily consist of the
Company's cellular telephone communications operations. The Company's other
wireless telecommunications businesses includes its DBS operations, including
the Company's investment in Primestar (see "Wired Telecommunications - Cable
Communications - Competition"), and its interest in Sprint Spectrum, which has
acquired 29 PCS licenses and is in the process of developing operations to
provide telecommunications services (see "General Developments of Business -
Sprint Spectrum"). A subsidiary of the Company also was the high bidder on
twelve 10-MHz PCS licenses in an auction conducted by the FCC completed in
January 1997. In addition, the Company, through a majority owned and
consolidated subsidiary, provides directory assistance and other information
services to users of wireless telephones in a number of domestic markets.
CELLULAR TELEPHONE COMMUNICATIONS
General
The Company is engaged in the development, management and operation of cellular
telephone communications systems in various service areas pursuant to licenses
granted by the FCC. Each service area is divided into segments referred to as
"cells" equipped with a receiver, signaling equipment and a low-power
transmitter. The use of low-power transmitters and the placement of cells close
to one another permits re-use of frequencies, thus substantially increasing the
volume of calls capable of being handled simultaneously over the number handled
by prior generation systems. Each cell has a coverage area generally ranging
from one to more than 300 square miles. A cellular telephone system includes one
or more computerized central switching facilities known as mobile switching
centers ("MSC") which control the automatic transfer of calls, coordinate calls
to and from cellular telephones and connect calls to the LEC or to an
interexchange carrier. An MSC also records information on system usage and
subscriber statistics.
Each cell's facilities monitor the strength of the signal returned from the
subscriber's cellular telephone. When the signal strength declines to a
predetermined level and the transmission strength is greater at another cell in
or interconnected with the system, the MSC automatically and instantaneously
passes the mobile user's call in progress to the other cell without
disconnecting the call ("hand off"). Interconnection agreements between cellular
telephone system operators and various LECs and interexchange carriers establish
the manner in which the cellular telephone system integrates with other
telecommunications systems.
As required by the FCC, all cellular telephones are designed for compatibility
with cellular systems in all markets within the US so that a cellular telephone
may be used wherever cellular service is available. Each cellular telephone
system in the US uses one of two groups of channels, termed "Block A" and "Block
B," which the FCC has allotted for cellular service. Minor adjustments to
cellular telephones may be required to enable the subscriber to change from a
cellular system on one frequency block to a cellular system on the other
frequency block.
While most MSCs process information digitally, most radio transmission of
cellular telephone calls is done on an analog basis. Digital transmission of
cellular telephone calls offers advantages, including larger system capacity and
the potential for lower incremental costs for additional subscribers. The FCC
allows carriers to provide digital service and requires cellular carriers to
provide analog service. The Company's implementation of digital radio technology
is expected to commence in 1997. It is anticipated that a substantial portion of
increased capacity for subsequent traffic and subscriber growth will be
accommodated using the lower cost digital technology.
The Company provides services to its cellular telephone subscribers similar to
those provided by conventional landline telephone systems, including custom
calling features such as call forwarding, call waiting, conference calling,
directory assistance and voice mail. The Company is responsible for the quality,
pricing and packaging of cellular telephone service for each of the systems it
owns or controls.
Reciprocal agreements among cellular telephone system operators allow their
respective subscribers ("roamers") to place and receive calls in most service
areas throughout the country. Roamers are charged rates which are generally at a
premium to the regular service rate. In recent years, cellular carriers have
experienced increased fraud associated with roamer service, including Electronic
Serial Number ("ESN") cloning. The Company and other carriers have implemented a
number of features which have decreased the incidents of fraudulent use of their
systems. Among
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<PAGE>
these are Personal Identification Numbers ("PINs"), which are required to be
used by a majority of the Company's customers, and the Company's Security Zone
feature which restricts customer usage outside of the Company's service areas.
In addition, the Company has implemented authentication and radiofrequency
("RF") fingerprinting technologies which associate ESN/mobile number
combinations with particular cellular telephone units. The use of digital radio
technology also purportedly will make it more difficult to commit cellular
fraud. However, fraudulent use of the Company's systems remains a significant
concern.
Company's Systems
The table below sets forth summary information regarding the total population
("Pops") in the markets served by the Company's systems by Metropolitan
Statistical Area ("MSA") and Rural Service Area ("RSA") as of December 31, 1996
(in thousands):
<TABLE>
<CAPTION>
Market Ownership Pops (1) Net Pops
<S> <C> <C> <C>
MSAs:
Atlantic City, NJ 97% 333 323
Aurora-Elgin, IL 82% 48 39
Joliet, IL 84% 36 30
Long Branch, NJ 100% 591 591
New Brunswick, NJ 100% 703 703
Philadelphia, PA 100% 4,894 4,894
Trenton, NJ 85% 331 281
Vineland, NJ 95% 139 132
Wilmington, DE 100% 618 618
----- -----
7,693 7,611
----- -----
RSAs:
Ocean County, NJ 100% 471 471
Kent and Sussex, DE 50% 257 129
----- -----
728 600
----- -----
8,421 8,211
===== =====
<FN>
- -----------
(1) Source: 1997 Rand McNally Commercial Atlas & Marketing Guide
</FN>
</TABLE>
As of December 31, 1996, the Company's consolidated cellular telephone business
had 762,000 subscribers in the markets listed above.
Competition
The FCC generally grants two licenses to operate cellular telephone systems in
each market. One of the two licenses was initially awarded to a company or group
affiliated with the local landline telephone carriers in the market (the
"Wireline" license), and the other license was initially awarded to a company,
individual, or group not affiliated with any landline telephone carrier (the
"Non-Wireline" license). The Company's systems are all Non-Wireline systems and
compete directly with the Wireline licensee in each market in attracting and
retaining cellular telephone customers and dealers. The Wireline licensee in the
Company's principal markets is Cellco Partnership, a joint venture between Bell
Atlantic Mobile Systems, Inc. and NYNEX Mobile Communications Co. The Company's
principal Wireline competitor has a larger coverage area and may have access to
more substantial financial resources than the Company.
In recent years, new mobile telecommunications service providers have entered
the market and created additional competition in the wireless telecommunications
business. Many of such providers have access to substantial capital resources
and operate, or through affiliates operate, cellular telephone systems, bringing
significant wireless experience to the new marketplace. Accordingly, while there
are only two cellular providers licensed in a given area, new competitors
continue to emerge utilizing different frequencies and new technologies.
Competition between
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<PAGE>
wireless operators in each market is principally on the basis of services and
enhancements offered, technical quality of the system, quality and
responsiveness of customer service, price and coverage area.
The most prominent new providers are the PCS operators. PCS is used to describe
a variety of digital, wireless communications systems currently primarily suited
for use in densely populated areas. At the power levels that the FCC's rules now
provide, each cell of a PCS system would have more limited coverage than a cell
in a cellular telephone system. The FCC has allocated spectrum and adopted rules
for both narrow and broadband PCS services. In 1994, the FCC completed a
spectrum auction for nationwide narrowband PCS licenses, undertook the first
regional narrowband PCS auction, and began the first auction of broadband PCS
spectrum (see "General Developments of Business - Sprint Spectrum"). All of the
30-MHz Major Trading Area ("MTA") licenses for PCS were issued by June 1995 and
PCS licensees are required to construct their networks to be capable of covering
one third of their service area population within five years of the date of
licensing. Winners in the Company's Philadelphia markets were AT&T Wireless
Services, Inc. and PhillieCo, L.P., an affiliate of Sprint Spectrum. Broadband
PCS service likely will become a direct competitor to cellular service. In
September 1996, the FCC granted, through a bidding process, an additional 30-MHz
Basic Trading Area ("BTA") PCS license, designated for license to small
businesses, rural telephone companies and other entrepreneurs. Additional
auctions for 10-MHz blocks of PCS spectrum (including licenses designated for
small businesses) were concluded in January 1997. A wholly owned subsidiary of
the Company was the high bidder on twelve 10-MHz licenses covering the
Philadelphia MTA and the Allentown BTA, with a bid of $17.5 million for these
licenses.
Cellular telephone systems, including the Company's systems, also face actual or
potential competition from other current and developing technologies.
Specialized Mobile Radio ("SMR") systems, such as those used by taxicabs, as
well as other forms of mobile communications service, may provide competition in
certain markets. SMR systems are permitted by FCC rules to be interconnected to
the public switched telephone network and are significantly less expensive to
build and operate than cellular telephone systems. SMR systems are, however,
licensed to operate on substantially fewer channels per system than cellular
telephone systems and currently lack cellular's ability to expand capacity
through frequency re-use by using many low-power transmitters and to hand-off
calls. Nextel Communications, Inc., in which the Company holds an equity
interest, has begun to implement its proposal to use its available SMR spectrum
in various metropolitan areas more efficiently to increase capacity and to
provide a broad range of mobile radio communications services. This proposal,
known as enhanced SMR service, could provide additional competition to existing
cellular carriers, including the Company. In 1994, the FCC decided to license
SMR systems in the 800-MHz bands for wide-area use, thus increasing potential
competition with cellular. The FCC has also decided to license SMR spectrum in
contiguous blocks via the competitive bidding process.
One-way paging or beeper services that feature voice message, data services and
tones are also available in the Company's markets. These services may provide
adequate capacity and sufficient mobile capabilities for some potential cellular
subscribers, thus providing additional competition to the Company's systems.
The FCC requires cellular licensees to provide service to resellers of cellular
service which purchase cellular service from licensees, usually in the form of
blocks of numbers, then resell the service to the public. Thus, a reseller may
be both a customer and a competitor of a licensed cellular operator. The FCC
currently is seeking comment on whether resellers should be permitted to install
separate switching facilities in cellular systems, although it has tentatively
concluded not to require such interconnections. The FCC is also considering
whether resellers should receive direct assignments of telephone numbers from
LECs.
It is likely that the FCC will offer additional spectrum for wireless mobile
licenses in the future. Spectrum in the "Wireless Communications Service" is to
be auctioned in April 1997. Applicants also have received and others are seeking
FCC authorization to construct and operate global satellite networks to provide
domestic and international mobile communications services from geostationary and
low earth orbit satellites. In addition, the Omnibus Budget Reconciliation Act
of 1993 ("1993 Budget Act") provided, among other things, for the release of
200-MHz of Federal government spectrum for commercial use over a fifteen year
period. These developments and further technological advances may make available
other alternatives to cellular service thereby creating additional sources of
competition.
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<PAGE>
Legislation and Regulation
FCC Regulation. The FCC regulates the licensing, construction, operation and
acquisition of cellular telephone systems pursuant to the Communications Act.
For licensing purposes, the FCC divided the US into separate markets: 306 MSAs
and 428 RSAs. In each market, the allocated cellular frequencies are divided
into two blocks: Block A, initially awarded for utilization by Non-Wireline
entities such as the Company, and Block B, initially awarded for utilization by
affiliates of local exchange Wireline telephone companies. There is no technical
or operational difference between Wireline and Non-Wireline systems other than
different frequencies.
Under the Communications Act, no party may transfer control of or assign a
cellular license without first obtaining FCC consent. FCC rules (i) prohibit an
entity controlling one system in a market from holding any interest in the
competing cellular system in the market and (ii) prohibit an entity from holding
non-controlling interests in more than one system in any market, if the common
ownership interests present anti-competitive concerns under FCC policies.
Cellular radio licenses generally expire on October 1 of the tenth year
following grant of the license in the particular market and are renewable for
periods of ten years upon application to the FCC. Licenses may be revoked for
cause and license renewal applications denied if the FCC determines that a
renewal would not serve the public interest. FCC rules provide that competing
renewal applications for cellular licenses will be considered in comparative
hearings, and establish the qualifications for competing applications and the
standards to be applied in such hearings. Under current policies, the FCC will
grant incumbent cellular licensees a "renewal expectancy" if the licensee has
provided substantial service to the public, substantially complied with
applicable FCC rules and policies and the Communications Act and is otherwise
qualified to hold an FCC license. The FCC has granted renewal of the Company's
licenses for the Philadelphia, PA, Wilmington, DE and New Brunswick and Long
Branch, NJ MSAs. The Company's license for the Trenton, NJ MSA expires in
October 1997. The balance of the Company's licenses expire from 1998 through
2006.
The FCC regulates the ability of cellular operators to bundle the provision of
service with hardware, the resale of cellular service by third parties and the
coordination of frequency usage with other cellular licensees. The FCC also
regulates the height and power of base station transmitting facilities and
signal emissions in the cellular system. Cellular systems also are subject to
Federal Aviation Administration and FCC regulations concerning the siting,
construction, marking and lighting of cellular transmitter towers and antennae.
In addition, the FCC also regulates the employment practices of cellular
operators.
The Communications Act currently restricts foreign ownership or control over
commercial mobile radio licenses, which include cellular radio service licenses.
The FCC recently decided to consider the opportunities that other nations
provide to US companies in their communications industries as a factor in
deciding whether to permit higher levels of indirect foreign ownership in
companies controlling common carrier and certain other radio licenses. The 1996
Telecom Act relaxes these restrictions by eliminating the statutory provisions
restricting foreign officers and directors in licensees and their parent
corporations. In February 1997, the US government entered into a World Trade
Organization agreement with respect to telecommunications. Upon its
effectiveness, the agreement will require the US, among other things, to afford
"national" treatment to foreign investors seeking indirect ownership of
commercial mobile radio service ("CMRS") licenses in the US. These changes may
permit additional foreign investment and participation in the US wireless
marketplace and therefore may enhance competition.
Allegations of harmful effects from the use of hand-held cellular phones have
caused the cellular industry to fund additional research to review and update
previous studies concerning the safety of the emissions of electromagnetic
energy from cellular phones. In August 1996, however, the FCC adopted new
standards for evaluating the extent to which wireless facilities will expose
both employees and the public to RF radiation. At that time, the FCC determined
that state and local regulation of RF radiation from facilities used to provide
"personal wireless services," including cellular and PCS, is preempted to the
extent the facilities comply with the FCC's RF exposure limits.
The FCC also requires LECs in each market to offer reasonable terms and
facilities for the interconnection of both cellular telephone systems in that
market to the LECs' landline network. Cellular telephone companies affiliated
with the LEC are required to disclose how their systems will interconnect with
the landline network. The licensee not affiliated with the LEC has the right to
interconnect with the landline network in a manner no less favorable than that
of the licensee affiliated with the LEC. In addition, the licensee not
affiliated with the LEC may, at its discretion, request reasonable
interconnection arrangements that are different than those provided to the
affiliated licensee in that market, and the LEC must negotiate such requests in
good faith. The FCC reiterated its position on
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<PAGE>
interconnection issues in a declaratory ruling which clarified that LECs are
expected to provide, within a reasonable time, the agreed-upon form of
interconnection. In June 1996, the FCC adopted a national regulatory framework
for implementing the local competition provisions of the 1996 Telecom Act,
including adoption of rules delineating interconnection obligations of incumbent
LECs ("ILECs"), unbundling requirements for ILEC network elements, requirements
for access to local rights-of-way, dialing parity and telephone numbering, and
requirements for resale of and non-discriminatory access to ILEC services. In
many instances, the FCC left the task of implementing the FCC's regulatory
standards to the individual states. Numerous LECs have appealed the FCC's
decisions and a judicial determination of the legality of the FCC's
interconnection rules is pending at the US Court of Appeals for the Eighth
Circuit, which has stayed certain portions of the FCC's new regulations
concerning ILEC pricing and nondiscrimination obligations.
Notwithstanding the federal court stay of certain FCC interconnection
regulations, a subsidiary of the Company has renegotiated its interconnection
contracts with Bell Atlantic pursuant to the 1996 Telecom Act. The agreements,
covering Pennsylvania, New Jersey, Delaware and Maryland, provide for the
reciprocal transport and termination of CMRS traffic by Bell Atlantic and the
Company at substantially reduced rates. These agreements have been submitted to
each of the four state public utility commissions for their approval, and have
been approved in three of such states. Because the terms of these agreements,
including pricing, are similar to agreements already approved by those states,
the Company expects to receive regulatory approval by the remaining public
utility commission without substantial modification.
To date, the FCC has undertaken significant efforts to reconsider the regulation
of CMRS providers in the wake of competitive developments in the
telecommunications marketplace. For instance, in June 1996, the FCC eliminated
the cellular/PCS cross-ownership rule in favor of a single, generally
applicable, CMRS spectrum cap rule. The change permits cellular providers to
hold attributable interests in 20-MHz of PCS spectrum (e.g. two 10-MHz licenses)
in areas where there is significant service area overlap. The FCC is also
considering whether all CMRS providers should provide interconnection to all
other CMRS providers. The FCC recently initiated a rulemaking to establish new
federal universal service mechanisms. The proceeding will determine the extent
to which cellular operators and other wireless and wireline telecommunications
service providers will be required to contribute to state and federal universal
service funds, as well as their ability to draw universal service support. The
FCC also initiated a rulemaking to reform its system of interstate access
charges to make it compatible with the 1996 Telecom Act and with federal and
state actions to open local networks to competition. The new rules will
establish a transition to an access charge structure that more closely reflects
the economic costs of accessing landline networks for the termination of long
distance calls. Further, the FCC is considering new rules to govern how customer
proprietary network information ("CPNI") may be used by telecommunications
carriers, including the BOCs, in marketing a broad range of telecommunications
services to their customers, and the customers of affiliated companies.
Resolution of the issues raised in this proceeding may affect the costs of
providing cellular service and the way in which the Company conducts its
business. However, the Company does not anticipate that resolution of these
issues will result in a significant adverse impact on its financial position,
results of operations or liquidity.
Finally, the 1996 Telecom Act relieves BOC-affiliated cellular providers of
their equal access obligations. As such, BOC-affiliated carriers are afforded
greater flexibility in contracting with interexchange carriers for the provision
of long distance services. Prior to the legislative change, cellular systems
affiliated with the BOCs were required to offer equal access to interexchange
carriers and those affiliated with AT&T voluntarily provided equal access.
Nevertheless, the FCC retains authority to require all CMRS operators to provide
unblocked access through the use of other mechanisms if customers are being
denied access to the telephone toll service providers of their choice, and if
such denial is contrary to the public interest.
State Regulation and Local Approvals. Except for the State of Illinois, the
states in which the Company presently operates currently do not regulate
cellular telephone service. In the 1993 Budget Act, Congress gave the FCC the
authority to preempt states from regulating rates or entry into CMRS, including
cellular. In the CMRS order, described above, the FCC preempted the states and
established a procedure for states to petition the FCC for authority to regulate
rates and entry into CMRS. The FCC, to date, has denied all state petitions to
regulate the rates charged by CMRS providers.
The scope of the allowable level of state regulation of CMRS, however, remains
unclear. The 1993 Budget Act does not identify the "other terms and conditions"
of CMRS service that can be regulated by the states. Moreover, the extent to
which states may regulate intrastate LEC-CMRS interconnection remains
unresolved. The resolution of this
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<PAGE>
issue will impact the extent to which cellular providers will be subject to
state regulation of CMRS interconnection to the LECs. The siting of cells also
remains subject to state and local jurisdiction although petitions seeking
clarification of states' siting authority are currently pending at the FCC.
DBS OPERATIONS
Primestar, in which the Company holds an equity interest (see "Description of
the Company's Businesses - Cable Communications - Competition"), provides
programming and marketing support to its partners. The Company is also a
franchisee of the Primestar DBS service, which is provided to customers via
medium-power communications satellite to leased HSDs of approximately three feet
in diameter. Through its DBS operations, the Company provided service to
approximately 121,000 Primestar subscribers as of December 31, 1996.
CONTENT
Content consists primarily of the Company's 57% ownership interest in QVC, Inc.
and its subsidiaries ("QVC"), which is consolidated with and managed by the
Company. In addition, Comcast Content and Communication Corporation ("C3") is
engaged in the development of content in four distinct areas: development and
production of programming for the Company and other media outlets; enhancement
of existing and creation of new distribution channels; expansion of
transactional services; and acquisitions of programming and media related
companies. In the programming sector, C3 assists the Company with its
programming investments which include E! Entertainment (see "General
Developments of Business - E! Entertainment"), Viewer's Choice, The Golf
Channel, Speedvision, Outdoor Life, Music Choice, Lightspan and the Sunshine
Network.
ELECTRONIC RETAILING
General
The Company provides electronic retailing services through QVC, a domestic and
international general merchandise retailer. Through its merchandise-focused
television programs, QVC sells a wide variety of products directly to consumers.
The products are described and demonstrated by program hosts and orders are
placed directly with QVC by viewers who call a toll-free telephone number. QVC
television programming is produced at its facilities in Pennsylvania and is
distributed nationally via satellite to affiliated local cable system operators
and other multichannel video programming providers ("Program Carriers") who have
entered into carriage agreements (the "Affiliation Agreements") with QVC and who
retransmit QVC programming to their subscribers.
QVC Services
Products. QVC sells a variety of consumer products and accessories including
jewelry, apparel and accessories, housewares, collectibles, electronics, toys
and cosmetics. QVC obtains products from domestic and foreign manufacturers and
wholesalers and is often able to make purchases on favorable terms based on the
volume of the transactions. QVC intends to continue introducing new products and
product lines. QVC is not dependent upon any one particular supplier for any
significant portion of its inventory.
Process. Viewers place orders to purchase merchandise by calling a toll-free
telephone number. QVC uses automatic call distributing equipment to distribute
calls to its operators. The majority of all payments for purchases are made with
a major credit card or QVC's private label credit card. The accounts receivable
from QVC's private label credit card program are purchased (with recourse) and
serviced by an unrelated third party. QVC's policy is to ship merchandise
promptly from its distribution centers, typically within 24 hours after receipt
of an order. QVC offers a return policy which permits customers to return within
30 days any merchandise purchased from QVC for a full refund of the purchase
price and original shipping charges.
Primary Channel. QVC's main channel (the "Primary Channel"), is transmitted live
24 hours a day, 7 days a week, to approximately 54 million cable television
homes and on a part-time basis to approximately two million additional cable
television homes. In addition, the Primary Channel can be received by
approximately five million HSD users. The QVC program schedule consists of
one-hour and multi-hour program segments. Each program segment has a theme
devoted to a particular category of product or lifestyle. From time to time, QVC
features special program
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<PAGE>
segments devoted to merchandise associated with a particular celebrity, event,
geographical region or seasonal interest.
Q2. QVC's secondary channel ("Q2") broadcasts 24 hours a day, 7 days a week, to
approximately nine million cable television homes and on a part-time basis to
approximately two million additional cable television homes. In addition, the Q2
service can be received by approximately four million HSD users. In the first
half of 1996, the format of Q2 programming was changed to become a faster-paced,
news-like format, combining live hosts and edited tape of top products and
stories from the Primary Channel.
QVC UK. In October 1993, QVC launched an electronic retailing program service in
the UK ("QVC--The Shopping Channel") through a joint venture agreement with
British Sky Broadcasting Limited. This service currently reaches over five
million cable television and HSD-served homes in the UK.
QVC Germany. In December 1996, QVC launched an electronic retailing programming
service in Germany. The service currently reaches over four million cable
television and HSD-served homes in Germany.
iQVC. In December 1995, QVC launched its interactive shopping service ("iQVC")
on The Microsoft Network ("MSN"), Microsoft Corporation's on-line service. In
1996, iQVC was also made available through the Internet. The iQVC service offers
a diverse array of merchandise, available on-line, 24 hours a day, 7 days a
week.
QVC Transmission
The QVC signal is transmitted via two exclusive, protected, non-preemptible
transponders on communications satellites. Each communications satellite has a
number of separate transponders. 'Protected' status means that, in the event of
transponder failure, QVC's signal will be transferred to a spare transponder or,
if none is available, to a preemptible transponder located on the same satellite
or, in certain cases, to a transponder on another satellite owned by the same
lessor if one is available at the time of the failure. 'Non-preemptible' status
means that the transponder cannot be preempted in favor of a user of a
'protected' transponder that has failed. QVC has never had an interruption in
programming due to transponder failure and believes that because it has the
exclusive use of two protected, non-preemptible transponders, such interruption
is unlikely to occur. There can be no assurance, however, that there will not be
an interruption or termination of satellite transmission due to transponder
failure. Such interruption or termination could have a material adverse effect
on QVC.
Program Carriers
QVC has entered into Affiliation Agreements with Program Carriers to carry its
programming. There are generally no additional charges to the subscribers for
distribution of QVC. In return for carrying QVC, each Program Carrier receives
an allocated portion, based upon market share, of five percent of the net sales
of merchandise sold to customers located in the Program Carrier's service area.
The terms of most Affiliation Agreements are automatically renewable for
one-year terms unless terminated by either party on at least 90 days notice
prior to the end of the term. Affiliation Agreements covering most of QVC's
cable television homes can be terminated in the sixth year of their respective
terms by the Program Carrier unless the Program Carrier earns a specified
minimum level of sales commissions. QVC's sales are currently at levels that
meet such minimum requirements. The Affiliation Agreements provide for the
Program Carrier to broadcast commercials regarding QVC on other channels and to
distribute QVC's advertising material to subscribers. As of December 31, 1996,
approximately 30% of the total homes reached by QVC were attributable to QVC's
Affiliation Agreements with the Company and TCI, the indirect owner of the
minority interest in QVC, and their respective subsidiaries.
Renewal of these Affiliation Agreements on favorable terms is dependent upon
QVC's ability to negotiate successfully with Program Carriers. QVC competes for
cable channels with competitive programming, as well as alternative programming
supplied by a variety of other well-established sources, including news, public
affairs, entertainment and sports programmers. QVC's business is highly
dependent on its affiliation with Program Carriers for the transmission of QVC
programming. The loss of a significant number of cable television homes because
of termination or non-renewal of Affiliation Agreements would have a material
adverse effect on QVC. To induce Program Carriers to enter into or extend
Affiliation Agreements or to increase the number of cable television homes under
existing Affiliation Agreements, QVC has developed other incentive programs,
including various forms of
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<PAGE>
marketing, launch and equipment purchase support. QVC will continue to recruit
additional Program Carriers and seek to enlarge its audience.
Legislation and Regulation
The FCC does not directly regulate the content or transmission of programming
services like those offered by QVC. The FCC does, however, exercise regulatory
authority over the satellites and uplink facilities which transmit programming
services such as those provided by QVC. The FCC has granted, subject to periodic
reviews, permanent licenses to QVC for its uplink facilities (and for backup
equipment of certain of these facilities) at sufficient power levels for
transmission of QVC. Regarding the satellites from which QVC obtains transponder
capacity, the FCC presently exercises licensing authority but does not regulate
the rates, terms or conditions of service provided by these facilities. Pursuant
to its residual statutory authority, the FCC could, however, alter the
regulatory obligations applicable to satellite service providers.
Competition
QVC operates in a highly competitive environment. As a general merchandise
retailer, QVC competes for consumer expenditures and interest with the entire
retail industry, including department, discount, warehouse and specialty stores,
mail order and other direct sellers, shopping center and mall tenants and
conventional free-standing stores, many of which are connected in chain or
franchise systems. On television, it is also in competition with other
satellite-transmitted programs for channel space and viewer loyalty. QVC
believes that, at the present time, most Program Carriers are not willing to
devote more than two channels to televised shopping and may allocate only one
until digital compression is utilized on a large-scale basis several years in
the future. Many systems have limited channel capacity and may be precluded from
adding any new programs at the present time. The development and utilization of
digital compression is expected to provide Program Carriers with greater channel
capacity thereby increasing the opportunity for QVC, in addition to other home
shopping programs, to be distributed on additional channels.
Seasonality
QVC's business is seasonal in nature, with its major selling season during the
last quarter of the calendar year. Net revenue for the fourth quarter of the
year ended December 31, 1996 accounted for 30% of QVC's annual net sales from
electronic retailing.
EMPLOYEES
As of December 31, 1996, the Company had 16,400 employees, excluding employees
in managed operations. Of these employees, 7,700 were associated with domestic
cable communications, 5,500 were associated with electronic retailing and 1,500
were associated with cellular telephone communications. The Company believes
that its relationships with its employees are good.
ITEM 2 PROPERTIES
Domestic Cable Communications
The principal physical assets of a cable communications system consist of a
central receiving apparatus, distribution cables, converters, regional customer
service call centers and local business offices. The Company owns or leases the
receiving and distribution equipment of each system and owns or leases parcels
of real property for the receiving sites, regional customer service call centers
and local business offices. The physical components of cable communications
systems require maintenance and periodic upgrading and rebuilding to keep pace
with technological advances. A significant number of the Company's systems will
be upgraded or rebuilt over the next several years.
Cellular Communications
The principal physical assets of a cellular telephone communications system
include cell sites and central switching equipment. The Company primarily leases
its sites used for its transmission facilities, retail stores and its
administrative offices. The physical components of a cellular telephone
communications system require maintenance
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<PAGE>
and upgrading to keep pace with technological advances. It is anticipated that
digital capability will be added to the Company's system beginning in 1997.
Electronic Retailing
The principal physical assets of the Company's electronic retailing operations
consist of television studios, telecommunications centers, local business
offices and various product warehouses and distribution centers. The Company,
through QVC, owns the majority of these assets. The physical components of
electronic retailing operations require maintenance and periodic upgrading and
rebuilding to keep pace with technological advances. QVC's warehousing and
distribution facilities will be upgraded or rebuilt over the next several years.
The Company's management believes that substantially all of its physical assets
are in good operating condition.
ITEM 3 LEGAL PROCEEDINGS
The Company is not party to litigation which, in the opinion of the Company's
management, will have a material adverse effect on the Company's financial
position, results of operations or liquidity.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Meeting of Shareholders on November 7, 1996, the shareholders
approved the following proposal:
To issue Comcast Class A Special Common Stock in the Merger of The E.W.
Scripps Company with and into the Company.
Class of Stock For Against Abstain
Class A 21,215,706 90,737 48,151
Class B 131,793,750
ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT
The current term of office of each of the officers expires at the first meeting
of the Board of Directors of the Company following the next Annual Meeting of
Shareholders, presently scheduled to be held in June 1997, or as soon thereafter
as each of their successors is duly elected and qualified.
The following table sets forth certain information concerning the principal
executive officers of the Company, including their ages, positions and tenure as
of February 1, 1997:
Officer
Name Age Since Position with the Company
Ralph J. Roberts 76 1969 Chairman of the Board of Directors;
Director
Julian A. Brodsky 63 1969 Vice Chairman of the Board of
Directors; Director
Brian L. Roberts 37 1986 President; Director
Lawrence S. Smith 49 1988 Executive Vice President
John R. Alchin 48 1990 Senior Vice President; Treasurer
Stanley L. Wang 56 1981 Senior Vice President; General
Counsel; Secretary
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<PAGE>
Ralph J. Roberts has served as a Director and Chairman of the Board of Directors
of the Company for more than five years. Mr. Roberts has been the President and
a Director of Sural Corporation, a privately-held investment company ("Sural"),
the Company's largest shareholder, for more than five years. Mr. Roberts devotes
a major portion of his time to the business and affairs of the Company. As of
December 31, 1996, the shares of the Company owned by Sural constitute 80.6% of
the voting power of the two classes of the Company's voting common stock
combined. Mr. Roberts currently has voting control of Sural. Mr. Roberts is also
a Director of Comcast UK Cable Partners Limited and Storer Communications, Inc.
Julian A. Brodsky has served as a Director and Vice Chairman of the Board of
Directors for more than five years. Mr. Brodsky presently serves as the
Treasurer and a Director of Sural. Mr. Brodsky devotes a major portion of his
time to the business and affairs of the Company. Mr. Brodsky is also a Director
of Comcast UK Cable Partners Limited, Storer Communications, Inc. and RBB Fund,
Inc.
Brian L. Roberts has served as President of the Company and as a Director for
more than five years. Mr. Roberts presently serves as Vice President and a
Director of Sural. Mr. Roberts devotes a major portion of his time to the
business and affairs of the Company. Mr. Roberts is also a Director of Teleport
Communications Group, Inc., Comcast UK Cable Partners Limited and Storer
Communications, Inc. He is a son of Ralph J. Roberts.
Lawrence S. Smith was named Executive Vice President of the Company in December
1995. Prior to that time, Mr. Smith served as Senior Vice President of the
Company for more than five years. Mr. Smith is the Principal Accounting Officer
of the Company. Mr. Smith is a Director of Teleport Communications Group, Inc.
and Comcast UK Cable Partners Limited and is a Partnership Board Representative
of Sprint Spectrum Holding Company, L.P.
John R. Alchin has served as Treasurer and Senior Vice President of the Company
for more than five years. Mr. Alchin is the Principal Financial Officer of the
Company. Mr. Alchin is a Director of Comcast UK Cable Partners Limited.
Stanley L. Wang has served as Senior Vice President, Secretary and General
Counsel of the Company for more than five years. Mr. Wang is a Director of
Storer Communications, Inc.
- 23 -
<PAGE>
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Class A Special Common Stock and Class A Common Stock of the Company are
traded in the over-the-counter market and are included on Nasdaq under the
symbols CMCSK and CMCSA, respectively. There is no established public trading
market for the Class B Common Stock of the Company. The Class B Common Stock is
convertible, on a share for share basis, into Class A Special or Class A Common
Stock. The following table sets forth, for the indicated periods, the closing
price range of the Class A Special and Class A Common Stock as furnished by
Nasdaq.
<TABLE>
<CAPTION>
Class A
Special Class A
High Low High Low
<S> <C> <C> <C> <C>
1996
First Quarter.................. $21 1/16 $17 1/2 $20 5/8 $17 1/4
Second Quarter................. 18 3/4 16 1/4 18 7/8 16 5/16
Third Quarter.................. 18 3/8 13 7/8 18 1/4 13 7/8
Fourth Quarter................. 17 7/8 14 5/8 17 3/4 14 1/4
1995
First Quarter.................. $16 5/16 $14 9/16 $16 3/8 $14 3/8
Second Quarter................. 19 1/16 14 18 7/8 13 3/4
Third Quarter.................. 22 18 5/8 22 1/8 18 9/16
Fourth Quarter................. 20 5/8 16 5/8 20 7/16 16 1/2
</TABLE>
The Company began paying quarterly cash dividends on its Class A Common Stock in
1977. Since 1978, the Company has paid equal dividends on shares of both the
Class A Common Stock and the Class B Common Stock. Since December 1986, when the
Class A Special Common Stock was issued, the Company has paid equal dividends on
shares of the Class A Special, Class A and Class B Common Stock. The Company
declared dividends of $.0933 for each of the years ended December 31, 1996 and
1995 on shares of Class A Special, Class A and Class B Common Stock. The
declaration and payment of future dividends and their amount depend upon the
results of operations, financial condition and capital needs of the Company,
contractual restrictions of the Company and its subsidiaries and other factors.
The holders of the Class A Special Common Stock are not entitled to vote in the
election of directors or otherwise, except where class voting is required by
applicable law, in which case, each holder of Class A Special Common Stock shall
be entitled to one vote per share. Each holder of Class A Common Stock has one
vote per share and each holder of Class B Common Stock has 15 votes per share.
Under applicable law, holders of Class A Special Common Stock have voting rights
in the event of certain amendments to the Articles of Incorporation and certain
mergers and other fundamental corporate changes. In all other instances,
including the election of directors, the Class A Common Stock and the Class B
Common Stock vote as one class. Neither the holders of Class A Common Stock nor
the holders of Class B Common Stock have cumulative voting rights.
As of February 1, 1997, there were 2,672 record holders of the Company's Class A
Special Common Stock and 1,793 record holders of the Company's Class A Common
Stock. Sural Corporation is the sole record holder of the Company's Class B
Common Stock.
- 24 -
<PAGE>
ITEM 6 SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
1996 (1) 1995 (1) 1994 (1) 1993 (6) 1992 (6)
(Dollars in millions, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues.............................. $4,038.4 $3,362.9 $1,375.3 $1,338.2 $900.3
Operating income...................... 508.9 329.8 239.8 264.9 165.1
Equity in net losses of affiliates.... 144.8 86.6 40.9 28.9 104.3
Loss before extraordinary items
and cumulative effect of
accounting changes.................. (52.5) (37.8) (75.3) (98.9) (217.9)
Extraordinary items................... (1.0) (6.1) (11.7) (17.6) (52.3)
Cumulative effect of accounting
changes (2)......................... (742.7)
Net loss.............................. (53.5) (43.9) (87.0) (859.2) (270.2)
Loss per share before extraordinary
items and cumulative effect of
accounting changes (3).............. (.21) (.16) (.32) (.46) (1.08)
Extraordinary items per share (3)..... (.02) (.05) (.08) (.26)
Cumulative effect of accounting
changes per share (3)............... (3.47)
Net loss per share (3)................ (.21) (.18) (.37) (4.01) (1.34)
Cash dividends
declared per share (3).............. .0933 .0933 .0933 .0933 .0933
Balance Sheet Data:
At year end:
Total assets........................ 12,088.6 9,580.3 6,763.0 4,948.3 4,271.9
Working capital (deficiency)........ 40.9 531.6 (52.1) 176.6 36.9
Long-term debt...................... 7,102.7 6,943.8 4,810.5 4,154.8 3,973.5
Stockholders' equity (deficiency)... 551.6 (827.7) (726.8) (870.5) (181.6)
Supplementary Financial Data:
Operating income before
depreciation and amortization (4)... 1,207.2 1,018.8 576.3 606.4 397.2
Net cash provided by
operating activities (5)............ 799.6 520.7 369.1 345.9 252.3
<FN>
- ---------------
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of events which affect the
comparability of the information reflected in the above selected financial
data.
(2) Primarily represents the cumulative effect of the adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
effective January 1, 1993.
(3) As adjusted for the Company's three-for-two stock split effective February
2, 1994.
(4) Operating income before depreciation and amortization is commonly referred
to in the Company's businesses as "operating cash flow." Operating cash
flow is a measure of a company's ability to generate cash to service its
obligations, including debt service obligations, and to finance capital and
other expenditures. In part due to the capital intensive nature of the
Company's businesses and the resulting significant level of non-cash
depreciation and amortization expense, operating cash flow is frequently
used as one of the bases for comparing businesses in the Company's
industries. Operating cash flow does not purport to represent net income or
net cash provided by operating activities, as those terms are defined under
generally accepted accounting principles, and should not be considered as
an alternative to such measurements as an indicator of the Company's
performance.
(5) Represents net cash provided by operating activities as presented in the
Company's consolidated statement of cash flows.
(6) Comparability of the information presented for the years ended December 31,
1993 and 1992 is affected by the Company's acquisition of AWACS, Inc., the
Non-Wireline cellular telephone system serving the Philadelphia MSA, from
Metromedia Company in March 1992 and the split-off of Storer
Communications, Inc. ("Storer") between the Company and Storer's other
shareholder in December 1992. Prior to December 1992, the Company had a 50%
interest in Storer which was accounted for under the equity method.
</FN>
</TABLE>
- 25 -
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company has experienced significant growth in recent years through both
strategic acquisitions and growth in its existing businesses. The Company has
historically met its cash needs for operations through its cash flows from
operating activities. Cash requirements for acquisitions and capital
expenditures have been provided through the Company's financing activities and
sales of long-term investments, as well as its existing cash, cash equivalents
and short-term investments.
General Developments of Business
E! Entertainment
As of December 31, 1996, the Company owned a 10.4% interest in E! Entertainment
Television, Inc. ("E! Entertainment"), an entertainment programming service that
currently is distributed to more than 42 million subscribers. The Company has
the right, by virtue of various agreements among the shareholders of E!
Entertainment, to purchase an additional 58.4% interest in E! Entertainment from
Time Warner, Inc. ("Time Warner") for $321.1 million. In January 1997, the
Company and The Walt Disney Company ("Disney") entered into an agreement to form
a new limited liability company ("Newco") that will be owned 50.1% by the
Company and 49.9% by Disney. Pursuant to the agreement, the Company will
contribute to Newco its 10.4% interest in E! Entertainment, the right to
exercise its option to purchase the Time Warner interest and $132.3 million in
cash. Disney will contribute to Newco $188.8 million in cash. Newco will use the
cash contributed by the Company and Disney to purchase the Time Warner interest.
Following such purchase, Newco will own a 68.8% interest in E! Entertainment. To
fund the cash portion of its contribution, the Company will borrow $132.3
million from Disney in the form of two 10-year, 7% notes (the "Disney Notes").
These transactions (collectively, the "E! Acquisition") are expected to close in
the first quarter of 1997, subject to regulatory approval and certain other
conditions.
Scripps Cable
In November 1996, the Company acquired the cable television operations ("Scripps
Cable") of The E.W. Scripps Company in exchange for 93.048 million shares of the
Company's Class A Special Common Stock, par value $1.00 per share (the "Class A
Special Common Stock"), valued at $1.552 billion (the "Scripps Acquisition").
Scripps Cable passed more than 1.3 million homes and served more than 800,000
subscribers as of December 31, 1996, with 60% of its subscribers located in
Sacramento, California and Chattanooga and Knoxville, Tennessee. The Company has
accounted for the Scripps Acquisition under the purchase method and Scripps
Cable was consolidated with the Company effective November 1, 1996.
Comcast-Spectacor
In July 1996, the Company completed its acquisition (the "Sports Venture
Acquisition") of a 66% interest in the Philadelphia Flyers Limited Partnership,
a Pennsylvania limited partnership ("PFLP"), the assets of which, after giving
effect to the Sports Venture Acquisition, consist of (i) the National Basketball
Association ("NBA") franchise to own and operate the Philadelphia 76ers
basketball team and related assets (the "Sixers"), (ii) the National Hockey
League ("NHL") franchise to own and operate the Philadelphia Flyers hockey team
and related assets, and (iii) two adjacent arenas, leasehold interests in and
development rights related to the land underlying the arenas and other adjacent
parcels of land located in Philadelphia, Pennsylvania (collectively, the
"Arenas"). Concurrent with the completion of the Sports Venture Acquisition,
PFLP was renamed Comcast Spectacor, L.P. ("Comcast-Spectacor").
The Sports Venture Acquisition was completed in two steps. In April 1996, the
Company purchased the Sixers for $125.0 million in cash plus assumed net
liabilities of $11.0 million through a partnership controlled by the Company. To
complete the Sports Venture Acquisition, in July 1996, the Company contributed
its interest in the Sixers, exchanged approximately 3.5 million shares of the
Company's Class A Special Common Stock and 6,370 shares of the Company's newly
issued 5% Series A Convertible Preferred Stock (the "Preferred Stock"), and paid
$15.0 million in cash for its current interest in Comcast-Spectacor. The
remaining 34% interest in Comcast-Spectacor is owned by a group, including the
former majority owner of PFLP, who also manages Comcast-Spectacor (the "Minority
- 26 -
<PAGE>
Group"). In connection with the Sports Venture Acquisition, Comcast-Spectacor
assumed the outstanding liabilities relating to the Sixers and the Arenas,
including a mortgage obligation of $155.0 million. The Company accounts for its
interest in Comcast-Spectacor under the equity method.
Sprint Spectrum
The Company, Tele-Communications, Inc. ("TCI"), Cox Communications, Inc. ("Cox,"
and together with the Company and TCI, the "Cable Parents") and Sprint
Corporation ("Sprint," and together with the Cable Parents, the "Parents"), and
certain subsidiaries of the Parents (the "Partner Subsidiaries") engage in the
wireless communications business through a limited partnership known as "Sprint
Spectrum," a development stage enterprise. The Company owns 15% of Sprint
Spectrum and accounts for its investment in Sprint Spectrum under the equity
method.
Sprint Spectrum was the successful bidder for 29 personal communications
services ("PCS") licenses in the auction conducted by the Federal Communications
Commission ("FCC") from December 1994 through mid-March 1995. The purchase price
for the licenses was $2.11 billion, all of which has been paid to the FCC. In
addition, Sprint Spectrum has invested, and may continue to invest, in other
entities that hold PCS licenses, may acquire PCS licenses in future FCC auctions
or from other license holders and may affiliate with other license holders.
Repurchase Program
Concurrent with the announcement of the Scripps Acquisition in October 1995, the
Company announced that its Board of Directors authorized a market repurchase
program (the "Repurchase Program") pursuant to which the Company may purchase,
at such times and on such terms as it deems appropriate, up to $500.0 million of
its outstanding common stock, subject to certain restrictions and market
conditions. During the years ended December 31, 1996 and 1995, the Company
repurchased 10.5 million shares and 680,000 shares, respectively, of its common
stock for aggregate consideration of $180.0 million and $12.4 million,
respectively, pursuant to the Repurchase Program. During January 1997, the
Company repurchased an additional 450,000 shares of its common stock for
aggregate consideration of $7.6 million. The Repurchase Program will terminate
in May 1997.
QVC
In February 1995, the Company and TCI acquired all of the outstanding stock of
QVC, Inc. and its subsidiaries ("QVC") not previously owned by them
(approximately 65% of such shares on a fully diluted basis) for $46, in cash,
per share (the "QVC Acquisition"), representing a total cost of approximately
$1.4 billion. The QVC Acquisition, including the exercise of certain warrants
held by the Company, was financed with cash contributions from the Company and
TCI of $296.3 million and $6.6 million, respectively, borrowings of $1.1 billion
under a $1.2 billion QVC credit facility and existing cash and cash equivalents
held by QVC. Following the acquisition, the Company and TCI owned, through their
respective subsidiaries, 57.45% and 42.55%, respectively, of QVC. The Company,
through a management agreement, is responsible for the day to day operations of
QVC. The Company has accounted for the QVC Acquisition under the purchase method
and QVC was consolidated with the Company effective February 1, 1995.
Maclean Hunter
In December 1994, the Company, through Comcast MHCP Holdings, L.L.C. (the
"LLC"), acquired the US cable television and alternate access operations of
Maclean Hunter Limited ("Maclean Hunter") from Rogers Communications Inc. and
all of the outstanding shares of Barden Communications, Inc. (collectively, such
acquisitions are referred to as the "Maclean Hunter Acquisition") for
approximately $1.2 billion in cash. The Company and the California Public
Employees' Retirement System ("CalPERS") invested $305.6 million and $250.0
million, respectively, in the LLC, which is owned 55% by a wholly owned
subsidiary of the Company and 45% by CalPERS, and is managed by the Company. The
balance of the Maclean Hunter Acquisition was financed through borrowings under
a credit facility of a wholly owned subsidiary of the LLC. The Company has
accounted for the Maclean Hunter Acquisition under the purchase method and
Maclean Hunter was consolidated with the Company effective December 22, 1994.
-------------------------
- 27 -
<PAGE>
Liquidity and Capital Resources
Cash, Cash Equivalents and Short-term Investments
The Company has traditionally maintained significant levels of cash, cash
equivalents and short-term investments to meet its short-term liquidity
requirements. Cash, cash equivalents and short-term investments as of December
31, 1996 and 1995 were $539.6 million and $910.1 million, respectively. As of
December 31, 1996, $376.8 million of the Company's cash, cash equivalents and
short-term investments is restricted to use by subsidiaries of the Company under
contractual or other arrangements, including $213.7 million which is restricted
to use by Comcast UK Cable Partners Limited ("Comcast UK Cable"), a consolidated
subsidiary of the Company.
The Company's cash equivalents and short-term investments are recorded at cost
which approximates their fair value. As of December 31, 1996, the Company's
short-term investments of $208.3 million include 1.27 million shares of Time
Warner common stock recorded at fair value of $47.4 million (see "Investments").
The remaining short-term investments, of $160.9 million, had a weighted average
maturity of approximately 10 months.
Accounts Receivable - Electronic Retailing
The Company has an agreement with an unrelated third party which provides for
the sale and servicing of accounts receivable relating to the Company's
electronic retailing operations. The Company sold accounts receivable at face
value of $687.0 million and $530.2 million under this agreement in 1996 and
1995, respectively. The Company remains obligated to repurchase uncollectible
accounts pursuant to the recourse provisions of the agreement and is required to
maintain a specified percentage of all outstanding receivables under the program
as a deposit with the third party to secure its obligations under the agreement.
The uncollected balance of accounts receivable sold under this program was
$317.7 million and $283.1 million as of December 31, 1996 and 1995,
respectively, of which $284.5 million and $234.5 million, respectively,
represent deposits under the agreement, that are included in accounts
receivable. Total recorded reserves relating to the possible repurchase of
uncollectible accounts was $73.2 million and $71.6 million as of December 31,
1996 and 1995, respectively. The receivables sold under the program are
considered, for financial reporting purposes, to be financial instruments with
off-balance sheet risk. The carrying value of accounts receivable, adjusted for
the reserves described above, approximates fair value as of December 31, 1996
and 1995.
Investments
Under the provisions of the Sprint Spectrum partnership agreement, the Partner
Subsidiaries have committed to contribute $4.2 billion in cash to Sprint
Spectrum through 1999, of which the Company's share is $630.0 million. Of this
funding requirement, the Company has made total cash contributions to Sprint
Spectrum of $452.8 million through December 31, 1996 and issued a $105.0 million
guaranty on a portion of Sprint Spectrum's outstanding debt. The Company
anticipates that Sprint Spectrum's capital requirements over the next several
years will be significant. Requirements in excess of committed capital are
planned to be funded by Sprint Spectrum through external financing, including,
but not limited to, vendor financing, bank financing and securities offered to
the public. In August 1996, Sprint Spectrum sold $750.0 million principal amount
at maturity of Senior Notes and Senior Discount Notes due in 2006 in a public
offering. In October 1996, Sprint Spectrum closed three credit agreements which
provided $2.0 billion in bank financing and $3.1 billion in vendor financing.
The timing of the Company's remaining capital contributions to Sprint Spectrum
is dependent upon a number of factors, including Sprint Spectrum's working
capital requirements. The Company anticipates funding its remaining capital
commitments to Sprint Spectrum through its cash flows from operating activities,
its existing cash, cash equivalents, short-term investments and lines of credit
or other external financing, or by a combination of these sources.
The Company held 693,000 shares of common stock of Nextel Communications, Inc.
("Nextel") as of December 31, 1995. In February 1996, in connection with certain
preemptive rights of the Company under previously existing agreements with
Nextel, the Company purchased an additional 8.16 million shares of Nextel common
stock at $12.25 per share, for a total cost of $99.9 million. During the years
ended December 31, 1996 and 1995, the Company sold 5.6 million shares and 11.3
million shares, respectively, of Nextel common stock for $105.4 million and
$212.6 million, respectively, and recognized pre-tax gains of $35.4 million and
$36.2 million, respectively, as investment income in its consolidated statement
of operations. As of December 31, 1996, the Company held 3.3 million shares
- 28 -
<PAGE>
of Nextel common stock, classified as long-term investments available for sale.
As of December 31, 1996, the Company held options, which expire in September
1997, to acquire an additional 25.0 million shares of Nextel common stock at $16
per share. These options are also classified as long-term investments available
for sale. In 1997, the Company sold these options to Nextel for $25.0 million.
The Company received 1.36 million shares of Time Warner common stock (the "Time
Warner Stock") in exchange (the "Exchange") for all of the shares of Turner
Broadcasting System, Inc. ("TBS") stock (the "TBS Stock") held by the Company as
a result of the merger of Time Warner and TBS in October 1996. As a result of
the Exchange, the Company recognized a gain of $47.3 million in the fourth
quarter of 1996, representing the difference between the Company's historical
cost basis in the TBS Stock of $8.9 million and the new basis for the Company's
investment in Time Warner Stock of $56.2 million, which was based on the closing
price of the Time Warner Stock on the merger date of $41.375 per share. In
December 1996 and January 1997, the Company sold 92,500 shares and 1.27 million
shares, respectively, of the Time Warner Stock, representing the Company's
entire interest in Time Warner, for $3.7 million and $48.6 million,
respectively.
The Company does not have any additional significant contractual commitments
with respect to any of its investments. However, to the extent the Company does
not fund its investees' capital calls, it exposes itself to dilution of its
ownership interests. The Company continually evaluates its existing investments
as well as new investment opportunities.
Investment Rights
Beginning in January 1998, the Company has the right to purchase the minority
interests in Comcast-Spectacor from the Minority Group for the Minority Group's
pro rata portion of the fair market value (on a going concern basis as
determined by an appraisal process) of Comcast-Spectacor. The Minority Group
also has the right (together with the Company's right, the "Exit Rights") to
require the Company to purchase its interests under the same terms. The Company
may pay the Minority Group for such interests in shares of the Company's Class A
Special Common Stock, subject to certain restrictions. If the Minority Group
exercises its Exit Rights and the Company elects not to purchase their interest,
the Company and the Minority Group will use their best efforts to sell
Comcast-Spectacor.
Assuming consummation of the E! Acquisition, after the 18 month anniversary of
the closing date of the E! Acquisition, Disney, in certain circumstances, is
entitled to cause Newco to purchase Disney's entire interest in Newco at its
then fair market value (as determined by an appraisal process). If Newco elects
not to purchase Disney's interests, Disney has the right, at its option, to
purchase either the Company's entire interest in Newco or all of the shares of
stock of E! Entertainment held by Newco, in each case at fair market value. In
the event that Disney exercises its rights, as described above, a portion or all
of the Disney Notes may be replaced with a three year note due to Disney.
Liberty Media Corporation ("Liberty"), a majority owned subsidiary of TCI, may,
at certain times following February 9, 2000, trigger the exercise of certain
exit rights with respect to its investment in QVC. If the exit rights are
triggered, the Company has first right to purchase Liberty's stock in QVC at
Liberty's pro rata portion of the fair market value (on a going concern or
liquidation basis, whichever is higher, as determined by an appraisal process)
of QVC. The Company may pay Liberty for such stock, subject to certain rights of
Liberty to consummate the purchase in the most tax-efficient method available,
in cash, the Company's promissory note maturing not more than three years after
issuance, the Company's equity securities or any combination thereof. If the
Company elects not to purchase the stock of QVC held by Liberty, then Liberty
will have a similar right to purchase the stock of QVC held by the Company. If
Liberty elects not to purchase the stock of QVC held by the Company, then
Liberty and the Company will use their best efforts to sell QVC.
As a result of the Maclean Hunter Acquisition, at any time after December 18,
2001, CalPERS may elect to liquidate its interest in the LLC at a price based
upon the fair value of CalPERS' interest in the LLC, adjusted, under certain
circumstances, for certain performance criteria relating to the fair value of
the LLC or to the Company's common stock. Except in certain limited
circumstances, the Company, at its option, may satisfy this liquidity
arrangement by purchasing CalPERS' interest for cash, through the issuance of
the Company's common stock (subject to certain limitations) or by selling the
LLC.
- 29 -
<PAGE>
Capital Expenditures
It is anticipated that, during 1997, the Company will incur approximately $1.1
billion of capital expenditures, including $600 million for the upgrading and
rebuilding of certain of the Company's cable communications systems, $125
million for the upgrading of QVC's warehousing and distribution facilities, $125
million for the upgrading of the Company's cellular communications systems and
$150 million for the build-out of the Company's consolidated United Kingdom
("UK") affiliates' systems. The remaining $100 million of anticipated capital
expenditures for 1997 will be utilized for the Company's direct broadcast
satellite operations and other initiatives. The amount of such capital
expenditures for years subsequent to 1997 will depend on numerous factors, many
of which are beyond the Company's control. These factors include whether
competition in a particular market necessitates a cable system upgrade, whether
a particular cable system has sufficient capacity to handle new product
offerings including the offering of cable modem, cable telephony and
telecommunications services, whether and to what extent the Company will be able
to recover its investment under FCC rate guidelines and other factors, and
whether the Company acquires additional cable systems in need of upgrading or
rebuilding. The Company, however, anticipates capital expenditures for years
subsequent to 1997 will continue to be significant. As of December 31, 1996, the
Company does not have any significant contractual obligations for capital
expenditures.
UK Industry Consolidation
Based on closed and announced transactions, it is apparent that the UK cable and
telecommunications industries are undergoing a significant consolidation, which
trend the Company expects to continue in the coming months. The Company has
engaged an investment advisor to assist it in evaluating the current state of
the UK marketplace, the position of other participants and its alternatives with
respect to Comcast UK Cable. There can be no assurance that the Company will
take any action, or in what time frame any such action, if undertaken, might be
accomplished.
Financing
The Company has historically utilized a strategy of financing its acquisitions
through senior debt at the acquired operating subsidiary level. Additional
financing has also been obtained by the Company through the issuance of
subordinated debt at the intermediate holding company and parent company levels
and, to some extent, through public offerings of a subsidiary company's stock
and debt instruments. As of December 31, 1996 and 1995, the Company's long-term
debt, including current portion, was $7.332 billion and $7.029 billion,
respectively, of which 45.2% and 54.0%, respectively, was at variable rates.
Maturities of long-term debt outstanding as of December 31, 1996 for the five
years commencing in 1997 are $229.5 million, $671.5 million, $462.5 million,
$668.1 million and $1.282 billion. As of February 1, 1997, certain subsidiaries
of the Company had unused lines of credit of $1.679 billion. The availability
and use of these unused lines of credit is restricted by the covenants of the
related debt agreements and to subsidiary general purposes and dividend
declaration. In addition, of the total unused lines of credit, $625.0 million
was established by a subsidiary for debt refinancing. The Company's long-term
debt had estimated fair values of $7.323 billion and $7.089 billion as of
December 31, 1996 and 1995, respectively. The Company's weighted average
interest rate was 7.90%, 8.32% and 7.75% during the years ended December 31,
1996, 1995 and 1994, respectively. The Company continually evaluates its debt
structure with the intention of reducing its debt service requirements when
desirable.
In November 1995, Comcast UK Cable received net proceeds of $291.1 million from
the sale of $517.3 million principal amount at maturity of its 11.20% senior
discount debentures due 2007 (the "2007 Discount Debentures"). Interest accretes
on the 2007 Discount Debentures at 11.20% per annum, compounded semi-annually
from November 15, 1995 to November 15, 2000, after which date interest will be
paid in cash on each May 15 and November 15, through November 15, 2007. The net
proceeds from the offering are being utilized by Comcast UK Cable for advances
and capital contributions to its equity investees and subsidiaries primarily for
the build-out of their telecommunications networks in the UK.
As part of the Repurchase Program, the Company sold put options on 1.0 million
and 3.0 million shares of its Class A Special Common Stock during the years
ended December 31, 1996 and 1995, respectively. The put options give the holders
the right to require the Company to repurchase such shares at specified prices
on specific dates in January through March 1997. As of December 31, 1996, the
Company has reclassified $69.6 million, the amount it would be obligated to pay
to repurchase such shares upon exercise of the put options, to a temporary
equity account in its
- 30 -
<PAGE>
consolidated balance sheet. The temporary equity related to these shares will be
reclassified to additional capital in the first quarter of 1997 upon expiration
or settlement of the options.
On March 27, 1997, the Company announced that its wholly owned subsidiary,
Comcast Cellular Holdings Inc. ("Comcast Cellular"), intends to offer
approximately $900 million of senior notes (the "Notes") in a private placement.
The Notes will be obligations of Comcast Cellular and will not be obligations
of, nor guaranteed by, the Company. The interest rate and certain other terms of
the Notes have not yet been determined. However, there can be no assurance that
acceptable terms will be reached or that the offering will be consummated.
Comcast Cellular anticipates using the net proceeds from the offering to redeem
or retire existing long-term debt of its subsidiaries.
Interest Rate and Foreign Currency Risk Management
The Company is exposed to market risk including changes in interest rates and
foreign currency exchange rates. To manage the volatility relating to these
exposures, the Company enters into various derivative transactions pursuant to
the Company's policies in areas such as counterparty exposure and hedging
practices. Positions are monitored using techniques including market value and
sensitivity analyses. The Company does not hold or issue any derivative
financial instruments for trading purposes and is not a party to leveraged
instruments. The credit risks associated with the Company's derivative financial
instruments are controlled through the evaluation and monitoring of the
creditworthiness of the counterparties. Although the Company may be exposed to
losses in the event of nonperformance by the counterparties, the Company does
not expect such losses, if any, to be significant.
The use of interest rate risk management instruments, such as interest rate
exchange agreements ("Swaps"), interest rate cap agreements ("Caps") and
interest rate collar agreements ("Collars"), is required under the terms of
certain of the Company's outstanding debt agreements. The Company's policy is to
manage interest costs using a mix of fixed and variable rate debt. Using Swaps,
the Company agrees to exchange, at specified intervals, the difference between
fixed and variable interest amounts calculated by reference to an agreed-upon
notional principal amount. Caps are used to lock in a maximum interest rate
should variable rates rise, but enable the Company to otherwise pay lower market
rates. Collars limit the Company's exposure to and benefits from interest rate
fluctuations on variable rate debt to within a certain range of rates.
The following table summarizes the terms of the Company's existing Swaps, Caps
and Collars as of December 31, 1996 and 1995 (dollars in millions):
<TABLE>
<CAPTION>
Notional Average Estimated
Amount Maturities Interest Rate Fair Value
<S> <C> <C> <C> <C>
As of December 31, 1996
Variable to Fixed Swaps $1,080.0 1997-2000 5.85% $7.4
Caps 250.0 1997 8.55%
Collars 620.0 1997-1998 6.98% / 5.16% 0.1
As of December 31, 1995
Variable to Fixed Swaps $650.0 1997-2000 6.05% ($6.8)
Caps 250.0 1997 8.20%
Collars 300.0 1997 7.21% / 5.09% (0.9)
</TABLE>
The notional amounts of interest rate agreements, as presented in the above
table, are used to measure interest to be paid or received and do not represent
the amount of exposure to credit loss. The estimated fair value approximates the
proceeds (costs) to settle the outstanding contracts. While Swaps, Caps and
Collars represent an integral part of the Company's interest rate risk
management program, their incremental effect on interest expense for the years
ended December 31, 1996, 1995 and 1994 was not significant.
The Company has entered into certain foreign currency exchange option contracts
("FX Options") as a normal part of its foreign currency risk management efforts.
During 1995, Comcast UK Cable entered into certain foreign exchange put option
contracts ("FX Puts") which may be settled only on November 16, 2000. These FX
Puts are used to limit Comcast UK Cable's exposure to the risk that the eventual
cash outflows related to net monetary liabilities denominated in currencies
other than its functional currency (the UK Pound Sterling or "UK Pound")
- 31 -
<PAGE>
(principally the 2007 Discount Debentures) are adversely affected by changes in
exchange rates. As of December 31, 1996 and 1995, Comcast UK Cable had
(pound)250.0 million notional amount of FX Puts to purchase US dollars at an
exchange rate of $1.35 per (pound)1.00 (the "Ratio"). The FX Puts provide a
hedge, to the extent the exchange rate falls below the Ratio, against Comcast UK
Cable's net monetary liabilities denominated in US dollars since gains and
losses realized on the FX Puts are offset against foreign exchange gains or
losses realized on the underlying net liabilities. Premiums paid for the FX
Puts, of $21.4 million, have been recorded as assets in the Company's
consolidated balance sheet. These premiums are being amortized over the terms of
the related contracts. As of December 31, 1996, the FX Puts had a carrying value
of $18.4 million and an estimated fair value of $5.5 million. The differences
between the carrying amounts and the estimated fair value of the FX Puts were
not significant as of December 31, 1995.
In the fourth quarter of 1995, in order to reduce hedging costs, Comcast UK
Cable sold foreign exchange call option contracts ("FX Calls") to exchange
(pound)250.0 million notional amount. Comcast UK Cable received $5.3 million
from the sale of these contracts. These contracts may only be settled on their
expiration dates. Of these contracts, (pound)200.0 million notional amount, with
an exchange ratio of $1.70 per (pound)1.00, expired unexercised in November 1996
while the remaining contract, with a (pound)50.0 million notional amount and an
exchange ratio of $1.62 per (pound)1.00, has a settlement date in November 2000.
In the fourth quarter of 1996, in order to continue to reduce hedging costs,
Comcast UK Cable sold additional FX Calls, for proceeds of $3.5 million, to
exchange (pound)200.0 million notional amount at an average exchange ratio of
$1.75 per (pound)1.00. These contracts may only be settled on their expiration
dates during the fourth quarter of 1997. The FX Calls are marked-to-market on a
current basis in the Company's consolidated statement of operations.
As of December 31, 1996 and 1995, the estimated fair value of the liabilities
related to the FX Calls, as recorded in the Company's consolidated balance
sheet, was $12.2 million and $5.8 million, respectively. Changes in fair value
between measurement dates relating to the FX Calls resulted in exchange losses
of $2.2 million during the year ended December 31, 1996 in the Company's
consolidated statement of operations. There were no significant exchange gains
or losses relating to these contracts during the year ended December 31, 1995.
-------------------------
As a result of the Scripps Acquisition, the Company no longer has a
stockholders' deficiency. However, the Company expects to continue to recognize
significant losses for the foreseeable future resulting in decreases in
stockholders' equity. The telecommunications industry, including cable and
cellular communications, and the electronic retailing industry are experiencing
increasing competition and rapid technological changes. The Company's future
results of operations will be affected by its ability to react to changes in the
competitive environment and by its ability to implement new technologies.
However, the Company believes that competition, technological changes and its
significant losses will not significantly affect its ability to obtain
financing.
The Company believes that it will be able to meet its current and long-term
liquidity and capital requirements, including fixed charges, through its cash
flows from operating activities, existing cash, cash equivalents, short-term
investments and lines of credit and other external financing.
Statement of Cash Flows
Cash and cash equivalents decreased $207.8 million as of December 31, 1996 from
December 31, 1995 and increased $203.8 million as of December 31, 1995 from
December 31, 1994. Changes in cash and cash equivalents resulted from cash flows
from operating, financing and investing activities which are explained below.
Net cash provided by operating activities amounted to $799.6 million, $520.7
million and $369.1 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The increase of $278.9 million from 1995 to 1996 was principally
due to changes in working capital as a result of the timing of receipts and
disbursements and the increase in the Company's operating income before
depreciation and amortization (see "Results of Operations"), including the
effects of the Scripps Acquisition. The increase of $151.6 million from 1994 to
1995 was principally due to effects of the QVC Acquisition and the Maclean
Hunter Acquisition.
Net cash (used in) provided by financing activities, which includes the
issuances of securities as well as borrowings, was ($81.2) million, $2.036
billion and $1.115 billion for the years ended December 31, 1996, 1995 and 1994,
- 32 -
<PAGE>
respectively. During 1996, the Company borrowed $839.5 million under new and
existing lines of credit and repaid $734.4 million, including $257.4 million in
connection with the refinancing of certain indebtedness and $123.7 million of
repayments under a vendor financing arrangement. Net repurchases of the
Company's common stock in 1996 were $175.9 million. During 1995, the Company
borrowed $3.728 billion including $1.1 billion in connection with the QVC
Acquisition, $1.085 billion in connection with the refinancing of certain
indebtedness, $300.9 million associated with the funding of Sprint Spectrum,
$300.0 million of the 2007 Discount Debentures, $250.0 million of the Company's
9-3/8% senior subordinated debentures due 2005 and $250.0 million of the
Company's 9-1/8% senior subordinated debentures due 2006. In addition, during
1995, the Company retired and repaid $1.620 billion of its long-term debt,
including $1.186 billion in connection with the refinancing of certain
indebtedness, and $175.0 million of optional repayments on QVC's credit
facility. Proceeds from borrowings of $1.201 billion in 1994 included $1.015
billion relating to the Maclean Hunter Acquisition. During 1994, the Company
repurchased or redeemed and retired $509.0 million of its long-term debt,
including the Company's $150.0 million, 11-7/8% senior subordinated debentures
due 2004. Net cash provided by financing activities in 1994 excludes the
conversion of $186.2 million of long-term debt into 16.8 million shares of Class
A Special Common Stock of the Company. In 1994, the Company received an equity
contribution to a subsidiary of $250.0 million in connection with the Maclean
Hunter Acquisition and received proceeds from the issuance of common stock of
Comcast UK Cable of $209.4 million.
Net cash used in investing activities was $926.2 million, $2.353 billion and
$1.309 billion for the years ended December 31, 1996, 1995 and 1994,
respectively. During 1996, net cash used in investing activities includes
acquisitions, net of cash acquired, of $60.4 million, additional cash
investments in affiliates of $502.0 million, including $159.6 million in
connection with the Company's investment in Comcast-Spectacor, capital
contributions to Sprint Spectrum of $106.8 million and the purchase of Nextel
shares of $99.9 million, and capital expenditures of $670.4 million. Cash
proceeds from investing activities include proceeds from the sales of short-term
and long-term investments of $377.7 million, including $105.4 million from sales
of Nextel shares and $52.5 million of distributions from Garden State
Cablevision, L.P. ("Garden State"), an investee of the Company. As the Company
issued shares of its Class A Special Common Stock as consideration in the
Scripps Acquisition, the transaction had no significant impact on investing
activities in the consolidated statement of cash flows. During 1995, net cash
used in investing activities includes acquisitions of $1.386 billion,
principally the acquisition of QVC, net of cash acquired, additional cash
investments in affiliates of $480.2 million, including capital contributions to
Sprint Spectrum of $327.5 million, capital expenditures of $623.0 million and
net purchases of short-term investments of $240.8 million. Such amounts were
offset by proceeds from sales of long-term investments of $410.5 million,
principally in connection with the Heritage Transaction (see "Results of
Operations - Consolidated Analysis") and the sale of Nextel shares. Acquisitions
in 1994 consisted principally of $1.2 billion paid, including certain
transaction costs, in connection with the Maclean Hunter Acquisition. Net
proceeds of $389.3 million from the sale of short-term investments during 1994
were used principally to redeem and retire long-term debt. In addition, during
1994, the Company made capital expenditures of $269.9 million and made
additional cash investments in affiliates of $125.0 million.
Results of Operations
The effects of the Company's recent acquisitions have been to increase
significantly the Company's revenues and expenses, resulting in substantial
increases in its operating income before depreciation and amortization,
depreciation expense, amortization expense and interest expense. In addition,
the Company's equity in net losses of affiliates has increased principally as a
result of the start-up nature of certain of the Company's equity investees (see
"Operating Results by Business Segment" and "Consolidated Analysis"). As a
result of the increases in depreciation expense, amortization expense and
interest expense associated with these acquisitions and their financing and the
expected increases in equity in net losses of affiliates, it is expected that
the Company will continue to recognize significant losses for the foreseeable
future.
- 33 -
<PAGE>
Summarized consolidated financial information for the Company for the three
years ended December 31, 1996 is as follows (dollars in millions, "NM" denotes
percentage is not meaningful):
<TABLE>
<CAPTION>
Year Ended
December 31, Increase/(Decrease)
1996 1995 $ %
<S> <C> <C> <C> <C>
Revenues $4,038.4 $3,362.9 $675.5 20.1%
Cost of goods sold from electronic retailing 1,110.9 898.3 212.6 23.7
Operating, selling, general and administrative expenses 1,720.3 1,445.8 274.5 19.0
-------- --------
Operating income before depreciation and
amortization (1) 1,207.2 1,018.8 188.4 18.5
Depreciation 314.6 339.9 (25.3) (7.4)
Amortization 383.7 349.1 34.6 9.9
-------- --------
Operating income 508.9 329.8 179.1 54.3
-------- --------
Interest expense 540.8 524.7 16.1 3.1
Investment income (122.6) (229.8) (107.2) (46.6)
Equity in net losses of affiliates 144.8 86.6 58.2 67.2
Gain from equity offering of affiliate (40.6) 40.6 NM
Other 2.6 (6.3) (8.9) (141.3)
Income tax expense 84.4 42.1 42.3 100.5
Minority interest (48.0) (49.7) (1.7) (3.4)
Extraordinary items (1.0) (6.1) (5.1) (83.6)
-------- --------
Net loss ($53.5) ($43.9) $9.6 21.9%
======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, Increase/(Decrease)
1995 1994 $ %
<S> <C> <C> <C> <C>
Revenues $3,362.9 $1,375.3 $1,987.6 144.5%
Cost of goods sold from electronic retailing 898.3 898.3 NM
Operating, selling, general and administrative expenses 1,445.8 799.0 646.8 81.0
-------- --------
Operating income before depreciation and
amortization (1) 1,018.8 576.3 442.5 76.8
Depreciation 339.9 182.2 157.7 86.6
Amortization 349.1 154.3 194.8 126.2
-------- --------
Operating income 329.8 239.8 90.0 37.5
-------- --------
Interest expense 524.7 313.4 211.3 67.4
Investment income (229.8) (24.6) 205.2 NM
Equity in net losses of affiliates 86.6 40.9 45.7 111.7
Other (6.3) 6.3 NM
Income tax expense (benefit) 42.1 (9.2) 51.3 NM
Minority interest (49.7) (5.4) 44.3 NM
Extraordinary items (6.1) (11.7) (5.6) (47.9)
-------- --------
Net loss ($43.9) ($87.0) ($43.1) (49.5%)
======== ========
<FN>
- ------------
(1) Operating income before depreciation and amortization is commonly referred
to in the Company's businesses as "operating cash flow." Operating cash
flow is a measure of a company's ability to generate cash to service its
obligations, including debt service obligations, and to finance capital and
other expenditures. In part due to the capital intensive nature of the
Company's businesses and the resulting significant level of non-cash
depreciation and amortization expense, operating cash flow is frequently
used as one of the bases for comparing businesses in the Company's
industries. Operating cash flow does not purport to represent net income or
net cash provided by operating activities, as those terms are defined under
generally accepted accounting principles, and should not be considered as
an alternative to such measurements as an indicator of the Company's
performance. See "Statement of Cash Flows" above for a discussion of net
cash provided by operating activities.
</FN>
</TABLE>
- 34 -
<PAGE>
Operating Results by Business Segment
The following represent the operating results of the Company's significant
business segments, including: "Domestic Cable Communications," the most
significant of the Company's wired telecommunications operations; "Electronic
Retailing," the most significant of the Company's content businesses; and
"Cellular Communications," the most significant of the Company's wireless
telecommunications operations. The remaining components of the Company's
operations are not independently significant to the Company's consolidated
financial position or results of operations (see Note 10 to the Company's
consolidated financial statements).
Domestic Cable Communications
The following table sets forth the operating results for the Company's domestic
cable communications segment (dollars in millions):
<TABLE>
<CAPTION>
Year Ended
December 31, Increase
1996 1995 $ %
<S> <C> <C> <C> <C>
Service income $1,640.9 $1,454.9 $186.0 12.8%
Operating, selling, general and
administrative expenses 830.9 736.4 94.5 12.8
-------- -------- ------
Operating income before depreciation
and amortization (a) $810.0 $718.5 $91.5 12.7%
======== ======== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, Increase
1995 1994 $ %
<S> <C> <C> <C> <C>
Service income $1,454.9 $1,065.3 $389.6 36.6%
Operating, selling, general and
administrative expenses 736.4 547.8 188.6 34.4
-------- -------- ------
Operating income before depreciation
and amortization (a) $718.5 $517.5 $201.0 38.8%
======== ======== ======
<FN>
- ---------------
(a) See footnote (1) on page 34.
</FN>
</TABLE>
The Scripps Acquisition accounted for $52.3 million of the $186.0 million
increase in service income from 1995 to 1996. Of the remaining increase of
$133.7 million, $33.5 million is attributable to subscriber growth, $84.5
million is attributable to changes in rates, $4.7 million is attributable to
growth in cable advertising sales and $11.0 million relates to other product
offerings. The Maclean Hunter Acquisition accounted for $270.1 million of the
$389.6 million increase in service income from 1994 to 1995. Of the remaining
increase of $119.5 million, $46.0 million is attributable to subscriber growth,
$54.6 million relates to changes in rates, which includes the change in the
estimated effects of cable rate regulation, $14.0 million results from growth in
cable advertising sales and $4.9 million relates to growth in other product
offerings.
The Scripps Acquisition accounted for $30.9 million of the $94.5 million
increase in operating, selling, general and administrative expenses from 1995 to
1996. Of the remaining increase of $63.6 million, $21.7 million is attributable
to increases in the costs of programming as a result of subscriber growth,
additional channel offerings and changes in rates, $25.3 million is attributable
to increases in costs associated with implementation of three regional customer
service call centers and increases in the cost of labor, $4.2 million is
attributable to growth in cable advertising sales and $12.4 million is
attributable to increases in other volume related expenses. The Maclean Hunter
Acquisition accounted for $143.7 million of the $188.6 million increase in
operating, selling, general and administrative expenses from 1994 to 1995. Of
the remaining increase of $44.9 million, $22.6 million is attributable to
increases in the costs of cable programming as a result of subscriber growth,
additional channel offerings and changes in rates, $7.2 million is attributable
to increases in expenses associated with the growth in cable advertising sales
and $15.1 million results from increases in the cost of labor and other volume
related expenses. It is anticipated that the Company's cost of cable programming
will increase in the future as cable programming rates increase and additional
sources of cable programming become available.
- 35 -
<PAGE>
Electronic Retailing
As a result of the QVC Acquisition, the Company commenced consolidating the
financial results of QVC effective February 1, 1995. The following table
presents actual financial information for the year ended December 31, 1996 and
pro forma financial information for the years ended December 31, 1995 and 1994.
Pro forma financial information is presented herein for purposes of analysis and
may not reflect what actual operating results would have been had the Company
owned QVC since January 1, 1994 (dollars in millions):
<TABLE>
<CAPTION>
Year Ended
December 31, Increase
1996 1995 $ %
<S> <C> <C> <C> <C>
Net sales from electronic retailing $1,835.8 $1,619.2 $216.6 13.4%
Cost of goods sold from electronic retailing 1,110.9 976.4 134.5 13.8
Operating, selling, general and administrative
expenses 424.6 387.4 37.2 9.6
-------- -------- ------
Operating income before depreciation
and amortization (a) $300.3 $255.4 $44.9 17.6%
======== ======== ======
Gross margin 39.5% 39.7%
======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, Increase
1995 1994 $ %
<S> <C> <C> <C> <C>
Net sales from electronic retailing $1,619.2 $1,374.5 $244.7 17.8%
Cost of goods sold from electronic retailing 976.4 839.5 136.9 16.3
Operating, selling, general and administrative
expenses 387.4 326.1 61.3 18.8
-------- -------- ------
Operating income before depreciation
and amortization (a) $255.4 $208.9 $46.5 22.3%
======== ======== ======
Gross margin 39.7% 38.9%
======== ========
<FN>
- ---------------
(a) See footnote (1) on page 34.
</FN>
</TABLE>
Effective April 1, 1995, QVC consolidated the results of its UK operations.
These operations accounted for $50.3 million of the sales increase from 1995 to
1996. Nine months of sales from these operations accounted for $48.4 million of
the sales increase from 1994 to 1995. The remaining increases of $166.3 million
and $196.3 million from 1995 to 1996 and 1994 to 1995, respectively, are
primarily attributable to increases of 7.2% and 9.2% in the average number of
QVC homes receiving QVC services in the US over the respective prior year
periods.
An allowance for returned merchandise is provided as a percentage of sales based
on historical experience. The return provision was approximately 21 percent of
gross sales for each of the years ended December 31, 1996, 1995 and 1994.
The $134.5 million and $136.9 million increases in cost of goods sold from
electronic retailing from 1995 to 1996 and 1994 to 1995, respectively, are
directly related to the growth in net sales. The 0.2 percentage point decrease
in gross margin from 1995 to 1996 and 0.8 percentage point increase in gross
margin from 1994 to 1995 are due to slight changes in product mix from year to
year.
The growth in and consolidation of QVC's UK operations, effective April 1, 1995,
resulted in increases in operating, selling, general and administrative expenses
of $17.4 million and $25.8 million from 1995 to 1996 and 1994 to 1995,
respectively. The remaining increases of $19.8 million and $35.5 million from
1995 to 1996 and 1994 to 1995, respectively, are attributable to higher sales
volume, increases in advertising costs and additional costs associated with new
businesses.
- 36 -
<PAGE>
Cellular Communications
The following table sets forth the operating results for the Company's cellular
communications segment (dollars in millions):
<TABLE>
<CAPTION>
Year Ended
December 31, Increase
1996 1995 $ %
<S> <C> <C> <C> <C>
Service income $426.1 $374.9 $51.2 13.7%
Operating, selling, general and administrative
expenses 265.9 237.1 28.8 12.1
------ ------ -----
Operating income before depreciation
and amortization (a) $160.2 $137.8 $22.4 16.3%
====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, Increase
1995 1994 $ %
<S> <C> <C> <C> <C>
Service income $374.9 $286.1 $88.8 31.0%
Operating, selling, general and administrative
expenses 237.1 169.8 67.3 39.6
------ ------ -----
Operating income before depreciation
and amortization (a) $137.8 $116.3 $21.5 18.5%
====== ====== =====
<FN>
- ---------------
(a) See footnote (1) on page 34.
</FN>
</TABLE>
Of the respective $51.2 million and $88.8 million increases in service income
from 1995 to 1996 and 1994 to 1995, $69.6 million and $99.6 million,
respectively, are attributable to the Company's subscriber growth. Offsetting
the increases from 1995 to 1996 and 1994 to 1995 are decreases of $19.3 million
and $25.0 million, respectively, resulting from reductions in the average rate
per minute of use in these respective periods. The remaining changes from 1995
to 1996 and 1994 to 1995 are attributable to growth in roamer revenue and other
products of $900,000 and $14.2 million, respectively. The Company expects that
the decrease in average minutes-of-use per cellular subscriber will continue in
the future, which is consistent with industry trends.
Of the respective $28.8 million and $67.3 million increases in operating,
selling, general and administrative expenses from 1995 to 1996 and 1994 to 1995,
$24.3 million and $38.2 million, respectively, are related to subscriber growth,
including the costs to acquire and service subscribers. The remaining increases
of $4.5 million and $29.1 million, respectively, are due to increases in other
expenses, including subscriber retention costs, administrative costs and theft
of service in 1995.
Consolidated Analysis
The $25.3 million decrease in depreciation expense from 1995 to 1996 is
primarily attributable to the effects of the rebuild of certain of the Company's
cellular equipment in 1995 (see below) offset, in part, by the effects of
capital expenditures during 1995 and 1996 and the effects of the Scripps
Acquisition in 1996. The $157.7 million increase in depreciation expense from
1994 to 1995 is attributable to the effects of the acquisitions of QVC and
Maclean Hunter, the effects of the rebuild of certain of the Company's cellular
equipment in 1995 and capital expenditures during the periods, offset, in part,
by the effects of asset disposals during the periods.
In 1995, the Company's cellular division purchased $172.0 million of switching
and cell site equipment which replaced the existing switching and cell site
equipment (the "Cellular Rebuild"). The Company substantially completed the
Cellular Rebuild during 1995. Accordingly, during 1995, the Company charged
$110.0 million to depreciation expense which represented the difference between
the net book value of the equipment replaced and the residual value realized
upon its disposal.
- 37 -
<PAGE>
The $34.6 million and $194.8 million increases in amortization expense from 1995
to 1996 and 1994 to 1995, respectively, are primarily attributable to the
effects of the acquisition of Scripps Cable in 1996 and the effects of the
acquisitions of QVC and Maclean Hunter in 1995 and 1994, respectively.
The $16.1 million increase in interest expense from 1995 to 1996 is primarily
attributable to an increase in the Company's outstanding long-term debt, offset,
in part, by a decrease in interest rates from 1995 to 1996 and the effects of
capitalized interest. The $211.3 million increase in interest expense from 1994
to 1995 is primarily due to increased levels of debt associated with the
acquisitions of QVC and Maclean Hunter.
The Company anticipates that, for the foreseeable future, interest expense will
be a significant cost to the Company and will have a significant adverse effect
on the Company's ability to realize net earnings. The Company believes it will
continue to be able to meet its obligations through its ability both to generate
operating income before depreciation and amortization and to obtain external
financing.
The $107.2 million decrease in investment income from 1995 to 1996 is primarily
attributable to the effects of the gain realized in the Heritage Transaction in
1995 (see below), offset, in part, by the gain recognized upon the exchange of
the shares of TBS held by the Company for Time Warner Stock in 1996. The $205.2
million increase in investment income from 1994 to 1995 is principally due to
the $177.2 million in gains related to the Heritage Transaction and the sale of
Nextel common stock in 1995. The remaining increase for this period is due to
the effects of the QVC Acquisition and an increase in the Company's cash, cash
equivalents and short-term investments, offset by $15.3 million of losses
recorded relating to the net realizable value of certain of the Company's
investments.
In January 1995, the Company exchanged its investments in Heritage
Communications, Inc. with TCI for 13.3 million publicly-traded Class A common
shares of TCI with a fair market value of $290.0 million. Shortly thereafter,
the Company sold 9.1 million unrestricted TCI shares for total proceeds of
$188.1 million (collectively, the "Heritage Transaction"). As a result of these
transactions, the Company recognized a pre-tax gain of $141.0 million as
investment income in its 1995 consolidated statement of operations.
The increases in equity in net losses of affiliates for both periods are due to
the timing of investments in and changes in losses incurred by Sprint Spectrum,
TCGI (as defined below), the Company's international investees and certain
programming investees. Based on Sprint Spectrum's current operations and
business plan, the Company anticipates that its proportionate share of Sprint
Spectrum's losses will be significant in future years.
Through June 27, 1996, the Company held investments in Teleport Communications
Group Inc. ("TCGI"), TCG Partners and certain local joint ventures (the "Joint
Ventures") managed by TCGI and TCG Partners. On June 27, 1996, TCGI sold
approximately 27 million shares of its Class A Common Stock (the "TCGI Class A
Stock"), for $16 per share, in an initial public offering (the "TCGI IPO"). In
connection with the TCGI IPO, TCGI, the Company and subsidiaries of Cox, TCI and
Continental Cablevision ("Continental" and collectively with Cox, TCI and the
Company, the "Cable Stockholders") entered into an agreement pursuant to which
TCGI was reorganized (the "Reorganization"). The Reorganization consisted of,
among other things: (i) the acquisition by TCGI of TCG Partners; (ii) the
acquisition by TCGI of additional interests in the Joint Ventures (including
100% of those interests held by the Company); and (iii) the contribution to TCGI
of $269.0 million aggregate principal amount of indebtedness, plus accrued
interest thereon, owed by TCGI to the Cable Stockholders (except that TCI
retained a $26 million subordinated note of TCGI), including $53.8 million
principal amount and $4.1 million of accrued interest owed to the Company. In
connection with the Reorganization, the Company received 25.6 million shares of
TCGI's Class B Common Stock (the "TCGI Class B Stock"). Each share of TCGI Class
B Stock is entitled to voting power equivalent to ten shares of TCGI Class A
Stock and is convertible, at the option of the holder, into one share of TCGI
Class A Stock. The Company recorded a $40.6 million increase in its
proportionate share of TCGI's net assets as a gain from equity offering of
affiliate in its 1996 consolidated statement of operations. After giving effect
to the Reorganization and the TCGI IPO, the Company owns 19.5% of the
outstanding TCGI Class B Stock representing a 19.1% voting interest and a 16.1%
equity interest. The Company continues to account for its interest in TCGI under
the equity method. Assuming conversion of the TCGI Class B Stock held by the
Company into TCGI Class A Stock, the Company's investment would have a fair
value of approximately $781.5 million based on the quoted market price of the
TCGI Class A Stock as of December 31, 1996.
The $8.9 million decrease in other income from 1995 to 1996 is primarily
attributable to the settlement of certain litigation in 1996 offset, in part, by
an increase in foreign exchange gains.
- 38 -
<PAGE>
The $42.3 million and $51.3 million increases in income tax expense from 1995 to
1996 and 1994 to 1995 are primarily attributable to increases in QVC's income
before income taxes and the consolidation of QVC for financial reporting
purposes in 1995.
The $44.3 million increase in minority interest income from 1994 to 1995 is
attributable to minority interests in the net income (loss) of QVC, Maclean
Hunter and Comcast UK Cable.
In May 1996, the Company expensed unamortized debt acquisition costs of $1.8
million in connection with the prepayment of a portion of a subsidiary's
outstanding debt, resulting in an extraordinary loss, net of tax of $1.0
million. The Company incurred debt extinguishment costs totaling $9.4 million
during 1995 in connection with the refinancing of certain indebtedness,
resulting in an extraordinary loss, net of tax, of $6.1 million or $.02 per
share. During 1994, the Company paid premiums and expensed unamortized debt
acquisition costs totaling $18.0 million, primarily in connection with the
redemption of its $150.0 million, 11-7/8% senior subordinated debentures due
2004, resulting in an extraordinary loss, net of tax, of $11.7 million or $.05
per share.
For the years ended December 31, 1996, 1995 and 1994, the Company's
distributions from Garden State and earnings before extraordinary items, income
tax expense (benefit), equity in net losses of affiliates and fixed charges
(interest expense) were $770.0 million, $615.6 million and $269.8 million,
respectively. Such earnings were adequate to cover the Company's fixed charges,
of $572.9 million, including capitalized interest of $32.1 million, for the year
ended December 31, 1996. Excluding the pre-tax gains of $177.2 million
recognized in 1995 in connection with the Heritage Transaction and sales of the
Company's Nextel shares, such earnings were not adequate to cover the Company's
fixed charges of $531.1 million and $313.4 million for the years ended December
31, 1995 and 1994, respectively, including capitalized interest of $6.4 million
in 1995. The Company's fixed charges include non-cash interest expense of $97.0
million, $60.2 million and $53.5 million for the years ended December 31, 1996,
1995 and 1994, respectively. For the years ended December 31, 1995 and 1994, the
inadequacy of these earnings to cover fixed charges is primarily due to the
substantial non-cash charges for depreciation expense, including the 1995 charge
associated with the Cellular Rebuild, and amortization expense.
The Company believes that its losses will not significantly affect the
performance of its normal business activities because of its existing cash, cash
equivalents and short-term investments, its ability to generate operating income
before depreciation and amortization and its ability to obtain external
financing.
The Company believes that its operations are not materially affected by
inflation.
Regulatory Developments
The Company has settled the majority of outstanding proceedings challenging its
rates charged for regulated cable services. In December 1995, the FCC adopted an
order approving a negotiated settlement of rate complaints pending against the
Company for cable programming service tiers ("CPSTs") which provided $6.6
million in refunds, plus interest, given in the form of bill credits during
1996, to 1.3 million of the Company's cable subscribers. As part of the
negotiated settlement, the Company agreed to forego certain inflation and
external cost adjustments for systems covered by its cost-of-service filings for
CPSTs. The Company currently is seeking to justify rates for basic cable
services and equipment in certain of its cable systems in the State of
Connecticut on the basis of a cost-of-service showing. The State of Connecticut
has ordered the Company to reduce such rates and to make refunds to subscribers.
The Company has appealed the Connecticut decision to the FCC. Recent
pronouncements from the FCC, which generally support the Company's position on
appeal, have caused the State of Connecticut to reexamine its prior ruling.
While the Company cannot predict the outcome of this action, the Company
believes that the ultimate resolution of these pending regulatory matters will
not have a material adverse impact on the Company's financial position, results
of operations or liquidity.
- 39 -
<PAGE>
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Comcast Corporation
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheet of Comcast
Corporation and its subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity (deficiency)
and of cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the consolidated financial
statements of QVC, Inc. ("QVC") as of and for the year ended December 31, 1996
and as of and for the eleven month period ended December 31, 1995 and the
consolidated financial statements of Comcast International Holdings, Inc.
("International") and the financial statements of Garden State Cablevision L.P.
("Garden State") for the year ended December 31, 1994. QVC and International are
consolidated with the Company. The Company's investment in Garden State is
accounted for under the equity method. QVC's financial statements reflect total
assets constituting 17% and 20%, respectively, and total revenues constituting
45% and 44%, respectively, of the Company's consolidated total assets and
revenues as of and for the years ended December 31, 1996 and 1995. The Company's
combined equity in the net losses of International and Garden State for the year
ended December 31, 1994 of $39 million is included in the Company's consolidated
financial statements. The financial statements of QVC, International and Garden
State were audited by other auditors whose reports have been furnished to us,
and our opinion, insofar as it relates to the amounts included in the Company's
consolidated financial statements for QVC, International and Garden State for
the periods specified above, is based solely upon the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Comcast Corporation and its subsidiaries as of December
31, 1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 28, 1997
- 40 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions, except share data)
<TABLE>
<CAPTION>
December 31,
ASSETS 1996 1995
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents............................................. $331.3 $539.1
Short-term investments................................................ 208.3 371.0
Accounts receivable, less allowance for doubtful
accounts of $97.1 and $81.3......................................... 439.3 390.7
Inventories, net...................................................... 258.4 243.4
Other current assets.................................................. 168.5 109.5
--------- --------
Total current assets.............................................. 1,405.8 1,653.7
--------- --------
INVESTMENTS, principally in affiliates................................... 1,177.7 906.4
--------- --------
PROPERTY AND EQUIPMENT................................................... 3,600.1 2,484.4
Accumulated depreciation.............................................. (1,061.3) (873.2)
--------- --------
Property and equipment, net........................................... 2,538.8 1,611.2
--------- --------
DEFERRED CHARGES
Franchise and license acquisition costs............................... 4,895.7 3,568.6
Excess of cost over net assets acquired and other..................... 3,683.1 3,075.0
--------- --------
8,578.8 6,643.6
Accumulated amortization.............................................. (1,612.5) (1,234.6)
--------- --------
Deferred charges, net................................................. 6,966.3 5,409.0
--------- --------
$12,088.6 $9,580.3
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued expenses................................. $1,044.3 $964.0
Accrued interest...................................................... 91.1 72.7
Current portion of long-term debt..................................... 229.5 85.4
--------- --------
Total current liabilities......................................... 1,364.9 1,122.1
--------- --------
LONG-TERM DEBT, less current portion..................................... 7,102.7 6,943.8
--------- --------
DEFERRED INCOME TAXES.................................................... 2,140.5 1,518.0
--------- --------
MINORITY INTEREST AND OTHER.............................................. 859.3 772.0
--------- --------
COMMITMENTS AND CONTINGENCIES
COMMON EQUITY PUT OPTIONS................................................ 69.6 52.1
--------- --------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, no par value - authorized, 20,000,000
shares; issued 5% series A convertible, 6,370 at redemption value... 31.9
Class A special common stock, $1 par value - authorized,
500,000,000 shares; issued, 283,281,675 and 192,844,814 ............ 283.3 192.8
Class A common stock, $1 par value - authorized,
200,000,000 shares; issued, 33,959,368 and 37,706,517 .............. 34.0 37.7
Class B common stock, $1 par value - authorized,
50,000,000 shares; issued, 8,786,250 ............................... 8.8 8.8
Additional capital.................................................... 2,327.4 843.1
Accumulated deficit................................................... (2,127.9) (1,914.3)
Unrealized gains on marketable securities............................. 0.1 22.2
Cumulative translation adjustments.................................... (6.0) (18.0)
--------- --------
Total stockholders' equity (deficiency)........................... 551.6 (827.7)
--------- --------
$12,088.6 $9,580.3
========= ========
</TABLE>
See notes to consolidated financial statements.
- 41 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in millions, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
REVENUES
Service income............................................. $2,202.6 $1,875.2 $1,375.3
Net sales from electronic retailing........................ 1,835.8 1,487.7
-------- -------- --------
4,038.4 3,362.9 1,375.3
-------- -------- --------
COSTS AND EXPENSES
Operating.................................................. 948.7 803.4 409.8
Cost of goods sold from electronic retailing............... 1,110.9 898.3
Selling, general and administrative........................ 771.6 642.4 389.2
Depreciation............................................... 314.6 339.9 182.2
Amortization............................................... 383.7 349.1 154.3
-------- -------- --------
3,529.5 3,033.1 1,135.5
-------- -------- --------
OPERATING INCOME.............................................. 508.9 329.8 239.8
OTHER (INCOME) EXPENSE
Interest expense........................................... 540.8 524.7 313.4
Investment income.......................................... (122.6) (229.8) (24.6)
Equity in net losses of affiliates......................... 144.8 86.6 40.9
Gain from equity offering of affiliate..................... (40.6)
Other...................................................... 2.6 (6.3)
-------- -------- --------
525.0 375.2 329.7
-------- -------- --------
LOSS BEFORE INCOME TAX EXPENSE (BENEFIT), MINORITY
INTEREST AND EXTRAORDINARY ITEMS........................... (16.1) (45.4) (89.9)
INCOME TAX EXPENSE (BENEFIT).................................. 84.4 42.1 (9.2)
-------- -------- --------
LOSS BEFORE MINORITY INTEREST AND EXTRAORDINARY
ITEMS...................................................... (100.5) (87.5) (80.7)
MINORITY INTEREST............................................. (48.0) (49.7) (5.4)
-------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEMS............................... (52.5) (37.8) (75.3)
EXTRAORDINARY ITEMS .......................................... (1.0) (6.1) (11.7)
-------- -------- --------
NET LOSS...................................................... ($53.5) ($43.9) ($87.0)
======== ======== ========
LOSS PER SHARE
Loss before extraordinary items............................ ($.21) ($.16) ($.32)
Extraordinary items........................................ (.02) (.05)
-------- -------- --------
Net loss................................................. ($.21) ($.18) ($.37)
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING ............................................... 247.6 239.7 236.3
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
- 42 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................... ($53.5) ($43.9) ($87.0)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation............................................. 314.6 339.9 182.2
Amortization............................................. 383.7 349.1 154.3
Non-cash interest expense, net........................... 62.2 53.8 53.5
Equity in net losses of affiliates....................... 144.8 86.6 40.9
Gain from equity offering of affiliate................... (40.6)
Gains on sales of subsidiaries........................... (5.5) (5.8)
Gains on long-term investments, net...................... (69.2) (183.0)
Minority interest........................................ (48.0) (49.7) (5.4)
Extraordinary items...................................... 1.0 6.1 11.7
Deferred income taxes and other.......................... 14.0 (15.7) 9.7
--------- --------- ---------
709.0 537.7 354.1
Increase in accounts receivable, net..................... (38.2) (62.4) (28.3)
Increase in inventories, net............................. (5.8) (57.5) (7.3)
Decrease (increase) in other current assets.............. 0.6 (23.3) (5.3)
Increase in accounts payable and accrued expenses........ 114.9 114.3 57.5
Increase (decrease) in accrued interest.................. 19.1 11.9 (1.6)
--------- --------- ---------
Net cash provided by operating activities.............. 799.6 520.7 369.1
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings................................... 839.5 3,728.2 1,201.1
Retirement and repayment of debt........................... (734.4) (1,619.6) (509.0)
(Repurchases) issuances of common stock, net............... (175.9) (7.1) 2.9
Issuance of common stock of a subsidiary, net.............. 209.4
Equity contributions to subsidiaries....................... 6.6 250.0
Dividends.................................................. (26.8) (22.4) (22.7)
Other...................................................... 16.4 (50.0) (16.5)
--------- --------- ---------
Net cash (used in) provided by financing activities.... (81.2) 2,035.7 1,115.2
--------- --------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired......................... (60.4) (1,386.0) (1,292.6)
Proceeds from sales (purchases) of short-term
investments, net......................................... 210.2 (240.8) 389.3
Investments, principally in affiliates..................... (502.0) (480.2) (125.0)
Proceeds from sales of and distributions from
long-term investments.................................... 167.5 410.5
Capital expenditures....................................... (670.4) (623.0) (269.9)
Proceeds from sale of subsidiary........................... 28.2
Other...................................................... (71.1) (33.1) (39.4)
--------- --------- ---------
Net cash used in investing activities.................. (926.2) (2,352.6) (1,309.4)
--------- --------- ---------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS........................................... (207.8) 203.8 174.9
CASH AND CASH EQUIVALENTS, beginning of year.................. 539.1 335.3 160.4
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year........................ $331.3 $539.1 $335.3
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
- 43 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
Unrealized
Common Stock Gains on
Addi- Accum- Market- Cumulative
Preferred Class A tional ulated able Translation
Stock Special Class A Class B Capital Deficit Securities Adjustments Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 $ $174.0 $38.9 $8.8 $647.2 ($1,717.9) $ ($21.5) ($870.5)
Net loss (87.0) (87.0)
Issuance of common stock 0.2 2.2 2.4
Conversion of convertible subordinated
debt to common stock 16.8 166.7 183.5
Exercise of options 0.5 0.1 6.0 6.6
Retirement of common stock (0.3) (5.9) (6.2)
Cash dividends, $.0933 per share (22.7) (22.7)
Unrecognized gain on issuance of common
stock of a subsidiary 59.3 59.3
Unrealized gains on marketable securities,
net of deferred taxes of $2.1 3.9 3.9
Cumulative translation adjustments 4.0 4.0
----- ------ ----- ---- -------- --------- ---- ----- ------
BALANCE, DECEMBER 31, 1994 191.2 39.0 8.8 875.5 (1,827.6) 3.9 (17.5) (726.7)
Net loss (43.9) (43.9)
Issuance of common stock 1.1 17.4 18.5
Conversion of convertible subordinated
debt to common stock 0.4 4.0 4.4
Exercise of options 0.3 0.1 3.2 3.6
Retirement of common stock (0.2) (1.4) (7.5) (20.4) (29.5)
Cash dividends, $.0933 per share (22.4) (22.4)
Temporary equity related to put options (52.1) (52.1)
Proceeds from sales of put options 2.6 2.6
Unrealized gains on marketable securities,
net of deferred taxes of $9.8 18.3 18.3
Cumulative translation adjustments (0.5) (0.5)
----- ------ ----- ---- -------- --------- ---- ----- ------
BALANCE, DECEMBER 31, 1995 192.8 37.7 8.8 843.1 (1,914.3) 22.2 (18.0) (827.7)
Net loss (53.5) (53.5)
Issuance of common stock 97.2 1,526.3 1,623.5
Issuance of preferred stock 31.9 31.9
Exercise of options 0.2 0.2 3.0 3.4
Retirement of common stock (6.9) (3.9) (41.3) (133.3) (185.4)
Cash dividends, $.0933 per share (26.8) (26.8)
Unrecognized gain on issuance of
common stock of a subsidiary 11.6 11.6
Temporary equity related to put options (17.5) (17.5)
Proceeds from sales and extensions of
put options 2.2 2.2
Unrealized losses on marketable securities,
net of deferred taxes of ($11.9) (22.1) (22.1)
Cumulative translation adjustments 12.0 12.0
----- ------ ----- ---- -------- --------- ---- ----- ------
BALANCE, DECEMBER 31, 1996 $31.9 $283.3 $34.0 $8.8 $2,327.4 ($2,127.9) $0.1 ($6.0) $551.6
===== ====== ===== ==== ======== ========= ==== ===== ======
</TABLE>
See notes to consolidated financial statements.
- 44 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. BUSINESS
Comcast Corporation and its subsidiaries (the "Company") is principally
engaged in the development, management and operation of wired and wireless
telecommunications and the provision of content.
Wired telecommunications includes cable and telecommunications services in
the United States ("US") and the United Kingdom ("UK"). The Company's
consolidated domestic cable operations served approximately 4.3 million
subscribers and passed approximately 7.0 million homes as of December 31,
1996. The Company owns a 50% interest in Garden State Cablevision L.P.
("Garden State"), a cable communications company serving more than 204,000
subscribers and passing more than 294,000 homes in the State of New Jersey.
In the UK, a subsidiary of the Company, Comcast UK Cable Partners Limited
("Comcast UK Cable"), holds ownership interests in four cable and telephony
businesses that collectively have the potential to serve over 1.6 million
homes.
Wireless telecommunications includes cellular services, personal
communications services provided through the Company's investment in Sprint
Spectrum and direct to home satellite television through the Company's
equity interest in and distribution arrangements with Primestar Partners,
L.P. ("Primestar"). The Company provides cellular telephone communications
services pursuant to licenses granted by the Federal Communications
Commission ("FCC") in markets with a population of more than 8.4 million,
including the area in and around the City of Philadelphia, Pennsylvania,
the State of Delaware and a significant portion of the State of New Jersey.
Content is provided through QVC, Inc. and its subsidiaries ("QVC"), an
electronic retailer, Comcast Content and Communication Corporation ("C3")
and other investments, including Comcast Spectacor, L.P. ("Comcast-
Spectacor") and E! Entertainment Television, Inc. ("E! Entertainment").
Through QVC, the Company markets a wide variety of products and reaches, on
a full and part-time basis, over 61 million homes in the US, over five
million homes in the UK and over four million homes in Germany.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly owned or controlled subsidiaries. All significant
intercompany accounts and transactions among consolidated entities have
been eliminated. Included in the Company's consolidated balance sheet as of
December 31, 1996 and 1995 are net assets of foreign subsidiaries of $143.7
million and $115.2 million, respectively.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Values
The estimated fair value amounts presented in these notes to consolidated
financial statements have been determined by the Company using available
market information and appropriate methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates
of fair value. The estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts. Such fair value estimates are based on pertinent information
available to management as of December 31, 1996 and 1995, and have not been
comprehensively revalued for purposes of these consolidated financial
statements since such dates.
- 45 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
Cash Equivalents and Short-term Investments
Cash equivalents consist principally of US Government obligations,
commercial paper, repurchase agreements and certificates of deposit with
maturities of three months or less when purchased. Short-term investments
consist principally of US Government obligations, commercial paper,
repurchase agreements and certificates of deposit with maturities of
greater than three months when purchased. The carrying amounts of the
Company's cash equivalents and short-term investments, classified as
available for sale securities, approximate their fair values. As of
December 31, 1996, short-term investments also include the Company's
investment in Time Warner, Inc. ("Time Warner") common stock (see Note 4).
Inventories - Electronic Retailing
Inventories, consisting primarily of products held for sale, are stated at
the lower of cost or market. Cost is determined by the first-in, first-out
method.
Investments, Principally in Affiliates
Investments in entities in which the Company has the ability to exercise
significant influence over the operating and financial policies of the
investee and investments in partnerships which are not controlled by the
Company are accounted for under the equity method. Equity method
investments are recorded at original cost and adjusted periodically to
recognize the Company's proportionate share of the investees' net income or
losses after the date of investment, additional contributions made and
dividends received. The differences between the Company's recorded
investments and its proportionate interests in the book value of the
investees' net assets are being amortized to equity in net income or loss,
primarily over a period of twenty years, which is consistent with the
estimated lives of the underlying assets.
Unrestricted publicly traded investments, including options to purchase
such securities, are classified as available for sale and are recorded at
their fair value, with unrealized gains or losses resulting from changes in
fair value between measurement dates recorded as a component of
stockholders' equity (deficiency).
Restricted publicly traded investments and investments in privately held
companies are stated at cost, adjusted for any known diminution in value.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided by the
straight-line method over estimated useful lives as follows:
Buildings and improvements 8-40 years
Operating facilities 5-20 years
Other equipment 2-10 years
Improvements that extend asset lives are capitalized; other repairs and
maintenance charges are expensed as incurred. The cost and related
accumulated depreciation applicable to assets sold or retired are removed
from the accounts and the gain or loss on disposition is recognized as a
component of depreciation expense.
Deferred Charges
Franchise and license acquisition costs are amortized on a straight-line
basis over their legal or estimated useful lives of 12 to 40 years. The
excess of cost over the fair value of net assets acquired is being
amortized on a straight-line basis over estimated useful lives of 20 to 40
years.
Valuation of Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets, including property and equipment and deferred charges, using
objective methodologies. Such methodologies include evaluations based on
the cash flows generated by the underlying assets or other determinants of
fair value.
- 46 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries, where the
functional currency is the local currency, are translated into US dollars
at the December 31 exchange rate. The related translation adjustments are
recorded as a separate component of stockholders' equity (deficiency).
Revenues and expenses are translated using average exchange rates
prevailing during the year. Foreign currency transaction gains and losses
are included in other (income) expense.
Revenue Recognition
Service income is recognized as service is provided. Credit risk is managed
by disconnecting services to cable and cellular customers who are
delinquent. Net sales from electronic retailing are recognized at the time
of shipment to customers. An allowance for returned merchandise is provided
as a percentage of sales based on historical experience. The return
provision was approximately 21 percent of gross sales for each of the years
ended December 31, 1996 and 1995.
Stock-Based Compensation
Effective January 1, 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 encourages, but does not require,
companies to record compensation cost for stock-based compensation plans at
fair value. The Company has elected to continue to account for stock-based
compensation in accordance with Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations, as permitted by SFAS 123. Compensation expense for stock
options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee
must pay to acquire the stock. Compensation expense for restricted stock
awards is recorded annually based on the quoted market price of the
Company's stock at the date of the grant and the vesting period.
Compensation expense for stock appreciation rights is recorded annually
based on the changes in quoted market prices of the Company's stock or
other determinants of fair value at the end of the year (see Note 6).
Postretirement and Postemployment Benefits
The estimated costs of retiree benefits and benefits for former or inactive
employees, after employment but before retirement, are accrued and recorded
as a charge to operations during the years the employees provide services.
Investment Income
Investment income includes interest income and gains, net of losses, on the
sales of marketable securities and long-term investments. Gross realized
gains and losses are recognized using the specific identification method
(see Note 4). In 1996 and 1995, investment income also includes impairment
losses resulting from adjustments to the net realizable value of certain of
the Company's long-term investments.
Capitalized Interest
Interest is capitalized as part of the historical cost of acquiring
qualifying assets, including investments in equity method investees while
the investee has activities in progress necessary to commence its planned
principal operations. Capitalized interest for the years ended December 31,
1996 and 1995 was $32.1 million and $6.4 million, respectively.
Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities and expected benefits of utilizing net
operating loss carryforwards. The impact on deferred taxes of changes in
tax rates and laws, if any, applied to the years during which temporary
differences are expected to be settled, are reflected in the consolidated
financial statements in the period of enactment.
- 47 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
Loss per Share
For the years ended December 31, 1996, 1995 and 1994, the Company's common
stock equivalents have an antidilutive effect on the loss per share and,
therefore, have not been used in determining the total weighted average
number of common shares outstanding. Fully diluted loss per share for 1996,
1995 and 1994 is antidilutive and, therefore, has not been presented.
Derivative Financial Instruments
The Company uses derivative financial instruments, including interest rate
exchange agreements ("Swaps"), interest rate cap agreements ("Caps"),
interest rate collar agreements ("Collars") and foreign exchange option
contracts ("FX Options"), to manage its exposure to fluctuations in
interest rates and foreign currency exchange rates.
Swaps, Caps and Collars are matched with either fixed or variable rate debt
and periodic cash payments are accrued on a settlement basis as an
adjustment to interest expense. Any premiums associated with these
instruments are amortized over their term and realized gains or losses as a
result of the termination of the instruments are deferred and amortized
over the shorter of the remaining term of the instrument or the underlying
debt. Written options are marked-to-market on a current basis in the
Company's consolidated statement of operations. Gains and losses related to
qualifying hedges of foreign currency denominated debt are offset against
the translation adjustment included in stockholders' equity (deficiency).
Other FX Options are marked-to-market on a current basis in the Company's
consolidated statement of operations.
The Company does not hold or issue any derivative financial instruments for
trading purposes and is not a party to leveraged instruments (see Note 5).
The credit risks associated with the Company's derivative financial
instruments are controlled through the evaluation and monitoring of the
creditworthiness of the counterparties. Although the Company may be exposed
to losses in the event of nonperformance by the counterparties, the Company
does not expect such losses, if any, to be significant.
Sale of Stock by a Subsidiary or Equity Method Investee
Changes in the Company's proportionate share of the underlying equity of a
consolidated subsidiary or equity method investee which result from the
issuance of additional securities by such subsidiary or investee are
recognized as gains or losses in the Company's consolidated statement of
operations unless gain realization is not assured in the circumstances.
Gains for which realization is not assured are credited directly to
additional capital.
New Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which will be adopted by the Company in
1997, as required by this statement. Under the provisions of this
statement, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been surrendered
and derecognizes liabilities when extinguished. The Company does not expect
that adoption of this standard will have a significant impact on its
financial position or results of operations.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." This
standard, which clarifies and supersedes the current authoritative
accounting literature regarding the computation and disclosure of earnings
per share, is applicable to interim and annual periods ending after
December 15, 1997 and may not be applied earlier. The Company does not
expect adoption of this standard to result in significant changes to the
Company's calculation or presentation of loss per share.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 1996.
- 48 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
E! Entertainment
As of December 31, 1996, the Company owned a 10.4% interest in E!
Entertainment, an entertainment programming service that currently is
distributed to more than 42 million subscribers. The Company has the right,
by virtue of various agreements among the shareholders of E! Entertainment,
to purchase an additional 58.4% interest in E! Entertainment from Time
Warner for $321.1 million. In January 1997, the Company and The Walt Disney
Company ("Disney") entered into an agreement to form a new limited
liability company ("Newco") that will be owned 50.1% by the Company and
49.9% by Disney. Pursuant to the agreement, the Company will contribute to
Newco its 10.4% interest in E! Entertainment, the right to exercise its
option to purchase the Time Warner interest and $132.3 million in cash.
Disney will contribute to Newco $188.8 million in cash. Newco will use the
cash contributed by the Company and Disney to purchase the Time Warner
interest. Following such purchase, Newco will own a 68.8% interest in E!
Entertainment. To fund the cash portion of its contribution, the Company
will borrow $132.3 million from Disney in the form of two 10-year, 7% notes
(the "Disney Notes"). These transactions (collectively, the "E!
Acquisition") are expected to close in the first quarter of 1997, subject
to regulatory approval and certain other conditions.
Scripps Cable
In November 1996, the Company acquired the cable television operations
("Scripps Cable") of The E.W. Scripps Company ("E.W. Scripps") in exchange
for 93.048 million shares of the Company's Class A Special Common Stock,
par value $1.00 per share (the "Class A Special Common Stock"), valued at
$1.552 billion (the "Scripps Acquisition"). Scripps Cable passed more than
1.3 million homes and served more than 800,000 subscribers as of December
31, 1996, with 60% of its subscribers located in Sacramento, California and
Chattanooga and Knoxville, Tennessee. The Company has accounted for the
Scripps Acquisition under the purchase method and Scripps Cable was
consolidated with the Company effective November 1, 1996. As the
consideration given in exchange for Scripps Cable was shares of Class A
Special Common Stock, the Scripps Acquisition had no significant impact on
the Company's consolidated statement of cash flows.
The allocation of the purchase price to the assets and liabilities of
Scripps Cable is preliminary pending a final appraisal and the final
purchase price adjustment between the Company and E.W. Scripps. The terms
of the Scripps Acquisition provide for, among other things, the
indemnification of the Company by E.W. Scripps for certain liabilities,
including tax liabilities, relating to Scripps Cable prior to the
acquisition date.
Comcast-Spectacor
In July 1996, the Company completed its acquisition (the "Sports Venture
Acquisition") of a 66% interest in the Philadelphia Flyers Limited
Partnership, a Pennsylvania limited partnership ("PFLP"), the assets of
which, after giving effect to the Sports Venture Acquisition, consist of
(i) the National Basketball Association ("NBA") franchise to own and
operate the Philadelphia 76ers basketball team and related assets (the
"Sixers"), (ii) the National Hockey League ("NHL") franchise to own and
operate the Philadelphia Flyers hockey team and related assets, and (iii)
two adjacent arenas, leasehold interests in and development rights related
to the land underlying the arenas and other adjacent parcels of land
located in Philadelphia, Pennsylvania (collectively, the "Arenas").
Concurrent with the completion of the Sports Venture Acquisition, PFLP was
renamed Comcast Spectacor, L.P. ("Comcast-Spectacor").
The Sports Venture Acquisition was completed in two steps. In April 1996,
the Company purchased the Sixers for $125.0 million in cash plus assumed
net liabilities of $11.0 million through a partnership controlled by the
Company. To complete the Sports Venture Acquisition, in July 1996, the
Company contributed its interest in the Sixers, exchanged approximately 3.5
million shares of the Company's Class A Special Common Stock and 6,370
shares of the Company's newly issued 5% Series A Convertible Preferred
Stock (the "Preferred Stock" see Note 6), and paid $15.0 million in cash
for its current interest in Comcast-Spectacor. The remaining 34% interest
in Comcast-Spectacor is owned by a group, including the former majority
owner of PFLP, who also
- 49 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
manages Comcast-Spectacor (the "Minority Group"). In connection with the
Sports Venture Acquisition, Comcast-Spectacor assumed the outstanding
liabilities relating to the Sixers and the Arenas, including a mortgage
obligation of $155.0 million. The Company accounts for its interest in
Comcast-Spectacor under the equity method. The issuance of the Preferred
Stock and the Class A Special Common Stock in the Sports Venture
Acquisition had no impact on the Company's consolidated statement of cash
flows due to their non-cash nature.
Sprint Spectrum
The Company, Tele-Communications, Inc. ("TCI"), Cox Communications, Inc.
("Cox," and together with the Company and TCI, the "Cable Parents") and
Sprint Corporation ("Sprint," and together with the Cable Parents, the
"Parents"), and certain subsidiaries of the Parents (the "Partner
Subsidiaries") engage in the wireless communications business through a
limited partnership known as "Sprint Spectrum," a development stage
enterprise. The Company owns 15% of Sprint Spectrum and accounts for its
investment in Sprint Spectrum under the equity method (see Note 4).
Sprint Spectrum was the successful bidder for 29 personal communications
services ("PCS") licenses in the auction conducted by the FCC from December
1994 through mid-March 1995. The purchase price for the licenses was $2.11
billion, all of which has been paid to the FCC. In addition, Sprint
Spectrum has invested, and may continue to invest, in other entities that
hold PCS licenses, may acquire PCS licenses in future FCC auctions or from
other license holders and may affiliate with other license holders.
The Partner Subsidiaries have committed to contribute $4.2 billion in cash
to Sprint Spectrum through 1999, of which the Company's share is $630.0
million. Of this funding requirement, the Company has made total cash
contributions to Sprint Spectrum of $452.8 million through December 31,
1996 and issued a $105.0 million guaranty on a portion of Sprint Spectrum's
outstanding debt. The Company anticipates that Sprint Spectrum's capital
requirements over the next several years will be significant. Requirements
in excess of committed capital are planned to be funded by Sprint Spectrum
through external financing, including, but not limited to, vendor
financing, bank financing and securities offered to the public. In August
1996, Sprint Spectrum sold $750.0 million principal amount at maturity of
Senior Notes and Senior Discount Notes due in 2006 in a public offering. In
October 1996, Sprint Spectrum closed three credit agreements which provided
$2.0 billion in bank financing and $3.1 billion in vendor financing. The
timing of the Company's remaining capital contributions to Sprint Spectrum
is dependent upon a number of factors, including Sprint Spectrum's working
capital requirements. The Company anticipates funding its remaining capital
commitments to Sprint Spectrum through its cash flows from operating
activities, its existing cash, cash equivalents, short-term investments and
lines of credit or other external financing, or by a combination of these
sources.
QVC
In February 1995, the Company and TCI acquired all of the outstanding stock
of QVC not previously owned by them (approximately 65% of such shares on a
fully diluted basis) for $46, in cash, per share (the "QVC Acquisition"),
representing a total cost of approximately $1.4 billion. The QVC
Acquisition, including the exercise of certain warrants held by the
Company, was financed with cash contributions from the Company and TCI of
$296.3 million and $6.6 million, respectively, borrowings of $1.1 billion
under a $1.2 billion QVC credit facility and existing cash and cash
equivalents held by QVC. Following the acquisition, the Company and TCI
owned, through their respective subsidiaries, 57.45% and 42.55%,
respectively, of QVC. The Company, through a management agreement, is
responsible for the day to day operations of QVC. The Company has accounted
for the QVC Acquisition under the purchase method and QVC was consolidated
with the Company effective February 1, 1995.
- 50 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
Maclean Hunter
In December 1994, the Company, through Comcast MHCP Holdings, L.L.C. (the
"LLC"), acquired the US cable television and alternate access operations of
Maclean Hunter Limited ("Maclean Hunter") from Rogers Communications Inc.
and all of the outstanding shares of Barden Communications, Inc.
(collectively, such acquisitions are referred to as the "Maclean Hunter
Acquisition") for approximately $1.2 billion in cash. The Company and the
California Public Employees' Retirement System ("CalPERS") invested $305.6
million and $250.0 million, respectively, in the LLC, which is owned 55% by
a wholly owned subsidiary of the Company and 45% by CalPERS, and is managed
by the Company. The balance of the Maclean Hunter Acquisition was financed
through borrowings under a credit facility of a wholly owned subsidiary of
the LLC. The Company has accounted for the Maclean Hunter Acquisition under
the purchase method and Maclean Hunter was consolidated with the Company
effective December 22, 1994.
Cellular Rebuild
In 1995, the Company's cellular division purchased $172.0 million of
switching and cell site equipment which replaced the existing switching and
cell site equipment (the "Cellular Rebuild"). The Company substantially
completed the Cellular Rebuild during 1995. Accordingly, during 1995, the
Company charged $110.0 million to depreciation expense which represented
the difference between the net book value of the equipment replaced and the
residual value realized upon its disposal.
Unaudited Pro Forma Information
The following unaudited pro forma information for the years ended December
31, 1996 and 1995 has been presented as if the Scripps Acquisition and the
QVC Acquisition had occurred on January 1, 1995. This unaudited pro forma
information is based on historical results of operations adjusted for
acquisition costs and, in the opinion of management, is not necessarily
indicative of what the results would have been had the Company operated the
acquired entities since January 1, 1995 (dollars in millions, except per
share data).
Year Ended December 31,
1996 1995
Revenues................................... $4,290.6 $3,772.0
Loss before extraordinary items............ (79.3) (83.5)
Net loss................................... (80.3) (89.6)
Net loss per share......................... (.24) (.27)
- 51 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
4. INVESTMENTS, PRINCIPALLY IN AFFILIATES
<TABLE>
<CAPTION>
December 31,
1996 1995
(Dollars in millions)
<S> <C> <C>
Equity method.......................................... $936.4 $678.8
Public companies....................................... 165.5 170.1
Privately held companies............................... 75.8 57.5
-------- ------
$1,177.7 $906.4
======== ======
</TABLE>
Equity Method
The Company records its proportionate interests in the net income (loss) of
substantially all of its investees three months in arrears, other than the
UK Investees. The Company's recorded investments exceed its proportionate
interests in the book value of the investees' net assets by $233.2 million
as of December 31, 1996 (primarily related to the investments in
Comcast-Spectacor and Sprint Spectrum). Such excess is being amortized to
equity in net income or loss, primarily over a period of twenty years,
which is consistent with the estimated lives of the underlying assets. The
original cost of investments accounted for under the equity method totaled
$1.241 billion and $962.2 million as of December 31, 1996 and 1995,
respectively. Summarized financial information for the Company's equity
method investees for 1996, 1995 and 1994 is presented below (in millions).
<TABLE>
<CAPTION>
Sprint UK
Spectrum TCGI Investees QVC Other Combined
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1996:
Combined Results of Operations
Revenues, net............................... $0.1 $192.9 $155.2 $440.0 $788.2
Operating, selling, general and
administrative expenses................... 208.0 180.9 140.9 486.0 1,015.8
Depreciation and amortization............... 1.9 57.2 57.6 60.0 176.7
Operating loss.............................. (209.8) (45.2) (43.3) (106.0) (404.3)
Net loss (1)................................ (344.9) (84.8) (72.2) (140.8) (642.7)
Company's Equity in Net Loss
Equity in current period net loss........... ($51.7) ($15.1) ($28.6) ($45.9) ($141.3)
Amortization income (expense)............... 0.6 (1.1) (0.3) (2.7) (3.5)
------- ------- ------ ------ --------
Total equity in net loss.................. ($51.1) ($16.2) ($28.9) ($48.6) ($144.8)
====== ====== ====== ====== =======
Year Ended December 31, 1995:
Combined Results of Operations
Revenues, net............................... $ $180.5 $143.7 $425.9 $314.4 $1,064.5
Operating, selling, general and
administrative expenses................... 21.6 167.8 156.6 354.7 347.8 1,048.5
Depreciation and amortization............... 0.2 44.4 52.2 13.0 57.6 167.4
Operating (loss) income..................... (21.8) (31.7) (65.1) 58.2 (91.0) (151.4)
Net (loss) income (1)....................... (31.2) (72.1) (91.2) 28.3 (116.1) (282.3)
Company's Equity in Net (Loss) Income
Equity in current period net (loss)
income.................................... ($4.7) ($13.6) ($37.5) $4.3 ($29.8) ($81.3)
Amortization (expense) income............... (0.5) (2.1) 1.2 (3.9) (5.3)
------- ------- ------ ------ ------ --------
Total equity in net (loss) income......... ($5.2) ($15.7) ($37.5) $5.5 ($33.7) ($86.6)
======= ======= ====== ====== ====== ========
</TABLE>
- 52 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
<TABLE>
<CAPTION>
Sprint UK
Spectrum TCGI Investees QVC Other Combined
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Combined Results of Operations
Revenues, net............................... $125.8 $97.6 $1,336.7 $138.7 $1,698.8
Operating, selling, general and
administrative expenses................... 128.8 125.0 1,138.2 132.4 1,524.4
Depreciation and amortization............... 22.3 32.9 44.9 54.3 154.4
Operating (loss) income..................... (25.3) (60.3) 153.6 (48.0) 20.0
Net (loss) income (1)....................... (39.6) (65.8) 41.1 (72.7) (137.0)
Company's Equity in Net (Loss) Income
Equity in current period net (loss)
income.................................... ($7.3) ($25.1) $6.3 ($14.2) ($40.3)
Amortization (expense) income............... (2.1) 4.9 (3.4) (0.6)
------- ------ ------ ------ --------
Total equity in net (loss) income......... ($9.4) ($25.1) $11.2 ($17.6) ($40.9)
======= ====== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
Sprint UK
Spectrum TCGI Investees QVC Other Combined
<S> <C> <C> <C> <C> <C> <C>
Combined Financial Position
As of December 31, 1996:
Current assets.............................. $477.5 $988.8 $138.3 $292.7 $1,897.3
Noncurrent assets........................... 2,921.8 1,037.1 711.4 1,262.2 5,932.5
Current liabilities......................... 113.1 203.3 204.1 280.5 801.0
Noncurrent liabilities...................... 682.8 1,011.1 427.6 1,180.8 3,302.3
As of December 31, 1995:
Current assets.............................. $1.3 $59.8 $257.2 $118.9 $437.2
Noncurrent assets........................... 2,242.8 694.9 663.0 687.6 4,288.3
Current liabilities......................... 20.1 124.4 107.1 66.8 318.4
Noncurrent liabilities...................... 400.0 565.9 717.2 1,683.1
<FN>
- --------
(1) Net (loss) income also represents (loss) income from continuing operations
before extraordinary items and cumulative effect of changes in accounting
principle.
</FN>
</TABLE>
Sprint Spectrum. The Company made its initial investment in 1994 and, as of
December 31, 1996, holds a general and limited partnership interest of 15%
in Sprint Spectrum, a limited partnership engaged in the wireless
communications business (see Note 3). The investment in Sprint Spectrum is
accounted for under the equity method based on the Company's general
partnership interest and its representation on the partnership's board of
directors.
TCGI. Through June 1996, the Company held investments in Teleport
Communications Group, Inc. ("TCGI"), TCG Partners and certain local joint
ventures (the "Teleport Joint Ventures") managed by TCGI and TCG Partners.
TCGI is one of the largest competitive alternative access providers in the
US in terms of route miles. The Company had a 20.0% investment in TCGI and
interests in the Teleport Joint Ventures ranging from 12.4% to 20.3%. On
June 27, 1996, TCGI sold approximately 27 million shares of its Class A
Common Stock (the "TCGI Class A Stock"), for $16 per share, in an initial
public offering (the "TCGI IPO"). In connection with the TCGI IPO, TCGI,
the Company and subsidiaries of Cox, TCI and Continental Cablevision
("Continental" and collectively with Cox, TCI and the Company, the "Cable
Stockholders") entered into an agreement pursuant
- 53 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
to which TCGI was reorganized (the "Reorganization"). The Reorganization
consisted of, among other things: (i) the acquisition by TCGI of TCG
Partners; (ii) the acquisition by TCGI of additional interests in the
Teleport Joint Ventures (including 100% of those interests held by the
Company); and (iii) the contribution to TCGI of $269.0 million aggregate
principal amount of indebtedness, plus accrued interest thereon, owed by
TCGI to the Cable Stockholders (except that TCI retained a $26 million
subordinated note of TCGI), including $53.8 million principal amount and
$4.1 million of accrued interest owed to the Company. In connection with
the Reorganization, the Company received 25.6 million shares of TCGI's
Class B Common Stock (the "TCGI Class B Stock"). Each share of TCGI Class B
Stock is entitled to voting power equivalent to ten shares of TCGI Class A
Stock and is convertible, at the option of the holder, into one share of
TCGI Class A Stock. The Company recorded a $40.6 million increase in its
proportionate share of TCGI's net assets as a gain from equity offering of
affiliate in its 1996 consolidated statement of operations (the "TCGI
Gain"). After giving effect to the Reorganization and the TCGI IPO, the
Company owns 19.5% of the outstanding TCGI Class B Stock representing a
19.1% voting interest and a 16.1% equity interest. The Company continues to
account for its interest in TCGI under the equity method based upon its
voting interest maintained through the TCGI Class B Stock, its
representation on TCGI's board of directors and its participation in a TCGI
stockholder agreement granting certain rights to a control group. Assuming
conversion of the TCGI Class B Stock held by the Company into TCGI Class A
Stock, the Company's investment would have a fair value of approximately
$781.5 million, based on the quoted market price of the TCGI Class A Stock
as of December 31, 1996.
UK Investees. As of December 31, 1996, Comcast UK Cable, a consolidated
subsidiary of the Company, holds a 27.5% interest and a 50.0% interest in
Birmingham Cable Corporation Limited and Cable London PLC. In addition,
Comcast UK Cable has historically held investments in Cambridge Holding
Company Limited ("Cambridge Cable") and Cable Programme Partners-1 Limited
Partnership ("CPP-1"). In March 1996, Comcast UK Cable purchased the 50.0%
interest in Cambridge Cable that it had not previously owned for cash and
approximately 8.9 million of its Class A Common Shares (the "Cambridge
Acquisition"). Following the Cambridge Acquisition, Comcast UK Cable owns
100.0% of Cambridge Cable and has consolidated the financial position and
results of operations of Cambridge Cable beginning on March 31, 1996.
During 1995, CPP-1, which previously developed and distributed cable
programming in the UK, sold its only channel and wound down its operations
to a minimal level of activity. As a result, the Company reduced the
carrying value of its 16.4% interest in CPP-1 to zero.
In September 1994, Comcast UK Cable consummated an initial public offering
(the "IPO") of 15.0 million of its Class A Common Shares for net proceeds
of $209.4 million. As a result of the IPO and related transactions, the
Company recorded an increase in its proportionate share of Comcast UK
Cable's net assets as an increase in additional capital of $59.3 million.
In addition, as a result of the Cambridge Acquisition, the Company recorded
the increase in its proportionate share of Comcast UK Cable's net assets as
an increase in additional capital of $11.6 million. The increases in the
Company's proportionate share of Comcast UK Cable's net assets as a result
of these transactions were recorded directly to additional capital since
gain realization was not assured based on the start-up nature of the
operations of Comcast UK Cable and its affiliates. As a result of these
transactions, the Company beneficially owns 25.7% of the total outstanding
Comcast UK Cable common shares. Because the Class A Common Shares are
entitled to one vote per share and the Class B Common Shares are entitled
to ten votes per share, the Company, through its ownership of the Class B
Common Shares, controls 77.6% of the total voting power of all outstanding
Comcast UK Cable common shares and continues to consolidate Comcast UK
Cable.
QVC. Through January 31, 1995, QVC's fiscal year end was January 31, and
therefore, the Company recorded its equity interest in QVC's net income two
months in arrears. For the year ended December 31, 1995, the Company
recorded its proportionate interest in QVC's net income for the period from
November 1, 1994 through January 31, 1995. Such results were not previously
recorded by the Company since QVC's results of operations were recorded two
months in arrears. QVC's results of operations and financial position,
subsequent to January 31, 1995, are not separately presented as QVC was
consolidated with the Company effective February 1, 1995
- 54 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
(see Note 3).The summarized financial information for the year ended
December 31, 1994 includes financial information for QVC for the twelve
months ended October 31, 1994.
Other. The Company's 13 other equity investees include investments in wired
telecommunications (including Garden State - see Note 1), wireless
telecommunications and content providers (including Comcast-Spectacor - see
Note 3). The Company holds interests representing less than 20% of the
total outstanding ownership interests in certain of its equity method
investees. The equity method of accounting is utilized for these
investments based on the type of investment (i.e. general partnership
interest), board representation, participation in a controlling investor
group, significant shareholder rights or a combination of these and other
factors. In addition, the Company's 66% interest in Comcast-Spectacor is
accounted for under the equity method since the Company does not maintain
control over Comcast-Spectacor's operations. The Company does not consider
these other equity method investments to be individually significant to its
consolidated financial position, results of operations or liquidity.
Accordingly, the Company has not included separate audited financial
statements for these entities in this filing on Form 10-K.
-------------------------
Except for Sprint Spectrum (see Note 3), the Company does not have any
additional significant contractual commitments with respect to any of its
investments. However, to the extent the Company does not fund its
investees' capital calls, it exposes itself to dilution of its ownership
interests.
Public Companies
The following is a summary of the Company's investments in unrestricted
publicly-traded companies (dollars in millions):
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Carrying Unrealized Carrying Unrealized
Value Gain (Loss) Value Gain (Loss)
<S> <C> <C> <C> <C>
Nextel Communications, Inc.
("Nextel") (1).......................... $75.4 $14.2 $30.2 ($0.9)
Turner Broadcasting System, Inc.
("TBS") (2)............................. 44.7 35.8
Other..................................... 90.1 (9.0) 95.2 (0.7)
------ ---- ------ -----
$165.5 $5.2 $170.1 $34.2
====== ==== ====== =====
-----------------
<FN>
(1) As of December 31, 1996 and 1995, the Company held 3.3 million and
693,000 shares of Nextel common stock, respectively. The investment
includes options, which expire in September 1997, to acquire an
additional 25.0 million shares of Nextel common stock at $16 per
share. As of December 31, 1996, these options have been adjusted to
their fair value of $32.6 million, as required by Generally Accepted
Accounting Principles issued during 1996, reflecting an unrealized
gain of $12.6 million. As of December 31, 1995, these options were
recorded at their cost of $20.0 million and had an estimated fair
value of $99.7 million. At December 31, 1995, the associated
unrealized gain was not reflected in the above table or in the
Company's consolidated balance sheet. In 1997, the Company sold these
options to Nextel for $25.0 million.
(2) The Company's investment in TBS was exchanged for shares of Time
Warner during 1996. The above table excludes the Company's investment
in Time Warner as of December 31, 1996 (see below).
</FN>
</TABLE>
In February 1996, in connection with certain preemptive rights of the
Company under previously existing agreements with Nextel, the Company
purchased an additional 8.16 million shares, classified as long-term
investments available for sale, of Nextel common stock at $12.25 per share,
for a total cost of $99.9 million. During the years ended December 31, 1996
and 1995, the Company sold 5.6 million shares and 11.3 million shares,
respectively, of Nextel common stock for $105.4 million and $212.6 million,
respectively, and recognized
- 55 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
pre-tax gains of $35.4 million and $36.2 million, respectively, as
investment income in its consolidated statement of operations.
The Company received 1.36 million shares of Time Warner common stock (the
"Time Warner Stock") in exchange (the "Exchange") for all of the shares of
TBS stock (the "TBS Stock") held by the Company as a result of the merger
of Time Warner and TBS in October 1996. As a result of the Exchange, the
Company recognized a gain of $47.3 million in the fourth quarter of 1996,
representing the difference between the Company's historical cost basis in
the TBS Stock of $8.9 million and the new basis for the Company's
investment in Time Warner Stock of $56.2 million, which was based on the
closing price of the Time Warner Stock on the merger date of $41.375 per
share. In December 1996 and January 1997, the Company sold 92,500 shares
and 1.27 million shares, respectively, of the Time Warner Stock,
representing the Company's entire interest in Time Warner, for $3.7 million
and $48.6 million, respectively. As of December 31, 1996, the 1.27 million
shares of Time Warner Stock held by the Company were recorded at fair value
of $47.4 million and included in short-term investments in the Company's
consolidated balance sheet.
In January 1995, the Company exchanged its investments in Heritage
Communications, Inc. with TCI for 13.3 million publicly-traded Class A
common shares of TCI with a fair market value of $290.0 million. Shortly
thereafter, the Company sold 9.1 million unrestricted TCI shares for total
proceeds of $188.1 million (collectively, the "Heritage Transaction"). As a
result of these transactions, the Company recognized a pre-tax gain of
$141.0 million as investment income in its 1995 consolidated statement of
operations.
Privately Held Companies
It is not practicable to estimate the fair value of the Company's
investments in privately held companies due to a lack of quoted market
prices and excessive costs involved in determining such fair value.
- 56 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
1996 1995
(Dollars in millions)
<S> <C> <C>
Notes payable to banks and insurance companies, due
in installments through 2004.......................................... $4,662.5 $4,476.5
Senior participating redeemable zero coupon notes, due 2000............. 447.9 402.4
11.20% Senior discount debentures, due 2007............................. 339.2 304.3
10% Subordinated debentures, due 2003................................... 126.6 124.6
10-1/4% Senior subordinated debentures, due 2001........................ 125.0 125.0
9-3/8% Senior subordinated debentures, due 2005......................... 250.0 250.0
9-1/8% Senior subordinated debentures, due 2006......................... 250.0 250.0
9-1/2% Senior subordinated debentures, due 2008......................... 200.0 200.0
10-5/8% Senior subordinated debentures, due 2012........................ 300.0 300.0
Convertible subordinated debt:
3-3/8% / 5-1/2% Step-up convertible subordinated
debentures, due 2005................................................ 250.0 250.0
1-1/8% Discount convertible subordinated debentures, due 2007......... 341.3 327.5
Other debt, due in installments principally through 2000................ 39.7 18.9
-------- --------
7,332.2 7,029.2
Less current portion ................................................... 229.5 85.4
-------- --------
$7,102.7 $6,943.8
======== ========
</TABLE>
The maturities of long-term debt outstanding as of December 31, 1996 for
the four years after 1997 are as follows:
(Dollars in millions)
1998............................. $671.5
1999............................. 462.5
2000............................. 668.1
2001............................. 1,282.4
Zero Notes
The senior participating redeemable zero coupon notes, due 2000 (the "Zero
Notes"), have an aggregate face amount payable at maturity of $629.4
million, accreting at 11% per annum. If, at maturity, or an earlier
redemption date, 35%, subject to reduction in certain circumstances, of the
private market value, as determined by applicable procedures, of the
Company's cellular subsidiaries is greater than the accreted value plus
certain premiums, then such greater amount will constitute the redemption
price. The holders of the Zero Notes have the right, upon request of the
holders of the majority of the notes, to require the Company to redeem the
Zero Notes at any time on or after March 5, 1998. The accreted value of the
Zero Notes, without giving effect to the alternative formula based on the
private market value of the cellular business, of $447.9 million as of
December 31,1996 has been presented above as a 1998 maturity. As of
December 31, 1996, $209.7 million accreted value of the Zero Notes is
payable, at the Company's option, either in cash or the Company's Class A
Special Common Stock.
- 57 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
2007 Discount Debentures
In November 1995, Comcast UK Cable received net proceeds of $291.1 million
from the sale of $517.3 million principal amount at maturity of its 11.20%
senior discount debentures due 2007 (the "2007 Discount Debentures").
Interest accretes on the 2007 Discount Debentures at 11.20% per annum,
compounded semi-annually from November 15, 1995 to November 15, 2000, after
which date interest will be paid in cash on each May 15 and November 15,
through November 15, 2007.
Convertible Subordinated Debt
The 3-3/8% / 5-1/2% step-up convertible subordinated debentures due 2005
are convertible into the Company's Class A Special Common Stock at a
conversion price of $24.50 per share. Interest on the debentures accrues at
a rate per annum of 3-3/8% from the date of issuance to September 8, 1997.
From and after such time, the Company will have the right to redeem the
debentures for cash. Interest will accrue at a rate per annum of 5- 1/2%
from September 9, 1997 to maturity, or earlier redemption.
The 1-1/8% discount convertible subordinated debentures due 2007 are
convertible into the Company's Class A Special Common Stock at a conversion
rate equal to 19.3125 shares per $1,000 principal amount at maturity. The
conversion price will not be adjusted for accrued interest or original
issue discount. The debentures were issued at 55.363% of their principal
amount of $541.9 million at maturity resulting in a 6% effective annual
yield to maturity. At any time on or after October 15, 1997, the Company
may redeem such debentures for cash.
Debt Extinguishments
In May 1996, the Company expensed unamortized debt acquisition costs of
$1.8 million in connection with the prepayment of a portion of a
subsidiary's outstanding debt, resulting in an extraordinary loss, net of
tax of $1.0 million. The Company incurred debt extinguishment costs
totaling $9.4 million during 1995 in connection with the refinancing of
certain indebtedness, resulting in an extraordinary loss, net of tax, of
$6.1 million or $.02 per share. During 1994, the Company paid premiums and
expensed unamortized debt acquisition costs totaling $18.0 million,
primarily in connection with the redemption of its $150.0 million, 11-7/8%
Senior subordinated debentures due 2004, resulting in an extraordinary
loss, net of tax, of $11.7 million or $.05 per share.
Interest Rates
Fixed interest rates on notes payable to banks and insurance companies
range from 8.6% to 10.57%. Bank debt interest rates vary based upon one or
more of the following rates at the option of the Company:
Prime rate to prime plus 1%;
London Interbank Offered Rate (LIBOR) plus 3/8% to 2%; and
Certificate of deposit rate plus 3/4% to 2%.
As of December 31, 1996 and 1995, the Company's effective weighted average
interest rate on its variable rate bank and insurance company debt
outstanding was 6.53% and 7.13%, respectively.
Interest Rate and Foreign Currency Risk Management
The Company is exposed to market risk including changes in interest rates
and foreign currency exchange rates. To manage the volatility relating to
these exposures, the Company enters into various derivative transactions
pursuant to the Company's policies in areas such as counterparty exposure
and hedging practices. Positions are monitored using techniques including
market value and sensitivity analyses.
The use of interest rate risk management instruments, such as Swaps, Caps
and Collars, is required under the terms of certain of the Company's
outstanding debt agreements. The Company's policy is to manage interest
costs using a mix of fixed and variable rate debt. Using Swaps, the Company
agrees to exchange, at specified intervals, the difference between fixed
and variable interest amounts calculated by reference to an agreed-upon
notional principal amount. Caps are used to lock in a maximum interest rate
should variable rates rise, but enable
- 58 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
the Company to otherwise pay lower market rates. Collars limit the
Company's exposure to and benefits from interest rate fluctuations on
variable rate debt to within a certain range of rates.
The following table summarizes the terms of the Company's existing Swaps,
Caps and Collars as of December 31, 1996 and 1995 (dollars in millions):
<TABLE>
<CAPTION>
Notional Average Estimated
Amount Maturities Interest Rate Fair Value
<S> <C> <C> <C> <C>
As of December 31, 1996
Variable to Fixed Swaps $1,080.0 1997-2000 5.85% $7.4
Caps 250.0 1997 8.55%
Collars 620.0 1997-1998 6.98% / 5.16% 0.1
As of December 31, 1995
Variable to Fixed Swaps $650.0 1997-2000 6.05% ($6.8)
Caps 250.0 1997 8.20%
Collars 300.0 1997 7.21% / 5.09% (0.9)
</TABLE>
The notional amounts of interest rate agreements, as presented in the above
table, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts.
While Swaps, Caps and Collars represent an integral part of the Company's
interest rate risk management program, their incremental effect on interest
expense for the years ended December 31, 1996, 1995 and 1994 was not
significant.
The Company has entered into certain FX Options as a normal part of its
foreign currency risk management efforts. During 1995, Comcast UK Cable
entered into certain foreign exchange put option contracts ("FX Puts")
which may be settled only on November 16, 2000. These FX Puts are used to
limit Comcast UK Cable's exposure to the risk that the eventual cash
outflows related to net monetary liabilities denominated in currencies
other than its functional currency (the UK Pound Sterling or "UK Pound")
(principally the 2007 Discount Debentures) are adversely affected by
changes in exchange rates. As of December 31, 1996 and 1995, Comcast UK
Cable had (pound)250.0 million notional amount of FX Puts to purchase US
dollars at an exchange rate of $1.35 per (pound)1.00 (the "Ratio"). The FX
Puts provide a hedge, to the extent the exchange rate falls below the
Ratio, against Comcast UK Cable's net monetary liabilities denominated in
US dollars since gains and losses realized on the FX Puts are offset
against foreign exchange gains or losses realized on the underlying net
liabilities. Premiums paid for the FX Puts, of $21.4 million, have been
recorded as assets in the Company's consolidated balance sheet. These
premiums are being amortized over the terms of the related contracts. As of
December 31, 1996, the FX Puts had a carrying value of $18.4 million and an
estimated fair value of $5.5 million. The differences between the carrying
amounts and the estimated fair value of the FX Puts were not significant as
of December 31, 1995.
In the fourth quarter of 1995, in order to reduce hedging costs, Comcast UK
Cable sold foreign exchange call option contracts ("FX Calls") to exchange
(pound)250.0 million notional amount. Comcast UK Cable received $5.3
million from the sale of these contracts. These contracts may only be
settled on their expiration dates. Of these contracts, (pound)200.0 million
notional amount, with an exchange ratio of $1.70 per (pound)1.00, expired
unexercised in November 1996 while the remaining contract, with a
(pound)50.0 million notional amount and an exchange ratio of $1.62 per
(pound)1.00, has a settlement date in November 2000. In the fourth quarter
of 1996, in order to continue to reduce hedging costs, Comcast UK Cable
sold additional FX Calls, for proceeds of $3.5 million, to exchange
(pound)200.0 million notional amount at an average exchange ratio of $1.75
per (pound)1.00. These contracts may only be settled on their expiration
dates during the fourth quarter of 1997. The FX Calls are marked-to-market
on a current basis in the Company's consolidated statement of operations.
- 59 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
As of December 31, 1996 and 1995, the estimated fair value of the
liabilities related to the FX Calls, as recorded in the Company's
consolidated balance sheet, was $12.2 million and $5.8 million,
respectively. Changes in fair value between measurement dates relating to
the FX Calls resulted in exchange losses of $2.2 million during the year
ended December 31, 1996 in the Company's consolidated statement of
operations. There were no significant exchange gains or losses relating to
these contracts during the year ended December 31, 1995.
Estimated Fair Value
The Company's long-term debt had estimated fair values of $7.323 billion
and $7.089 billion as of December 31, 1996 and 1995, respectively. The
estimated fair value of the Company's publicly traded debt is based on
quoted market prices for that debt. Interest rates that are currently
available to the Company for issuance of debt with similar terms and
remaining maturities are used to estimate fair value for debt issues for
which quoted market prices are not available.
Debt Covenants
Certain of the Company's subsidiaries' loan agreements contain restrictive
covenants which limit the subsidiaries' ability to enter into arrangements
for the acquisition of property and equipment, investments, mergers and the
incurrence of additional debt. Certain of these agreements require that
certain ratios and cash flow levels be maintained and contain certain
restrictions on dividend payments and advances of funds to the Company. The
Company and its subsidiaries were in compliance with such restrictive
covenants for all periods presented. In addition, the stock of certain
subsidiary companies is pledged as collateral for the notes payable to
banks and insurance companies.
As of December 31, 1996, $376.8 million of the Company's cash, cash
equivalents and short-term investments is restricted to use by subsidiaries
of the Company under contractual or other arrangements, including $213.7
million which is restricted to use by Comcast UK Cable.
Restricted net assets of the Company's subsidiaries were approximately $2.4
billion as of December 31, 1996. The restricted net assets of subsidiaries
exceeds the Company's consolidated net assets as certain of the Company's
subsidiaries have a stockholders' deficiency.
Lines and Letters of Credit
As of February 1, 1997, certain subsidiaries of the Company had unused
lines of credit of $1.679 billion. The availability and use of these unused
lines of credit is restricted by the covenants of the related debt
agreements and to subsidiary general purposes and dividend declaration. In
addition, of the total unused lines of credit, $625.0 million was
established by a subsidiary for debt refinancing.
As of December 31, 1996, the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totaling $102.3 million to
cover potential fundings associated with several projects.
6. STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred Stock
The Company is authorized to issue, in one or more series, up to a maximum
of 20.0 million shares of preferred stock without par value. The shares can
be issued with such designations, preferences, qualifications, privileges,
limitations, restrictions, options, conversion rights and other special or
related rights as the Company's Board of Directors (the "Board") shall from
time to time fix by resolution.
In July 1996, in connection with the Sports Venture Acquisition (see Note
3), the Company issued 6,370 shares of Preferred Stock. Each holder of
shares of the Preferred Stock is entitled to receive cumulative cash
dividends at the annual rate of $250 per share, payable quarterly in
arrears. The Preferred Stock is redeemable, at the option of the Company,
beginning in July 1999 at a redemption price of $5,000 per share plus
accrued and unpaid dividends, subject to certain conditions and conversion
adjustments. The Preferred Stock is convertible,
- 60 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
at the option of the holder, into shares of the Company's Class A Special
Common Stock at a ratio of 209.1175 shares of Class A Special Common Stock
for each share of Preferred Stock, subject to certain conditions. The
holders of the Preferred Stock are not entitled to any voting rights except
as otherwise provided by the Company's Articles of Incorporation or by
applicable law.
Common Stock
Class A Special Common Stock is generally nonvoting and each share of Class
A Common Stock is entitled to one vote. Each share of Class B Common Stock
is entitled to fifteen votes and is convertible, share for share, into
Class A or Class A Special Common Stock, subject to certain restrictions.
As of December 31, 1996, 20.7 million shares of Class A Special Common
Stock were reserved for issuance upon conversion of the Company's
convertible subordinated debentures.
Repurchase Program
Concurrent with the announcement of the Scripps Acquisition in October
1995, the Company announced that its Board authorized a market repurchase
program (the "Repurchase Program") pursuant to which the Company may
purchase, at such times and on such terms as it deems appropriate, up to
$500.0 million of its outstanding common stock, subject to certain
restrictions and market conditions. During the years ended December 31,
1996 and 1995, the Company repurchased 10.5 million shares and 680,000
shares, respectively, of its common stock for aggregate consideration of
$180.0 million and $12.4 million, respectively, pursuant to the Repurchase
Program. During January 1997, the Company repurchased an additional 450,000
shares of its common stock for aggregate consideration of $7.6 million. The
Repurchase Program will terminate in May 1997. In addition, as of December
31, 1996, the Company has put options outstanding on 4.0 million shares of
its Class A Special Common Stock (see Note 9).
Share Exchange
In December 1995, the Company issued 751,000 shares of its Class A Special
Common Stock to the Company's Retirement-Investment Plan in exchange for an
equivalent number of shares of its Class A Common Stock held as an
investment of the Plan. The Class A Common Stock was subsequently retired.
Stock-Based Compensation Plans
As of December 31, 1996, the Company and its subsidiaries have several
stock-based compensation plans for certain employees, officers, directors
and other persons designated by the applicable compensation committees of
the Boards of Directors of the Company and its subsidiaries. These plans
are described below.
Comcast Option Plan. The Company maintains qualified and nonqualified stock
option plans for certain employees, directors and other persons under which
fixed stock options are granted and the option price is not less than the
fair value of a share of the underlying stock at the date of grant
(collectively, the "Comcast Option Plan"). Under the Comcast Option Plan,
36.1 million shares of Class A Special Common Stock and 658,000 shares of
Class B Common Stock were reserved as of December 31, 1996. Option terms
are generally from five to 10 1/2 years, with options generally becoming
exercisable between two and 9 1/2 years from the date of grant.
- 61 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
A summary of the activity of the Comcast Option Plan as of and for the
years ended December 31, 1996, 1995, and 1994 is presented below (options
in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
<S> <C> <C> <C> <C> <C> <C>
Class A Special Common Stock
Outstanding at
beginning of year 14,208 $14.25 11,868 $13.73 7,512 $9.34
Granted 1,308 17.41 2,899 15.88 5,165 19.61
Exercised (199) 8.72 (267) 9.13 (527) 8.55
Canceled (466) 16.08 (292) 15.42 (282) 13.84
------ ------ -----
Outstanding at
end of year 14,851 14.54 14,208 14.25 11,868 13.73
====== ====== =====
Exercisable at end of year 6,875 $13.40 5,812 $13.13 4,950 $13.12
====== ====== =====
Class A Common Stock
Outstanding at
beginning of year 229 $4.87 362 $4.74 468 $4.57
Exercised (229) 4.87 (129) 4.52 (81) 3.71
Canceled (4) 4.92 (25) 4.84
------ ------ -----
Outstanding at
end of year 229 4.87 362 4.74
====== ====== =====
Exercisable at end of year 226 $4.86 206 $4.66
====== ====== =====
Class B Common Stock
Outstanding at beginning
and end of year 658 $5.70 658 $5.70 658 $5.70
====== ====== =====
Exercisable at end of year 658 $5.70 557 $5.45 304 $5.59
====== ====== =====
</TABLE>
- 62 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
The following table summarizes information about the Class A Special Common
Stock options outstanding under the Comcast Option Plan as of December 31,
1996 (options in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted-
Range of Number Average Weighted- Number Weighted-
Exercise Outstanding Remaining Average Exercisable Average
Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
<S> <C> <C> <C> <C> <C>
$6.22 to $9.92 2,851 2.8 Years $7.14 1,811 $7.12
$10.17 to $14.63 3,828 5.3 Years 11.78 2,247 11.14
$15.00 to $17.63 2,652 8.7 Years 15.95 59 15.57
$17.75 to $23.28 5,520 5.6 Years 19.61 2,758 19.33
------ -----
14,851 6,875
====== =====
</TABLE>
The weighted-average fair value at date of grant of a Class A Special
Common Stock option granted under the Comcast Option Plan during 1996 and
1995 was $9.71 and $9.67, respectively. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for grants in
1996 and 1995: dividend yield of .53% and .65% for 1996 and 1995,
respectively; expected volatility of 34.9% and 40.7% for 1996 and 1995,
respectively; risk-free interest rate of 6.8% and 7.6% for 1996 and 1995,
respectively; expected option lives of 9.9 years and 10.2 years for 1996
and 1995, respectively; and a forfeiture rate of 3.0% for both years.
QVC Tandem Plan. QVC established a qualified and nonqualified combination
stock option/Stock Appreciation Rights ("SAR") plan (collectively, the "QVC
Tandem Plan") during 1995 for employees, officers, directors and other
persons designated by the Compensation Committee of QVC's Board of
Directors. Under the QVC Tandem Plan, the option price is generally not
less than the fair value, as determined by an independent appraisal, of a
share of the underlying common stock of QVC (the "QVC Common Stock") at the
date of grant. As of the latest valuation date, the fair value of a share
of QVC Common Stock was $585.19. If the SAR feature of the QVC Tandem Plan
is elected by the eligible participant, the participant receives 75% of the
excess of the fair value of a share of QVC Common Stock over the exercise
price of the option to which it is attached at the exercise date. Option
holders have stated an intention not to exercise the SAR feature of the QVC
Tandem Plan. Because the exercise of the option component is more likely
than the exercise of the SAR feature, compensation expense is measured
based on the stock option component. Under the QVC Tandem Plan, option/SAR
terms are ten years from the date of grant, with options/SARs generally
becoming exercisable over four years from the date of grant. As of December
31, 1996, 263,000 shares of QVC Common Stock were reserved under the plan.
Compensation expense of $4.0 million was recorded under this plan during
the year ended December 31, 1996. No compensation expense was recognized
under this plan during the year ended December 31, 1995.
- 63 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
A summary of the activity of the QVC Tandem Plan as of and for the years
ended December 31, 1996 and 1995 is presented below (options/SARs in
thousands):
<TABLE>
<CAPTION>
1996 1995
Weighted- Weighted-
Average Average
Options/ Exercise Options/ Exercise
SARs Price SARs Price
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 142 $177.05
Granted 26 271.23 142 $177.05
Canceled (4) 177.05
----- -----
Outstanding at
end of year 164 192.16 142 177.05
===== =====
Exercisable at end of year 36 $177.05
=====
</TABLE>
The following table summarizes information about the options/SARs
outstanding under the QVC Tandem Plan as of December 31, 1996 (options/SARs
in thousands):
<TABLE>
<CAPTION>
Options/SARs Outstanding Options/SARs Exercisable
Weighted-
Number Average Number
Exercise Outstanding Remaining Exercisable
Price at 12/31/96 Contractual Life at 12/31/96
<S> <C> <C> <C>
$177.05 157 8.3 Years 36
522.31 3 9.5 Years
585.19 4 9.8 Years
----- -----
164 36
===== =====
</TABLE>
The weighted-average fair value at date of grant of a QVC Common Stock
option/SAR granted during 1996 and 1995 was $385.13 and $96.05,
respectively. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995: no dividend
yield for both years; expected volatility of 20% for both years; risk-free
interest rate of 6.8% and 7.5% for 1996 and 1995, respectively; expected
option lives of 10 years for both 1996 and 1995; and a forfeiture rate of
3.0% for both years.
Had compensation expense for the Company's two aforementioned stock-based
compensation plans been determined based on the fair value at the grant
dates for awards under those plans under the provisions of SFAS No. 123,
the Company's net loss and net loss per share would have been increased to
the pro forma amounts indicated below (dollars in millions, except per
share data):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net loss -- As reported ($53.5) ($43.9)
Net loss -- Pro forma (61.0) (50.7)
Net loss per share -- As reported ($.21) ($.18)
Net loss per share -- Pro forma (.24) (.21)
</TABLE>
The pro forma effect on net loss and net loss per share for 1996 and 1995
by applying SFAS No. 123 may not be indicative of the pro forma effect on
net income or loss in future years since SFAS No. 123 does not take
- 64 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
into consideration pro forma compensation expense related to awards made
prior to January 1, 1995 and since additional awards in future years are
anticipated.
Other Stock-Based Compensation Plans
The Company maintains a restricted stock program under which management
employees may be granted restricted shares of the Company's Class A Special
Common Stock. The shares awarded vest annually, generally over a period not
to exceed five years from the date of the award, and do not have voting or
dividend rights until vesting occurs. At December 31, 1996, there were 1.4
million unvested shares granted under the program, of which 281,000 vested
in January 1997. During the years ended December 31, 1996 and 1995, 951,000
and 135,000 shares were granted under the program, respectively, with a
weighted-average grant date market value of $19.16 and $20.61 per share,
respectively. Compensation expense recognized during the years ended
December 31, 1996, 1995, and 1994 under this program was $5.5 million, $4.6
million, and $4.4 million, respectively. There was no significant
difference between the amount of compensation expense recognized by the
Company during the years ended December 31, 1996 and 1995 and the amount
that would have been recognized had compensation expense been determined
under the provisions of SFAS 123.
The Company and QVC established SAR plans during 1996 and 1995 for certain
employees, officers, directors, and other persons (the "QVC SAR Plans").
Under the QVC SAR Plans, eligible participants are entitled to receive a
cash payment from the Company or QVC equal to 100% of the excess, if any,
of the fair value of a share of QVC Common Stock at the exercise date over
the fair value of such a share at the grant date. The SARs have a term of
ten years from the date of grant and become exercisable over four to five
years from the date of grant. During each of the years ended December 31,
1996 and 1995, 11,000 SARs were awarded and 21,000 SARs were outstanding at
December 31, 1996, of which 3,000 were exercisable. Compensation expense
related to the plans of $4.5 million and $1.1 million was recorded during
the years ended December 31, 1996 and 1995, respectively. There was no
significant difference between the amount of compensation expense
recognized and the amount that would have been recognized had compensation
expense been determined under the provisions of SFAS 123.
7. INCOME TAXES
As a result of the Company's recent acquisitions, the Company's deferred
income tax liability and deferred charges were increased for temporary
differences between the financial reporting basis and the income tax
reporting basis of the assets acquired at the dates of their acquisition,
as described below (dollars in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Scripps Cable................................... $499.2
Interest in Comcast-Spectacor................... 36.4
QVC............................................. $45.7
Maclean Hunter.................................. $488.0
</TABLE>
At their dates of acquisition, Scripps Cable and QVC had net deferred
income tax liabilities of $101.7 million and $33.2 million, respectively,
which were assumed by the Company.
The Company joins with its 80% or more owned subsidiaries in filing
consolidated federal income tax returns. Both QVC and the direct subsidiary
of the LLC file separate consolidated federal income tax returns. The
increases in the Company's consolidated current federal income tax expense,
shown in the table below, is primarily attributable to QVC's federal income
tax expense being consolidated with the Company's for financial reporting
purposes.
- 65 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
Income tax expense (benefit) consists of the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(Dollars in millions)
<S> <C> <C> <C>
Current expense
Federal.................................................... $82.0 $45.2 $8.1
State...................................................... 23.3 14.3 12.4
----- ----- -----
105.3 59.5 20.5
----- ----- -----
Deferred expense (benefit)
Federal.................................................... (20.4) (22.0) (27.9)
State...................................................... (0.5) 4.6 (1.8)
----- ----- -----
(20.9) (17.4) (29.7)
----- ----- -----
Income tax expense (benefit)............................... $84.4 $42.1 ($9.2)
===== ===== =====
</TABLE>
The effective income tax expense (benefit) of the Company differs from the
statutory amount because of the effect of the following items:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(Dollars in millions)
<S> <C> <C> <C>
Federal tax at statutory rate.............................. ($5.6) ($15.9) ($31.5)
Non-deductible depreciation and amortization............... 32.0 23.7 3.2
State income taxes, net of federal benefit................. 14.8 12.3 6.9
Non-deductible foreign losses and equity in
net losses of affiliates................................. 27.5 17.3 10.6
Additions to valuation allowance........................... 18.3 1.4 0.6
Other...................................................... (2.6) 3.3 1.0
----- ----- -----
Income tax expense (benefit)............................... $84.4 $42.1 ($9.2)
===== ===== =====
</TABLE>
- 66 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
Deferred income tax benefit resulted from the following differences between
financial and income tax reporting:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(Dollars in millions)
<S> <C> <C> <C>
Depreciation and amortization......................... ($60.2) ($68.3) ($36.3)
Accrued expenses not currently deductible............. (6.3) (2.7) (22.3)
Non-deductible reserves for bad debts,
obsolete inventory and sales returns................ (11.0) (14.2)
Non-taxable temporary differences associated
with sale or exchange of securities................. 30.9 22.7
Losses (income) from affiliated partnerships.......... 25.6 (2.4) (1.0)
Utilization of net operating loss carryforwards....... 41.0 28.3
Deferred tax assets arising from current
period losses ...................................... (23.0) (10.0)
Change in valuation allowance and other............... 23.1 16.5 1.6
------ ------ ------
Deferred income tax benefit........................... ($20.9) ($17.4) ($29.7)
====== ====== ======
</TABLE>
Significant components of the Company's net deferred tax liability are as
follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
(Dollars in millions)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................... $280.9 $257.9
Differences between book and
tax basis of property and equipment
and deferred charges.............................. 24.5 26.8
Reserves for bad debts, obsolete inventory
and sales returns................................. 73.9 62.9
Other............................................... 49.7 43.3
Less: Valuation allowance........................... (263.2) (244.9)
-------- --------
165.8 146.0
-------- --------
Deferred tax liabilities, principally
differences between book and tax
basis of property and equipment and
deferred charges.................................... 2,228.3 1,604.2
-------- --------
Net deferred tax liability............................ $2,062.5 $1,458.2
======== ========
</TABLE>
The deferred tax liability is net of deferred tax assets of $78.0 million
and $59.8 million as of December 31, 1996 and 1995, respectively, which are
included in other current assets in the Company's consolidated balance
sheet. The Company's valuation allowance against deferred tax assets
includes approximately $120.0 million for which any subsequent tax benefits
recognized will be allocated to reduce goodwill and other noncurrent
intangible assets. For income tax reporting purposes, the subsidiaries of
the LLC have net operating loss carryforwards of approximately $28.0
million for which a deferred tax asset has been recorded, which expire
primarily in 2010 and 2011. Remaining net operating loss carryforwards, for
which valuation allowances have been established, expire in periods through
2011.
- 67 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
8. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of $456.8 million, $459.1
million and $261.6 million during the years ended December 31, 1996, 1995
and 1994, respectively.
The Company made cash payments for income taxes of $101.4 million and $35.4
million during the years ended December 31, 1996 and 1995, respectively.
Cash payments for income taxes during the year ended December 31, 1994 were
not significant.
9. COMMITMENTS AND CONTINGENCIES
Commitments
Beginning in January 1998, the Company has the right to purchase the
minority interests in Comcast-Spectacor from the Minority Group for the
Minority Group's pro rata portion of the fair market value (on a going
concern basis as determined by an appraisal process) of Comcast-Spectacor.
The Minority Group also has the right (together with the Company's right,
the "Exit Rights") to require the Company to purchase its interests under
the same terms. The Company may pay the Minority Group for such interests
in shares of the Company's Class A Special Common Stock, subject to certain
restrictions. If the Minority Group exercises its Exit Rights and the
Company elects not to purchase their interest, the Company and the Minority
Group will use their best efforts to sell Comcast-Spectacor.
Assuming consummation of the E! Acquisition, after the 18 month anniversary
of the closing date of the E! Acquisition, Disney, in certain
circumstances, is entitled to cause Newco to purchase Disney's entire
interest in Newco at its then fair market value (as determined by an
appraisal process). If Newco elects not to purchase Disney's interests,
Disney has the right, at its option, to purchase either the Company's
entire interest in Newco or all of the shares of stock of E! Entertainment
held by Newco, in each case at fair market value. In the event that Disney
exercises its rights, as described above, a portion or all of the Disney
Notes may be replaced with a three year note due to Disney.
Liberty Media Corporation ("Liberty"), a majority owned subsidiary of TCI,
may, at certain times following February 9, 2000, trigger the exercise of
certain exit rights with respect to its investment in QVC. If the exit
rights are triggered, the Company has first right to purchase Liberty's
stock in QVC at Liberty's pro rata portion of the fair market value (on a
going concern or liquidation basis, whichever is higher, as determined by
an appraisal process) of QVC. The Company may pay Liberty for such stock,
subject to certain rights of Liberty to consummate the purchase in the most
tax-efficient method available, in cash, the Company's promissory note
maturing not more than three years after issuance, the Company's equity
securities or any combination thereof. If the Company elects not to
purchase the stock of QVC held by Liberty, then Liberty will have a similar
right to purchase the stock of QVC held by the Company. If Liberty elects
not to purchase the stock of QVC held by the Company, then Liberty and the
Company will use their best efforts to sell QVC.
As a result of the Maclean Hunter Acquisition, at any time after December
18, 2001, CalPERS may elect to liquidate its interest in the LLC at a price
based upon the fair value of CalPERS' interest in the LLC, adjusted, under
certain circumstances, for certain performance criteria relating to the
fair value of the LLC or to the Company's common stock. Except in certain
limited circumstances, the Company, at its option, may satisfy this
liquidity arrangement by purchasing CalPERS' interest for cash, through the
issuance of the Company's common stock (subject to certain limitations) or
by selling the LLC.
As part of the Repurchase Program, the Company sold put options on 1.0
million and 3.0 million shares of its Class A Special Common Stock during
the years ended December 31, 1996 and 1995, respectively. The put options
give the holders the right to require the Company to repurchase such shares
at specified prices on specific dates in January through March 1997. As of
December 31, 1996, the Company has reclassified $69.6
- 68 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
million, the amount it would be obligated to pay to repurchase such shares
upon exercise of the put options, to a temporary equity account in its
consolidated balance sheet. The temporary equity related to these shares
will be reclassified to additional capital in the first quarter of 1997
upon expiration or settlement of the options. The difference between the
proceeds received from the sale of these put options and their estimated
fair value was not significant as of December 31, 1996 and 1995.
Minimum annual rental commitments for office space and equipment under
noncancellable operating leases as of December 31, 1996 are as follows:
(Dollars
in millions)
1997 $52.4
1998 48.7
1999 42.5
2000 36.3
2001 36.2
Thereafter 159.8
Rental expense of $54.7 million, $44.6 million and $21.9 million for 1996,
1995 and 1994, respectively, has been charged to operations.
Contingencies
The Company has an agreement with an unrelated third party which provides
for the sale and servicing of accounts receivable relating to the Company's
electronic retailing operations. The Company sold accounts receivable at
face value of $687.0 million and $530.2 million under this agreement in
1996 and 1995, respectively. The Company remains obligated to repurchase
uncollectible accounts pursuant to the recourse provisions of the agreement
and is required to maintain a specified percentage of all outstanding
receivables under the program as a deposit with the third party to secure
its obligations under the agreement.
The uncollected balance of accounts receivable sold under this program was
$317.7 million and $283.1 million as of December 31, 1996 and 1995,
respectively, of which $284.5 million and $234.5 million, respectively,
represent deposits under the agreement, that are included in accounts
receivable. Total recorded reserves relating to the possible repurchase of
uncollectible accounts was $73.2 million and $71.6 million as of December
31, 1996 and 1995, respectively. The receivables sold under the program are
considered, for financial reporting purposes, to be financial instruments
with off-balance sheet risk. The carrying value of accounts receivable,
adjusted for the reserves described above, approximates fair value as of
December 31, 1996 and 1995.
The Company is subject to claims which arise in the ordinary course of its
business and other legal proceedings. In the opinion of management, the
amount of ultimate liability with respect to these actions will not
materially affect the financial position, results of operations or
liquidity of the Company.
The Company has settled the majority of outstanding proceedings challenging
its rates charged for regulated cable services. In December 1995, the FCC
adopted an order approving a negotiated settlement of rate complaints
pending against the Company for cable programming service tiers ("CPSTs")
which provided $6.6 million in refunds, plus interest, given in the form of
bill credits during 1996, to 1.3 million of the Company's cable
subscribers. As part of the negotiated settlement, the Company agreed to
forego certain inflation and external cost adjustments for systems covered
by its cost-of-service filings for CPSTs. The Company currently is seeking
to justify rates for basic cable services and equipment in certain of its
cable systems in the State of Connecticut on the basis of a cost-of-service
showing. The State of Connecticut has ordered the Company to reduce such
rates and to make refunds to subscribers. The Company has appealed the
Connecticut decision to the FCC. Recent pronouncements from the FCC, which
generally support the Company's position on appeal, have caused the State
of Connecticut to reexamine its prior ruling. While the Company cannot
predict the
- 69 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
outcome of this action, the Company believes that the ultimate resolution
of these pending regulatory matters will not have a material adverse impact
on the Company's financial position, results of operations or liquidity.
10. FINANCIAL DATA BY BUSINESS SEGMENT
The following represents the Company's significant business segments,
including: "Domestic Cable Communications," the most significant of the
Company's wired telecommunications operations; "Electronic Retailing," the
most significant of the Company's content businesses; and "Cellular
Communications," the most significant of the Company's wireless
telecommunications operations. The remaining components of the Company's
operations are not independently significant to the Company's consolidated
financial position or results of operations and are included under the
caption "Corporate and Other" (dollars in millions).
<TABLE>
<CAPTION>
Domestic
Cable Electronic Cellular Corporate
Communications Retailing Communications and Other(1) Total
<S> <C> <C> <C> <C> <C>
1996
Revenues.................................... $1,640.9 $1,835.8 $426.1 $135.6 $4,038.4
Depreciation and amortization............... 416.2 107.7 117.2 57.2 698.3
Operating income (loss)..................... 393.8 192.6 43.0 (120.5) 508.9
Interest expense............................ 228.3 65.2 92.4 154.9 540.8
Assets...................................... 6,938.3 2,162.7 1,368.3 1,619.3 12,088.6
Long-term debt.............................. 3,078.1 842.6 1,104.4 2,077.6 7,102.7
Capital expenditures........................ 290.9 63.6 116.0 199.9 670.4
Equity in net (losses) income of
affiliates................................ (22.1) 0.2 (122.9) (144.8)
1995
Revenues.................................... $1,454.9 $1,487.7 $374.9 $45.4 $3,362.9
Depreciation and amortization............... 372.5 86.1 205.7 24.7 689.0
Operating income (loss)..................... 346.0 145.8 (67.9) (94.1) 329.8
Interest expense............................ 245.6 75.3 74.7 129.1 524.7
Assets...................................... 4,531.1 2,096.4 1,349.4 1,603.4 9,580.3
Long-term debt.............................. 2,984.2 911.3 928.9 2,119.4 6,943.8
Capital expenditures........................ 237.8 28.1 228.7 128.4 623.0
Equity in net (losses) income of
affiliates................................ (17.6) 0.3 (69.3) (86.6)
1994
Revenues.................................... $1,065.3 $ $286.1 $23.9 $1,375.3
Depreciation and amortization............... 229.5 89.9 17.1 336.5
Operating income (loss)..................... 288.0 26.4 (74.6) 239.8
Interest expense............................ 151.1 58.6 103.7 313.4
Assets...................................... 4,504.8 84.1 1,203.2 970.9 6,763.0
Long-term debt.............................. 2,852.9 744.5 1,213.1 4,810.5
Capital expenditures........................ 171.7 71.9 26.3 269.9
Equity in net (losses) income of
affiliates................................ (8.3) 11.2 (43.8) (40.9)
<FN>
- --------------
(1) Corporate and other includes certain elimination entries related to the
segments presented.
</FN>
</TABLE>
- 70 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 and 1994 (Concluded)
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter (2) Quarter (5) Year
(Dollars in millions, except per share data)
<S> <C> <C> <C> <C> <C>
1996
Revenues................................. $950.7 $945.6 $974.6 $1,167.5 $4,038.4
Operating income before
depreciation and amortization (1)...... 270.1 296.1 295.8 345.2 1,207.2
Operating income......................... 113.3 128.7 129.1 137.8 508.9
(Loss) income before extraordinary
item (4)............................... (34.6) 17.8 (10.0) (25.7) (52.5)
Extraordinary item....................... (1.0) (1.0)
Net (loss) income (4).................... (34.6) 16.8 (10.0) (25.7) (53.5)
(Loss) income per share before
extraordinary item..................... (.14) .07 (.04) (.10) (.21)
Extraordinary item per share.............
Net (loss) income per share.............. (.14) .07 (.04) (.10) (.21)
Cash dividends per share................. .0233 .0233 .0233 .0233 .0933
1995
Revenues................................. $663.6 $823.6 $870.2 $1,005.5 $3,362.9
Operating income before
depreciation and amortization (1)...... 219.6 260.8 264.1 274.3 1,018.8
Operating income (3)..................... (23.9) 117.3 116.5 119.9 329.8
Loss before extraordinary items (3)...... (0.6) (29.3) (2.0) (5.9) (37.8)
Extraordinary items...................... (5.4) (0.7) (6.1)
Net loss (3)............................. (0.6) (29.3) (7.4) (6.6) (43.9)
Loss per share before
extraordinary items.................... (.12) (.01) (.03) (.16)
Extraordinary items per share............ (.02) (.02)
Net loss per share....................... (.12) (.03) (.03) (.18)
Cash dividends per share................. .0233 .0233 .0233 .0233 .0933
<FN>
- --------------
(1) Operating income before depreciation and amortization is commonly referred
to in the Company's businesses as "operating cash flow." Operating cash
flow is a measure of a company's ability to generate cash to service its
obligations, including debt service obligations, and to finance capital and
other expenditures. In part due to the capital intensive nature of the
Company's businesses and the resulting significant level of non-cash
depreciation and amortization expense, operating cash flow is frequently
used as one of the bases for comparing businesses in the Company's
industries. Operating cash flow does not purport to represent net income or
net cash provided by operating activities, as those terms are defined under
generally accepted accounting principles, and should not be considered as
an alternative to such measurements as an indicator of the Company's
performance.
(2) Results of operations for the third quarter of 1995 were affected by
premiums paid and losses incurred in connection with the redemption of
certain of the Company's debt, shown as extraordinary items in the
Company's consolidated statement of operations.
(3) Results of operations were affected by the Cellular Rebuild and the
Heritage Transaction in the first quarter of 1995 and by the sale of Nextel
shares in the third quarter of 1995 (see Notes 3 and 4).
(4) Results of operations were affected by the TCGI Gain and the sale of Nextel
shares in the second quarter of 1996 (see Note 4).
(5) Results of operations for the fourth quarter of 1996 includes the results
of operations of Scripps Cable, which have been consolidated effective
November 1, 1996, and the gain on the Exchange (see Notes 3 and 4). The
Company's consolidated results of operations for the fourth quarter of 1996
and 1995 are also affected by the seasonality of the Company's electronic
retailing operations.
</FN>
</TABLE>
- 71 -
<PAGE>
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information called for by Item 10, Directors and Executive Officers of the
Registrant (except for the information regarding executive officers called for
by Item 401 of Regulation S-K which is included in Part I hereof as Item 4A in
accordance with General Instruction G(3)), Item 11, Executive Compensation, Item
12, Security Ownership of Certain Beneficial Owners and Management, and Item 13,
Certain Relationships and Related Transactions, is hereby incorporated by
reference to the Registrant's definitive Proxy Statement for its Annual Meeting
of Shareholders presently scheduled to be held in June 1997, which shall be
filed with the Securities and Exchange Commission within 120 days of the end of
the Registrant's latest fiscal year.
- 72 -
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements of the Company are
included in Part II, Item 8:
Independent Auditors' Report.......................................40
Consolidated Balance Sheet--December 31, 1996 and 1995.............41
Consolidated Statement of Operations--Years
Ended December 31, 1996, 1995 and 1994...........................42
Consolidated Statement of Cash Flows--Years
Ended December 31, 1996, 1995 and 1994...........................43
Consolidated Statement of Stockholders' Equity
(Deficiency)--Years Ended December 31, 1996,
1995 and 1994....................................................44
Notes to Consolidated Financial Statements.........................45
(b) (i) The following financial statement schedules required to be filed
by Items 8 and 14(d) of Form 10-K are included in Part IV:
Schedule I -- Condensed Financial Information of Registrant
Unconsolidated (Parent Only)
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable,
not required or the required information is included in the
consolidated financial statements or notes thereto.
(c) Exhibits required to be filed by Item 601 of Regulation S-K:
3.1(a) Amended and Restated Articles of Incorporation filed on July
24, 1990 (incorporated by reference to Exhibit 3.1(a) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
3.1(b) Amendment to Restated Articles of Incorporation filed on
July 14, 1994 (incorporated by reference to Exhibit 3.1(b)
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
3.1(c) Amendment to Restated Articles of Incorporation filed on
July 12, 1995 (incorporated by reference to Exhibit 3.1(c)
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
3.1(d) Amendment to Restated Articles of Incorporation filed on
June 24, 1996 (incorporated by reference to Exhibit 4.1(d)
to the Company's Registration Statement on Form S-3, as
amended, filed on July 16, 1996).
3.2 Amended and Restated By-Laws (incorporated by reference to
Exhibit 3(ii) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993).
4.1 Specimen Class A Common Stock Certificate (incorporated by
reference to Exhibit 2(a) to the Company's Registration
Statement on Form S-7 filed on September 17, 1980, File No.
2- 69178).
- 73 -
<PAGE>
4.2 Specimen Class A Special Common Stock Certificate
(incorporated by reference to Exhibit 4(2) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1986).
4.3(a) Indenture (including form of Note), dated as of May 15,
1983, between Storer Communications, Inc. and The Chase
Manhattan Bank, N.A., as Trustee, relating to 10%
Subordinated Debentures due May 2003 of Storer
Communications, Inc. (incorporated by reference to Exhibit
4.6 to the Registration Statement on Form S-1 (File No.
2-98938) of SCI Holdings, Inc.).
4.3(b) First Supplemental Indenture, dated December 3, 1986
(incorporated by reference to Exhibit 4.5 to the Current
Report on Form 8-K of Storer Communications, Inc. dated
December 3, 1986).
4.4 Amended and Restated Indenture dated as of June 5, 1992
among Comcast Cellular Corporation, the Company and The Bank
of New York, as Trustee, relating to $500,493,000 Series A
Senior Participating Redeemable Zero Coupon Notes due 2000
and $500,493,000 Series B Senior Participating Redeemable
Zero Coupon Notes due 2000 (incorporated by reference to
Exhibit 4.3 to the Registration Statement on Form S-1 (File
No. 33-46863) of Comcast Cellular Corporation).
4.5 Indenture, dated as of October 17, 1991, between the Company
and Morgan Guaranty Trust Company of New York, as Trustee
(incorporated by reference to Exhibit 2 to the Company's
Current Report on Form 8-K filed on October 31, 1991).
4.6 Form of Debenture relating to the Company's 10-1/4% Senior
Subordinated Debentures due 2001 (incorporated by reference
to Exhibit 4(19) to the Company's Annual Report on Form 10-
K for the year ended December 31, 1991).
4.7 Form of Debenture relating to the Company's $300,000,000
10-5/8% Senior Subordinated Debentures due 2012
(incorporated by reference to Exhibit 4(17) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1992).
4.8 Form of Debenture relating to the Company's $200,000,000
9-1/2% Senior Subordinated Debentures due 2008 (incorporated
by reference to Exhibit 4(18) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992).
4.9 Indenture, dated as of February 20, 1991, between the
Company and Bankers Trust Company, as Trustee (incorporated
by reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-3, File No. 33-32830, filed on January
11, 1990).
4.10 Form of Debenture relating the Company's 3-3/8% / 5-1/2%
Step-up Convertible Subordinated Debentures Due 2005
(incorporated by reference to Exhibit 4(14) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1993).
4.11 Form of Debenture relating to the Company's 1-1/8% Discount
Convertible Subordinated Debentures Due 2007 (incorporated
by reference to Exhibit 4 to the Company's Current Report on
Form 8-K filed on November 15, 1993).
4.12 Form of Debenture relating to the Company's $250.0 million
9-3/8% Senior Subordinated Debentures due 2005 (incorporated
by reference to Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995).
4.13 Form of Debenture relating to the Company's $250.0 million
9-1/8% Senior Subordinated Debentures due 2006 (incorporated
by reference to Exhibit 4.13 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995).
- 74 -
<PAGE>
4.14 Indenture dated as of November 15, 1995, between Comcast UK
Cable Partners Limited and Bank of Montreal Trust Company,
as Trustee, in respect of Comcast UK Cable Partners
Limited's 11.20% Senior Discount Debentures due 2007
(incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-1 (File No. 33-96932) of
Comcast UK Cable Partners Limited).
4.14(a) Form of Debenture relating to Comcast UK Cable Partners
Limited's 11.20% Senior Discount Debentures due 2007
(incorporated by reference to Exhibit 4.2 to the
Registration Statement on Form S-1 (File No. 33-96932) of
Comcast UK Cable Partners Limited).
4.15 Form of Statement of Designations, Preferences and Rights of
5% Series A Convertible Preferred Stock of the Company
(incorporated by reference to Exhibit 4.1(e) to the
Company's Registration Statement on Form S-3 filed on July
16, 1996).
10.1/*/ Credit Agreement, dated as of September 14, 1995, between
Comcast Cellular Communications, Inc., the banks listed
therein, The Bank of New York, Barclays Bank PLC, The Chase
Manhattan Bank, N.A., PNC Bank, National Association, and
The Toronto-Dominion Bank, as Arranging Agents, and Toronto
Dominion (Texas), Inc., as Administrative Agent.
10.2/*/ Credit Agreement, dated as of September 19, 1995, between
Comcast Holdings, Inc., the banks listed therein, The Chase
Manhattan Bank, N.A., as Arranging Agent, Bank of Montreal,
CIBC Inc., The Long-term Credit Bank of Japan, Limited,
Royal Bank of Canada and Societe Generale, as Managing
Agents, and The Chase Manhattan Bank, N.A., as
Administrative Agent.
10.3* Comcast Corporation 1986 Non-Qualified Stock Option Plan, as
amended and restated, effective December 10, 1996.
10.4* Comcast Corporation 1987 Stock Option Plan, as amended and
restated, effective December 10, 1996.
10.5* Comcast Corporation 1996 Stock Option Plan, as amended and
restated, effective December 10, 1996.
10.6* Comcast Corporation 1996 Deferred Compensation Plan, as
amended and restated, effective December 10, 1996
(incorporated by reference to Exhibit 10 to the Company's
Registration Statement on Form S-8 filed on December 24,
1996).
10.7* Comcast Corporation 1990 Restricted Stock Plan, as amended
and restated, effective December 18, 1996.
10.8* 1992 Executive Split Dollar Insurance Plan (incorporated by
reference to Exhibit 10(12) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992).
10.9* Comcast Corporation 1996 Cash Bonus Plan, as amended and
restated, effective December 10, 1996.
10.10* Comcast Corporation 1996 Executive Cash Bonus Plan, dated
August 15, 1996.
------------------
* Constitutes a management contract or compensatory plan or
arrangement.
/*/ Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the
Registrant agrees to furnish a copy of the referenced
agreement to the Commission upon request.
- 75 -
<PAGE>
10.11* Form of Compensation and Deferred Compensation Agreement and
Stock Appreciation Bonus Plan for Ralph J. Roberts
(incorporated by reference to Exhibit 10(13) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.12 The Comcast Corporation Retirement-Investment Plan, as
amended and restated effective January 1, 1993 (revised
through September 30, 1995) (incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form
S-8 filed on October 5, 1995).
10.13 Defined Contribution Plans Master Trust Agreement, between
Comcast Corporation and State Street Bank and Trust Company
(incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-8 filed on October 5,
1995).
10.14 Tax Sharing Agreement, dated as of December 2, 1992, among
Storer Communications, Inc., TKR Cable I, Inc., TKR Cable
II, Inc., TKR Cable III, Inc., Tele-Communications, Inc.,
the Company and each of the Departing Subsidiaries that are
signatories thereto (incorporated by reference to Exhibit 4
to the Company's Current Report on Form 8-K filed on
December 17, 1992, as amended by Form 8 filed January 8,
1993).
10.15(a) Credit Agreement, dated as of December 2, 1992, among
Comcast Storer, Inc. and The Bank of New York, The Bank of
Nova Scotia, Canadian Imperial Bank of Commerce, The Chase
Manhattan Bank (National Association), Chemical Bank, LTCB
Trust Company and The Toronto-Dominion Bank, as managing
agents, and The Bank of New York, as administrative agent
(incorporated by reference to Exhibit 5 to the Company's
Current Report on Form 8-K filed on December 17, 1992, as
amended by Form 8 filed January 8, 1993).
10.15(b)/*/ Amendment No. 1, dated as of November 30, 1994, to the
Credit Agreement dated as of December 2, 1992, among Comcast
Storer, Inc., the banks named therein and The Bank of New
York, as administrative agent.
10.15(c)/*/ Amendment No. 2, dated as of December 13, 1995, to the
Credit Agreement dated as of December 2, 1992, as amended,
among Comcast Storer, Inc., the banks named therein and The
Bank of New York, as administrative agent.
10.15(d)/*/ Amendment No. 3 and Waiver, dated as of February 29, 1996,
to the Credit Agreement dated as of December 2, 1992, as
amended, among Comcast Storer, Inc., the banks named therein
and The Bank of New York, as administrative agent.
10.16 Note Purchase Agreement, dated as of November 15, 1992,
among Comcast Storer, Inc., Storer Communications, Inc.,
Comcast Storer Finance Sub, Inc. and each of the respective
purchasers named therein (incorporated by reference to
Exhibit 6 to the Company's Current Report on Form 8-K filed
on December 17, 1992, as amended by Form 8 filed January 8,
1993).
10.17 Payment Agreement, dated December 2, 1992, among the
Company, Comcast Storer, Inc., SCI Holdings, Inc., Storer
Communications, Inc. and each of the Remaining Subsidiaries
that are signatories thereto (incorporated by reference to
Exhibit 7 to the Company's Current Report on Form 8-K filed
on December 17, 1992, as amended by Form 8 filed January 8,
1993).
------------------
* Constitutes a management contract or compensatory plan or
arrangement.
/*/ Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the
Registrant agrees to furnish a copy of the referenced
agreement to the Commission upon request.
- 76 -
<PAGE>
10.18 Intercreditor and Collateral Agency Agreement, dated as of
December 2, 1992, among Comcast Storer, Inc., Comcast Cable
Communications, Inc., Storer Communications, Inc., the banks
party to the Credit Agreement dated as of December 2, 1992,
the purchasers of the Senior Notes under the separate Note
Purchase Agreements each dated as of November 15, 1992, the
Senior Lenders (as defined therein) and The Bank of New York
as collateral agent for the Senior Lenders (incorporated by
reference to Exhibit 8 to the Company's Current Report on
Form 8-K filed on December 17, 1992, as amended by Form 8
filed January 8, 1993).
10.19 Tax Sharing Agreement, dated December 2, 1992, between the
Company and Comcast Storer, Inc. (incorporated by reference
to Exhibit 9 to the Company's Current Report on Form 8-K
filed on December 17, 1992, as amended by Form 8 filed
January 8, 1993).
10.20 Pledge Agreement, dated as of December 2, 1992, between
Comcast Cable Communications, Inc. and The Bank of New York
(incorporated by reference to Exhibit 10 to the Company's
Current Report on Form 8-K filed on December 17, 1992, as
amended by Form 8 filed January 8, 1993).
10.21 Pledge Agreement, dated as of December 2, 1992, between
Comcast Storer, Inc. and The Bank of New York (incorporated
by reference to Exhibit 11 to the Company's Current Report
on Form 8-K filed on December 17, 1992, as amended by Form 8
filed January 8, 1993).
10.22 Pledge Agreement, dated as of December 2, 1992, between
Storer Communications, Inc. and The Bank of New York
(incorporated by reference to Exhibit 12 to the Company's
Current Report on Form 8-K filed on December 17, 1992, as
amended by Form 8 filed January 8, 1993).
10.23 Note Pledge Agreement, dated as of December 2, 1992, between
Comcast Storer, Inc. and The Bank of New York (incorporated
by reference to Exhibit 13 to the Company's Current Report
on Form 8-K filed on December 17, 1992, as amended by Form 8
filed January 8, 1993).
10.24 Guaranty Agreement, dated as of December 2, 1992, between
Storer Communications, Inc. and The Bank of New York
(incorporated by reference to Exhibit 14 to the Company's
Current Report on Form 8-K filed on December 17, 1992, as
amended by Form 8 filed January 8, 1993).
10.25 Guaranty Agreement, dated as of December 2, 1992, between
Comcast Storer Finance Sub, Inc. and The Bank of New York
(incorporated by reference to Exhibit 15 to the Company's
Current Report on Form 8-K filed on December 17, 1992, as
amended by Form 8 filed January 8, 1993).
10.26 Amended and Restated Option Agreement, dated September 11,
1995, between Nextel Communications, Inc. and Comcast FCI,
Inc. (incorporated by reference to Exhibit M to Amendment
No. 15 to the Company's Schedule 13D dated September 13,
1995 filed with respect to Nextel Communications, Inc.).
10.27(a) Share Purchase Agreement, dated June 18, 1994, between
Comcast Corporation and Rogers Communications Inc.
(incorporated by reference to Exhibit 10(3) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994).
10.27(b) First Amendment to Share Purchase Agreement, dated as of
December 22, 1994, by and between Comcast Corporation and
Rogers Communications Inc., to the Share Purchase Agreement
dated June 18, 1994 (incorporated by reference to Exhibit
10.9 to the Company's Current Report on Form 8-K filed on
January 6, 1995).
10.28(a) Agreement and Plan of Merger, dated August 4, 1994, among
Comcast Corporation, Liberty Media Corporation, Comcast
QMerger, Inc. and QVC, Inc. (incorporated by reference to
Exhibit 99.49 to Amendment No. 21 to the Schedule 13D of the
Company relating to common stock of QVC, Inc. filed on
August 8, 1994).
- 77 -
<PAGE>
10.28(b) First Amendment to Agreement and Plan of Merger, dated as of
February 3, 1995 (incorporated by reference to Exhibit
(c)(35) to Amendment No. 17 to the Tender Offer Statement on
Schedule 14D-1 filed on February 6, 1995 by QVC Programming
Holdings, Inc., Comcast Corporation and Tele-Communications,
Inc. with respect to the tender offer for all outstanding
shares of QVC, Inc.).
10.29 Amended and Restated Stockholders Agreement, dated as of
February 9, 1995, among Comcast Corporation, Comcast QVC,
Inc., QVC Programming Holdings, Inc., Liberty Media
Corporation, QVC Investment, Inc. and Liberty QVC, Inc.
(incorporated by reference to Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1995).
10.30(a) Credit Agreement, dated as of February 15, 1995, among QVC,
Inc. and the Banks listed therein (incorporated by reference
to Exhibit (b)(6) to Amendment No. 21 to the Tender Offer
Statement on Schedule 14D-1 filed on February 17, 1995 by
QVC Programming Holdings, Inc., Comcast Corporation and
Tele-Communications, Inc. with respect to the tender offer
for all outstanding shares of QVC, Inc.).
10.30(b)/*/ Amendment, dated as of July 19, 1996, to the Credit
Agreement, dated as of February 15, 1995, among QVC, Inc.
and the Banks listed therein.
10.31 Credit Agreement, dated as of September 14, 1994, among
Comcast Cable Tri-Holdings, Inc., The Bank of New York, The
Chase Manhattan Bank (National Association), PNC Bank,
National Association, as Managing Agents, and the Bank of
New York, as Administrative Agent, and the banks named
therein (incorporated by reference to Exhibit 10.3 to the
Current Report on Form 8-K of the Company filed on November
2, 1994).
10.32 Comcast MHCP Holdings, L.L.C. Amended and Restated Limited
Liability Company Agreement, dated as of December 18, 1994,
among Comcast Cable Communications, Inc., The California
Public Employees' Retirement System and, for certain limited
purposes, Comcast Corporation (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on January 6, 1995).
10.33 Credit Agreement, dated as of December 22, 1994, among
Comcast MH Holdings, Inc., the banks listed therein, The
Chase Manhattan Bank (National Association), NationsBank of
Texas, N.A. and the Toronto-Dominion Bank, as Arranging
Agents, The Bank of New York, The Bank of Nova Scotia,
Canadian Imperial Bank of Commerce and Morgan Guaranty Trust
Company of New York, as Managing Agents and NationsBank of
Texas, N.A., as Administrative Agent (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on
Form 8-K filed on January 6, 1995).
10.34 Pledge Agreement, dated as of December 22, 1994, between
Comcast MH Holdings, Inc. and NationsBank of Texas, N.A., as
the secured party (incorporated by reference to Exhibit 10.3
to the Company's Current Report on Form 8-K filed on January
6, 1995).
10.35 Pledge Agreement, dated as of December 22, 1994, between
Comcast Communications Properties, Inc. and NationsBank of
Texas, N.A., as the Secured Party (incorporated by reference
to Exhibit 10.4 to the Company's Current Report on Form 8-K
filed on January 6, 1995).
------------------
/*/ Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the
Registrant agrees to furnish a copy of the referenced
agreement to the Commission upon request.
- 78 -
<PAGE>
10.36 Affiliate Subordination Agreement (as the same may be
amended, modified, supplemented, waived, extended or
restated from time to time, this "Agreement"), dated as of
December 22, 1994, among Comcast Corporation, Comcast MH
Holdings, Inc., (the "Borrower"), any affiliate of the
Borrower that shall have become a party thereto and
NationsBank of Texas, N.A., as Administrative Agent under
the Credit Agreement dated as of December 22, 1994, among
the Borrower, the Banks listed therein, The Chase Manhattan
Bank (National Association), NationsBank of Texas, N.A. and
The Toronto-Dominion Bank, as Arranging Agents, The Bank of
New York, The Bank of Nova Scotia, Canadian Imperial Bank of
Commerce and Morgan Guaranty Trust Company of New York, as
Managing Agents, and the Administrative Agent (incorporated
by reference to Exhibit 10.5 to the Company's Current Report
on Form 8-K filed on January 6, 1995).
10.37 Registration Rights and Price Protection Agreement, dated as
of December 22, 1994, by and between Comcast Corporation and
The California Public Employees' Retirement System
(incorporated by reference to Exhibit 10.8 to the Company's
Current Report on Form 8-K filed on January 6, 1995).
10.38 Amended and Restated Agreement of Limited Partnership of
MajorCo, L.P., a Delaware Limited Partnership, dated as of
January 31, 1996, among Sprint Spectrum, L.P., TCI Network
Services, Comcast Telephony Services and Cox Telephony
Partnership (incorporated by reference to Exhibit 1 to the
Company's Current Report on Form 8-K filed on February 12,
1996).
10.39 Parents Agreement, dated as of January 31, 1996, between
Comcast Corporation and Sprint Corporation (incorporated by
reference to Exhibit 3 to the Company's Current Report on
Form 8-K filed on February 12, 1996).
10.40 Agreement and Plan of Merger by and among The E.W. Scripps
Company, Scripps Howard, Inc., and Comcast Corporation dated
as of October 28, 1995 (incorporated by reference to Exhibit
2.1 to the Company's Registration Statement on Form S-4
filed, as amended, on November 13, 1996).
10.41 Voting Agreement by and among Comcast Corporation, The E.W.
Scripps Company, Sural Corporation and The Edward W. Scripps
Trust, dated as of October 28, 1995 (incorporated by
reference to Exhibit 2.2 to the Company's Registration
Statement on Form S-4 filed, as amended, on November 13,
1996).
10.42/*/ Credit Agreement, dated as of November 15, 1996, among
Comcast SCH Holdings, Inc., the banks listed therein,
Nationsbank of Texas, N.A., as Documentation Agent, The
Chase Manhattan Bank, as Syndication Agent, The Bank of New
York, The Chase Manhattan Bank and Nationsbank of Texas,
N.A., as Managing Agents, and The Bank of New York, as
Administrative Agent.
21 List of Subsidiaries.
23.1 Consents of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen - Birmingham.
23.3 Consent of Arthur Andersen - London.
23.4 Consents of Deloitte & Touche LLP.
------------------
/*/ Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the
Registrant agrees to furnish a copy of the referenced
agreement to the Commission upon request.
- 79 -
<PAGE>
23.5 Consent of Deloitte & Touche - Birmingham.
23.6 Consent of Deloitte & Touche - London.
23.7 Consent of KPMG Peat Marwick LLP.
23.8 Consent of Price Waterhouse LLP.
27.1 Financial Data Schedule.
99.1 Report of Independent Public Accountants to QVC, Inc., as of
December 31, 1996 and 1995 and for the year ended December
31, 1996 and for the eleven-month period ended December 31,
1995.
99.2 Report of Independent Public Accountants to Garden State
Cablevision L.P., for the year ended December 31, 1994
(incorporated by reference to Exhibit 99.2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995).
99.3 Report of Independent Public Accountants to Comcast
International Holdings, Inc., for the year ended December
31, 1994 (incorporated by reference to Exhibit 99.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
99.4 Consolidated financial statements of Sprint Spectrum Holding
Company, L.P. and subsidiaries, development stage
enterprises, as of and for the years ended December 31, 1996
and 1995, for the period from October 24, 1994 (date of
inception) to December 31, 1994 and for the cumulative
period from October 24, 1994 (date of inception) to December
31, 1996.
99.5 Consolidated and combined financial statements of Teleport
Communications Group, Inc. and its subsidiaries as of
December 31, 1996 and 1995 and for the years ended December
31, 1996, 1995 and 1994 (incorporated by reference to Item
8, Financial Statements and Supplementary Data, of the
Annual Report on Form 10-K of Teleport Communications Group,
Inc. for the year ended December 31, 1996 (File No.
0-20913)).
99.6 Consolidated financial statements of Birmingham Cable
Corporation Limited and subsidiaries as of December 31, 1996
and 1995 and for the years ended December 31, 1996, 1995 and
1994 (incorporated by reference to pages 46 through 57 of
the Annual Report on Form 10-K of Comcast UK Cable Partners
Limited for the year ended December 31, 1996 (File No.
0-24792)).
99.7 Consolidated financial statements of Cable London PLC and
subsidiaries as of December 31, 1996 and 1995 and for the
years ended December 31, 1996, 1995 and 1994 (incorporated
by reference to pages 58 through 69 of the Annual Report on
Form 10-K of Comcast UK Cable Partners Limited for the year
ended December 31, 1996 (File No. 0-24792)).
(d) Reports on Form 8-K
(i) Comcast Corporation filed a Current Report on Form 8-K under Item
5 on November 4, 1996 relating to its earnings release for the
quarter ended September 30, 1996.
(ii) Comcast Corporation filed a Current Report on Form 8-K under Item
2 on November 27, 1996 relating to its purchase of the cable
television operations of The E.W. Scripps Company, which included
Comcast Corporation's Unaudited Pro Forma Condensed Consolidated
Financial Statements as of and for the nine months ended
September 30, 1996 and for the year ended December 31, 1995.
- 80 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in Philadelphia,
Pennsylvania on March 31, 1997.
Comcast Corporation
By: /s/ Brian L. Roberts
------------------------------------
Brian L. Roberts
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Ralph J. Roberts
- ---------------------------
Ralph J. Roberts Chairman of the Board of March 31, 1997
Directors; Director
/s/ Julian A. Brodsky
- ---------------------------
Julian A. Brodsky Vice Chairman of the Board of March 31, 1997
Directors; Director
/s/ Brian L. Roberts
- ---------------------------
Brian L. Roberts President; Director (Principal March 31, 1997
Executive Officer)
/s/ Lawrence S. Smith
- ---------------------------
Lawrence S. Smith Executive Vice President March 31, 1997
(Principal Accounting Officer)
/s/ John R. Alchin
- ---------------------------
John R. Alchin Senior Vice President, Treasurer March 31, 1997
(Principal Financial Officer)
/s/ Daniel Aaron
- ---------------------------
Daniel Aaron Director March 31, 1997
/s/ Gustave G. Amsterdam
- ---------------------------
Gustave G. Amsterdam Director March 31, 1997
/s/ Sheldon M. Bonovitz
- ---------------------------
Sheldon M. Bonovitz Director March 31, 1997
/s/ Joseph L. Castle II
- ---------------------------
Joseph L. Castle II Director March 31, 1997
- 81 -
<PAGE>
SIGNATURE TITLE DATE
/s/ Bernard C. Watson
- ---------------------------
Bernard C. Watson Director March 31, 1997
/s/ Irving A. Wechsler
- ---------------------------
Irving A. Wechsler Director March 31, 1997
/s/ Anne Wexler
- ---------------------------
Anne Wexler Director March 31, 1997
- 82 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
CONDENSED BALANCE SHEET
(Dollars in millions, except share data)
<TABLE>
<CAPTION>
December 31,
<S> <C> <C>
ASSETS 1996 1995
Cash and cash equivalents....................................................... $9.7 $7.6
Other current assets............................................................ 5.7 4.2
-------- --------
Total current assets........................................................ 15.4 11.8
Investments in and amounts due from subsidiaries................................
eliminated upon consolidation................................................. 2,635.5 1,113.3
Property and equipment, net..................................................... 30.9 16.7
Other assets, net............................................................... 85.8 73.5
-------- --------
$2,767.6 $1,215.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Accrued interest................................................................ $49.5 $46.3
Other current liabilities....................................................... 188.3 148.7
-------- --------
Total current liabilities................................................... 237.8 195.0
-------- --------
Long-term debt.................................................................. 1,716.3 1,702.5
-------- --------
Deferred income taxes and other................................................. 192.3 93.4
-------- --------
Common equity put options....................................................... 69.6 52.1
-------- --------
Stockholders' equity (deficiency)
Preferred stock, no par value - authorized, 20,000,000
shares; issued 5% series A convertible, 6,370 at
redemption value............................................................ 31.9
Class A special common stock, $1 par value - authorized,
500,000,000 shares; issued, 283,281,675 and 192,844,814..................... 283.3 192.8
Class A common stock, $1 par value - authorized,
200,000,000 shares; issued, 33,959,368 and 37,706,517....................... 34.0 37.7
Class B common stock, $1 par value - authorized,
50,000,000 shares; issued, 8,786,250........................................ 8.8 8.8
Additional capital............................................................ 2,327.4 843.1
Accumulated deficit........................................................... (2,127.9) (1,914.3)
Unrealized gains on marketable securities, including
securities held by subsidiaries............................................. 0.1 22.2
Cumulative translation adjustments of subsidiaries............................ (6.0) (18.0)
-------- --------
Total stockholders' equity (deficiency)..................................... 551.6 (827.7)
-------- --------
$2,767.6 $1,215.3
======== ========
</TABLE>
- 83 -
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
CONDENSED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(In millions, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
REVENUES, principally intercompany fees eliminated
upon consolidation......................................................... $212.0 $192.2 $153.9
GENERAL AND ADMINISTRATIVE EXPENSES............................................. 87.7 76.4 78.7
--------- --------- ---------
OPERATING INCOME................................................................ 124.3 115.8 75.2
OTHER (INCOME) EXPENSE
Interest expense, including intercompany interest, net..................... 263.6 214.6 123.0
Equity in net (income) losses of affiliates and other...................... (37.1) (22.3) 46.6
--------- --------- ---------
226.5 192.3 169.6
--------- --------- ---------
LOSS BEFORE INCOME TAX BENEFIT AND
EXTRAORDINARY ITEMS........................................................... (102.2) (76.5) (94.4)
INCOME TAX BENEFIT.............................................................. 48.7 33.2 15.4
--------- --------- ---------
LOSS BEFORE EXTRAORDINARY ITEMS................................................. (53.5) (43.3) (79.0)
EXTRAORDINARY ITEMS............................................................. (0.6) (8.0)
--------- --------- ---------
NET LOSS........................................................................ (53.5) (43.9) (87.0)
ACCUMULATED DEFICIT
Beginning of year.......................................................... (1,914.3) (1,827.6) (1,717.9)
Retirement of common stock................................................. (133.3) (20.4)
Cash dividends, $.0933 per share per year.................................. (26.8) (22.4) (22.7)
--------- --------- ---------
End of year................................................................ ($2,127.9) ($1,914.3) ($1,827.6)
========= ========= =========
</TABLE>
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<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
CONDENSED STATEMENT OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................................... ($53.5) ($43.9) ($87.0)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization............................................ 8.9 6.5 4.8
Non-cash interest expense, net........................................... 136.2 105.5 37.4
Equity in net (income) losses of affiliates.............................. (36.2) (17.4) 51.9
Extraordinary items...................................................... 0.6 8.0
Deferred income taxes and other.......................................... 57.2 33.2 9.4
------ ------ ------
112.6 84.5 24.5
Increase in other current assets......................................... (1.5) (1.2) (2.2)
Increase in accrued interest and other current liabilities............... 42.8 36.7 25.2
------ ------ ------
Net cash provided by operating activities.............................. 153.9 120.0 47.5
------ ------ ------
FINANCING ACTIVITIES
Proceeds from borrowings................................................... 800.9
Retirement and repayment of debt........................................... (300.9) (150.0)
(Repurchases) issuances of common stock, net............................... (175.9) (7.1) 2.9
Dividends.................................................................. (26.8) (22.4) (22.7)
Other...................................................................... 43.0 52.5 10.2
------ ------ ------
Net cash (used in) provided by financing activities.................... (159.7) 523.0 (159.6)
------ ------ ------
INVESTING ACTIVITIES
Net transactions with affiliates........................................... 41.7 (619.1) 155.5
Capital expenditures....................................................... (20.8) (11.9) (4.4)
Other...................................................................... (13.0) (15.7) (32.2)
------ ------ ------
Net cash provided by (used in) investing activities.................... 7.9 (646.7) 118.9
------ ------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ 2.1 (3.7) 6.8
CASH AND CASH EQUIVALENTS, beginning of year.................................... 7.6 11.3 4.5
------ ------ ------
CASH AND CASH EQUIVALENTS, end of year.......................................... $9.7 $7.6 $11.3
====== ====== ======
</TABLE>
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<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In millions)
<TABLE>
<CAPTION>
Additions
Balance at Effect of Charged to Deductions Balance
Beginning QVC Costs and from at End
of Year Acquisition Expenses Reserves(A) of Year
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
1996 $81.3 $ $65.1 $49.3 $97.1
1995 11.3 57.8 51.4 39.2 81.3
1994 11.8 21.3 21.8 11.3
Allowance for Obsolete
Electronic Retailing Inventories
1996 $28.5 $ $29.7 $23.5 $34.7
1995 18.4 28.4 18.3 28.5
</TABLE>
(A) Uncollectible accounts and obsolete inventory written off.
- 86 -
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
10.1/*/ Credit Agreement, dated as of September 14, 1995, between
Comcast Cellular Communications, Inc., the banks listed
therein, The Bank of New York, Barclays Bank PLC, The Chase
Manhattan Bank, N.A., PNC Bank, National Association, and
The Toronto-Dominion Bank, as Arranging Agents, and Toronto
Dominion (Texas), Inc., as Administrative Agent.
10.2/*/ Credit Agreement, dated as of September 19, 1995, between
Comcast Holdings, Inc., the banks listed therein, The Chase
Manhattan Bank, N.A., as Arranging Agent, Bank of Montreal,
CIBC Inc., The Long-term Credit Bank of Japan, Limited,
Royal Bank of Canada and Societe Generale, as Managing
Agents, and The Chase Manhattan Bank, N.A., as
Administrative Agent.
10.3* Comcast Corporation 1986 Non-Qualified Stock Option Plan, as
amended and restated, effective December 10, 1996.
10.4* Comcast Corporation 1987 Stock Option Plan, as amended and
restated, effective December 10, 1996.
10.5* Comcast Corporation 1996 Stock Option Plan, as amended and
restated, effective December 10, 1996.
10.7* Comcast Corporation 1990 Restricted Stock Plan, as amended
and restated, effective December 18, 1996.
10.9* Comcast Corporation 1996 Cash Bonus Plan, as amended and
restated, effective December 10, 1996.
10.10* Comcast Corporation 1996 Executive Cash Bonus Plan, dated
August 15, 1996.
10.15(b)/*/ Amendment No. 1, dated as of November 30, 1994, to the
Credit Agreement dated as of December 2, 1992, among Comcast
Storer, Inc., the banks named therein and The Bank of New
York, as administrative agent.
10.15(c)/*/ Amendment No. 2, dated as of December 13, 1995, to the
Credit Agreement dated as of December 2, 1992, as amended,
among Comcast Storer, Inc., the banks named therein and The
Bank of New York, as administrative agent.
10.15(d)/*/ Amendment No. 3 and Waiver, dated as of February 29, 1996,
to the Credit Agreement dated as of December 2, 1992, as
amended, among Comcast Storer, Inc., the banks named therein
and The Bank of New York, as administrative agent.
10.30(b)/*/ Amendment, dated as of July 19, 1996, to the Credit
Agreement, dated as of February 15, 1995, among QVC, Inc.
and the Banks listed therein.
10.42/*/ Credit Agreement, dated as of November 15, 1996, among
Comcast SCH Holdings, Inc., the banks listed therein,
Nationsbank of Texas, N.A., as Documentation Agent, The
Chase Manhattan Bank, as Syndication Agent, The Bank of New
York, The Chase Manhattan Bank and Nationsbank of Texas,
N.A., as Managing Agents, and The Bank of New York, as
Administrative Agent.
--------------
* Constitutes a management contract or compensatory plan or
arrangement.
/*/ Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the
Registrant agrees to furnish a copy of the referenced
agreement to the Commission upon request.
<PAGE>
21 List of Subsidiaries.
23.1 Consents of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen - Birmingham.
23.3 Consent of Arthur Andersen - London.
23.4 Consents of Deloitte & Touche LLP.
23.5 Consent of Deloitte & Touche - Birmingham.
23.6 Consent of Deloitte & Touche - London.
23.7 Consent of KPMG Peat Marwick LLP.
23.8 Consent of Price Waterhouse LLP.
27.1 Financial Data Schedule.
99.1 Report of Independent Public Accountants to QVC, Inc., as of
December 31, 1996 and 1995 and for the year ended December
31, 1996 and for the eleven-month period ended December 31,
1995.
99.4 Consolidated financial statements of Sprint Spectrum Holding
Company, L.P. and subsidiaries, development stage
enterprises, as of and for the years ended December 31, 1996
and 1995, for the period from October 24, 1994 (date of
inception) to December 31, 1994 and for the cumulative
period from October 24, 1994 (date of inception) to December
31, 1996.
COMCAST CORPORATION
1986 NON-QUALIFIED STOCK OPTION PLAN
(As Amended and Restated, Effective December 10, 1986)
1. Background. On March 26, 1986, the Board of Directors of Comcast
Corporation (the "Company") adopted by resolution the 1986 Non-Qualified Stock
Option Plan (the "Plan"), which action was approved by the stockholders of the
Company on September 17, 1986. Subsequent to adoption of the Plan, the Company's
Stock Option committee has granted options (the "Options") to certain employees
and directors (the "Participants") of the Company and its Affiliates to acquire
the Company's Class A Common Stock, par value $1.00 per share, and the Company's
Class B Common Stock, par value $1.00 per share (together, except as otherwise
provided in Section 12, the "Common Stock"). For purposes of the Plan, except as
otherwise provided in Section 12, the term "Affiliate" shall mean a corporation
which is a parent corporation or a subsidiary corporation with respect to the
Company within the meaning of Section 424(e) or (f) of the Internal Revenue Code
of 1986, as amended (the "Code").
2. Administration. The Plan shall be administered by the Board of
Directors of the Company (with respect to issues pertaining to non-employee
directors of the Company) or a committee composed of three or more members
designated by it (with respect to issues pertaining to employees) (the Board of
Directors in its administrative capacity or said committee, if appointed, is
referred to hereinafter as the "Committee"). The Committee shall hold meetings
at such times and places as it may determine. No member of the Committee shall
participate with respect to issues pertaining to him. Acts approved at a meeting
by a majority of the members of the Committee or acts approved in writing by the
unanimous consent of the members of the Committee, excluding for all purposes
members ineligible to participate, shall be the valid acts of the Committee.
The Committee shall from time to time at its discretion direct the
Company to grant Options pursuant to the terms of the Plan. The Committee shall
have plenary authority to determine the Participants to whom and the times at
which Options shall be granted, the number of Option Shares (as defined in
Section 4) to be granted and the price and other terms and conditions thereof,
subject, however, to the express provisions of the Plan. In making such
determinations the Committee may take into account the nature of the
Participant's services and responsibilities, his present and potential
contribution to the Company's success and such other factors as it may deem
relevant. The interpretation and construction by the Committee of any provision
of the Plan or of any Option granted under it shall be final, binding and
conclusive. The Board or the Committee may amend the Plan from time to time in
such manner as it may deem advisable.
No member of the Committee shall be liable, in the absence of bad
faith, for any act or omission with respect to his service on the Committee
relating to this Plan. Service on the Committee shall constitute service as a
director of the Company so that a member of the
<PAGE>
Committee shall be entitled to indemnification and reimbursement as a director
of the Company for any action or any failure to act in connection with service
on the Committee to the full extent provided for at any time in the Company's
Articles of Incorporation or By-Laws or in any insurance policy or other
agreement intended for the benefit of the Company's directors.
3. Eligibility. Directors of the Company and executive employees of
the Company or an Affiliate (including any such employee who may also be a
director of the Company or an Affiliate) (the "Participants") shall be eligible
to receive Options hereunder. The Committee, in its sole discretion, shall
determine whether an individual qualifies as a Participant. A Participant may
receive more than one Option, but only on the terms and subject to the
restrictions of the Plan.
4. Option Shares. The aggregate maximum number of shares of the common
Stock for which Options may be issued under the Plan is 2,531,250 shares of
Class A Common Stock and 1,012,500 shares of Class B Common Stock, adjusted as
provided in Section 8 (the "Option Shares"). Option Shares shall be issued from
authorized and unissued Common Stock or Common Stock held in or hereafter
acquired for the treasury of the Company. If any outstanding Option granted
under the Plan expires, lapses or is terminated for any reason, the Option
Shares allocable to the unexercised portion of such Option may again be the
subject of an Option granted pursuant to the Plan.
5. Effective Date of Plan. The Plan is effective March 26, 1986, the
date on which it was adopted by the Board of Directors of the Company. No Option
may be granted under the Plan after June 24, 1987.
6. Terms and Conditions of Options. Options granted pursuant to the
Plan shall be evidenced by written documents (the "Option Documents") in such
form as the Committee shall from time to time approve, which Option documents
shall comply with and be subject to the following terms and conditions and such
other terms and conditions which the Committee shall from time to time require
which are not inconsistent with the terms of the Plan.
(a) Number of Option Shares. Each Option Document shall state the
number and type of Option Shares to which it pertains. No member of the Board of
Directors may receive Options under the Plan for more than 30% of the aggregate
number of Option Shares reserved for issuance under the Plan (for this purpose,
the shares of Class A Common Stock and Class B Common Stock shall be added
together as if they were a single class).
(b) Option Price. Each Option Document shall state the price at
which Option Shares may be purchased (the "Option Price"), which shall be at
least 100% of the fair market value of the Class A or Class B Common Stock, as
the case may be, on the date the Option is granted as determined by the
Committee.
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<PAGE>
(c) Medium of Payment. A Participant shall pay for the Option
Shares (i) in cash, (ii) by certified check payable to the order of the Company,
or (iii) by a combination of the foregoing. In addition, the Committee may
provide in an Option Document that payment may be made all or in part in Other
Available Shares held by the Participant (unless otherwise provided in an Option
Document), for more than six months or such shorter period of time as shall not,
in the Committee's sole discretion, have an adverse effect on the Company's
financial statements; provided, however, that Option Shares may not be paid for
in shares of Common Stock or Class A Special Common Stock if such method of
payment would result in liability under Section 16(b) of the Securities Exchange
Act of 1934, as amended, to a Participant. Except as otherwise provided by the
Committee, if payment is made in whole or in part in shares of the Common Stock
or Class A Special Common Stock of the Company, then the Participant shall
deliver to the Company certificates registered in the name of such Participant
representing shares of Common Stock or Class A Special Common Stock legally and
beneficially owned by such Participant, free of all liens, claims and
encumbrances of every kind and having a fair market value on the date of
delivery of such notice that is not greater than the Option Price of the Option
Shares with respect to which such Option is to be exercised, accompanied by
stock powers duly endorsed in blank by the record holder of the shares
represented by such certificates. Notwithstanding the foregoing, the Committee,
in its sole discretion, may refuse to accept shares of Common Stock or Class A
Special Common Stock in payment of the Option Price. In that event, any
certificates representing shares of Common Stock or Class A Special Common Stock
which were delivered to the Company shall be returned to the Participant with
notice of the refusal of the Committee to accept such shares in payment of the
Option Price. The Committee may impose such limitations and prohibitions on the
use of shares of the Common Stock or Class A Special Common Stock to exercise an
Option as it deems appropriate.
(d) Termination of Options. No Option shall be exercisable after
the first to occur of the following:
(i) Expiration of the Option Term specified in the Option
Document, which shall not exceed ten (10) years and one day from the date of
grant;
(ii) Expiration of three months from the date the
Participant's employment with the Company or its Affiliates terminates for any
reason other than disability (within the meaning of Section 22(e)(3) of the
Code) or death, provided, however, that the Committee may specify in an Option
Document that an Option may be exercisable during a longer period following the
date the Participant's employment with the Company or its Affiliates so
terminates, but in no event later than the expiration of the Option Term
specified in such Option Document; or
(iii) Expiration of one year from the date the Participant's
employment with the Company and its Affiliates terminates by reason of the
Participant's disability (within the meaning of Section 22(e)(3) of the Code) or
death.
-3-
<PAGE>
(e) Transfers. No Option granted under the Plan may be
transferred except by will or by the laws of descent and distribution. During
the lifetime of the Participant to whom an Option is granted, such Option may be
exercised only by him.
(f) Other Provisions. The Option Documents shall contain such
other provisions, including, without limitation, additional restrictions upon or
conditions precedent to the exercise of the Option or additional limitations
upon the term of the Option, as the Committee shall deem advisable. The
Committee shall have the right, subject to the consent of the Participant, to
amend Option Documents which have been issued to such Participant.
7. Exercise. No Option shall be deemed to have been exercised prior to
the receipt by the Company of written notice of such exercise and of payment in
full of the Option Price of the Option Shares to be purchased. Each such notice
shall specify the number of Option Shares to be purchased and shall (unless the
Option Shares are covered by a then current registration statement or a
Notification under Regulation A under the Securities Act of 1933 (the "Act")),
contain the Participant's acknowledgment in form and substance satisfactory to
the Company that (a) such Option Shares are being purchased for investment and
not for distribution or resale (other than a distribution or resale which, in
the opinion of counsel satisfactory to the Company, may be made without
violating the registration provisions of the Act) and (b) the Participant has
been advised and understands that (i) the Option Shares have not been registered
under the Act and are "restricted securities" within the meaning of Rule 144
under the Act and are subject to restrictions on transfer and (ii) the Company
is under no obligation to register the Option Shares under the Act or to take
any action which would make available to the Participant any exemption from such
registration.
8. Adjustments on Changes in Common Stock. The aggregate number of
shares of Common Stock as to which Options may be granted hereunder, the number
of Option Shares covered by each outstanding Option and the Option Price per
Option Share shall be appropriately adjusted in the event of a stock dividend,
stock split or other increase or decrease in the number of issued shares of
Common Stock resulting from a subdivision or consolidation of the Common Stock
or other capital adjustment (not including the issuance of Common Stock on the
conversion of other securities of the Company which are convertible into Common
Stock) effected without receipt of consideration by the Company. The Committee
shall have authority to determine the adjustments to be made under this Section
and any such determination by the Committee shall be final, binding and
conclusive.
9. Continued Employment. The grant of an Option pursuant to the Plan
shall not constitute evidence of any agreement, express or implied, on the part
of the Company or any Affiliates to continue to employ a Participant.
-4-
<PAGE>
10. Withholding of Taxes.
(a) Whenever the Company proposes or is required to deliver or
transfer Option Shares in connection with the exercise of an Option, the Company
shall have the right to (i) require the recipient to remit to the Company an
amount sufficient to satisfy any federal, state and/or local withholding tax
requirements prior to the delivery or transfer of any certificate or
certificates for such Option Shares or (ii) take any action whatever that it
deems necessary to protect its interests with respect to tax liabilities. The
Company's obligation to make any delivery or transfer of Option Shares shall be
conditioned on the recipient's compliance, to the Company's satisfaction, with
any withholding requirement.
(b) Except as otherwise provided in this Section 10(b), any tax
liabilities incurred in connection with the exercise of an Option under the Plan
shall be satisfied by the Company's withholding a portion of the Option Shares
underlying the Option exercised having a fair market value approximately equal
to the minimum amount of taxes required to be withheld by the Company under
applicable law, unless otherwise determined by the Committee with respect to any
participant. Notwithstanding the foregoing, the Committee may permit a
Participant to elect one or both of the following: (i) to have taxes withheld in
excess of the minimum amount required to be withheld by the Company under
applicable law; provided that the Participant certifies in writing to the
Company that the Participant owns a number of Other Available Shares that is at
least equal to the number to be withheld by the Company for the then-current
exercise on account of withheld taxes in excess of such minimum amount, and (ii)
to pay to the Company in cash all or a portion of the taxes to be withheld upon
the exercise of an Option. In all cases, the Option Shares so withheld by the
Company shall have a fair market value that does not exceed the amount of taxes
to be withheld minus the cash payment, if any, made by the Participant. The fair
market value of such shares shall be determined based on the last reported sale
price of a share of Common Stock on the principal exchange on which the Common
Stock is listed or, if not so listed, on the Nasdaq Stock Market on the last
trading day prior to the date on which the Option is exercised. Any election
pursuant to this Section 10(b) must be in writing made prior to the date
specified by the Committee, and in any event prior to the date the amount of tax
to be withheld or paid is determined. In addition, with respect to persons
subject to reporting requirements under Section 16(a) of the 1934 Act, such
election must be made at least six months prior to the date the amount of tax to
be withheld or paid is determined (which election will remain in effect with
regard to the exercise of an Option and all future exercises of Options unless
revoked upon six months prior notice). An election pursuant to this Section
10(b) may be made only by a Participant or, in the event of the Participant's
death, by the Participant's legal representative. No shares withheld pursuant to
this Section 10(b) shall be available for subsequent grants under the Plan. The
Committee may add such other requirements and limitations regarding elections
pursuant to this Section 10(b) as it deems appropriate.
-5-
<PAGE>
11. Terminating Events.
(a) The Sponsor shall give Participants at least thirty (30)
days' notice (or, if not practicable, such shorter notice as may be reasonably
practicable) prior to the anticipated date of the consummation of a Terminating
Event. Upon receipt of such notice, and for a period of ten (10) days thereafter
(or such shorter period as the Board shall reasonably determine and so notify
the Participants), each Participant shall be permitted to exercise the Option to
the extent the Option are then exercisable; provided that, the Sponsor may, by
similar notice, require the Participant to exercise the Option, to the extent
the Option is then exercisable, or to forfeit the Option (or portion thereof, as
applicable). The Committee may, in its discretion, provide that upon the
Participant's receipt of the notice of a Terminating Event under this Section
11(a), the entire number of Shares covered by Options shall become immediately
exercisable. Upon the close of the period described in this Section 11(a) during
which an Option may be exercised in connection with a Terminating Event, such
Option (including such portion thereof that is not exercisable) shall terminate
to the extent that such Option have not theretofore been exercised.
(b) Notwithstanding Section 11(a), in the event the Terminating
Event is not consummated, the Option shall be deemed not to have been exercised
and shall be exercisable thereafter to the extent it would have been exercisable
if no such notice had been given.
12. Additional Definitions.
(a) "Affiliate." For purposes of this Section 12, "Affiliate"
means, with respect to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. For purposes of this definition, the term "control," including its
correlative terms "controlled by" and "under common control with," mean, with
respect to any Person, the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
(b) "Board" means the board of directors of the Sponsor.
(c) "Change of Control" means any transaction or series of
transactions as a result of which any Person who was a Third Party immediately
before such transaction or series of transactions owns then-outstanding
securities of the Sponsor having more than 50 percent of the voting power for
the election of directors of the Sponsor.
(d) "Comcast Plan" means any restricted stock, stock bonus, stock
option or other compensation plan, program or arrangement established or
maintained by the Company or an Affiliate, including but not limited to this
Plan, the Comcast Corporation 1996
-6-
<PAGE>
Stock Option Plan, the Comcast Corporation 1987 Stock Option Plan and the 1990
Restricted Stock Plan.
(e) "Common Stock." For purposes of the definition of the term
"Other Available Shares" in Section 12(f), "Common Stock" means:
(i) the Sponsor's Class A Common Stock, par value,
$1.00 per share;
(ii) the Sponsor's Class B Common Stock, par value,
$1.00 per share; and
(iii) the Sponsor's Class A Special Common Stock, par
value, $1.00 per share
(f) "Other Available Shares" means, as of any date, the excess,
if any of:
(i) the total number of shares of Common Stock owned
by a Participant; over
(ii) the sum of:
(x) the number of shares of Common Stock
owned by such Participant for less than
six months; plus
(y) the number of shares of Common Stock
owned by such Participant that has,
within the preceding six months, been
the subject of a withholding
certification pursuant to Section 12(b)
or any similar withholding certification
under any other Comcast Plan; plus
(z) the number of shares of Common Stock
owned by such Participant that has,
within the preceding six months, been
received in exchange for Shares
surrendered as payment, in full or in
part, of the exercise price for an
option to purchase any securities of the
Sponsor or an Affiliate under any
Comcast Plan, but only to the extent of
the number of Shares surrendered.
-7-
<PAGE>
For purposes of Section 6(c), the number of Other Available Shares shall be
determined separately for the Company's Class A Special Common Stock, par value,
$1.00 per share, the Company's Class A Common Stock, par value, $1.00 per share,
and the Company's Class B Special Common Stock, par value, $1.00 per share.
(g) "Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization.
(h) "Roberts Family." Each of the following is a member of the Roberts
Family:
(i) Ralph J. Roberts;
(ii) a lineal descendant of Ralph J. Roberts; or
(iii) a trust established for the benefit of any of
Ralph J. Roberts and/or a lineal descendant or
descendants of Ralph J. Roberts.
(i) "Sponsor" means Comcast Corporation, a Pennsylvania corporation,
including any successor thereto by merger, consolidation, acquisition of all or
substantially all the assets thereof, or otherwise.
(j) "Terminating Event" means any of the following events:
(i) the liquidation of the Sponsor; or
(ii) a Change of Control.
-8-
<PAGE>
(k) "Third Party" means any Person other than a Company, together with
such Person's Affiliates, provided that the term "Third Party" shall not include
the Sponsor, an Affiliate of the Sponsor or any member or members of the Roberts
Family.
Executed as of the 10th day of December, 1996
COMCAST CORPORATION
BY: /s/ Stanley Wang
ATTEST: /s/ Arthur R. Block
-9-
COMCAST CORPORATION
1987 STOCK OPTION PLAN
(As Amended and Restated, Effective December 10, 1996)
1. Purpose. COMCAST CORPORATION, a Pennsylvania corporation (the
"Company"), adopts the Comcast Corporation 1987 Stock Option Plan effective
January 5, 1987 (the "Plan"). The Plan is intended as an additional incentive to
employees and non-employee members of the Board of Directors (together the
"Optionees") to enter into or remain in the employ of the Company or any
Affiliate (as defined below) or to serve on the Board of Directors of the
Company or any Affiliate and to devote themselves to the Company's success by
providing them with an opportunity to acquire or increase their proprietary
interest in the Company through receipt of rights (the "Options") to acquire the
Company's Class A Special Common Stock, par value, $1.00 per share (except as
otherwise provided in Section 12, the "Common Stock"). Each Option granted under
the Plan to an employee of the Company or an Affiliate is intended to be an
incentive stock option ("ISO") within the meaning of Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code") for federal income tax
purposes, except to the extent any such ISO grant would exceed the limitation of
subsection 6(a) and except for any Option specifically designated at the time of
grant as not being an ISO. No Option granted to a person who is not an employee
of the Company or any Affiliate on the date of grant shall be an ISO. For
purposes of the Plan, except as otherwise provided in Section 14, the term
"Affiliate" shall mean a corporation which is a parent corporation or a
subsidiary corporation with respect to the Company within the meaning of Section
424(e) or (f) of the Code.
2. Administration. The Plan shall be administered by the Subcommittee
on Performance Based Compensation of the Compensation Committee or any other
committee or subcommittee designated by the Board of Directors of the Company,
provided it is composed of two or more non-employee members of the Board of
Directors each of whom is an "outside director" within the meaning of Section
162(m)(4)(C) of the Code and applicable Treasury Regulations thereunder (the
"Committee"). Notwithstanding the foregoing, in the case non-employee directors
who are granted Options in accordance with the provisions of Section 8, the
directors to whom such Options will be granted, the timing of grants of such
Options, the Option Price (as such term is defined in subsection 6(b)) of such
Options and the number of Option Shares (as such term is defined in Section 4)
included in such Options shall be as specifically set forth in Section 8.
(a) Meetings. The Committee shall hold meetings at such times and
places as it may determine. Acts approved at a meeting by a majority of the
members of the Committee or acts approved in writing by the unanimous consent of
the members of the Committee shall be the valid acts of the Committee.
<PAGE>
(b) Grants. Except with respect to options granted to
non-employee directors pursuant to Section 8, the Committee shall from time to
time at its discretion direct the Company to grant Options pursuant to the terms
of the Plan. The Committee shall have plenary authority to determine the
Optionees to whom and the times at which Options shall be granted, the number of
Option Shares (as defined in Section 4) to be granted and the price and other
terms and conditions thereof, including a specification with respect to whether
an Option is intended to be an ISO, subject, however, to the express provisions
of the Plan. In making such determinations the Committee may take into account
the nature of the Optionee's services and responsibilities, the Optionee's
present and potential contribution to the Company's success and such other
factors as it may deem relevant. Notwithstanding the foregoing, grants of
Options to non-employee directors shall be made in accordance with Section 8.
The interpretation and construction by the Committee of any provision of the
Plan or of any Option granted under it shall be final, binding and conclusive.
(c) Exculpation. No member of the Board of Directors or of the
Committee shall be personally liable for monetary damages as such for any action
taken or any failure to take any action in connection with the administration of
the Plan or the granting of Options under it unless (i) the director or member
of the Committee has breached or failed to perform the duties of his office and
(ii) the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness; provided, however, that the provisions of this
subsection 2(c) shall not apply to the responsibility or liability of a director
or a member of the Committee pursuant to any criminal statute.
(d) Indemnification. Each member of the Board of Directors or of
the Committee shall be entitled without further act on his part to indemnity
from the Company to the fullest extent provided by applicable law and the
Company's by-laws in connection with or arising out of any action, suit or
proceeding with respect to the administration of the Plan or the granting of
Options under it in which he may be involved by reason of his being or having
been a member of the Board of Directors or the Committee, whether or not he
continues to be such member of the Board or the Committee at the time of the
action, suit or proceeding.
3. Eligibility. All employees of the Company or its Affiliates (who
may also be directors of the Company or its Affiliates) shall be eligible to
receive ISOs hereunder. All Optionees shall be eligible to receive Options
hereunder. The Committee, in its sole discretion, shall determine whether an
individual qualifies as an employee or as an Optionee. An Optionee may receive
more than one Option, but only on the terms and subject to the restrictions of
the Plan, provided, however, that non-employee directors may receive Options
only pursuant to Section 8.
4. Option Shares. The aggregate maximum number of shares of the Common
Stock for which Options may be issued under the Plan is 19,500,000 shares,
adjusted as provided in Section 9 (the "Option Shares"). Option Shares shall be
issued from authorized and unissued
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<PAGE>
Common Stock or Common Stock held in or hereafter acquired for the treasury of
the Company. If any outstanding Option granted under the Plan expires, lapses or
is terminated for any reason, the Option Shares allocable to the unexercised
portion of such Option may again by the subject of an Option granted pursuant to
the Plan. The maximum number of shares of the Common Stock for which Options may
be issued to any single employee of the Company or its Affiliates in any
calendar year, adjusted as provided in Section 9, shall be, in 1994, 2,300,000
shares, and thereafter 500,000 shares.
5. Term of Plan. The Plan is effective as of January 5, 1987. No
Option may be granted under the Plan after January 4, 1997.
6. Terms and Conditions of Options. Options granted pursuant to the
Plan shall be evidenced by written documents (the "Option Documents") in such
form as the Committee shall from time to time approve, which Option Documents
shall comply with and be subject to the following terms and conditions and such
other terms and conditions which the Committee shall from time to time require
which are not inconsistent with the terms of the Plan. However, the provisions
of this Section 6 shall not be applicable to Options granted to non-employee
directors, except as otherwise provided in subsection 8(c).
(a) Number of Option Shares. Each Option Document shall state the
number of Option Shares to which it pertains. Notwithstanding that any such
Option is intended to be an ISO, such option shall not be an ISO to the extent
that it would not be so treated under the rules contained in Section 422(d) of
the Code, and the Regulations thereunder (dealing with the annual vesting
limit).
(b) Option Price. Each Option Document shall state the price at
which Option Shares may be purchased (the "Option Price"), which shall be at
least 100% of the fair market value of the Common Stock at the time the Option
is granted as determined by the Committee; provided, however, that if an ISO is
granted to an Optionee who then owns, directly or by attribution under Section
424(d) of the Code, shares possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or an Affiliate,
then the Option Price shall be at least 110% of the fair market value of the
Option Shares at the time the Option is granted.
(c) Medium of Payment. An Optionee shall pay for Option Shares
(i) in cash, (ii) by certified check payable to the order of the company, or
(iii) by a combination of the foregoing. In addition, the Committee may provide
in an Option Document that payment may be made all or in part in Other Available
Shares held by the Optionee (a) in the case of payment for ISOs outstanding as
of March 28, 1990, for more than one year, or (b) in the case of payment for all
other Options (unless otherwise provided in an Option Document), for more than
six months or such shorter period of time as shall not, in the Committee's sole
discretion, have an adverse effect on the Company's financial statements;
provided, however, that Option Shares may not be
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<PAGE>
paid for in shares of Class A Common Stock if such method of payment would
result in liability under Section 16(b) of the Securities Exchange Act of 1934
to an Optionee. Except as otherwise provided by the Committee, if payment is
made in whole or in part in shares of the Common Stock or Class A Common Stock
of the Company, then the Optionee shall deliver to the Company certificates
registered in the name of such Optionee representing shares of Common Stock or
Class A Common Stock legally and beneficially owned by such Optionee, free of
all liens, claims and encumbrances of every kind and having a fair market value
on the date of delivery that is not greater than the Option Price of the Option
Shares with respect to which such Option is to be exercised, accompanied by
stock powers duly endorsed in blank by the record holder of the shares
represented by such certificates. Notwithstanding the foregoing, the Committee,
in its sole discretion, may refuse to accept shares of Common Stock or Class A
Common Stock in payment of the Option Price. In that event, any certificates
representing shares of Common Stock or Class A Common Stock which were delivered
to the Company shall be returned to the Optionee with notice of the refusal of
the Committee to accept such shares in payment of the Option Price. The
Committee may impose such limitations and prohibitions on the use of shares of
the Common Stock or Class A Common Stock to exercise an Option as it deems
appropriate.
(d) Termination of Options. No Option shall be exercisable after
the first to occur of the following:
(i) Expiration of the Option term specified in the Option
Document, which for an ISO, shall not exceed (A) ten years from the date of
grant, or (B) five years from the date of grant if the Optionee on the date of
grant owns, directly or by attribution under Section 424(d) of the Code, shares
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company or of an Affiliate, and which for any other
Option shall not exceed ten years and six months from the date of grant;
(ii) Expiration of three months from the date the Optionee's
employment with the Company or its Affiliates terminates for any reason other
than disability (within the meaning of Section 22(e)(3) of the Code)
("Disability"), death or as specified in subsection 6(d)(iv) or (v) below,
provided, however, that the Committee may specify in an Option Document that an
Option may be exercisable during a longer period following the date the
Optionee's employment with the Company or its Affiliates so terminates, but in
no event later than the expiration of the Option Term specified in such Option
Document;
(iii) Expiration of one year from the date the Optionee's
employment with the Company or its Affiliates terminates by reason of the
Optionee's Disability or death;
(iv) The date set by the Committee pursuant to Section 13 in
connection with a Terminating Event; or
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<PAGE>
(v) A finding by the Committee, after full consideration of
the facts presented on behalf of both the Company and the Optionee, that the
Optionee has breached his employment contract with the Company or an Affiliate,
or has been engaged in any sort of disloyalty to the Company or an Affiliate,
including, without limitation, fraud, embezzlement, theft, commission of a
felony or proven dishonesty in the course of his employment or has disclosed
trade secrets of the Company or an Affiliate. In such event, in addition to
immediate termination of the Option, the Optionee, upon a determination by the
Committee shall automatically forfeit all Option Shares for which the Company
has not yet delivered the share certificates upon refund by the Company of the
Option Price.
(e) Transfers. This subsection 6(e) shall not apply to Options
described in Section 6.1.
(i) In General. Except as provided in subsection 6(e)(ii),
no Option granted under the Plan may be transferred, except by will or by the
laws of descent and distribution. During the lifetime of the person to whom an
Option is granted, such Option may be exercised only by him.
(ii) Transferable Options. The Committee may, in its
discretion, at the time of grant of an Option that is not an ISO (an "NQO") or
by amendment of an Option Document for an ISO or an NQO, provide that Options
granted to or held by an Optionee may be transferred, in whole or in part, to
one or more transferees and exercised by any such transferee; provided further
that (A) any such transfer is without consideration and (B) each transferee is a
member of such Optionee's Immediate Family (as hereinafter defined); and
provided further that any ISO granted pursuant to an Option Document which is
amended to permit transfers during the lifetime of the Optionee shall, upon the
effectiveness of such amendment, be treated thereafter as an NQO. No transfer of
an Option shall be effective unless the Committee is notified of the terms and
conditions of the transfer and the Committee determines that the transfer
complies with the requirements for transfers of Options under the Plan and the
Option Document. Any person to whom an Option has been transferred may exercise
any Options only in accordance with the provisions of subsections 6(c), 6(d),
6(f) and this subsection 6(e). For purposes of this subsection 6(e), the term
"Immediate Family" shall mean an Optionee's spouse and lineal descendants, any
trust all beneficiaries of which are any of such persons and any partnership all
partners of which are any of such persons.
(f) Other Provisions. The Option Documents shall contain such
other provisions including, without limitation, additional restrictions upon the
exercise of the Option or additional limitations upon the term of the Option, as
the Committee shall deem advisable.
(g) Amendment. The Committee shall have the right to amend Option
Documents issued to an Optionee subject to his consent, except that the consent
of the Optionee shall not be required for any amendment made under subsection
6(d)(iv).
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<PAGE>
(h) Exercisability. To the extent that the grant of an Option
would be subject to Section 16(b) of the Securities Exchange Act of 1934 unless
the requirements for exemption therefrom in Rule 16b-3(c)(1), under such Act, or
any successor provision, are met, the Option Documents shall provide that such
Option is not exercisable until not less than six months have elapsed from the
date of grant.
6.1 Certain Options Awarded to Ralph J. Roberts. With respect to those
Options awarded to Ralph J. Roberts on January 8, 1992 (options to purchase
249,441 shares of Class A Special Common Stock at $16.25 per share), and January
6, 1993 (options to purchase 249,545 shares of Class A Special Common Stock at
$18.125 per share), and notwithstanding subsection 6(e) of this Plan, the
Committee may, in its discretion, amend such Options to provide that such
Options may be transferred by Mr. Roberts, in whole or in part, to one or more
transferees and exercised by any such transferee, provided that (i) any such
transfer is without consideration, and (ii) each transferee is a member of Mr.
Roberts' Immediate Family. "Immediate Family" shall mean Mr. Roberts' spouse,
children, grandchildren, any trust all beneficiaries of which are such persons,
and any partnership all partners of which are such persons. In the event the
Committee so amends such Options, the Committee shall include in such amended
Options such further provisions as it determines are necessary or appropriate at
the time of such amendment to permit the Company to deduct compensation expenses
recognized upon exercise of such options for federal or state income tax
purposes.
7. Exercise. No Option shall be deemed to have been exercised prior to
the receipt by the Company of written notice of such exercise and of payment in
full of the Option Price for the Option Shares to be purchased. Each such notice
shall specify the number of Option Shares to be purchased and shall (unless the
Option Shares are covered by a then current registration statement or a
Notification under Regulation A under the Securities Act of 1933 (the "Act")),
contain the Optionee's acknowledgment in form and substance satisfactory to the
Company that (2) such Option Shares are being purchased for investment and not
for distribution or resale (other than a distribution or resale which, in the
opinion of counsel satisfactory to the Company, may be made without violating
the registration provisions of the Act), (b) the Optionee has been advised and
understands that (i) the Option Shares have not be registered under the Act and
are "restricted securities" within the meaning of Rule 144 under the Act and are
subject to restrictions on transfer and (ii) the Company is under no obligation
to register the Option Shares under the Act or to take any action which would
make available to the Optionee any exemption from such registration, and (c)
such Option Shares may not be transferred without compliance with all applicable
federal and state securities laws. Notwithstanding the above, should the Company
be advised by counsel that issuance of shares should be delayed pending (A)
registration under federal or state securities laws or (B) the receipt of an
opinion that an appropriate exemption therefrom is available, the Company may
defer exercise of any Option granted hereunder until either such event in (A) or
(B) has occurred.
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<PAGE>
8. Special Provisions Relating to Grants of Options to Non-employee
Directors. Options granted pursuant to the Plan to non-employee directors shall
be granted, without any further action by the Committee, in accordance with the
terms and conditions set forth in this Section 8. Options granted pursuant to
this Section 8 shall be evidenced by Option Documents in such form as the
Committee shall from time to time approve, which Option Documents shall comply
with and be subject to the following terms and conditions and such other terms
and conditions as the Committee shall from time to time require which are not
inconsistent with the terms of the Plan.
(a) Timing of Grants; Number of Shares Subject of Options;
Exercisability of Options; Option Price. Each non-employee director shall be
granted, commencing on February 1, 1995 and on each successive February 1 (the
"Grant Date") thereafter, an Option to purchase five thousand four hundred
(5,400) shares of Common Stock. Notwithstanding anything herein to the contrary,
each newly elected non-employee director who is first elected to the Board of
Directors after February 1, 1994 shall (i) be granted an Option to purchase nine
thousand (9,000) shares of Common Stock on the date on which such non-employee
director is elected to the Board of Directors (the "Election Date") and (ii) not
be entitled to the grant of an Option hereunder on the Grant Date immediately
following the non-employee director's Election Date if such Election Date is
within ninety (90) days of the Grant Date. No such Option shall be an ISO, and
each such Option shall first become exercisable six months after the date of
grant and shall then be exercisable in its entirety. The Option Price shall be
equal to 100% of the fair market value of the Common Stock on the date the
Option is granted.
(b) Termination of Options Granted Pursuant to Section 8.
(i) All options granted pursuant to this Section 8 shall be
exercisable until the first to occur of the following:
(A) Expiration of five (5) years from the date of
grant;
(B) Expiration of ninety (90) days from the date the
Optionee's service as a non-employee director terminates for any reason
other than Disability or death or as otherwise specified in subsection
8(b)(i)(D) below;
(C) Expiration of one (1) year from the date the
Optionee's service with Company as a non-employee director terminates due
to the Optionee's Disability or death; or
(D) The date the Optionee's directorship is terminated,
if the directorship is terminated on account of (1) any act of fraud,
intentional misrepresentation, embezzlement or theft, (2) commission of a
felony or (3) disclosure of
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trade secrets of the Company or an Affiliate. In such event, in addition to
the immediate termination of the Option, the Optionee shall automatically
forfeit all Option Shares for which the Company has not yet delivered the
share certificates upon refund by the Company of the Option Price.
(c) Applicability of Certain Provisions of Section 6 to Options
Granted Pursuant to Section 8. The following provisions of Section 6 shall be
applicable to Options granted pursuant to this Section 8: Subsection 6(a)
(provided that no Option granted pursuant to this Section 8 shall be an ISO);
subsection 6(c) (provided that Option Documents relating to options granted
pursuant to this Section 8 shall provide that payment may be made in whole or
part in shares of Common Stock or Class A Common Stock held by the Optionee for
more than six months, subject to the limitation on payment in shares of Class A
Common Stock set forth in subsection 6(c) if such method of payment would result
in liability under Section 16(b) of the Securities Exchange Act of 1934);
subsection 6(e); subsection 6(g); and subsection 6(h).
9. Adjustments on Changes in Capitalization. The aggregate number of
shares and class of shares as to which Options may be granted hereunder, the
number of shares covered by each outstanding Option, and the Option Price
thereof shall be appropriately adjusted in the event of a stock dividend, stock
split, recapitalization or other change in the number or class of issued and
outstanding equity securities of the Company resulting from a subdivision or
consolidation of the Common Stock and/or other outstanding equity security or a
recapitalization or other capital adjustment (not including the issuance of
Common Stock on the conversion of other securities of the Company which are
convertible into Common Stock) affecting the Common Stock which is effected
without receipt of consideration by the Company. The Committee shall have
authority to determine the adjustments to be made under this Section and any
such determination by the Committee shall be final, binding and conclusive;
provided, however, that no adjustment shall be made which will cause an ISO to
lose its status as such without the consent of the Optionee and no adjustment
shall be made to the number of shares set forth in subsection 8(a). However, an
Option granted pursuant to subsection 8(a). However, an Option granted pursuant
to subsection 8(a) shall be subject to adjustment in accordance with the
provisions of this Section 9 after the date of grant.
10. Amendment of the Plan. The Board or the Committee may amend the
Plan from time to time in such manner as it may deem advisable. Nevertheless,
neither the Board nor the Committee may, without within twelve months before or
after such action obtaining approval by such vote of shareholders as may be
required by Pennsylvania law for any action requiring shareholder approval, or
by a majority of votes cast at a duly held shareholders' meeting at which a
majority of all voting stock is present and voting on such amendment, either in
person or in proxy (but not, in any event, less than the vote required pursuant
to Rule 16b-3(b) under the Securities Exchange Act of 1934), change the class of
individuals eligible to receive an ISO, extend the expiration date of the Plan,
decrease the minimum Option Price of an ISO granted under the Plan or increase
the maximum number of shares as to which Options may be granted,
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except as provided in Section 9 hereof. In addition, the provisions of Section 8
that determine (i) which directors shall be granted Options pursuant to Section
8; (ii) the number of Option Shares subject to Options granted pursuant to
Section 8; (iii) the Option Price of Option Shares subject to Options granted
pursuant to Section 8; and (iv) the timing of grants of Options pursuant to
Section 8 shall not be amended more than once every six months, other than to
comport with changes in the Code or the Employee Retirement Income Security Act
of 1974, as amended, if applicable.
11. Continued Employment. The grant of an Option pursuant to the Plan
shall not be construed to imply or to constitute evidence of any agreement,
express or implied, on the part of the Company or any Affiliate to retain the
Optionee in the employ of the Company or an Affiliate or as a member of the
Company's Board of Directors or in any other capacity.
12. Withholding of Taxes.
(a) Whenever the Company proposes or is required to deliver or
transfer Option Shares in connection with the exercise of an Option, the Company
shall have the right to (i) require the recipient to remit to the Company an
amount sufficient to satisfy any federal, state and/or local withholding tax
requirements prior to the delivery or transfer of any certificate or
certificates for such Option Shares or (ii) take any action whatever that it
deems necessary to protect its interests with respect to tax liabilities. The
Company's obligation to make any delivery or transfer of Option Shares shall be
conditioned on the recipient's compliance, to the Company's satisfaction, with
any withholding requirement.
(b) Except as otherwise provided in this Section 12(b), any tax
liabilities incurred in connection with the exercise of an Option under the Plan
other than an ISO shall be satisfied by the Company's withholding a portion of
the Option Shares underlying the Option exercised having a fair market value
approximately equal to the minimum amount of taxes required to be withheld by
the Company under applicable law, unless otherwise determined by the Committee
with respect to any participant. Notwithstanding the foregoing, the Committee
may permit an Optionee to elect one or both of the following: (i) to have taxes
withheld in excess of the minimum amount required to be withheld by the Company
under applicable law; provided that the Optionee certifies in writing to the
Company that the Optionee owns a number of Other Available Shares that is at
least equal to the number to be withheld by the Company for the then-current
exercise on account of withheld taxes in excess of such minimum amount, and (ii)
to pay to the Company in cash all or a portion of the taxes to be withheld upon
the exercise of an Option. In all cases, the Option Shares so withheld by the
Company shall have a fair market value that does not exceed the amount of taxes
to be withheld minus the cash payment, if any, made by the Optionee. The fair
market value of such shares shall be determined based on the last reported sale
price of a share of Common Stock on the principal exchange on which the Common
Stock is listed or, if not so listed, on the Nasdaq Stock Market on the last
trading day prior to the date on which the Option is exercised. Any election
pursuant to this Section 12(b) must be in
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writing made prior to the date specified by the Committee, and in any event
prior to the date the amount of tax to be withheld or paid is determined. In
addition, with respect to persons subject to reporting requirements under
Section 16(a) of the 1934 Act, such election must be made at least six months
prior to the date the amount of tax to be withheld or paid is determined (which
election will remain in effect with regard to the exercise of an Option and all
future exercises of Options unless revoked upon six months prior notice). An
election pursuant to this Section may be made only by an Optionee or, in the
event of the Optionee's death, by the Optionee's legal representative. No shares
withheld pursuant to this Section 12(b) shall be available for subsequent grants
under the Plan. The Committee may add such other requirements and limitations
regarding elections pursuant to this Section 12(b) as it deems appropriate.
13. Terminating Events.
(a) The Sponsor shall give Optionees at least thirty (30) days'
notice (or, if not practicable, such shorter notice as may be reasonably
practicable) prior to the anticipated date of the consummation of a Terminating
Event. Upon receipt of such notice, and for a period of ten (10) days thereafter
(or such shorter period as the Board shall reasonably determine and so notify
the Optionees), each Optionee shall be permitted to exercise the Option to the
extent the Option are then exercisable; provided that, the Sponsor may, by
similar notice, require the Optionee to exercise the Option, to the extent the
Option is then exercisable, or to forfeit the Option (or portion thereof, as
applicable). The Committee may, in its discretion, provide that upon the
Optionee's receipt of the notice of a Terminating Event under this Section
13(a), the entire number of Shares covered by Options shall become immediately
exercisable. Upon the close of the period described in this Section 13(a) during
which an Option may be exercised in connection with a Terminating Event, such
Option (including such portion thereof that is not exercisable) shall terminate
to the extent that such Option have not theretofore been exercised.
(b) Notwithstanding Section 13(a), in the event the Terminating
Event is not consummated, the Option shall be deemed not to have been exercised
and shall be exercisable thereafter to the extent it would have been exercisable
if no such notice had been given.
14. Additional Definitions.
(a) "Affiliate." For purposes of this Section 14, "Affiliate"
means, with respect to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. For purposes of this definition, the term "control," including its
correlative terms "controlled by" and "under common control with," mean, with
respect to any Person, the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
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(b) "Board" means the board of directors of the Sponsor.
(c) "Change of Control" means any transaction or series of
transactions as a result of which any Person who was a Third Party immediately
before such transaction or series of transactions owns then-outstanding
securities of the Sponsor having more than 50 percent of the voting power for
the election of directors of the Sponsor.
(d) "Comcast Plan" means any restricted stock, stock bonus, stock
option or other compensation plan, program or arrangement established or
maintained by the Company or an Affiliate, including but not limited to this
Plan, the Comcast Corporation 1996 Stock Option Plan and the 1990 Restricted
Stock Plan.
(e) "Common Stock." For purposes of the definition of the term
"Other Available Shares" in Section 12(f), "Common Stock" means:
(i) the Sponsor's Class A Common Stock, par
value, $1.00 per share; and
(ii) the Sponsor's Class A Special Common
Stock, par value, $1.00 per share
(f) "Other Available Shares" means, as of any date, the excess,
if any of:
(i) the total number of shares of Common Stock owned by an
Optionee; over
(ii) the sum of:
(x) the number of shares of Common Stock
owned by such Optionee for less than six
months; plus
(y) the number of shares of Common Stock
owned by such Optionee that has, within
the preceding six months, been the
subject of a withholding certification
pursuant to Section 12(b) or any similar
withholding certification under any
other Comcast Plan; plus
(z) the number of shares of Common Stock
owned by such Optionee that has, within
the preceding six months, been received
in exchange for Shares
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<PAGE>
surrendered as payment, in full or in
part, of the exercise price for an
option to purchase any securities of the
Sponsor or an Affiliate under any
Comcast Plan, but only to the extent of
the number of Shares surrendered.
For purposes of Section 6(c), the number of Other Available Shares shall be
determined separately for the Company's Class A Special Common Stock, par value,
$1.00 per share, and for the Company's Class A Common Stock, par value, $1.00
per share.
(g) "Person" means an individual, a corporation, a partnership,
an association, a trust or any other entity or organization.
(h) "Roberts Family." Each of the following is a member of the
Roberts Family:
(i) Ralph J. Roberts;
(ii) a lineal descendant of Ralph J. Roberts; or
(iii) a trust established for the benefit of any of Ralph J.
Roberts and/or a lineal descendant or descendants of Ralph J. Roberts.
(i) "Sponsor" means Comcast Corporation, a Pennsylvania
corporation, including any successor thereto by merger, consolidation,
acquisition of all or substantially all the assets thereof, or otherwise.
(j) "Terminating Event" means any of the following events:
(i) the liquidation of the Sponsor; or
(ii) a Change of Control.
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<PAGE>
(k) "Third Party" means any Person other than a Company, together
with such Person's Affiliates, provided that the term "Third Party" shall not
include the Sponsor, an Affiliate of the Sponsor or any member or members of the
Roberts Family.
Executed as of the 10th day of December, 1996
COMCAST CORPORATION
BY: /s/ Stanley Wang
ATTEST: /s/ Arthur R. Block
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COMCAST CORPORATION
1996 STOCK OPTION PLAN
(As Amended and Restated, Effective December 10, 1996)
1. Purpose of Plan
The purpose of the Plan is to assist the Company in retaining
valued employees, officers and directors by offering them a greater stake in the
Company's success and a closer identity with it, and to aid in attracting
individuals whose services would be helpful to the Company and would contribute
to its success.
2. Definitions
(a) "Affiliate" means, with respect to any Person, any other
Person that, directly or indirectly, is in control of, is controlled by, or is
under common control with, such Person. For purposes of this definition, the
term "control," including its correlative terms "controlled by" and "under
common control with," mean, with respect to any Person, the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities,
by contract or otherwise.
(b) "Board" means the board of directors of the Sponsor.
(c) "Cause" means:
(i) for an employee of a Company, a finding by the
Committee, after full consideration of the facts presented on behalf of
both the Company and the employee, that the employee has breached his
employment contract with a Company, has disclosed trade secrets of a
Company or has been engaged in any sort of disloyalty to a Company,
including, without limitation, fraud, embezzlement, theft, commission of a
felony or proven dishonesty in the course of his employment.
(ii) for a Non-Employee Director, a finding by the
Committee, after full consideration of the facts presented on behalf of
both the Company and the Director, that such Non-Employee Director has
disclosed trade secrets of a Company, or has been engaged in any sort of
disloyalty to a Company, including, without limitation, fraud,
embezzlement, theft, commission of a felony or proven dishonesty in the
course of his service as a Non-Employee Director.
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<PAGE>
(d) "Change of Control" means any transaction or series of
transactions as a result of which any Person who was a Third Party immediately
before such transaction or series of transactions owns then-outstanding
securities of the Sponsor having more than 50 percent of the voting power for
the election of directors of the Sponsor.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Comcast Plan" means any restricted stock, stock bonus, stock
option or other compensation plan, program or arrangement established or
maintained by the Company or an Affiliate, including but not limited to this
Plan, the Comcast Corporation 1990 Restricted Stock Plan and the Comcast
Corporation 1987 Stock Option Plan.
(g) "Committee" means the committee described in Paragraph 5.
(h) "Common Stock" means the Sponsor's Class A Special Common
Stock, par value, $1.00.
(i) "Company" means the Sponsor and each of the Parent Companies
and Subsidiary Companies.
(j) "Date of Grant" means the date as of which an Option is
granted.
(k) "Disability" means a disability within the meaning of section
22(e)(3) of the Code.
(l) "Election Date" means the date on which an individual is
first elected to the Board as a Non-Employee Director, or is elected to the
Board as a Non-Employee Director following a period of one year or more during
which such individual was not a member of the Board.
(m) "Fair Market Value. If Shares are listed on a stock exchange,
Fair Market Value shall be determined based on the last reported sale price of a
Share on the principal exchange on which Shares are listed on the last trading
day prior to the date of determination, or, if Shares are not so listed, but
trades of Shares are reported on the Nasdaq National Market, the last quoted
sale price of a Share on the Nasdaq National Market on the last trading day
prior to the date of determination.
(n) "Grant Date" means each February 1st after the date of
adoption of the Plan by the Board.
(o) "Immediate Family" means an Optionee's spouse and lineal
descendants, any trust all beneficiaries of which are any of such persons and
any partnership all partners of which are any of such persons.
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(p) "Incentive Stock Option" means an Option granted under the
Plan, designated by the Committee at the time of such grant as an Incentive
Stock Option within the meaning of section 422 of the Code and containing the
terms specified herein for Incentive Stock Options; provided, however, that to
the extent an Option granted under the Plan and designated by the Committee at
the time of grant as an Incentive Stock Option fails to satisfy the requirements
for an incentive stock option under section 422 of the Code for any reason, such
Option shall be treated as a Non-Qualified Option.
(q) "Non-Employee Director" means an individual who is a member
of the Board, and who is not an employee of a Company, including an individual
who is a member of the Board and who previously was an employee of a Company.
(r) "Non-Qualified Option" means:
(i) an Option granted under the Plan, designated by the
Committee at the time of such grant as a Non-Qualified Option and
containing the terms specified herein for Non-Qualified Options; and
(ii) an Option granted under the Plan and designated by the
Committee at the time of grant as an Incentive Stock Option, to the extent
such Option fails to satisfy the requirements for an incentive stock option
under section 422 of the Code for any reason.
(s) "Option" means any stock option granted under the Plan
and described in either Paragraph 3(a) or Paragraph 3(b).
(t) "Optionee" means a person to whom an Option has been
granted under the Plan, which Option has not been exercised in full and has not
expired or terminated.
(u) "Other Available Shares" means, as of any date, the
excess, if any of:
(i) the total number of Shares owned by an Optionee; over
(ii) the sum of:
(x) the number of Shares owned by such
Optionee for less than six months; plus
(y) the number of Shares owned by such
Optionee that has, within the preceding
six months, been the subject of a
withholding certification pursuant to
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Paragraph 16(b) or any similar
withholding certification under any
other Comcast Plan; plus
(z) the number of Shares owned by such
Optionee that has, within the preceding
six months, been received in exchange
for Shares surrendered as payment, in
full or in part, of the exercise price
for an option to purchase any securities
of the Sponsor or an Affiliate under any
Comcast Plan, but only to the extent of
the number of Shares surrendered.
For purposes of Paragraphs 7(d) and 8(d), the number of Other Available Shares
shall be determined separately for the Sponsor's Class A Special Common Stock,
par value, $1.00, and for the Sponsor's Class A Common Stock, par value, $1.00.
(v) "Outside Director" means a member of the Board who is an
"outside director" within the meaning of section 162(m)(4)(C) of the Code and
applicable Treasury Regulations issued thereunder.
(w) "Parent Company" means all corporations that, at the
time in question, are parent corporations of the Sponsor within the meaning of
section 424(e) of the Code.
(x) "Person" means an individual, a corporation, a
partnership, an association, a trust or any other entity or organization.
(y) "Plan" means the Comcast Corporation 1996 Stock Option
Plan.
(z) "Roberts Family." Each of the following is a member of
the Roberts Family:
(i) Ralph J. Roberts;
(ii) a lineal descendant of Ralph J. Roberts; or
(iii) a trust established for the benefit of any of Ralph
J. Roberts and/or a lineal descendant or descendants of Ralph J. Roberts.
(aa) "Share" or "Shares" means:
(i) for all purposes of the Plan, a share or shares of
Common Stock or such other securities issued by the Sponsor as may be the
subject of an adjustment under Paragraph 11.
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(ii) solely for purposes of Paragraphs 7(d) and 8(d),
the term "Share" or "Shares" also means a share or shares of the Sponsor's
Class A Common Stock, par value, $1.00.
(bb) "Sponsor" means Comcast Corporation, a Pennsylvania
corporation, including any successor thereto by merger, consolidation,
acquisition of all or substantially all the assets thereof, or otherwise.
(cc) "Subsidiary Companies" means all corporations that, at
the time in question, are subsidiary corporations of the Sponsor within the
meaning of section 424(f) of the Code.
(dd) "Ten Percent Shareholder" means a person who on the
Date of Grant owns, either directly or within the meaning of the attribution
rules contained in section 424(d) of the Code, stock possessing more than 10% of
the total combined voting power of all classes of stock of his employer
corporation or of its parent or subsidiary corporations, as defined respectively
in sections 424(e) and (f) of the Code, provided that the employer corporation
is a Company.
(ee) "Terminating Event" means any of the following events:
(i) the liquidation of the Sponsor; or
(ii) a Change of Control.
(ff) "Third Party" means any Person other than a Company,
together with such Person's Affiliates, provided that the term "Third Party"
shall not include the Sponsor, an Affiliate of the Sponsor or any member or
members of the Roberts Family.
(gg) "1933 Act" means the Securities Act of 1933, as
amended.
(hh) "1934 Act" means the Securities Exchange Act of 1934,
as amended.
3. Rights To Be Granted
(a) Types of Options Available for Grant. Rights that may be
granted under the Plan are:
(i) Incentive Stock Options, which give an Optionee who
is an employee of a Company the right for a specified time period to
purchase a specified number of Shares for a price not less than the Fair
Market Value on the Date of Grant; and
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(ii) Non-Qualified Options, which give the Optionee the
right for a specified time period to purchase a specified number of Shares
for a price not less than the Fair Market Value on the Date of Grant.
(b) Limit on Grant of Options. The maximum number of Shares
for which Options may be granted to any single individual in any calendar year,
adjusted as provided in Section 11, shall be 1,000,000 Shares.
(c) Presumption of Incentive Stock Option Status. Each
Option granted under the Plan to an employee of a Company is intended to be an
Incentive Stock Option, except to the extent any such grant would exceed the
limitation of Paragraph 9 and except for any Option specifically designated at
the time of grant as an Option that is not an Incentive Stock Option.
4. Shares Subject to Plan
Subject to adjustment as provided in Paragraph 11, not more than
20,000,000 Shares in the aggregate may be issued pursuant to the Plan upon
exercise of Options. Shares delivered pursuant to the exercise of an Option may,
at the Sponsor's option, be either treasury Shares or Shares originally issued
for such purpose. If an Option covering Shares terminates or expires without
having been exercised in full, other Options may be granted covering the Shares
as to which the Option terminated or expired.
5. Administration of Plan
(a) Committee. The Plan shall be administered by the
Subcommittee on Performance Based Compensation of the Compensation Committee of
the Board or any other committee or subcommittee designated by the Board,
provided that the committee administering the Plan is composed of two or more
non-employee members of the Board, each of whom is an Outside Director.
Notwithstanding the foregoing, if Non-Employee Directors are granted Options in
accordance with the provisions of Paragraph 8, the directors to whom such
Options will be granted, the timing of grants of such Options, the Option Price
of such Options and the number of Option Shares included in such Options shall
be as specifically set forth in Paragraph 8. No member of the Committee shall
participate in the resolution of any issue that exclusively involves an Option
granted to such member.
(b) Meetings. The Committee shall hold meetings at such
times and places as it may determine. Acts approved at a meeting by a majority
of the members of the Committee or acts approved in writing by the unanimous
consent of the members of the Committee shall be the valid acts of the
Committee.
(c) Exculpation. No member of the Committee shall be
personally liable for monetary damages for any action taken or any failure to
take any action in connection
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with the administration of the Plan or the granting of Options thereunder unless
(i) the member of the Committee has breached or failed to perform the duties of
his office, and (ii) the breach or failure to perform constitutes self-dealing,
wilful misconduct or recklessness; provided, however, that the provisions of
this Paragraph 5(c) shall not apply to the responsibility or liability of a
member of the Committee pursuant to any criminal statute.
(d) Indemnification. Service on the Committee shall
constitute service as a member of the Board. Each member of the Committee shall
be entitled without further act on his part to indemnity from the Sponsor to the
fullest extent provided by applicable law and the Sponsor's By-laws in
connection with or arising out of any actions, suit or proceeding with respect
to the administration of the Plan or the granting of Options thereunder in which
he may be involved by reasons of his being or having been a member of the
Committee, whether or not he continues to be such member of the Committee at the
time of the action, suit or proceeding.
6. Eligibility
(a) Eligible individuals to whom Options may be granted
shall be employees, officers or directors of a Company who are selected by the
Committee for the grant of Options. The terms and conditions of Options granted
to individuals other than Non- Employee Directors shall be determined by the
Committee, subject to Paragraph 7. The terms and conditions of Options granted
to Non-Employee Directors shall be determined by the Committee, subject to
Paragraph 8.
(b) An Incentive Stock Option shall not be granted to a Ten
Percent Shareholder except on such terms concerning the option price and term as
are provided in Paragraph 7(b) and 7(g) with respect to such a person. An Option
designated as Incentive Stock Option granted to a Ten Percent Shareholder but
which does not comply with the requirements of the preceding sentence shall be
treated as a Non-Qualified Option. An Option designated as an Incentive Stock
Option shall be treated as a Non-Qualified Option if the Optionee is not an
employee of a Company on the Date of Grant.
7. Option Documents and Terms - In General
All Options granted to Optionees other than Non-Employee
Directors shall be evidenced by option documents. The terms of each such option
document shall be determined from time to time by the Committee, consistent,
however, with the following:
(a) Time of Grant. All Options shall be granted within 10
years from the earlier of (i) the date of adoption of the Plan by the Board, or
(ii) approval of the Plan by the shareholders of the Sponsor.
(b) Option Price. The option price per Share with respect to
any Option shall be determined by the Committee but shall not be less than 100%
of the Fair Market
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Value of such Share on the Date of Grant; provided, however, that with respect
to any Incentive Stock Options granted to a Ten Percent Shareholder, the option
price per Share shall not be less than 110% of the Fair Market Value of such
Share on the Date of Grant.
(c) Restrictions on Transferability. No Option granted under
this Paragraph 7 shall be transferable otherwise than by will or the laws of
descent and distribution and, during the lifetime of the Optionee, shall be
exercisable only by him or for his benefit by his attorney-in-fact or guardian;
provided that the Committee may, in its discretion, at the time of grant of a
Non-Qualified Option or by amendment of an option document for an Incentive
Stock Option or a Non-Qualified Option, provide that Options granted to or held
by an Optionee may be transferred, in whole or in part, to one or more
transferees and exercised by any such transferee; provided further that (i) any
such transfer is without consideration and (ii) each transferee is a member of
such Optionee's Immediate Family; and provided further that any Incentive Stock
Option granted pursuant to an option document which is amended to permit
transfers during the lifetime of the Optionee shall, upon the effectiveness of
such amendment, be treated thereafter as a Non-Qualified Option. No transfer of
an Option shall be effective unless the Committee is notified of the terms and
conditions of the transfer and the Committee determines that the transfer
complies with the requirements for transfers of Options under the Plan and the
option document. Any person to whom an Option has been transferred may exercise
any Options only in accordance with the provisions of Paragraph 7(g) and this
Paragraph 7(c).
(d) Payment Upon Exercise of Options. Full payment for
Shares purchased upon the exercise of an Option shall be made in cash, by
certified check payable to the order of the Sponsor, or, at the election of the
Optionee and as the Committee may, in its sole discretion, approve, by
surrendering Shares with an aggregate Fair Market Value equal to the aggregate
option price, or by delivering such combination of Shares and cash as the
Committee may, in its sole discretion, approve; provided, however, that Shares
may be surrendered in satisfaction of the option price only if the Optionee
certifies in writing to the Sponsor that the Optionee owns a number of Other
Available Shares as of the date the Option is exercised that is at least equal
to the number of Shares to be surrendered in satisfaction of the Option Price;
provided further, however, that the option price may not be paid in Shares if
the Committee determines that such method of payment would result in liability
under section 16(b) of the 1934 Act to an Optionee. Except as otherwise provided
by the Committee, if payment is made in whole or in part in Shares, the Optionee
shall deliver to the Sponsor certificates registered in the name of such
Optionee representing Shares legally and beneficially owned by such Optionee,
free of all liens, claims and encumbrances of every kind and having a Fair
Market Value on the date of delivery that is not greater than the option price
accompanied by stock powers duly endorsed in blank by the record holder of the
Shares represented by such certificates. If the Committee, in its sole
discretion, should refuse to accept Shares in payment of the option price, any
certificates representing Shares which were delivered to the Sponsor shall be
returned to the Optionee with notice of the refusal of the Committee to accept
such Shares in payment of the
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option price. The Committee may impose such limitations and prohibitions on the
use of Shares to exercise an Option as it deems appropriate.
(e) Issuance of Certificate Upon Exercise of Options;
Payment of Cash. Only whole Shares shall be issuable upon exercise of Options.
Any right to a fractional Share shall be satisfied in cash. Upon satisfaction of
the conditions of Paragraph 10, a certificate for the number of whole Shares and
a check for the Fair Market Value on the date of exercise of any fractional
Share to which the Optionee is entitled shall be delivered to such Optionee by
the Sponsor.
(f) Termination of Employment. For purposes of the Plan, a
transfer of an employee between two employers, each of which is a Company, shall
not be deemed a termination of employment. For purposes of Paragraph 7(g), an
Optionee's termination of employment shall be deemed to occur on the date an
Optionee ceases to serve as an active employee of a Company, as determined by
the Committee in its sole discretion, or, if the Optionee is a party to an
employment agreement with a Company, on the effective date of the Optionee's
termination of employment as determined under such agreement.
(g) Periods of Exercise of Options. An Option shall be
exercisable in whole or in part at such time or times as may be determined by
the Committee and stated in the option document, provided, however, that if the
grant of an Option would be subject to section 16(b) of the 1934 Act, unless the
requirements for exemption therefrom in Rule 16b-3(c)(1), under such Act, or any
successor provision, are met, the option document for such Option shall provide
that such Option is not exercisable until not less than six months have elapsed
from the Date of Grant. Except as otherwise provided by the Committee in its
discretion, no Option shall first become exercisable following an Optionee's
termination of employment for any reason; provided further, that:
(i) In the event that an Optionee terminates employment
with the Company for any reason other than death or Cause, any Option
held by such Optionee and which is then exercisable shall be
exercisable for a period of 90 days following the date the Optionee
terminates employment with the Company (unless a longer period is
established by the Committee); provided, however, that if such
termination of employment with the Company is due to the Disability of
the Optionee, he shall have the right to exercise those of his Options
which are then exercisable for a period of one year following such
termination of employment (unless a longer period is established by
the Committee); provided, however, that in no event shall an Incentive
Stock Option be exercisable after five years from the Date of Grant in
the case of a grant to a Ten Percent Shareholder, nor shall any other
Option be exercisable after ten years from the Date of Grant.
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(ii) In the event that an Optionee terminates
employment with the Company by reason of his death, any Option held at
death by such Optionee which is then exercisable shall be exercisable
for a period of one year from the date of death (unless a longer
period is established by the Committee) by the person to whom the
rights of the Optionee shall have passed by will or by the laws of
descent and distribution; provided, however, that in no event shall an
Incentive Stock Option be exercisable after five years from the Date
of Grant in the case of a grant to a Ten Percent Shareholder, nor
shall any other Option be exercisable after ten years from the Date of
Grant.
(iii) In the event that an Optionee's employment with
the Company is terminated for Cause, each unexercised Option held by
such Optionee shall terminate and cease to be exercisable; provided
further, that in such event, in addition to immediate termination of
the Option, the Optionee, upon a determination by the Committee shall
automatically forfeit all Shares otherwise subject to delivery upon
exercise of an Option but for which the Sponsor has not yet delivered
the Share certificates, upon refund by the Sponsor of the option
price.
(h) Date of Exercise. The date of exercise of an Option
shall be the date on which written notice of exercise, addressed to the Sponsor
at its main office to the attention of its Secretary, is hand delivered,
telecopied or mailed first class postage prepaid; provided, however, that the
Sponsor shall not be obligated to deliver any certificates for Shares pursuant
to the exercise of an Option until the Optionee shall have made payment in full
of the option price for such Shares. Each such exercise shall be irrevocable
when given. Each notice of exercise must (i) specify the Incentive Stock Option,
Non-Qualified Option or combination thereof being exercised; and (ii) include a
statement of preference (which shall binding on and irrevocable by the Optionee
but shall not be binding on the Committee) as to the manner in which payment to
the Sponsor shall be made (Shares or cash or a combination of Shares and cash).
Each notice of exercise shall also comply with the requirements of Paragraph 15.
8. Option Documents and Terms - Non-Employee Directors
Options granted pursuant to the Plan to Non-Employee Directors
shall be granted, without any further action by the Committee, in accordance
with the terms and conditions set forth in this Paragraph 8. Options granted
pursuant to Paragraph 8(a) shall be evidenced by option documents. The terms of
each such option document shall be consistent with Paragraphs 8(b) through 8(g),
as follows:
(a) Grant of Options to Non-Employee Directors. Each Non-
Employee Director shall be granted, commencing on the Grant Date next following
the adoption of this Plan by the Board and on each successive Grant Date
thereafter, a Non-Qualified Option
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to purchase 5,400 Shares. Notwithstanding the preceding sentence, each newly
elected Non- Employee Director:
(i) shall be granted a Non-Qualified Option to purchase
9,000 Shares on the Election Date; and
(ii) shall not be entitled to the grant of an Option
hereunder on the Grant Date immediately following the Non-Employee
Director's Election Date if such Election Date is within ninety (90) days
of the Grant Date.
(b) Option Price. The option price per Share with respect to
any Option granted under this Paragraph 8 shall be 100% of the Fair Market Value
of such Share on the Grant Date.
(c) Restrictions on Transferability. No Option granted under
this Paragraph 8 shall be transferable otherwise than by will or the laws of
descent and distribution and, during the lifetime of the Optionee, shall be
exercisable only by him or for his benefit by his attorney-in-fact or guardian;
provided that the Committee may, in its discretion, at the time of grant of an
Option or by amendment of an option document for an Option, provide that Options
may be transferred, in whole or in part, to one or more transferees and
exercised by any such transferee; provided further that (i) any such transfer is
without consideration, and (ii) each transferee is a member of such Optionee's
Immediate Family. No transfer of an Option shall be effective unless the
Committee is notified of the terms and conditions of the transfer and the
Committee determines that the transfer complies with the requirements for
transfers of Options under the Plan and the option document. Any person to whom
an Option has been transferred may exercise any Options only in accordance with
the provisions of Paragraph 8(f) and this Paragraph 8(c).
(d) Payment Upon Exercise of Options. Full payment for
Shares purchased upon the exercise of an Option shall be made in cash, by
certified check payable to the order of the Sponsor, or, at the election of the
Optionee and as the Committee may, in its sole discretion, approve, by
surrendering Shares with an aggregate Fair Market Value equal to the aggregate
option price, or by delivering such combination of Shares and cash as the
Committee may, in its sole discretion, approve; provided, however, that Shares
may be surrendered in satisfaction of the option price only if the Optionee
certifies in writing to the Sponsor that the Optionee owns a number of Other
Available Shares as of the date the Option is exercised that is at least equal
to the number of Shares to be surrendered in satisfaction of the Option Price;
provided further, however, that the option price may not be paid in Shares if
the Committee determines that such method of payment would result in liability
under section 16(b) of the 1934 Act to an Optionee. Except as otherwise provided
by the Committee, if payment is made in whole or in part in Shares, the Optionee
shall deliver to the Sponsor certificates registered in the name of such
Optionee representing Shares legally and beneficially owned by such Optionee,
free of all liens, claims and encumbrances of every kind and having a Fair
Market Value on the
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date of delivery that is not greater than the option price accompanied by stock
powers duly endorsed in blank by the record holder of the Shares represented by
such certificates. If the Committee, in its sole discretion, should refuse to
accept Shares in payment of the option price, any certificates representing
Shares which were delivered to the Sponsor shall be returned to the Optionee
with notice of the refusal of the Committee to accept such Shares in payment of
the option price. The Committee may impose such limitations and prohibitions on
the use of Shares to exercise an Option as it deems appropriate.
(e) Issuance of Certificate Upon Exercise of Options;
Payment of Cash. Only whole Shares shall be issuable upon exercise of Options
granted under this Paragraph 8. Any right to a fractional Share shall be
satisfied in cash. Upon satisfaction of the conditions of Paragraph 10, a
certificate for the number of whole Shares and a check for the Fair Market Value
on the date of exercise of any fractional Share to which the Optionee is
entitled shall be delivered to such Optionee by the Sponsor.
(f) Periods of Exercise of Options. An Option granted under
this Paragraph 8 shall not be exercisable for six months after the Date of
Grant, and shall then be exercisable in its entirety. No Option shall first
become exercisable following an Optionee's termination of service as a
Non-Employee Director for any reason; provided further, that:
(i) In the event that an Optionee terminates service as
a Non-Employee Director for any reason other than death or Cause, any
Option held by such Optionee and which is then exercisable shall be
exercisable for a period of 90 days following the date the Optionee
terminates service as a Non-Employee Director; provided, however, that
if such termination of employment with the Company is due to the
Disability of the Optionee, he shall have the right to exercise those
of his Options which are then exercisable for a period of one year
following the date the Optionee terminates service as a Non-Employee
Director; provided, however, that in no event shall an Option be
exercisable after five years from the Grant Date.
(ii) In the event that an Optionee terminates service
as a Non-Employee Director by reason of his death, any Option held at
death by such Optionee which is then exercisable shall be exercisable
for a period of one year from the date of death by the person to whom
the rights of the Optionee shall have passed by will or by the laws of
descent and distribution; provided, however, that in no event shall an
Option be exercisable after five years from the Grant Date.
(iii) In the event that an Optionee's service as a Non-
Employee Director is terminated for Cause, each unexercised Option
shall terminate and cease to be exercisable; provided further, that in
such event, in addition to immediate termination of the Option, the
Optionee shall automatically
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forfeit all Shares otherwise subject to delivery upon exercise of an
Option but for which the Sponsor has not yet delivered the Share
certificates, upon refund by the Sponsor of the option price.
(g) Date of Exercise. The date of exercise of an Option
granted under this Paragraph 8 shall be the date on which written notice of
exercise, addressed to the Sponsor at its main office to the attention of its
Secretary, is hand delivered, telecopied or mailed first class postage prepaid;
provided, however, that the Sponsor shall not be obligated to deliver any
certificates for Shares pursuant to the exercise of an Option until the Optionee
shall have made payment in full of the option price for such Shares. Each such
exercise shall be irrevocable when given. Each notice of exercise must (i)
specify the Option being exercised; and (ii) include a statement as to the
manner in which payment to the Sponsor shall be made (Shares or cash or a
combination of Shares and cash). Each notice of exercise shall also comply with
the requirements of Paragraph 15.
9. Limitation on Exercise of Incentive Stock Options.
The aggregate Fair Market Value (determined as of the time
Options are granted) of the Shares with respect to which Incentive Stock Options
may first become exercisable by an Optionee in any one calendar year under the
Plan and any other plan of the Company shall not exceed $100,000. The
limitations imposed by this Paragraph 9 shall apply only to Incentive Stock
Options granted under the Plan, and not to any other options or stock
appreciation rights. In the event an individual receives an Option intended to
be an Incentive Stock Option which is subsequently determined to have exceeded
the limitation set forth above, or if an individual receives Options that first
become exercisable in a calendar year (whether pursuant to the terms of an
option document, acceleration of exercisability or other change in the terms and
conditions of exercise or any other reason) that have an aggregate Fair Market
Value (determined as of the time the Options are granted) that exceeds the
limitations set forth above, the Options in excess of the limitation shall be
treated as Non-Qualified Options.
10. Rights as Shareholders
An Optionee shall not have any right as a shareholder with
respect to any Shares subject to his Options until the Option shall have been
exercised in accordance with the terms of the Plan and the option document and
the Optionee shall have paid the full purchase price for the number of Shares in
respect of which the Option was exercised and the Optionee shall have made
arrangements acceptable to the Sponsor for the payment of applicable taxes
consistent with Paragraph 16.
11. Changes in Capitalization
(a) Except as provided in Paragraph 11(b), in the event that
Shares are changed into or exchanged for a different number or kind of shares of
stock or other securities of
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the Sponsor, whether through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split-up or other substitution of
securities of the Sponsor, the Board shall make appropriate equitable
anti-dilution adjustments to the number and class of shares of stock available
for issuance under the Plan, and subject to outstanding Options and to the
option prices. Any reference to the option price in the Plan and in option
documents shall be a reference to the option price as so adjusted. Any reference
to the term "Shares" in the Plan and in option documents shall be a reference to
the appropriate number and class of shares of stock available for issuance under
the Plan, as adjusted pursuant to this Paragraph 11. The Board's adjustment
shall be effective and binding for all purposes of this Plan.
(b) Paragraph 11(a) shall not apply to the number of Shares that
become subject to the grant of Options under Paragraph 8(a). Paragraph 11(a)
shall apply for the purpose of making appropriate equitable anti-dilution
adjustments to Options granted pursuant to Paragraph 8(a) before the effective
date of the relevant event giving rise to the adjustment under Paragraph 11(a).
12. Terminating Events
(a) The Sponsor shall give Optionees at least thirty (30)
days' notice (or, if not practicable, such shorter notice as may be reasonably
practicable) prior to the anticipated date of the consummation of a Terminating
Event. Upon receipt of such notice, and for a period of ten (10) days thereafter
(or such shorter period as the Board shall reasonably determine and so notify
the Optionees), each Optionee shall be permitted to exercise the Option to the
extent the Option are then exercisable; provided that, the Sponsor may, by
similar notice, require the Optionee to exercise the Option, to the extent the
Option is then exercisable, or to forfeit the Option (or portion thereof, as
applicable). The Committee may, in its discretion, provide that upon the
Optionee's receipt of the notice of a Terminating Event under this Paragraph
12(a), the entire number of Shares covered by Options shall become immediately
exercisable. Upon the close of the period described in this Paragraph 12(a)
during which an Option may be exercised in connection with a Terminating Event,
such Option (including such portion thereof that is not exercisable) shall
terminate to the extent that such Option have not theretofore been exercised.
(b) Notwithstanding Paragraph 12(a), in the event the
Terminating Event is not consummated, the Option shall be deemed not to have
been exercised and shall be exercisable thereafter to the extent it would have
been exercisable if no such notice had been given.
13. Interpretation
The Committee shall have the power to interpret the Plan and to
make and amend rules for putting it into effect and administering it. It is
intended that the Incentive Stock Options granted under the Plan shall
constitute incentive stock options within the meaning of section 422
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of the Code, and that Shares transferred pursuant to the exercise of
Non-Qualified Options shall constitute property subject to federal income tax
pursuant to the provisions of section 83 of the Code. The provisions of the Plan
shall be interpreted and applied insofar as possible to carry out such intent.
14. Amendments
The Board or the Committee may amend the Plan from time to time
in such manner as it may deem advisable. Nevertheless, neither the Board nor the
Committee may, without obtaining approval within twelve months before or after
such action by such vote of shareholders as may be required by Pennsylvania law
for any action requiring shareholder approval, or by a majority of votes cast at
a duly held shareholders' meeting at which a majority of all voting stock is
present and voting on such amendment, either in person or in proxy (but not, in
any event, less than the vote required pursuant to Rule 16b-3(b) under the 1934
Act) change the class of individuals eligible to receive an Incentive Stock
Option, extend the expiration date of the Plan, decrease the minimum option
price of an Incentive Stock Option granted under the Plan or increase the
maximum number of shares as to which Options may be granted, except as provided
in Paragraph 11 hereof. In addition, the provisions of Paragraph 8 that
determine (i) which directors shall be granted Options; (ii) the number of
Shares subject to Options; (iii) the option price of Shares subject to Options;
and (iv) the timing of grants of Options shall not be amended more than once
every six months, other than to comport with changes in the Code or the Employee
Retirement Income Security Act of 1974, as amended, if applicable. No
outstanding Option shall be affected by any such amendment without the written
consent of the Optionee or other person then entitled to exercise such Option.
15. Securities Law
(a) In General. The Committee shall have the power to make
each grant under the Plan subject to such conditions as it deems necessary or
appropriate to comply with the then-existing requirements of the 1933 Act or the
1934 Act, including Rule 16b-3 (or any similar rule) of the Securities and
Exchange Commission.
(b) Acknowledgment of Securities Law Restrictions on
Exercise. To the extent required by the Committee, unless the Shares subject to
the Option are covered by a then current registration statement or a
Notification under Regulation A under the 1933 Act, each notice of exercise of
an Option shall contain the Optionee's acknowledgment in form and substance
satisfactory to the Committee that:
(i) the Shares subject to the Option are being
purchased for investment and not for distribution or resale (other than a
distribution or resale which, in the opinion of counsel satisfactory to the
Sponsor, may be made without violating the registration provisions of the
Act);
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(ii) the Optionee has been advised and understands that
(A) the Shares subject to the Option have not been registered under the
1933 Act and are "restricted securities" within the meaning of Rule 144
under the 1933 Act and are subject to restrictions on transfer and (B) the
Sponsor is under no obligation to register the Shares subject to the Option
under the 1933 Act or to take any action which would make available to the
Optionee any exemption from such registration;
(iii) the certificate evidencing the Shares may bear a
restrictive legend; and
(iv) the Shares subject to the Option may not be
transferred without compliance with all applicable federal and state
securities laws.
(c) Delay of Exercise Pending Registration of Securities.
Notwithstanding any provision in the Plan or an option document to the contrary,
if the Committee determines, in its sole discretion, that issuance of Shares
pursuant to the exercise of an Option should be delayed pending registration or
qualification under federal or state securities laws or the receipt of a legal
opinion that an appropriate exemption from the application of federal or state
securities laws is available, the Committee may defer exercise of any Option
until such Shares are appropriately registered or qualified or an appropriate
legal opinion has been received, as applicable.
16. Withholding of Taxes on Exercise of Option
(a) Whenever the Company proposes or is required to deliver
or transfer Shares in connection with the exercise of an Option, the Company
shall have the right to (i) require the recipient to remit to the Sponsor an
amount sufficient to satisfy any federal, state and local withholding tax
requirements prior to the delivery or transfer of any certificate or
certificates for such Shares or (ii) take any action whatever that it deems
necessary to protect its interests with respect to tax liabilities. The
Sponsor's obligation to make any delivery or transfer of Shares on the exercise
of an Option shall be conditioned on the recipient's compliance, to the
Sponsor's satisfaction, with any withholding requirement. In addition, if the
Committee grants Options or amends option documents to permit Options to be
transferred during the life of the Optionee, the Committee may include in such
option documents such provisions as it determines are necessary or appropriate
to permit the Company to deduct compensation expenses recognized upon exercise
of such Options for federal or state income tax purposes.
(b) Except as otherwise provided in this Paragraph 16(b),
any tax liabilities incurred in connection with the exercise of an Option under
the Plan other than an Incentive Stock Option shall be satisfied by the
Sponsor's withholding a portion of the Shares underlying the Option exercised
having a Fair Market Value approximately equal to the minimum amount of taxes
required to be withheld by the Sponsor under applicable law, unless otherwise
determined by the Committee with respect to any Optionee. Notwithstanding the
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foregoing, the Committee may permit an Optionee to elect one or both of the
following: (i) to have taxes withheld in excess of the minimum amount required
to be withheld by the Sponsor under applicable law; provided that the Optionee
certifies in writing to the Sponsor that the Optionee owns a number of Other
Available Shares that is at least equal to that number of Option Shares to be
withheld by the Company for the then-current exercise on account of withheld
taxes in excess of such minimum amount, and (ii) to pay to the Sponsor in cash
all or a portion of the taxes to be withheld upon the exercise of an Option. In
all cases, the Shares so withheld by the Company shall have a Fair Market Value
that does not exceed the amount of taxes to be withheld minus the cash payment,
if any, made by the Optionee. Any election pursuant to this Paragraph 16(b) must
be in writing made prior to the date specified by the Committee, and in any
event prior to the date the amount of tax to be withheld or paid is determined.
In addition, with respect to persons subject to reporting requirements under
section 16(a) of the 1934 Act, such election must be made at least six months
prior to the date the amount of tax to be withheld or paid is determined (which
election will remain in effect with regard to the exercise of an Option and all
future exercises of Options unless revoked upon six months prior notice). An
election pursuant to this Paragraph 16(b) may be made only by an Optionee or, in
the event of the Optionee's death, by the Optionee's legal representative. No
Shares withheld pursuant to this Paragraph 16(b) shall be available for
subsequent grants under the Plan. The Committee may add such other requirements
and limitations regarding elections pursuant to this Paragraph 16(b) as it deems
appropriate.
17. Effective Date and Term of Plan
The effective date of this amendment and restatement of the Plan
is December 10, 1996, the date on which it was adopted by the Committee. The
Plan shall expire no later than the tenth anniversary of the date the Plan was
initially adopted by the Board, unless sooner terminated by the Board. Any
Option granted before the approval of the Plan by the Sponsor's shareholders
shall be expressly conditioned upon, and shall not be exercisable until, such
approval. If such shareholder approval is not received within 12 months before
or after the date of the initial adoption of the Plan by the Board, all Options
granted under the Plan shall expire.
18. General
Each Option shall be evidenced by a written instrument containing
such terms and conditions not inconsistent with the Plan as the Committee may
determine. The issuance of Shares on the exercise of an Option shall be subject
to all of the applicable requirements of the corporation law of the Sponsor's
state of incorporation and other applicable laws, including federal or state
securities laws, and all Shares issued under the Plan shall be subject to the
terms and restrictions contained in the Articles of Incorporation and By-Laws of
the Sponsor, as amended from time to time.
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Executed this 10th day of December, 1996.
[CORPORATE SEAL] COMCAST CORPORATION
Attest: /s/ Arthur R. Block By: /s/ Stanley Wang
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COMCAST CORPORATION
1990 RESTRICTED STOCK PLAN
(As Amended and Restated, Effective December 18, 1996)
1. PURPOSE
The purpose of the Plan is to promote the ability of Comcast
Corporation (the "Company") to retain certain key employees and enhance the
growth and profitability of the Company by providing the incentive of long-term
awards for continued employment and the attainment of performance objectives.
2. DEFINITIONS
(a) "Affiliate" means, with respect to any Person, any other person
that, directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. For purposes of this definition, the term
"control," including its correlative terms "controlled by" and "under common
control with," mean, with respect to any Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.
(b) "Award" means an award of Restricted Stock granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Change of Control" means any transaction or series of transactions
as a result of which any Person who was a Third Party immediately before such
transaction or series of transactions directly or indirectly owns
then-outstanding securities of the Company having more than 50 percent of the
voting power for the election of directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Comcast Plan" means any restricted stock, stock bonus, stock
option or other compensation plan, program or arrangement established or
maintained by the Company or an Affiliate, including but not limited to the
Comcast Corporation 1996 Stock Option Plan and the Comcast Corporation 1987
Stock Option Plan.
(g) "Committee" means the Subcommittee on Performance Based
Compensation of the Compensation Committee of the Board.
<PAGE>
(h) "Company" means Comcast Corporation, a Pennsylvania corporation,
including any successor thereto by merger, consolidation, acquisition of all or
substantially all the assets thereof, or otherwise.
(i) "Date of Grant" means the date on which an Award is granted.
(j) "Eligible Employee" means a management employee of the Company or a
Subsidiary, as determined by the Committee.
(k) "Grantee" means an Eligible Employee who is granted an Award.
(l) "Other Available Shares" means, as of any date, the excess, if any
of:
(i) the total number of Shares owned by a Grantee; over
(ii) the sum of:
(x) the number of Shares owned by such Grantee for
less than six months; plus
(y) the number of Shares owned by such Grantee that
has, within the preceding six months, been the
subject of a withholding certification pursuant to
Paragraph 9(c)(ii) or any similar withholding
certification under any other Comcast Plan; plus
(z) the number of Shares owned by such Grantee that
has, within the preceding six months, been
received in exchange for Shares surrendered as
payment, in full or in part, of the exercise price
for an option to purchase any securities of the
Company or an Affiliate under any Comcast Plan,
but only to the extent of the number of Shares
surrendered.
(m) "Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization.
(n) "Plan" means the Comcast Corporation 1990 Restricted Stock Plan, as
set forth herein, and as amended from time to time.
(o) "Plan Year" means the 12-consecutive-month period extending from
January 3 to January 2.
(p) "Restricted Stock" means Shares subject to restrictions as set
forth in an Award.
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<PAGE>
(q) "Roberts Family." Each of the following is a member of the Roberts
Family:
(i) Ralph J. Roberts;
(ii) a lineal descendant of Ralph J. Roberts; or
(iii) a trust established for the benefit of any of Ralph J.
Roberts and/or a lineal descendant or descendants of Ralph J. Roberts.
(r) "Rule 16b-3" means Rule 16b-3 promulgated under the 1935 Act, as in
effect from time to time.
(s) "Share" or "Shares" means a share or shares of Class A Special
Common Stock, $1.00 par value, of the Company.
(t) "Subsidiary" means a corporation that, at the time in question, is
a subsidiary corporation of the Company within the meaning of section 424(f) of
the Code.
(u) "Terminating Event" means any of the following events:
(i) the liquidation of the Sponsor; or
(ii) a Change of Control.
(v) "Third Party" means any Person, together with such Person's
Affiliates, provided that the term "Third Party" shall not include the Company,
an Affiliate of the Company or any member or members of the Roberts Family.
(w) "1933 Act" means the Securities Act of 1933, as amended.
(x) "1934 Act" means the Securities Exchange Act of 1934, as amended.
3. RIGHTS TO BE GRANTED
Rights that may be granted under the Plan are rights to Restricted
Stock, which gives the Grantee ownership rights in the Shares subject to the
Award, subject to a substantial risk of forfeiture, as set forth in Paragraph 7,
and to deferred payment, as set forth in Paragraph 8.
4. SHARES SUBJECT TO THE PLAN
(a) Not more than 4,875,000 Shares in the aggregate may be issued under
the Plan pursuant to the grant of Awards, subject to adjustment in accordance
with Paragraph 10. The Shares issued under the Plan may, at the Company's
option, be either Shares held in treasury or Shares originally issued for such
purpose.
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(b) If Restricted Stock is forfeited pursuant to the times of an Award,
other Awards with respect to such Shares may be granted.
5. ADMINISTRATION OF THE PLAN
(a) Administration. The Plan shall be administered by the Committee.
(b) Grants. Subject to the express terms and conditions set forth in
the Plan, the Committee shall have the power, from time to time, to:
(i) select those Employees to whom Awards shall be
granted under the Plan, to determine the number of
Shares to be granted pursuant to each Award, and,
pursuant to the provisions of the Plan, to
determine the terms and conditions of each Award,
including the restrictions applicable to such
Shares; and
(ii) interpret the Plan's provisions, prescribe, amend
and rescind rules and regulations for the Plan,
and make all other determinations necessary or
advisable for the administration of the Plan.
The determination of the Committee in all matters as stated above shall be
conclusive.
(c) Meetings. The Committee shall hold meetings at such times and
places as it may determine. Acts approved at a meeting by a majority of the
members of the Committee or acts approved in writing by the unanimous consent of
the members of the Committee shall be the valid acts of the Committee.
(d) Exculpation. No member of the Committee shall be personally liable
for monetary damages for any action taken or any failure to take any action in
connection with the administration of the Plan or the granting of Awards
thereunder unless (i) the member of the Committee has breached or failed to
perform the duties of his office, and (ii) the breach or failure to perform
constitutes self-dealing, wilful misconduct or recklessness; provided, however,
that the provisions of this Paragraph 5(d) shall not apply to the responsibility
or liability of a member of the Committee pursuant to any criminal statute.
(e) Indemnification. Service on the Committee shall constitute service
as a member of the Board. Each member of the Committee shall be entitled without
further act on his part to indemnity from the Company to the fullest extent
provided by applicable law and the Company' s Articles of Incorporation and
By-laws in connection with or arising out of any action, suit or proceeding with
respect to the administration of the Plan or the granting of Awards thereunder
in which he may be involved by reason of his being or having been a member of
the Committee, whether or not he continues to be such member of the Committee at
the time of the action, suit or proceeding.
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<PAGE>
6. ELIGIBILITY
Awards may be granted only to Eligible Employees of the Company and its
Subsidiaries, as determined by the Committee. No Awards shall be granted to an
individual who is not an Eligible Employee of the Company or a Subsidiary of the
Company.
7. RESTRICTED STOCK AWARDS
The Committee may grant Awards in accordance with the Plan. The terms
and conditions of Awards shall be set forth in writing as determined from time
to time by the Committee, consistent, however, with the following:
(a) Time of Grant. All Awards shall be granted within ten (10) years
from the date of adoption of the Plan by the Board.
(b) Shares Awarded. The provisions of Awards need not be the same with
respect to each Grantee. No cash or other consideration shall be required to be
paid by the Grantee in exchange for an Award.
(c) Awards and Agreements. A certificate shall be issued to each
Grantee in respect of Shares subject to an Award. Such certificate shall be
registered in the name of the Grantee and shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable to such Award.
The Company may require that the certificate evidencing such Restricted Stock be
held by the Company until all restrictions on such Restricted Stock have lapsed.
(d) Restrictions. Subject to the provisions of the Plan and the Award,
during a period set by the Committee commencing with the Date of Grant, which,
for Grantees who are subject to the short-swing profit recapture rules of
section 16(b) of the 1934 Act by virtue of their position as either a director,
officer or holder of more than 10 percent of any class of equity securities of
the Company, shall extend for at least six (6) months from the Date of Grant,
the Grantee shall not be permitted to sell, transfer, pledge or assign
Restricted Stock awarded under the Plan.
(e) Lapse of Restrictions. Subject to the provisions of the Plan and
the Award, restrictions upon Shares subject to an Award shall lapse at such time
or times and on such terms and conditions as the Committee may determine and as
are set forth in the Award; provided, however, that the restrictions upon such
Shares shall lapse only if the Grantee on the date of such lapse is, and has
been an employee of the Company or of a subsidiary or affiliate of the Company
continuously from the Date of Grant. The Award may provide for the lapse of
restrictions in installments, as determined by the Committee. The Committee may,
in its sole discretion, waive, in whole or in part, any remaining restrictions
with respect to such Grantee's Restricted Stock.
(f) Rights of the Grantee. Grantees may have such rights with respect
to Shares subject to an Award as may be determined by the Committee and set
forth in the Award,
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including the right to vote such Shares, and the right to receive dividends paid
with respect to such Shares.
(g) Termination of Grantee's Employment. A transfer of an Eligible
Employee between two employers, each of which is the Company or a Subsidiary,
shall not be deemed a termination of employment. In the event that a Grantee
terminates employment with the Company and its Subsidiaries, all Shares
remaining subject to restrictions shall be forfeited by the Grantee and deemed
canceled by the Company.
(h) Delivery of Shares. Except as otherwise provided by Paragraph 8,
when the restrictions imposed on Restricted Stock lapse with respect to one or
more Shares, the Company shall notify the Grantee that such restrictions no
longer apply, and shall deliver to the Grantee (or the person to whom ownership
rights may have passed by will or the laws of descent and distribution) a
certificate for the number of Shares for which restrictions have lapsed without
any legend or restrictions (except those that may be imposed by the Committee,
in its sole judgment, under Paragraph 9(a)). The right to payment of any
fractional Shares that may have accrued shall be satisfied in cash, measured by
the product of the fractional amount times the fair market value of a Share at
the time the applicable restrictions lapse, as determined by the Committee.
8. DEFERRAL ELECTIONS
A Grantee may elect to defer the receipt of Restricted Stock as to
which restrictions have lapsed as provided by the Committee in the Award,
consistent, however, with the following:
(a) Deferral Election.
(i) Election. Each Grantee shall have the right to
defer the receipt of all or any portion of the
Restricted Stock as to which the Award provides
for the potential lapse of applicable restrictions
by filing an election to defer the receipt of such
Restricted Stock on a form provided by the
Committee for this purpose.
(ii) Deadline for Deferral Election. No election to
defer the receipt of Restricted Stock as to which
the Award provides for the potential lapse of
applicable restrictions shall be effective unless
it is filed with the Committee on or before the
last day of the calendar year ending before the
first day of the Plan Year in which the applicable
restrictions may lapse; provided that an election
to defer the receipt of Restricted Stock as to
which the Award provides for the potential lapse
of applicable restrictions within the same Plan
Year as the Plan Year in which the Award is
granted shall be effective if it is filed with the
Committee on or before the earlier of (A) the 30th
day following the Date of Grant or (B) the last
day of the month that precedes the month in which
the applicable restrictions may lapse.
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(iii) Deferral Period. Subject to Paragraph 8(b), all
Restricted Stock that is subject to a deferral
election under this Paragraph 8(a) shall be
delivered to the Grantee (or the person to whom
ownership rights may have passed by will or the
laws of descent and distribution) without any
legend or restrictions (except those that may be
imposed by the Committee, in its sole judgment,
under Paragraph 9(a)), on the earlier of (A) the
last day of the fifth Plan Year beginning after
the date as of which the applicable restrictions
lapse or (B) within sixty (60) days following the
Grantee's termination of employment for any
reason.
(iv) Effect of Failure of Restrictions on Shares to
Lapse. A deferral election under this Paragraph
8(a) shall be null and void in the event that the
restrictions on Restricted Stock identified in a
deferral election do not lapse as of the end of
the Plan Year following the Plan Year in which the
deferral election is filed with the Committee by
reason of the failure to satisfy any condition
precedent to the lapse of the restrictions in such
Plan Year.
(b) Additional Deferral Election. On or before the last day of the
calendar year ending before the first day of the Plan Year in which Restricted
Stock subject to a deferral election under Paragraph 8(a) is to be delivered to
a Grantee, the Grantee may elect to re-defer the receipt of all or any portion
of such Restricted Stock until the earlier of (i) the last day of the fifth Plan
Year beginning after the date on which the Restricted Stock would have been
delivered but for the Grantee's election pursuant to this Paragraph 8(b) or (ii)
within sixty (60) days following the Grantee's termination of employment for any
reason.
(c) Status of Deferred Shares. A Grantee's right to delivery of Shares
subject to a deferral election under Paragraph 8(a) or 8(b) shall at all times
represent the general obligation of the Company. The Grantee shall be a general
creditor of the Company with respect to this obligation, and shall not have a
secured or preferred position with respect to such obligation. Nothing contained
in the Plan or an Award shall be deemed to create an escrow, trust, custodial
account or fiduciary relationship of any kind. Nothing contained in the Plan or
an Award shall be construed to eliminate any priority or preferred position of a
Grantee in a bankruptcy matter with respect to claims for wages.
(d) Non-Assignability, Etc. The right of a Grantee to receive Shares
subject to a deferral election under this Paragraph 8 shall not be subject in
any manner to attachment or other legal process for the debts of such Grantee;
and no right to receive Shares hereunder shall be subject to anticipation,
alienation, sale, transfer, assignment or encumbrance.
9. SECURITIES LAWS; TAXES
(a) Securities Laws. The Committee shall have the power to make each
grant of Awards under the Plan subject to such conditions as it deems necessary
or appropriate to comply
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with the then-existing requirements of the 1933 Act and the 1934 Act, including
Rule 16b-3. Such conditions may include the delivery by the Grantee of an
investment representation to the Company in connection with the lapse of
restrictions on Shares subject to an Award, or the execution of an agreement by
the Grantee to refrain from selling or otherwise disposing of the Shares
acquired for a specified period of time or on specified terms.
(b) Taxes. Subject to the rules of Paragraph 9(c), the Company shall be
entitled, if necessary or desirable, to withhold the amount of any tax, charge
or assessment attributable to the grant of any Award or lapse of restrictions
under any Award. The Company shall not be required to deliver Shares pursuant to
any Award until it has been indemnified to its satisfaction for any such tax,
charge or assessment.
(c) Payment of Tax Liabilities; Election to Withhold Shares or Pay Cash
to Satisfy Tax Liability.
(i) In connection with the grant of any Award or the
lapse of restrictions under any Award, the Company
shall have the right to (A) require the Grantee to
remit to the Company an amount sufficient to
satisfy any federal, state and/or local
withholding tax requirements prior to the delivery
or transfer of any certificate or certificates for
Shares subject to such Award, or (B) take any
action whatever that it deems necessary to protect
its interests with respect to tax liabilities. The
Company's obligation to make any delivery or
transfer of Shares shall be conditioned on the
Grantee's compliance, to the Company's
satisfaction, with any withholding requirement.
(ii) Except as otherwise provided in this Paragraph
9(c)(ii), any tax liabilities incurred in
connection with grant of any Award or the lapse of
restrictions under any Award under the Plan shall
be satisfied by the Company's withholding a
portion of the Shares subject to such Award having
a fair market value approximately equal to the
minimum amount of taxes required to be withheld by
the Company under applicable law, unless otherwise
determined by the Committee with respect to any
Grantee. Notwithstanding the foregoing, the
Committee may permit a Grantee to elect one or
both of the following: (A) to have taxes withheld
in excess of the minimum amount required to be
withheld by the Company under applicable law;
provided that the Grantee certifies in writing to
the Company at the time of such election that the
Grantee owns a number of Other Available Shares
that is at least equal to the number to be
withheld by the Company in payment of withholding
taxes in excess of such minimum amount; and (B) to
pay to the Company in cash all or a portion of the
taxes to be withheld in connection with such grant
or lapse of restrictions. In all cases, the Shares
so withheld by the Company shall have a fair
market value that does not exceed the amount of
taxes to be
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withheld minus the cash payment, if any, made by the
Grantee. The fair market value of such Shares shall
be determined based on the last reported sale price
of a Share on the principal exchange on which Shares
are listed or, if not so listed, on the NASDAQ Stock
Market on the last trading day prior to the date of
such grant or lapse of restriction. Any election
pursuant to this Paragraph 9(c)(ii) must be in
writing made prior to the date specified by the
Committee, and in any event prior to the date the
amount of tax to be withheld or paid is determined.
In addition, with respect to persons subject to
reporting requirements under Section 16(a) of the
1934 Act, such election must be made at least six
months prior to the date the amount of tax to be
withheld or paid is determined (which election will
remain in effect with regard to all future grants of
Awards or lapses of restrictions, as applicable,
unless revoked upon six months prior notice). An
election pursuant to this Paragraph 9(c)(ii) may be
made only by a Grantee or, in the event of the
Grantee's death, by the Grantee's legal
representative. No Shares withheld pursuant to this
Paragraph 9(c)(ii) shall be available for subsequent
grants under the Plan. The Committee may add such
other requirements and limitations regarding
elections pursuant to this Paragraph 9(c)(ii) as it
deems appropriate.
10. CHANGES IN CAPITALIZATION
The aggregate number of Shares and class of Shares as to which Awards
may be granted and the number of Shares covered by each outstanding Award shall
be appropriately adjusted in the event of a stock dividend, stock split,
recapitalization or other change in the number or class of issued and
outstanding equity securities of the Company resulting from a subdivision or
consolidation of the Shares and/or other outstanding equity security or a
recapitalization or other capital adjustment (not including the issuance of
Shares and/or other outstanding equity securities on the conversion of other
securities of the Company which are convertible into Shares and/or other
outstanding equity securities) affecting the Shares which is effected without
receipt of consideration by the Company. The Committee shall have authority to
determine the adjustments to be made under this Paragraph 10 and any such
determination by the Committee shall be final, binding and conclusive.
11. TERMINATING EVENTS
The Committee shall give Participants at least thirty (30) days' notice
(or, if not practicable, such shorter notice as may be reasonably practicable)
prior to the anticipated date of the consummation of a Terminating Event. The
Committee may, in its discretion, provide in such notice that upon the
consummation of such Terminating Event, any restrictions on Restricted Stock
(other than Restricted Stock that has previously been forfeited) shall be
eliminated, in full or in part. Further, the Committee may, in its discretion,
provide in such notice that notwithstanding any other provision of the Plan or
the terms of any election made
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pursuant to Paragraph 8, upon the consummation of a Terminating Event, all
Restricted Stock subject to an election made pursuant to Paragraph 8 shall be
transferred to the Grantee.
12. AMENDMENT AND TERMINATION
The Plan may be terminated by the Board at any time. The Plan may be
amended by the Board or the Committee at any time. No Award shall be affected by
any such termination or amendment without the written consent of the Grantee.
13. EFFECTIVE DATE
The effective date of this amendment and restatement of the Plan is the
date on which it is adopted by the Board. The adoption of this amendment and
restatement of the Plan and the grant of Awards pursuant to this amendment and
restatement of the Plan is subject to the approval of the shareholders of the
Company to the extent that the Committee determines that such approval (a) is
required pursuant to the By-laws of the National Association of Securities
Dealers, Inc., and the schedules thereto, in connection with issuers whose
securities are included in the NASDAQ National Market System, or (b) is required
to satisfy the conditions on Rule 16b-3. If the Committee determines that
shareholder approval is required to satisfy the foregoing conditions, the Board
shall submit the Plan to the shareholders the Company for their approval at the
first annual meeting of shareholders held after the adoption of the Plan by the
Board.
14. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant to the
Plan shall be governed in accordance with Pennsylvania Law.
Executed this 18th day of December, 1996
COMCAST CORPORATION
BY: /s/ Stanley Wang
ATTEST: /s/ Arthur R. Block
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COMCAST CORPORATION
1996 CASH BONUS PLAN
(Amended and Restated, Effective December 10, 1996)
1. PURPOSE
The purpose of the Plan is to promote the ability of Comcast
Corporation (the "Company") and its Subsidiaries (as defined below) to retain
and recruit employees and enhance the growth and profitability of the Company by
providing the incentive of short-term and long-term cash bonus awards for
continued employment and the attainment of performance objectives.
2. DEFINITIONS
(a) "Affiliate" means, with respect to any Person, any other person
that, directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. For purposes of this definition, the term
"control," including its correlative terms "controlled by" and "under common
control with," mean, with respect to any Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.
(b) "Award" means a cash bonus award granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "C" means the Consolidated Operating Cash Flow of the Company, the
Cable Division or the Cellular Division, as applicable, for 1995.
(e) "Cable Division" means the Company's cable television business, as
determined by the Committee in its sole discretion.
(f) "Cellular Division" means the Company's cellular telephone
business, as determined by the Committee in its sole discretion.
(g) "Change of Control" means any transaction or series of
transactions as a result of which any Person who was a Third Party immediately
before such transaction or series of transactions directly or indirectly owns
then-outstanding securities of the Company having more than 50 percent of the
voting power for the election of directors of the Company.
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(h) "Committee" means the Subcommittee on Performance Based
Compensation of the Compensation Committee of the Board.
(i) "Company."
(i) Except as otherwise provided in Paragraph 2(i)(ii), "Company"
means Comcast Corporation, a Pennsylvania corporation, including any successor
thereto by merger, consolidation, acquisition of all or substantially all the
assets thereof, or otherwise.
(ii) For purposes of determining an Eligible Employee's employer,
"Company" means Comcast Corporation, a Pennsylvania corporation.
(j) "Compounded Annual Growth Rate" means the value determined under
the following mathematical formula:
n
C[(1+r) ]
where C, r and n have the definitions provided in this Paragraph 2 of the Plan.
(k) "Consolidated Operating Cash Flow" means the consolidated
operating income plus depreciation and amortization, of the Company, the Cable
Division or the Cellular Division, as applicable, for a Plan Year, as determined
by the Committee in accordance with generally accepted accounting principles. If
the results of operations of a business acquired or disposed of after December
31, 1995 would, under generally accepted accounting principles, be included (in
the case of an acquisition) or excluded (in the case of a disposition) from the
consolidated financial statements of the Company, the Cable Division or the
Cellular Division, as applicable, from the date of acquisition or disposition,
and, in such event, the Committee decides in its sole discretion that such
inclusion or exclusion will materially affect the comparability of such amount
for the Plan Year in which the acquisition or disposition occurs and each Plan
Year thereafter to that for 1995, then for the purpose of determining whether
the Target has been met for the Plan Year in which the acquisition or
disposition occurs and each Plan Year thereafter only, the Consolidated
Operating Cash Flow for 1995 shall be restated to account for such acquisition
or disposition as if it had occurred on January 1, 1995, using actual historical
financial information for the acquired or disposed of business. The Committee
may also decide in its sole discretion that an event (such as a non-recurring
item or the results of a start-up or development stage business) in a Plan Year
will materially affect the comparability of the results of operations for such
Plan Year to that for 1995, in which case the Committee may restate the results
of operations for such Plan Year to make an equitable adjustment thereto.
(l) "Date of Grant" means the date on which an Award is granted.
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(m) "Eligible Employee" means an employee of the Company or a
Subsidiary, as determined by the Committee.
(n) "Grantee" means an Eligible Employee who is granted an Award.
(o) "n" means a value applied for purposes of determining the
Compounded Annual Growth Rate for the Company, the Cable Division or the
Cellular Division, as applicable, as follows:
(i) for purposes of determining Compounded Annual
Growth Rate for 1996, n = 1.
(ii) for purposes of determining Compounded Annual
Growth Rate for 1997, n = 2.
(iii) for purposes of determining Compounded Annual
Growth Rate for 1998, n = 3.
(iv) for purposes of determining Compounded Annual
Growth Rate for 1999, n = 4.
(v) for purposes of determining Compounded Annual
Growth Rate for 2000, n = 5.
(p) "Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization.
(q) "Plan" means the Comcast Corporation 1996 Cash Bonus Plan, as set
forth herein, and as amended from time to time.
(r) "Plan Year" means the calendar year.
(s) "r" means the interest rate established by the Committee for
purposes of determining the Compounded Annual Growth Rate for the Company, the
Cable Division or the Cellular Division, as applicable.
(t) "Roberts Family." Each of the following is a member of the Roberts
Family:
(i) Ralph J. Roberts;
(ii) a lineal descendant of Ralph J. Roberts; or
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(iii) a trust established for the benefit of any of
Ralph J. Roberts and/or a lineal descendant or
descendants of Ralph J. Roberts.
(u) "Subsidiary" means a corporation that, at the time in question, is
a subsidiary corporation of the Company, within the meaning of section 424(f) of
the Code.
(v) "Target" means, for any Plan Year beginning after 1995,
Consolidated Operating Cash Flow for the Company, the Cable Division or the
Cellular Division, as applicable, which equals or exceeds the Compounded Annual
Growth Rate for such Plan Year, based on the annualized interest rate, "r,"
established by the Committee for the Company, the Cable Division or the Cellular
Division, as applicable.
(w) "Terminating Event" means any of the following events:
(i) the liquidation of the Sponsor; or
(ii) a Change of Control.
(x) "Third Party" means any Person, together with such Person's
Affiliates, provided that the term "Third Party" shall not include the Company,
an Affiliate of the Company or any member or members of the Roberts Family.
3. RIGHTS TO BE GRANTED
Rights that may be granted under the Plan are rights to cash payments,
payable in accordance with the terms of the Plan and the Award document.
4. ADMINISTRATION OF THE PLAN
(a) Administration. The Plan shall be administered by the Committee.
(b) Grants. Subject to the express terms and conditions set forth in
the Plan, the Committee shall have the power, from time to time, to:
(i) select those Eligible Employees to whom Awards
shall be granted under the Plan, to determine the
amount of cash to be paid pursuant to each Award,
and, pursuant to the provisions of the Plan, to
determine the terms and conditions of each Award;
and
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<PAGE>
(ii) interpret the Plan's provisions, prescribe, amend
and rescind rules and regulations for the Plan,
and make all other determinations necessary or
advisable for the administration of the Plan.
The determination of the Committee in all matters as stated above shall be
conclusive.
(c) Meetings. The Committee shall hold meetings at such times and
places as it may determine. Acts approved at a meeting by a majority of the
members of the Committee or acts approved in writing by the unanimous consent of
the members of the Committee shall be the valid acts of the Committee.
(d) Exculpation. No member of the Committee shall be personally liable
for monetary damages for any action taken or any failure to take any action in
connection with the administration of the Plan or the granting of Awards
thereunder unless (i) the member of the Committee has breached or failed to
perform the duties of his office, and (ii) the breach or failure to perform
constitutes self-dealing, wilful misconduct or recklessness; provided, however,
that the provisions of this Paragraph 5(d) shall not apply to the responsibility
or liability of a member of the Committee pursuant to any criminal statute.
(e) Indemnification. Service on the Committee shall constitute service
as a member of the Board. Each member of the Committee shall be entitled without
further act on his part to indemnity from the Company to the fullest extent
provided by applicable law and the Company's Articles of Incorporation and
By-laws in connection with or arising out of any action, suit or proceeding with
respect to the administration of the Plan or the granting of Awards thereunder
in which he may be involved by reason of his being or having been a member of
the Committee, whether or not he continues to be such member of the Committee at
the time of the action, suit or proceeding.
5. ELIGIBILITY
Awards may be granted only to Eligible Employees of the Company and
its Subsidiaries, as determined by the Committee. No Awards shall be granted to
an individual who is not an Eligible Employee of the Company or a Subsidiary.
6. CASH BONUS AWARDS
The Committee may grant Awards in accordance with the Plan. The terms
and conditions of Awards shall be set forth in writing as determined from time
to time by the Committee, consistent, however, with the following:
(a) Time of Grant. All Awards shall be granted within five years from
the date of adoption of the Plan by the Board.
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<PAGE>
(b) Non-uniformity of Awards. The provisions of Awards need not be the
same with respect to each Grantee.
(c) Awards and Agreements. The terms of each Award shall be reflected
in an Award document in form and substance satisfactory to the Committee.
(d) Conditions to Payment of Awards. The Committee shall establish
such conditions on the payment of a bonus pursuant to an Award as it may, in its
sole discretion, deem appropriate. The conditions shall be set forth in the
Award document. The Award may provide for the payment of Awards in installments,
or upon the satisfaction of divisional or Company-wide performance targets, as
determined by the Committee. The Committee may, in its sole discretion, waive,
in whole or in part, any remaining conditions to payment of a Grantee's Award.
The Grantee shall not be permitted to sell, transfer, pledge or assign any
amount payable pursuant to the Plan or an Award (provided that the right to
payment under an Award may pass by will or the laws of descent and
distribution).
(e) Termination of Grantee's Employment. A transfer of an Eligible
Employee between two employers, each of which is the Company or a Subsidiary,
shall not be deemed a termination of employment. The Committee may grant Awards
pursuant to which the calculation of an Award is modified in connection with a
transfer of a Grantee between two employers, each of which is the Company or a
Subsidiary. In the event that a Grantee terminates employment with the Company
and its Subsidiaries, all Awards remaining subject to conditions to payment
shall be forfeited by the Grantee and deemed canceled by the Company.
(f) Payment of Cash. Subject to Paragraph 11, and as further provided
in Paragraphs 7, 8, 9 and 10, following the satisfaction of the conditions to
payment of an Award, the Company shall pay the Grantee (or the person to whom
the right to payment may have passed by will or the laws of descent and
distribution) the amount payable in connection with the lapse of such
restrictions.
7. CONDITIONS TO PAYMENT OF CASH BONUS AWARDS
(a) In General. Except as provided in Paragraph 7(b), or as otherwise
determined by the Committee and provided in the terms of an Award:
(i) The restrictions on the payment of Awards of
Grantees employed by the Company shall be
determined pursuant to Paragraph 8.
(ii) The conditions to the payment of Awards of
Grantees employed by the Cable Division shall be
determined pursuant to Paragraph 9.
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<PAGE>
(iii) The conditions to the payment of Awards of
Grantees employed by the Cellular Division shall
be determined pursuant to Paragraph 10.
(b) Certain Grantees Subject to Transition Rules. The Target for a
Grantee who has received an award of restricted stock pursuant to the Comcast
Corporation 1990 Restricted Stock Plan which provides for the lapse of
restrictions for any such restricted stock after January 2, 1996 shall be
determined by the Committee and provided in the terms of the Award for such
Grantee.
8. CORPORATE TARGET AND CASH BONUS
(a) Amount of Cash Bonus Award. The amount of an Award to Eligible
Employees of the Company shall be determined by the Committee.
(b) Target. The Target for Eligible Employees of the Company shall be
met for each Plan Year beginning after 1995 if Consolidated Operating Cash Flow
for the Company equals orexceeds the Compounded Annual Growth Rate for such Plan
Year, where "r" equals 12 percent (0.12).
(c) Payment of Cash Bonus Award. The Cash Bonus Award shall be paid to
a Grantee at the following times if the following conditions are satisfied:
(i) 15 percent of the Award shall be paid on or before
March 15, 1997 if the Target is met for the 1996
Plan Year and the Grantee is an active employee of
the Company or a Subsidiary continuously from the
Date of Grant to December 31, 1996.
(ii) 30 percent of the Award (less any portion of the
Award previously paid to Grantee) shall be paid on
or before March 15, 1998 if the Target is met for
the 1997 Plan Year and the Grantee is an active
employee of the Company or a Subsidiary
continuously from the Date of Grant to December
31, 1997.
(iii) 45 percent of the Award (less any portion of the
Award previously paid to Grantee) shall be paid on
or before March 15, 1999 if the Target is met for
the 1998 Plan Year and the Grantee is an active
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<PAGE>
employee of the Company or a Subsidiary
continuously from the Date of Grant to December
31, 1998.
(iv) 60 percent of the Award (less any portion of the
Award previously paid to Grantee) shall be paid on
or before March 15, 2000 if the Target is met for
the 1999 Plan Year and the Grantee is an active
employee of the Company or a Subsidiary
continuously from the Date of Grant to December
31, 1999.
(v) 75 percent of the Award (less any portion of the
Award previously paid to Grantee) shall be paid on
or before March 15, 2001 if the Target is met for
the 2000 Plan Year and the Grantee is an active
employee of the Company or a Subsidiary
continuously from the Date of Grant to December
31, 2000.
(d) Payment of Supplemental Cash Bonus Award. If the Grantee is an
active employee of the Company or a Subsidiary continuously from the Date of
Grant to December 31, 2000, the Grantee shall be paid an additional portion of
the Cash Bonus Award on or before March 15, 2001, as follows:
(i) 5 percent of the Award if the Target was satisfied
for the 1996 Plan Year, provided that the Target
was not satisfied for any subsequent Plan Year.
(ii) 10 percent of the Award if the Target was
satisfied for the 1997 Plan Year, provided that
the Target was not satisfied for any subsequent
Plan Year.
(iii) 15 percent of the Award if the Target was
satisfied for the 1998 Plan Year, provided that
the Target was not satisfied for any subsequent
Plan Year.
(iv) 20 percent of the Award if the Target was
satisfied for the 1999 Plan Year, provided that
the Target was not satisfied for any subsequent
Plan Year.
(v) 25 percent of the Award if the Target was
satisfied for the 2000 Plan Year.
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<PAGE>
9. CABLE DIVISION TARGET AND CASH BONUS
(a) Amount of Cash Bonus Award. The amount of an Award to Eligible
Employees of the Cable Division shall be determined by the Committee.
(b) Target. The Target for Eligible Employees of the Cable Division
shall be met for each Plan Year beginning after 1995 if Consolidated Operating
Cash Flow for the Cable Division equals or exceeds the Compounded Annual Growth
Rate for such Plan Year, where "r" equals 10 percent (0.10).
(c) Payment of Cash Bonus Award. The Cash Bonus Award shall be paid to
a Grantee at the following times if the following conditions are satisfied:
(i) 15 percent of the Award shall be paid on or before
March 15, 1997 if the Target is met for the 1996
Plan Year and the Grantee is an active employee of
the Company or a Subsidiary continuously from the
Date of Grant to December 31, 1996.
(ii) 30 percent of the Award (less any portion of the
Award previously paid to Grantee) shall be paid on
or before March 15, 1998 if the Target is met for
the 1997 Plan Year and the Grantee is an active
employee of the Company or a Subsidiary
continuously from the Date of Grant to December
31, 1997.
(iii) 45 percent of the Award (less any portion of the
Award previously paid to Grantee) shall be paid on
or before March 15, 1999 if the Target is met for
the 1998 Plan Year and the Grantee is an active
employee of the Company or a Subsidiary
continuously from the Date of Grant to December
31, 1998.
(iv) 60 percent of the Award (less any portion of the
Award previously paid to Grantee) shall be paid on
or before March 15, 2000 if the Target is met for
the 1999 Plan Year and the Grantee is an active
employee of the Company or a Subsidiary
continuously from the Date of Grant to December
31, 1999.
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<PAGE>
(v) 75 percent of the Award (less any portion of the
Award previously paid to Grantee) shall be paid on
or before March 15, 2001 if the Target is met for
the 2000 Plan Year and the Grantee is an active
employee of the Company or a Subsidiary
continuously from the Date of Grant to December
31, 2000.
(d) Payment of Supplemental Cash Bonus Award. If the Grantee is an
active employee of the Company or a Subsidiary continuously from the Date of
Grant to December 31, 2000, the Grantee shall be paid an additional portion of
the Cash Bonus Award on or before March 15, 2001, as follows:
(i) 5 percent of the Award if the Target was satisfied
for the 1996 Plan Year, provided that the Target
was not satisfied for any subsequent Plan Year.
(ii) 10 percent of the Award if the Target was
satisfied for the 1997 Plan Year, provided that
the Target was not satisfied for any subsequent
Plan Year.
(iii) 15 percent of the Award if the Target was
satisfied for the 1998 Plan Year, provided that
the Target was not satisfied for any subsequent
Plan Year.
(iv) 20 percent of the Award if the Target was
satisfied for the 1999 Plan Year, provided that
the Target was not satisfied for any subsequent
Plan Year.
(v) 25 percent of the Award if the Target was
satisfied for the 2000 Plan Year.
10. CELLULAR DIVISION TARGET AND CASH BONUS
(a) Amount of Cash Bonus Award. The amount of an Award to Eligible
Employees of the Cellular Division shall be determined by the Committee.
(b) Target. The Target for Eligible Employees of the Cellular Division
shall be met for each Plan Year beginning after 1995 if Consolidated Operating
Cash Flow for the Cellular Division equals or exceeds the Compounded Annual
Growth Rate for such Plan Year, where "r" equals 15 percent (0.15).
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<PAGE>
(c) Payment of Cash Bonus Award - Performance Target Condition. Half
of the Cash Bonus Award (hereinafter, the "Cellular Performance Award") shall be
subject to service and performance conditions. If the Grantee is an active
employee of the Company or a Subsidiary continuously from the Date of Grant to
December 31, 2000, the Grantee shall be paid all or part of the Cellular
Performance Award on or before March 15, 2001, as follows:
(i) 20 percent of the Cellular Performance Award if
the Target was satisfied for the 1996 Plan Year,
provided that the Target was not satisfied for any
subsequent Plan Year.
(ii) 40 percent of the Cellular Performance Award if
the Target was satisfied for the 1997 Plan Year,
provided that the Target was not satisfied for any
subsequent Plan Year.
(iii) 60 percent of the Cellular Performance Award if
the Target was satisfied for the 1998 Plan Year,
provided that the Target was not satisfied for any
subsequent Plan Year.
(iv) 80 percent of the Cellular Performance Award if
the Target was satisfied for the 1999 Plan Year,
provided that the Target was not satisfied for any
subsequent Plan Year.
(v) 100 percent of the Cellular Performance Award if
the Target was satisfied for the 2000 Plan Year.
(d) Payment of Cash Bonus Award - Service Condition. Half of the Cash
Bonus Award (hereinafter, the "Cellular Service Award") shall be subject to
service conditions, and shall paid to a Grantee at the following times if the
following conditions are satisfied:
(i) 20 percent of the Cellular Service Award shall be
paid on or before February 29, 1996.
(ii) 20 percent of the Cellular Service Award shall be
paid on or before February 28, 1998 if the Grantee
is an active employee of the Company or a
Subsidiary continuously from the Date of Grant to
December 31, 1997.
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(iii) 20 percent of the Cellular Service Award shall be
paid on or before February 28, 1999 if the Grantee
is an active employee of the Company or a
Subsidiary continuously from the Date of Grant to
December 31, 1998.
(iv) 20 percent of the Cellular Service Award shall be
paid on or before February 29, 2000 if the Grantee
is an active employee of the Company or a
Subsidiary continuously from the Date of Grant to
December 31, 1999.
(v) 20 percent of the Cellular Service Award shall be
paid on or before February 28, 2001 if the Grantee
is an active employee of the Company or a
Subsidiary continuously from the Date of Grant to
December 31, 2000.
11. TAXES
The Company shall withhold the amount of any federal, state, local or
other tax, charge or assessment attributable to the grant of any Award or lapse
of restrictions under any Award as it may deem necessary or appropriate, in its
sole discretion.
12. TERMINATING EVENTS
The Committee shall give Grantees at least thirty (30) days' notice
(or, if not practicable, such shorter notice as may be reasonably practicable)
prior to the anticipated date of the consummation of a Terminating Event. The
Committee may, in its discretion, provide in such notice that upon the
consummation of such Terminating Event, any remaining conditions to payment of a
Grantee's Award shall be waived, in whole or in part.
13. AMENDMENT AND TERMINATION
The Plan may be terminated by the Board or the Committee at any time.
The Plan may be amended by the Board or the Committee at any time. No Award
shall be affected by any such termination or amendment without the written
consent of the Grantee.
14. EFFECTIVE DATE
The effective date of this amendment and restatement of the Plan is
December 10, 1996, the date on which it was adopted by the Committee.
15. GOVERNING LAW
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The Plan and all determinations made and actions taken pursuant to the
Plan shall be governed in accordance with Pennsylvania law.
Executed this 10th day of December, 1996
[CORPORATE SEAL] COMCAST CORPORATION
ATTEST: /s/ Arthur R. Block BY: /s/ Stanley Wang
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COMCAST CORPORATION
1996 EXECUTIVE CASH BONUS PLAN
1. PURPOSE
The purpose of the Plan is to provide, subject to shareholder approval and
approval by the Committee (as defined below), performance-based cash bonus
compensation for certain employees of Comcast Corporation, a Pennsylvania
corporation (the "Company") in accordance with a formula that is based on the
financial success of the Company as part of an integrated compensation program
which is intended to assist the Company in motivating and retaining employees of
superior ability, industry and loyalty.
2. DEFINITIONS
The following words and phrases as used herein shall have the following
meanings, unless a different meaning is plainly required by the context:
"Board of Directors" shall mean the Board of Directors of the Company.
"Cash Flow" shall mean the operating income before depreciation and
amortization for the Company and those of its affiliates which are included with
the Company in its consolidated financial statements as prepared by the Company
in accordance with generally accepted accounting principles.
"Committee" shall mean the Subcommittee on Performance-Based Compensation
of the Compensation Committee of the Board of Directors.
"Company" shall mean Comcast Corporation, a Pennsylvania corporation, and
any successor thereto.
"First Tier Goal" shall mean the performance goal, measured in terms of
level of Cash Flow, as established by the Committee for each Plan Year. The
First Tier Goal is the performance measure which, if achieved, permits payment
to each Participant of 66 % of the Participant's Target Bonus. The Committee
shall in all events establish the First Tier Goal for each Plan Year no later
than 90 days after the first day of the Plan Year or, if sooner, within the
first 25% of the Plan Year. The First Tier Goal shall be established at the
discretion of the Committee, provided, however, that the Committee must
determine that, as of the date the First Tier Goal is established, it is
substantially uncertain whether the level of Cash Flow required to meet the
First Tier Goal will be achieved.
<PAGE>
"Participant" shall mean those persons eligible to participate in the Plan
in accordance with Section 3.
"Plan" shall mean the 1996 Comcast Corporation Executive Cash Bonus Plan.
"Plan Year" shall mean the calendar year, except that the first Plan Year
shall be the period from July 1, 1996 through December 31, 1996.
"Second Tier Goal" shall mean the performance goal, measured in terms of
level of Cash Flow, as established by the Committee for each Plan Year. The
Second Tier Goal is the performance measure which, if achieved, permits payment
to each Participant of 100% of the Participant's Target Bonus. The Committee
shall establish the Second Tier Goal for each Plan Year at the same time that it
establishes the First Tier Goal for such Plan Year. The Second Tier Goal shall
be a level of Cash Flow chosen at the discretion of the Committee that is higher
than the level of Cash Flow chosen for the Plan Year as the First Tier Goal.
"Target Bonus" shall mean, with respect to any Participant for any Plan
Year, the sum of (a) 50% of the Participant's base salary as of the first day of
the Plan Year and (b) the amount, if any, of such Participant's Target Bonus for
any prior Plan Year which was not earned due to failure to meet the First Tier
Goal or the Second Tier Goal; provided, however, that in no event shall any
Participant's Target Bonus for any Plan Year exceed $1,000,000.
3. PARTICIPATION
The Participants in the Plan shall be Brian L. Roberts, Lawrence S. Smith,
John R. Alchin, Stanley Wang, and such other key executives as may be designated
by the Committee to participate in the Plan from time to time.
4. TERM OF PLAN
Subject to approval of the Plan by the Committee and the shareholders of
the Company, the Plan shall be in effect as of July 1, 1996 and shall continue
until all amounts required to be paid with respect to all Plan Years up through
and including the Plan Year ending December 31, 2000 are paid by the Company,
unless sooner terminated by the Board of Directors.
5. BONUS ENTITLEMENT
Each Participant shall be entitled to receive a bonus in accordance with
the provisions of Section 6 of the Plan only after certification by the
Committee that the performance goals set forth in Section 6 have been satisfied.
The bonus payment under the Plan shall be paid to each Participant as soon as
practicable following the close of the Plan Year with respect to which the bonus
is to be paid. Notwithstanding anything contained herein to the contrary, no
2
<PAGE>
bonus shall be payable under the Plan without the prior disclosure of the terms
of the Plan to the shareholders of the Company and the approval of the Plan by
such shareholders.
6. AMOUNT OF PERFORMANCE-BASED COMPENSATION BONUS
(a) Each Participant in the Plan shall be entitled to a bonus with respect
to a Plan Year which is equal to 66 % of the Participant's Target Bonus if the
Company's Cash Flow for the Plan Year is at least equal to the First Tier Goal,
and 100% of the Target Bonus if the Company's Cash Flow for the Plan Year is at
least equal to the Second Tier Goal. If the level of Cash Flow for the Plan Year
is higher than the First Tier Goal and lower than the Second Tier Goal, the
bonus with respect to such Plan Year shall be such percentage of the
Participant's Target Bonus in excess of 66 % as is determined by prorating the
difference between 100% and 66 % according to the level of Cash Flow in excess
of the First Tier Goal divided by the difference between the levels of Cash Flow
represented by the Second Tier Goal and the First Tier Goal. If the level of
Cash Flow for a Plan Year is below the First Tier Goal established with respect
to such Plan Year, no bonus shall be payable under the Plan for that Plan Year.
(b) In the event any payment of a bonus otherwise payable under the Plan
occurs more than two months after the close of the Plan Year with respect to
which the bonus is paid because the required disclosure of the terms of the Plan
to the shareholders of the Company and the approval of the Plan by such
shareholders delays such bonus payment, the amount of the bonus otherwise
payable shall be increased by the amount such bonus payment would earn if it
were invested in an investment bearing a 7% annual rate of return, compounded
daily, or such other reasonable rate of interest as may be determined by the
Committee, during the period from the close of the Plan Year with respect to
which such bonus is paid and the date the bonus is actually paid.
(c) Notwithstanding anything contained herein to the contrary, in the event
there is a significant acquisition or disposition of any assets, business
division, company or other business operations of the Company that is reasonably
expected to have an effect on Cash Flow as otherwise determined under the terms
of the Plan, the First Tier Goal and the Second Tier Goal shall be adjusted to
take into account the impact of such acquisition or disposition by increasing or
decreasing such goals in the same proportion as Cash Flow of the Company would
have been affected for the prior Plan Year on a pro forma basis had such an
acquisition or disposition occurred on the same date during the prior Plan Year
(except in the case of the first Plan Year the adjustment shall be made by
reference to the effect such an acquisition or disposition on the same date
during the prior calendar year would have had on Cash Flow for the period
commencing July 1, 1995 and ending December 31, 1995). Such adjustment shall be
based upon the historical equivalent of Cash Flow of the assets so acquired or
disposed of for the prior Plan Year, as shown by such records as are available
to the Company, as further adjusted to reflect any aspects of the transaction
that should be taken into account to ensure comparability between amounts in the
prior Plan Year and the current Plan Year.
3
<PAGE>
(d) Notwithstanding the determination of the amount of a Participant's
bonus payable with respect to any Plan Year under Section 6(a), the Committee
shall have the discretion to reduce or eliminate the bonus otherwise payable to
a Participant if it determines that such a reduction or elimination of the bonus
is in the best interests of the Company.
7. COMMITTEE
(a) Powers. The Committee shall have the power and duty to do all things
necessary or convenient to effect the intent and purposes of the Plan and not
inconsistent with any of the provisions hereof, whether or not such powers and
duties are specifically set forth herein, and, by way of amplification and not
limitation of the foregoing, the Committee shall have the power to:
(i) provide rules and regulations for the management, operation and
administration of the Plan, and, from time to time, to amend or supplement
such rules and regulations;
(ii) construe the Plan, which construction, as long as made in good
faith, shall be final and conclusive upon all parties hereto; and
(iii) correct any defect, supply any omission, or reconcile any
inconsistency in the Plan in such manner and to such extent as it shall
deem expedient to carry the same into effect, and it shall be the sole and
final judge of when such action shall be appropriate.
The resolution of any questions with respect to payments and entitlements
pursuant to the provisions of the Plan shall be determined by the Committee, and
all such determinations shall be final and conclusive.
(b) Indemnity. No member of the Committee shall be directly or indirectly
responsible or under any liability by reason of any action or default by him as
a member of the Committee, or the exercise of or failure to exercise any power
or discretion as such member. No member of the Committee shall be liable in any
way for the acts or defaults of any other member of the Committee, or any of its
advisors, agents or representatives. The Company shall indemnify and save
harmless each member of the Committee against any and all expenses and
liabilities arising out of his own membership on the Committee.
(c) Compensation and Expenses. Members of the Committee shall receive no
separate compensation for services other than compensation for their services as
members of the Board of Directors, which compensation can include compensation
for services at any committee meeting attended in their capacity as members of
the Board of Directors. Members of the Committee shall be entitled to receive
their reasonable expenses incurred in administering the Plan. Any such expenses,
as well as extraordinary expenses authorized by the Company, shall be paid by
the Company.
4
<PAGE>
(d) Participant Information. The Company shall furnish to the Committee in
writing all information the Company deems appropriate for the Committee to
exercise its powers and duties in administration of the Plan. Such information
shall be conclusive for all purposes of the Plan and the Committee shall be
entitled to rely thereon without any investigation thereof; provided, however,
that the Committee may correct any errors discovered in any such information.
(e) Inspection of Documents. The Committee shall make available to each
Participant, for examination at the principal office of the Company (or at such
other location as may be determined by the Committee), a copy of the Plan and
such of its records, or copies thereof, as may pertain to any benefits of such
Participant under the Plan.
8. EFFECTIVE DATE, TERMINATION AND AMENDMENT
(a) Effective Date of Participation in Plan. Subject to shareholder and
Committee approval of the Plan, participation in this Plan shall be effective as
of July 1, 1996 and shall continue thereafter until the Plan is terminated.
(b) Amendment and Termination of the Plan. The Plan may be terminated or
revoked by the Company at any time and amended by the Company from time to time,
provided that neither the termination, revocation or amendment of the Plan may,
without the written approval of the Participant, reduce the amount of a bonus
payment that is due, but has not yet been paid, and provided further that no
changes that would increase the amount of bonuses determined under provisions of
the Plan shall be effective without approval by the Committee and without
disclosure to and approval by the shareholders of the Company in a separate vote
prior to payment of such bonuses. In addition, the Plan may be modified or
amended by the Committee, as it deems appropriate, in order to comply with any
rules, regulations or other guidance promulgated by the Internal Revenue Service
with respect to applicable provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), as they relate to the exemption for "performance-based
compensation" under the limitations on the deductibility of compensation imposed
under Code Section 162(m).
9. MISCELLANEOUS PROVISIONS
(a) Unsecured Creditor Status. A Participant entitled to a bonus payment
hereunder, shall rely solely upon the unsecured promise of the Company, as set
forth herein, for the payment thereof, and nothing herein contained shall be
construed to give to or vest in a Participant or any other person now or at any
time in the future, any right, title, interest, or claim in or to any specific
asset, fund, reserve, account, insurance or annuity policy or contract, or other
property of any kind whatever owned by the Company, or in which the Company may
have any right, title, or interest, nor or at any time in the future.
(b) Other Company Plans. It is agreed and understood that any benefits
under this Plan are in addition to any and all benefits to which a Participant
may
5
<PAGE>
otherwise be entitled under any other contract, arrangement, or voluntary
pension, profit sharing or other compensation plan of the Company, whether
funded or unfunded, and that this Plan shall not affect or impair the rights or
obligations of the Company or a Participant under any other such contract,
arrangement, or voluntary pension, profit sharing or other compensation plan.
(c) Separability. If any term or condition of the Plan shall be invalid or
unenforceable to any extent or in any application, then the remainder of the
Plan, with the exception of such invalid or unenforceable provision, shall not
be affected thereby, and shall continue in effect and application to its fullest
extent.
(d) Continued Employment. Neither the establishment of the Plan, any
provisions of the Plan, nor any action of the Committee shall be held or
construed to confer upon any Participant the right to a continuation of
employment by the Company. The Company reserves the right to dismiss any
employee (including a Participant), or otherwise deal with any employee
(including a Participant) to the same extent as though the Plan had not been
adopted.
(e) Incapacity. If the Committee determines that a Participant is unable to
care for his affairs because of illness or accident, any benefit due such
Participant under the Plan may be paid to his spouse, child, parent, or any
other person deemed by the Committee to have incurred expense for such
Participant (including a duly appointed guardian, committee, or other legal
representative), and any such payment shall be a complete discharge of the
Company's obligation hereunder.
(g) Jurisdiction. The Plan shall be construed, administered, and enforced
according to the laws of the Commonwealth of Pennsylvania, except to the extent
that such laws are preempted by the Federal laws of the United States of
America.
(h) Withholding. The Participant shall make appropriate arrangements with
the Company for satisfaction of any federal, state or local income tax
withholding requirements and Social Security or other tax requirements
applicable to the accrual or payment of benefits under the Plan. If no other
arrangements are made, the Company may provide, at its discretion, for any
withholding and tax payments as may be required.
6
List of Subsidiaries
Amcell - Tel, Inc.
Amcell Holding Corp.
Amcell of Atlantic City, Inc.
Amcell of Cumberland County, Inc.
Amcell of Hunterdon, Inc.
Amcell of Ocean County, Inc.
Amcell of Pennsylvania Holdings, Inc.
Amcell of Trenton, Inc.
Amcell of Vineland Holdings, Inc.
American Cellular Network Corp.
American Cellular Network Corp. of Delaware
American Cellular Network Corp. of Maryland
American Cellular Network Corp. of Pennsylvania
Anglia Cable Communications Limited
At Home Entertainment, Inc.
Automated Information Services of Phoenix Limited Partnership
AWACS Financial Corporation
AWACS Garden State, Inc.
AWACS Investment Holdings, Inc.
AWACS Purchasing Corporation
AWACS Retail Stores, Inc.
AWACS, Inc.
Box Office Enterprises, Inc.
Cable Enterprises, Inc.
Cable Shopping Mall, Inc.
Cablevision Investment of Detroit, Inc.
California Ad Sales, Inc.
Cambridge Cable Limited
Cambridge Holding Company Limited
CDirect Mexico I, Inc.
CDirect Mexico II, Inc.
Century Cable Limited
Classic Services, Inc.
Clinton Cable TV Investors, Inc.
Coastal Cable TV, Inc.
COM Indiana, Inc.
COM Indianapolis, Inc.
COM Inkster, Inc.
COM Maryland, Inc.
COM MH, Inc.
COM Philadelphia, Inc.
COM South, Inc.
COM Sports Holding Company, Inc.
COM Sports Ventures, Inc.
COM Telephony Services, Inc.
Comcast Argentina, Inc.
Comcast Australia, Inc.
Comcast Brazil, Inc.
Comcast Business Online Communications, Inc.
Comcast Business Telephony Services, Inc.
Comcast Cable Communications, Inc.
Comcast Cable Communications, Inc.
Comcast Cable Funding, Inc.
Comcast Cable Guide, Inc.
Comcast Cable Investors, Inc.
Comcast Cable of Indiana, Inc.
Comcast Cable of Maryland, Inc.
Comcast Cable Tri-Holdings, Inc.
Comcast CablePhone, Inc.
Comcast Cablevision Corporation of Alabama
Comcast Cablevision Corporation of California
Comcast Cablevision Corporation of Connecticut
Comcast Cablevision Corporation of Florida
Comcast Cablevision Corporation of the Southeast
Comcast Cablevision Investment Corporation
Comcast Cablevision of Arkansas, Inc.
Comcast Cablevision of Birmingham, Inc.
Comcast Cablevision of Boca Raton, Inc.
Comcast Cablevision of Broward County, Inc.
Comcast Cablevision of Bryant, Inc.
Comcast Cablevision of Burlington County, Inc.
Comcast Cablevision of Cambridge, Inc.
Comcast Cablevision of Carolina, Inc.
Comcast Cablevision of Central New Jersey, Inc.
Comcast Cablevision of Chesterfield County, Inc.
Comcast Cablevision of Clinton
Comcast Cablevision of Clinton, Inc.
Comcast Cablevision of Clinton, Inc.
Comcast Cablevision of Danbury, Inc.
Comcast Cablevision of Delmarva, Inc.
Comcast Cablevision of Detroit
Comcast Cablevision of Detroit, Inc.
Comcast Cablevision of Dothan, Inc.
Comcast Cablevision of Flint, Inc.
Comcast Cablevision of Fontana, Inc.
Comcast Cablevision of Fort Wayne Limited Partnership
Comcast Cablevision of Gadsden, Inc.
Comcast Cablevision of Garden State, Inc.
Comcast Cablevision of Gloucester County, Inc.
Comcast Cablevision of Grosse Pointe, Inc.
Comcast Cablevision of Groton, Inc.
Comcast Cablevision of Hallandale, Inc.
Comcast Cablevision of Harford County, Inc.
Comcast Cablevision of Hopewell Valley, Inc.
Comcast Cablevision of Huntsville, Inc.
Comcast Cablevision of Indianapolis, Inc.
Comcast Cablevision of Indianapolis, L.P.
Comcast Cablevision of Inkster Limited Partnership
Comcast Cablevision of Inland Valley, Inc.
Comcast Cablevision of Jersey City, Inc.
Comcast Cablevision of Laurel, Inc.
Comcast Cablevision of Lawrence, Inc.
Comcast Cablevision of Little Rock, Inc.
Comcast Cablevision of Lompoc, Inc.
Comcast Cablevision of London, Inc.
Comcast Cablevision of Lower Merion, Inc.
Comcast Cablevision of Macomb County, Inc.
Comcast Cablevision of Macomb, Inc.
Comcast Cablevision of Marianna, Inc.
Comcast Cablevision of Maryland Limited Partnership
Comcast Cablevision of Mercer County, Inc.
Comcast Cablevision of Meridian, Inc.
Comcast Cablevision of Middletown, Inc.
Comcast Cablevision of Mobile, Inc.
Comcast Cablevision of Monmouth County, Inc.
Comcast Cablevision of Mt. Clemens
Comcast Cablevision of Mt. Clemens, Inc.
Comcast Cablevision of New Haven, Inc.
Comcast Cablevision of New Haven, Inc.
Comcast Cablevision of New Jersey, Inc.
Comcast Cablevision of Newport Beach, Inc.
Comcast Cablevision of North Orange, Inc.
Comcast Cablevision of Northwest New Jersey, Inc.
Comcast Cablevision of Oakland County, Inc.
Comcast Cablevision of Ocean County, Inc.
Comcast Cablevision of Paducah, Inc.
Comcast Cablevision of Panama City, Inc.
Comcast Cablevision of Perry, Inc.
Comcast Cablevision of Philadelphia, Inc.
Comcast Cablevision of Philadelphia, L.P.
Comcast Cablevision of Plainfield, Inc.
Comcast Cablevision of Quincy, Inc.
Comcast Cablevision of Sacramento, Inc.
Comcast Cablevision of San Bernardino, Inc.
Comcast Cablevision of Santa Ana, Inc.
Comcast Cablevision of Santa Maria, Inc.
Comcast Cablevision of Seal Beach, Inc.
Comcast Cablevision of Shelby, Inc.
Comcast Cablevision of Simi Valley, Inc.
Comcast Cablevision of Southeast Michigan, Inc.
Comcast Cablevision of Sterling Heights, Inc.
Comcast Cablevision of Tallahassee, Inc.
Comcast Cablevision of Taylor, Inc.
Comcast Cablevision of the Meadowlands, Inc.
Comcast Cablevision of the Shoals, Inc.
Comcast Cablevision of the South
Comcast Cablevision of the South, Inc.
Comcast Cablevision of Tupelo, Inc.
Comcast Cablevision of Tuscaloosa, Inc.
Comcast Cablevision of Utica, Inc.
Comcast Cablevision of Warren
Comcast Cablevision of Warren, Inc.
Comcast Cablevision of West Florida, Inc.
Comcast Cablevision of West Palm Beach, Inc.
Comcast Cablevision of Westmoreland, Inc.
Comcast Cablevision of Willow Grove, Inc.
Comcast CAP of Philadelphia Holdings, Inc.
Comcast CAP of Philadelphia, Inc.
Comcast Cellular Communications, Inc.
Comcast Cellular Communications, Inc.
Comcast Cellular Corporation
Comcast Cellular Holding Company, Inc.
Comcast Cellular Partnership Holding Company, Inc.
Comcast Central Europe, Inc.
Comcast Central NJ Holding Company Inc.
Comcast CitySearch, Inc.
Comcast Communications Properties, Inc.
Comcast Consulting Company, Inc.
Comcast Content & Communications Corporation
Comcast Crystalvision, Inc.
Comcast Darlington Limited
Comcast DBS, Inc.
Comcast DC Radio, Inc.
Comcast Delaware Services, Inc.
Comcast Directory Assistance Partnership
Comcast Directory Services, Inc.
Comcast do Brasil S/C Ltda.
Comcast Europe Holdings, Inc.
Comcast FCI, Inc.
Comcast Financial Agency Corporation
Comcast Financial Corporation
Comcast France Holdings, Inc.
Comcast Funding, Inc.
Comcast FW, Inc.
Comcast Garden State, Inc.
Comcast Hattiesburg Holding Company, Inc.
Comcast Heritage, Inc.
Comcast Holdings, Inc.
Comcast IAP, Inc.
Comcast ICG, Inc.
Comcast International Holdings, Inc.
Comcast International Programming, Inc.
Comcast Internet Access Services, Inc.
Comcast Internet Services, Inc.
Comcast Investment Holdings, Inc.
Comcast ISD, Inc.
Comcast Java, Inc.
Comcast Learning Ventures, Inc.
Comcast Long Distance, Inc.
Comcast Management Corporation
Comcast Merger, Inc.
Comcast Mexico, Inc.
Comcast MH Holdings, Inc.
Comcast MH Online Communications, Inc.
Comcast MH Telephony Communications of Florida, Inc.
Comcast MH Telephony Communications of Michigan, Inc.
Comcast MH Telephony Communications of New Jersey, Inc.
Comcast MHCP Holdings, L.L.C.
Comcast Michigan Holdings, Inc.
Comcast Midwest Management, Inc.
Comcast MLP Partner, Inc.
Comcast MTV, Inc.
Comcast Multicable Media, Inc.
Comcast Network Communications of Southern New Jersey, Inc.
Comcast Network Communications, Inc.
Comcast Online Communications, Inc.
Comcast Online Holdings, Inc.
Comcast PC Communications, Inc.
Comcast PC Investments, Inc.
Comcast PCS Communications, Inc.
Comcast Philadelphia Interconnect Partner, Inc.
Comcast Prism, Inc.
Comcast Programming Holdings, Inc.
Comcast Programming Ventures, Inc.
Comcast PTK, Inc.
Comcast Publishing Holdings Corporation
Comcast Publishing Holdings Financial Corporation
Comcast QVC, Inc.
Comcast Real Estate Holdings of Alabama, Inc.
Comcast Real Estate Holdings, Inc.
Comcast RSA, Inc.
Comcast RVC, Inc.
Comcast RVC, Limited
Comcast Satellite Communications, Inc.
Comcast SCH Holdings, Inc.
Comcast Sound Communications, Inc.
Comcast Sound Communications, Inc.
Comcast Sound Corporation
Comcast Spectacor, L.P.
Comcast Sports Holding Company, Inc.
Comcast Storer Finance Sub, Inc.
Comcast Storer, Inc.
Comcast Technology, Inc.
Comcast Teesside Limited
Comcast Telephony Communications of California, Inc.
Comcast Telephony Communications of Delaware, Inc.
Comcast Telephony Communications of Florida, Inc.
Comcast Telephony Communications of Georgia, Inc.
Comcast Telephony Communications of Indiana, Inc.
Comcast Telephony Communications of Maryland, Inc.
Comcast Telephony Communications of Michigan, Inc.
Comcast Telephony Communications of New Jersey, Inc.
Comcast Telephony Communications of Pennsylvania, Inc.
Comcast Telephony Communications, Inc.
Comcast Telephony Services
Comcast Telephony Services Holdings, Inc.
Comcast Telephony Services II, Inc.
Comcast Telephony Services, Inc.
Comcast Teleport, Inc.
Comcast TM, Inc.
Comcast U.K. Consulting, Inc.
Comcast U.K. Holdings, Inc.
Comcast UK Cable Partners Consulting, Inc.
Comcast UK Cable Partners Limited
Comcast UK Programming Limited
Comcast Venezuela PCS, Inc.
ComCon Production Services I, Inc.
ComCon Production Services II, Inc.
ComCon Production Services III, Inc.
ComCon Production Services IV, Inc.
CSNJ Merger Co., Inc.
CVN Companies, Inc.
CVN Direct Marketing Corp.
CVN Distribution Co., Inc.
CVN Management, Inc.
CVN Michigan, Inc.
DCCS S.A.
Deonica S.A.
Diamonique Corporation
Diamonique Corporation
Dinara S.A.
East Coast Cable Limited
East Rutherford Realty, Inc.
Eastern TeleLogic Corporation
EZShop International, Inc.
First Television Corporation
Florida Telecommunications Services, Inc.
Hebcom Enterprises, Inc.
Hebenstreit Communications Corporation
Hebenstreit Communications Dallas Limited Partnership
Hebenstreit Communications of Philadelphia-Wilmington Limited
Partnership
Innovative Retailing, Inc.
Liberty City Funding Corporation
Long Branch Cellular Telephone Company
M H Lightnet Inc.
Mobile Enterprises, Inc.
Mt. Clemens Cable TV Investors, Inc.
MTCB S.A.
Multicast do Brazil S.A.
Multiview Cable Corporation
New Brunswick Cellular Telephone Company
New England Microwave, Inc.
New Hope Cable TV, Inc.
Ocean County Cellular Telephone Company
Pa-Thai Corporation
PAHL, Inc.
PAHL, L.P.
Pattison Development, Inc.
Pattison Realty, Inc.
Philadelphia 76ers, Inc.
Philadelphia 76ers, L.P.
Philadelphia Cable Investment Corporation
Philadelphia Flyers Enterprises Company
Philadelphia Sports Media Joint Venture
Q The Music, Inc.
Q2 Inc.
QDirect Ventures, Inc.
QExhibits, Inc.
QFlight, Inc.
QVC
QVC - QRT, Inc.
QVC Britain
QVC Britain I, Inc.
QVC Britain II, Inc.
QVC Britain III, Inc.
QVC Canada Holdings II Ltd.
QVC Canada Holdings Ltd.
QVC Chesapeake, Inc.
QVC de Mexico de C.V.
QVC Delaware, Inc.
QVC Deutschland GMBH
QVC Germany I, Inc.
QVC Germany II, Inc.
QVC Holdings, Inc.
QVC International, Inc.
QVC Local, Inc.
QVC Mexico II, Inc.
QVC Mexico III, Inc.
QVC Mexico, Inc.
QVC Middle East, Inc.
QVC Network of Colorado, Inc.
QVC NS Holding Company
QVC of Thailand, Inc.
QVC Realty, Inc.
QVC San Antonio, Inc.
QVC Virginia, Inc.
QVC, Inc.
SCI 11, Inc.
SCI 34, Inc.
SCI 36, Inc.
SCI 37, Inc.
SCI 38, Inc.
SCI 39, Inc.
SCI 44, Inc.
SCI 48, Inc.
SCI 55, Inc.
Selkirk Communications (Delaware) Corporation
Selkirk Systems, Inc.
Southern East Anglia Cable Limited
Spectacor Adjoining Real Estate New Arena, L.P.
Spectrum Arena Limited Partnership
Storer Administration, Inc.
Storer Broadcast Finance Corp.
Storer Cable Advertising Sales, Inc.
Storer Cable TV of Radnor, Inc.
Storer Communications, Inc.
Storer Disbursements, Inc.
Storer Finance Corp.
Westmoreland Financial Corporation
Wilmington Cellular Telephone Company
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated October 17, 1995 on Garden State Cablevision L.P., incorporated by
reference in Comcast Corporation's Form 10-K for the year ended December 31,
1996, into Comcast Corporation's previously filed Registration Statement File
No. 33-41440; File No. 33-63223; File No. 33-54365; File No. 33-25105; File No.
33-56903; File No. 33-40386; File No. 33-46988; File No. 33-57410; File No.
33-50785; File No. 333-06161; File No. 333-08577 and File No. 333-18715.
/s/ Arthur Andersen LLP
Philadelphia, Pa.,
March 26, 1997
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated February 17, 1995 on Comcast International Holdings, Inc. and
subsidiaries, incorporated by reference in Comcast Corporation's Form 10-K for
the year ended December 31, 1996, into Comcast Corporation's previously filed
Registration Statement File No. 33-41440; File No. 33-63223; File No. 33-54365;
File No. 33-25105; File No. 33-56903; File No. 33-40386; File No. 33-46988; File
No. 33-57410; File No. 33-50785; File No. 333-06161; File No. 333-08577 and File
No. 333-18715.
/s/ Arthur Andersen LLP
Philadelphia, Pa.,
March 26, 1997
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated February 3, 1995 on Birmingham Cable Corporation Limited and
subsidiaries, incorporated by reference in Comcast Corporation's Form 10-K for
the year ended December 31, 1996, into Comcast Corporation's previously filed
Registration Statement File No. 33-41440; File No. 33-63223; File No. 33-54365;
File No. 33-25105; File No. 33-56903; File No. 33-40386; File No. 33-46988; File
No. 33-57410; File No. 33-50785; File No. 333-06161; File No. 333-08577 and File
No. 333-18715.
/s/ ARTHUR ANDERSEN
Birmingham, England
March 26, 1997
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated February 3, 1995 on Cable London PLC and subsidiaries, incorporated
by reference in Comcast Corporation's Form 10-K for the year ended December 31,
1996, into Comcast Corporation's previously filed Registration Statement File
No. 33-41440; File No. 33-63223; File No. 33-54365; File No. 33-25105; File No.
33-56903; File No. 33-40386; File No. 33-46988; File No. 33-57410; File No.
33-50785; File No. 333-06161; File No. 333-08577 and File No. 333-18715.
/s/ ARTHUR ANDERSEN
London, England
March 26, 1997
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
We consent to the incorporation by reference in the following Registration
Statements of Comcast Corporation and its subsidiaries (the "Company") on Form
S-3 and S-8 of our report dated February 28, 1997 appearing in the Annual Report
on Form 10-K of Comcast Corporation and its subsidiaries for the year ended
December 31, 1996 and to the reference to us under the heading "Experts" in the
Prospectus contained in the following Registration Statements.
Registration Statements on Form S-8:
Title of Securities Registered Registration Statement Number
The Comcast Corporation Retirement Investment Plan 33-41440
The Comcast Corporation Retirement Investment Plan 33-63223
Storer Communications Retirement Savings Plan 33-54365
Stock Option Plans 33-25105
Stock Option Plans 33-56903
The 1996 Comcast Corporation Stock Option Plan 333-08577
The 1996 Comcast Corporation Deferred Compensation Plan 333-18715
Registration Statements on Form S-3:
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
Class A Special Common Stock, par value $1.00 per share 333-06161
<PAGE>
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedules of the Company, listed in Item
14(b)(i). These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
March 27, 1997
Philadelphia, Pennsylvania
-2-
<PAGE>
INDEPENDENT AUDITORS' CONSENT
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 March 14, 1997 on the consolidated financial statements of
Sprint Spectrum Holding Company, L.P. and subsidiaries (which expresses an
unqualified opinion and includes an explanatory paragraph referring to the
developmental stage of Sprint Spectrum Holding Company, L.P. and subsidiaries)
for each of the two years in the period ended December 31, 1996, for the period
from October 24, 1994 (date of inception) to December 31, 1994 and for the
cumulative period from October 24, 1994 (date of inception) to December 31, 1996
appearing in the Annual Report on Form 10-K of Comcast Corporation and its
subsidiaries for the year ended December 31, 1996.
<TABLE>
<CAPTION>
Title of Securities Registered Registration Registration
Statement Statement
Form Number
<S> <C> <C>
The Comcast Corporation Retirement Investment Plan S-8 33-41440
The Comcast Corporation Retirement Investment Plan S-8 33-63223
Storer Communications Retirement Savings Plan S-8 33-54365
Stock Option Plans S-8 33-25105
Stock Option Plans S-8 33-56903
The 1996 Comcast Corporation Stock Option Plan S-8 333-08577
The 1996 Comcast Corporation Deferred Compensation Plan S-8 333-18715
Senior Debentures; Senior Subordinated Debentures; Subordinated Debentures; Preferred S-3 33-40386
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
Class A Special Common Stock, $1.00 par value S-3 33-46988
Senior Debentures, Senior Subordinated Debentures and Subordinated Debentures S-3 33-57410
Senior Debentures; Senior Subordinated Debentures; Subordinated Debentures; Preferred S-3 33-50785
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
Class A Special Common Stock, par value $1.00 per share S-3 333-06161
</TABLE>
/s/ DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 27, 1997
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Annual Report on Form 10-K
of Comcast Corporation for the year ended December 31, 1996 of our report dated
February 21, 1997 (February 28, 1997 and March 1, 1997 as to Note 3), appearing
in the Annual Report on Form 10-K of Teleport Communications Group Inc. for the
year ended December 31, 1996 and in the following Registration Statements of
Comcast Corporation.
Form File No.
S-8 33-41440
S-8 33-63223
S-8 33-54365
S-8 33-25105
S-8 33-56903
S-8 333-08577
S-8 333-18715
S-3 33-40386
S-3 33-46988
S-3 33-57410
S-3 33-50785
S-3 333-06161
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 28, 1997
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the following Registration
Statements of Comcast Corporation and its subsidiaries (the "Company") on Form
S-3 and S-8 of our report on Birmingham Cable Corporation Limited and
subsidiaries dated February 28, 1997 (March 12, 1997 as to Note 3), incorporated
by reference in the Annual Report on Form 10-K of Comcast Corporation and its
subsidiaries for the year ended December 31, 1996.
Registration Statements on Form S-8:
Title of Securities Registered Registration Statement Number
The Comcast Corporation Retirement Investment Plan 33-41440
The Comcast Corporation Retirement Investment Plan 33-63223
Storer Communications Retirement Savings Plan 33-54365
Stock Option Plans 33-25105
Stock Option Plans 33-56903
The 1996 Comcast Corporation Stock Option Plan 333-08577
The 1996 Comcast Corporation Deferred Compensation Plan 333-18715
Registration Statements on Form S-3:
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
Class A Special Common Stock, par value $1.00 per share 333-06161
/s/ Deloitte & Touche
Birmingham, England
March 26, 1997
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the following Registration
Statements of Comcast Corporation and its subsidiaries (the "Company") on Form
S-3 and S-8 of our report on Cable London PLC and subsidiaries dated February
28, 1997, incorporated by reference in the Annual Report on Form 10-K of Comcast
Corporation and its subsidiaries for the year ended December 31, 1996.
Registration Statements on Form S-8:
Title of Securities Registered Registration Statement Number
The Comcast Corporation Retirement Investment Plan 33-41440
The Comcast Corporation Retirement Investment Plan 33-63223
Storer Communications Retirement Savings Plan 33-54365
Stock Option Plans 33-25105
Stock Option Plans 33-56903
The 1996 Comcast Corporation Stock Option Plan 333-08577
The 1996 Comcast Corporation Deferred Compensation Plan 333-18715
Registration Statements on Form S-3:
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
Class A Special Common Stock, par value $1.00 per share 333-06161
/s/ Deloitte & Touche
London, England
March 26, 1997
Consent of Independent Auditors
The Board of Directors
QVC, Inc.:
We consent to the incorporation by reference in the registration statements
(Nos. 333-08577, 333-18715, 33-41440, 33-63223, 33-54365, 33-25105, and
33-56903) on Form S-8 and (Nos. 333-06161, 33-40386, 33-46988, 33-57410, and
33-50785) on Form S-3 of Comcast Corporation of our report dated January 31,
1997, with respect to the consolidated balance sheets of QVC, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year
ended December 31, 1996 and for the eleven-month period ended December 31, 1995
(such consolidated financial statements are not separately presented herein),
which report is included as an exhibit to the Form 10-K of Comcast Corporation
for the year ended December 31, 1996.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
March 27, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Prospectuses constituting
part of the Registration Statements (Nos. 33-40386, 33-46988, 33-57410,
33-50785, and 333-06161) on Form S-3, and the Registration Statements (Nos.
33-41440, 33-63223, 33-54365, 33-25105, 33-56903, 333-08577 and 333-18715)on
Form S-8 of Comcast Corporation of our report dated March 7, 1997 on the
financial statements of American PCS, L.P. (A Delaware Limited Partnership) as
of and for the year ended December 31, 1996 referred to in the consolidated
financial statements of Sprint Spectrum Holding Company, L.P. and subsidiaries,
which appears in the Annual Report on Form 10-K of Comcast Corporation for the
year ended December 31, 1996.
/s/ PRICE WATERHOUSE LLP
Washington, DC
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of operations and consolidated balance sheet and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000022301
<NAME> COMCAST CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 331
<SECURITIES> 208
<RECEIVABLES> 536
<ALLOWANCES> (97)
<INVENTORY> 258
<CURRENT-ASSETS> 1,406
<PP&E> 3,600
<DEPRECIATION> (1,061)
<TOTAL-ASSETS> 12,089
<CURRENT-LIABILITIES> 1,365
<BONDS> 7,103
0
32
<COMMON> 326
<OTHER-SE> 194
<TOTAL-LIABILITY-AND-EQUITY> 12,089
<SALES> 4,038
<TOTAL-REVENUES> 4,038
<CGS> (1,111)
<TOTAL-COSTS> (3,530)
<OTHER-EXPENSES> (145)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (541)
<INCOME-PRETAX> (16)<F1>
<INCOME-TAX> (84)
<INCOME-CONTINUING> (53)
<DISCONTINUED> 0
<EXTRAORDINARY> (1)
<CHANGES> 0
<NET-INCOME> (54)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
<FN>
<F1>loss before income tax expense and other items excludes the effect of
minority interests, net of tax, of $48.0.
</FN>
</TABLE>
Independent Auditors' Report
The Board of Directors
QVC, Inc.:
We have audited the consolidated balance sheets of QVC, Inc. and subsidiaries as
of December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year ended December 31,
1996 and for the eleven-month period ended December 31, 1995 (such consolidated
financial statements are not separately presented herein). 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 December 31, 1996 and 1995, and the results of their
operations and their cash flows for the year ended December 31, 1996 and for the
eleven-month period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
January 31, 1997
SPRINT SPECTRUM HOLDING
COMPANY, L.P. AND SUBSIDIARIES
(A Development Stage Enterprise)
Consolidated Financial Statements for
the Years Ended December 31, 1996 and
1995, for the Period from October 24,
1994 (date of inception) to December 31,
1994 and for the Cumulative Period from
October 24, 1994 (date of inception) to
December 31, 1996, and Independent
Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners of Sprint Spectrum Holding Company, L.P.
Kansas City, Missouri
We have audited the accompanying consolidated balance sheets of Sprint Spectrum
Holding Company, L.P. and subsidiaries (the "Partnership"), development stage
enterprises, as of December 31, 1996 and 1995, and the related consolidated
statements of operations, changes in partners' capital and cash flows for each
of the two years in the period ended December 31, 1996, for the period from
October 24, 1994 (date of inception) to December 31, 1994 and for the cumulative
period from October 24, 1994 (date of inception) to December 31, 1996. These
consolidated financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the 1996 financial
statements of American PCS, L.P. ("APC") an investment of the Partnership which
is accounted for by use of the equity method. The Partnership's share of APC's
net loss for the year ended December 31, 1996 was $96,850,000 and is included in
the accompanying consolidated financial statements. The financial statements of
APC were audited by other auditors whose reports have been furnished to us, and
our opinion, insofar as it relates to the amounts included for APC, is based
solely on the reports of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
<PAGE>
In our opinion, based on our audits and the reports of other auditors, such
consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Sprint Spectrum Holding Company, L.P. and
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for the years then ended and for the period from October
24, 1994 (date of inception) to December 31, 1994 and for the cumulative period
from October 24, 1994 (date of inception) to December 31, 1996, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, Sprint Spectrum
Holding Company, L.P. and its subsidiaries are in the development stage as of
December 31, 1996.
/s/ DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 14, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
In our opinion, the balance sheet and the related statements of loss, of changes
in partners' capital and cash flows (not presented separately herein) present
fairly, in all material respects, the financial position of American PCS, L.P.
at December 31, 1996, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statments based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Washington, DC
March 7, 1997
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .......................... $ 69,988 $ 1,123
Accounts receivable, net ........................... 3,310 --
Receivable from affiliates ......................... 12,901 340
Inventory .......................................... 72,414 --
Prepaid expenses and other assets, net ............. 14,260 188
Note receivable--unconsolidated partnership ........ 226,670 655
---------- ----------
Total current assets .......................... 399,543 2,306
INVESTMENT IN PCS LICENSES, net ......................... 2,122,908 2,124,594
INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS .............. 179,085 85,546
PROPERTY, PLANT AND EQUIPMENT, net ...................... 1,408,680 31,897
MICROWAVE RELOCATION COSTS, net ......................... 135,802 --
OTHER ASSETS, net ....................................... 77,383 --
---------- ----------
TOTAL ASSETS ............................................ $4,323,401 $2,244,343
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Advances from partners ............................. $ 167,818 $ --
Accounts payable ................................... 196,146 41,950
Payable to affiliate ............................... 5,626 7,598
Accrued expenses ................................... 81,230 1,700
Current maturities of long-term debt ............... 49 --
---------- ----------
Total current liabilities ..................... 450,869 51,248
LONG-TERM COMPENSATION OBLIGATION ....................... 11,356 1,856
CONSTRUCTION OBLIGATIONS ................................ 714,934 --
LONG-TERM DEBT .......................................... 686,192 --
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNER INTEREST IN CONSOLIDATED
SUBSIDIARY ........................................ 13,397 13,170
PARTNERS' CAPITAL AND ACCUMULATED DEFICIT:
Partners' capital .................................. 3,003,484 2,291,806
Deficit accumulated during the development stage ... (556,831) (113,737)
---------- ----------
Total partners' capital ....................... 2,446,653 2,178,069
---------- ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL ................. $4,323,401 $2,244,343
========== ==========
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
Cumulative
Period from Period from
October 24, 1994 October 24, 1994
(date of (date of
Year Ended Year Ended inception) inception)
December 31, December 31, to December 31, to December 31,
1996 1995 1994 1996
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Service .................................... $ 33 $ -- $ -- $ 33
Equipment .................................. 4,142 -- -- 4,142
--------- --------- --------- ---------
Total operating revenues .............. 4,175 -- -- 4,175
OPERATING EXPENSES:
Cost of service ............................ 21,928 -- -- 21,928
Cost of equipment .......................... 14,148 -- -- 14,148
Selling .................................... 38,345 145 -- 38,490
General and administrative ................. 274,352 66,195 3,294 343,841
Depreciation and amortization .............. 11,275 211 38 11,524
--------- --------- --------- ---------
Total operating expenses .............. 360,048 66,551 3,332 429,931
--------- --------- --------- ---------
LOSS FROM OPERATIONS ............................ (355,873) (66,551) (3,332) (425,756)
OTHER INCOME (EXPENSE):
Interest income ............................ 8,593 460 24 9,077
Interest expense, net ...................... (323) -- -- (323)
Other income ............................... 1,586 38 -- 1,624
Equity in loss of unconsolidated partnership (96,850) (46,206) -- (143,056)
Limited partner interest in net loss
of consolidated subsidiary ............... (227) 1,830 -- 1,603
--------- --------- --------- ---------
Total other income (expense)........... (87,221) (43,878) 24 (131,075)
--------- --------- --------- ---------
NET LOSS ........................................ $(443,094) $(110,429) $ (3,308) $(556,831)
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(In Thousands)
<TABLE>
<CAPTION>
Partners' Accumulated
Capital Deficit Total
<S> <C> <C> <C>
BALANCE, October 24, 1994 $ -- $ -- $ --
Contributions of capital . 123,438 -- 123,438
Net loss ................. -- (3,308) (3,308)
----------- ----------- -----------
BALANCE, December 31, 1994 123,438 (3,308) 120,130
Contributions of capital . 2,168,368 -- 2,168,368
Net loss ................. -- (110,429) (110,429)
----------- ----------- -----------
BALANCE, December 31, 1995 2,291,806 (113,737) 2,178,069
Contributions of capital . 711,678 -- 711,678
Net loss ................. -- (443,094) (443,094)
----------- ----------- -----------
BALANCE, December 31, 1996 $ 3,003,484 $ (556,831) $ 2,446,653
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Period Cumulative Period
from October 24, from October 24,
1994 (date of 1994 (date of
inception) to inception) to
Year Ended December 31, December 31, December 31,
1996 1995 1994 1996
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................... $ (443,094) $ (110,429) $ (3,308) $ (556,831)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Equity in loss of unconsolidated partnership .............. 96,850 46,206 -- 143,056
Limited partner interest in net loss of
consolidated subsidiary ................................. 227 (1,830) -- (1,603)
Depreciation and amortization ............................. 11,275 211 38 11,524
Amortization of debt discount and issuance costs ......... 14,008 -- -- 14,008
Loss on disposal of non-network equipment ................. -- 31 -- 31
Changes in assets and liabilities:
Receivables ............................................. (15,871) (340) -- (16,211)
Inventory ............................................... (72,414) -- -- (72,414)
Prepaid expenses and other assets ....................... (21,608) (178) (10) (21,796)
Accounts payable and accrued expenses ................... 231,754 47,503 3,745 283,002
Long-term compensation obligation ....................... 9,500 1,856 -- 11,356
----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities ......................................... (189,373) (16,970) 465 (205,878)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ......................................... (683,886) (31,763) (451) (716,100)
Proceeds on sale of equipment ................................ -- 37 -- 37
Microwave relocation costs ................................... (123,354) -- -- (123,354)
Purchase of PCS licenses ..................................... -- (2,006,156) (118,438) (2,124,594)
Investment in unconsolidated partnerships .................... (190,390) (131,752) -- (322,142)
Loan to unconsolidated partnership ........................... (231,964) (655) -- (232,619)
Payment received on loan to unconsolidated
partnership ................................................ 5,950 -- -- 5,950
----------- ----------- ----------- -----------
Net cash used in investing activities ................. (1,223,644) (2,170,289) (118,889) (3,512,822)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from partners ....................................... 167,818 -- -- 167,818
Proceeds from issuance of long-term debt ..................... 674,201 -- -- 674,201
Payments on long-term debt ................................... (24) -- -- (24)
Debt issuance costs .......................................... (71,791) -- -- (71,791)
Partner capital contributions ................................ 711,678 2,183,368 123,438 3,018,484
----------- ----------- ----------- -----------
Net cash provided by financing activities ............. 1,481,882 2,183,368 123,438 3,788,688
----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ............................................. 68,865 (3,891) 5,014 69,988
CASH AND CASH EQUIVALENTS, Beginning of Period ................. 1,123 5,014 -- --
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, End of Period ....................... $ 69,988 $ 1,123 $ 5,014 $ 69,988
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
o Interest paid, net of amount capitalized .................. $ 323 $ -- $ -- $ 323
NON-CASH INVESTING ACTIVITIES:
o Capital expenditures and microwave relocation costs of $807,241
for the year ended December 31, 1996 are net of construction
obligations of $714,934.
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Sprint Spectrum Holding Company, L.P. (the "Company" and "Holdings") is a
limited partnership formed in Delaware on March 28, 1995, by Sprint Enterprises,
L.P., TCI Spectrum Holdings, Inc. (formerly known as TCI Telephony Services,
Inc. as successor to TCI Network Services), Cox Telephony Partnership and
Comcast Telephony Services (together the "Partners"). Holdings was formed
pursuant to a reorganization of the operations of an existing partnership,
WirelessCo, L.P. ("WirelessCo") which transferred certain operating functions to
Holdings. The Partners are subsidiaries of Sprint Corporation ("Sprint"),
Tele-Communications, Inc. ("TCI"), Comcast Corporation ("Comcast") and Cox
Communications, Inc. ("Cox", and together with Sprint, TCI and Comcast, the
"Parents"), respectively. The Company and certain other affiliated partnerships
offer services as Sprint PCS.
The Partners of the Company have the following ownership interests as of
December 31, 1996 and 1995:
Sprint Enterprises, L.P. 40%
TCI Spectrum Holdings, Inc. 30%
Cox Telephony Partnership 15%
Comcast Telephony Services 15%
Each Partner's ownership interest consists of a 99% general partner interest and
a 1% limited partnership interest.
The Company is consolidated with certain subsidiaries, including NewTelco, L.P.
and Sprint Spectrum L.P. which, in turn, has several subsidiaries. Sprint
Spectrum L.P.'s subsidiaries are Sprint Spectrum Equipment Company, L.P.
("EquipmentCo"), Sprint Spectrum Realty Company, L.P. ("RealtyCo"), Sprint
Spectrum Finance Corporation ("FinCo"), and WirelessCo. MinorCo, L.P.
("MinorCo") held the remaining ownership interests in NewTelco, L.P., Sprint
Spectrum L.P., EquipmentCo, RealtyCo and WirelessCo at December 31, 1996.
RealtyCo and EquipmentCo were organized on May 15, 1996 for the purpose of
holding PCS network-related real estate interests and assets. FinCo was formed
on May 20, 1996 to be a co-obligor of the debt obligations discussed in Note 5.
Venture Formation and Affiliated Partnerships - A Joint Venture Formation
Agreement ( the "Formation Agreement"), dated as of October 24, 1994, and
subsequently amended as of March 28, 1995, and January 31, 1996, was entered
into by the Parents, pursuant to which the Parents agreed to form certain
entities to (i) provide national wireless telecommunications services, including
acquisition and development of personal communications service ("PCS") licenses,
(ii) develop a PCS wireless system in the Los Angeles-San Diego Major Trading
Area ("MTA") and (iii) take certain other actions.
On October 24, 1994, WirelessCo was formed and on March 28, 1995, additional
partnerships were formed consisting of Holdings, MinorCo, NewTelco, L.P., and
Sprint Spectrum L.P. The Partners'
6
<PAGE>
ownership interests in WirelessCo were initially held directly by the Partners
as of October 24, 1994, the formation date of WirelessCo, but were subsequently
contributed to Holdings and then to Sprint Spectrum L.P. on March 28, 1995.
Prior to July 1, 1996, substantially all wireless operations of Sprint Spectrum
L.P. and subsidiaries were conducted at Holdings and substantially all operating
assets and liabilities, with the exception of the interest in an unconsolidated
subsidiary and the ownership interest in PCS licenses, were held at Holdings. As
of July 1, 1996, Holdings transferred these net assets, and assigned agreements
related to the wireless operations to which it was a party to Sprint Spectrum
L.P., EquipmentCo and RealtyCo.
Sprint Spectrum Holding Company, L.P. (formerly known as MajorCo, L.P.)
Partnership Agreement - The Amended and Restated Agreement of Limited
Partnership of MajorCo, L.P. (the "MajorCo Agreement"), dated as of January 31,
1996, among Sprint Enterprises, L.P., TCI Spectrum Holdings, Inc., Comcast
Telephony Services and Cox Telephony Partnership provides that the purpose of
the Company is to engage in wireless communications services. The MajorCo
Agreement provides for the governance and administration of partnership
business, allocation of profits and losses (including provisions for special and
curative allocations), tax allocations, transactions with partners, disposition
of partnership interests and other matters.
The MajorCo Agreement generally provides for the allocation of profits and
losses according to each Partner's proportionate percentage interest, after
giving effect to special allocations. After special allocations, profits are
allocated to partners to the extent of and in proportion to cumulative net
losses previously allocated. Losses are allocated, after considering special
allocations, according to each Partner's allocation of net profits previously
allocated.
The MajorCo Agreement provides for a planned capital amount to be contributed by
the Partners ("Total Mandatory Contributions"), which represents the sum of $4.2
billion, which includes agreed upon values attributable to the contributions of
certain additional PCS licenses by a Partner. The Total Mandatory Contributions
amount is required to be contributed in accordance with capital contribution
schedules to be set forth in approved annual budgets. The partnership board of
Holdings may request capital contributions to be made in the absence of an
approved budget or more quickly than provided for in an approved budget, but
always subject to the Total Mandatory Contributions limit. The proposed budget
for fiscal 1997 has not yet been approved by the partnership board. An
additional Amended and Restated Capital Contribution Agreement (the "Amended
Agreement") was executed effective October 2, 1996. The Amended Agreement
recognizes that through December 31, 1995, approximately $2.2 billion of the
Total Mandatory Contributions had been contributed to Sprint Spectrum L.P., and
designates that $1.0 billion of the balance of the Total Mandatory Contributions
amount shall be contributed to Sprint Spectrum L.P.
At December 31, 1996, approximately $3.0 billion of the Total Mandatory
Contributions had been contributed by the Partners to Holdings and its
affiliated partnerships, of which $2.6 billion had been contributed to Sprint
Spectrum L.P.
Parent Undertaking - Each Parent has entered into an agreement which provides
for certain undertakings by each Parent in favor of other Partners and which
addresses certain obligations of the Parent pertaining to items including
provision of services, confidentiality, foreign ownership, purchasing,
restrictions on disposition and certain other matters.
7
<PAGE>
Development Stage Enterprises - The Company and its subsidiaries are development
stage enterprises. The success of the Company's development is dependent on a
number of business factors, including securing financing to complete network
construction and fund initial operations, successfully deploying the PCS network
and attaining profitable levels of market demand for Company products and
services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial statements have been prepared
from the date of inception, October 24, 1994, for WirelessCo, and from the dates
of inception, for other consolidated subsidiaries, through December 31, 1996.
The assets, liabilities, results of operations and cash flows of entities in
which the Company has a controlling interest have been consolidated. All
significant intercompany accounts and transactions have been eliminated.
MinorCo, the limited partner, has been allocated approximately $227,000 in
income and $1,830,000 of losses incurred by NewTelco, L.P. for the years ended
December 31, 1996 and 1995, respectively, as losses in excess of the general
partner's capital account (which consisted of $1,000) are to be allocated to the
limited partner to the extent of its capital account.
Trademark Agreement - Sprint(R) is a registered trademark of Sprint
Communications Company, L.P. and is licensed to the Company on a royalty-free
basis pursuant to a trademark license agreement between the Company and Sprint.
Revenue Recognition - Operating revenues for PCS services are recognized as
service is rendered. Operating revenues for equipment sales are recognized at
the time the equipment is sold to a customer or an unaffiliated agent.
Cash and Cash Equivalents - The Company considers all highly liquid instruments
with original maturities of three months or less to be cash equivalents. Under
the Company's cash management system, checks issued but not presented to banks
frequently result in overdraft balances for accounting purposes and are included
in Accounts payable in the consolidated balance sheets.
Accounts Receivable - Accounts receivable are net of an allowance for doubtful
accounts of approximately $202,000 at December 31, 1996. No allowance was
recorded for the year ended December 31, 1995.
Inventory - Inventory consists of wireless communication equipment (primarily
handsets). Inventory is stated at lower of cost or replacement cost. Gains and
losses on the sales of handsets are recognized at the time of sale.
Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Construction work in progress represents costs incurred to design and
construct the PCS network. Repair and maintenance costs are charged to expense
as incurred. When network equipment is retired, or otherwise disposed of, its
book value, net of salvage, is charged to accumulated depreciation. When
non-network equipment is sold, retired or abandoned, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is recognized.
Property, plant and equipment are
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<PAGE>
depreciated using the straight-line method based on estimated useful lives of
the assets. Depreciable lives range from 3 to 20 years.
Investment in PCS Licenses and Other Intangibles - During 1994 and 1995, the
Federal Communications Commission ("FCC") auctioned PCS licenses in specific
geographic service areas. The FCC grants licenses for terms of up to ten years,
and generally grants renewals if the licensee has complied with its license
obligations. The Company believes it has and will continue to meet all
requirements necessary to secure renewal of its PCS licenses. The Company has
also incurred costs associated with microwave relocation in the construction of
the PCS network. Amortization of PCS licenses and microwave relocation costs
will commence as each service area becomes operational, over estimated useful
lives of 40 years. Amortization expense of $1,711,000 is included in
Depreciation and amortization expense in the consolidated statement of
operations for the year ended December 31, 1996. No amortization expense was
recorded in 1995 or 1994. Interest expense capitalized pertaining to the
acquisition of the PCS licenses has been included in Property, plant and
equipment.
The ongoing value and remaining useful life of intangible assets are subject to
periodic evaluation. The Company currently expects the carrying amounts to be
fully recoverable. Impairments of intangibles and long-lived assets are assessed
based on an undiscounted cash flow methodology.
Capitalized Interest - Interest costs associated with the construction of
capital assets incurred during the period of construction are capitalized. The
total capitalized in 1996 was approximately $30,461,000. There were no amounts
capitalized in 1995 or 1994.
Debt Issuance Costs - Included in Other assets are costs associated with
obtaining financing. Such costs are capitalized and amortized to interest
expense over the term of the related debt instruments using the effective
interest method. Amortization expense for the year ended December 31, 1996 was
approximately $1,944,000.
Major Customer - The Company markets its products through multiple distribution
channels, including Company-owned retail stores and third-party retail outlets.
Sales to one third-party retail customer exceeded 10% of Equipment revenue in
the consolidated statement of operations for the year ended December 31, 1996.
Income Taxes - The Company has not provided for federal or state income taxes
since such taxes are the responsibility of the individual Partners.
Financial Instruments - The carrying value of the Company's short-term financial
instruments, including cash and cash equivalents, receivables from customers and
affiliates and accounts payable approximates fair value. The fair value of the
Company's long-term debt is based on quoted market prices for the same issues or
current rates offered to the Company for similar debt. A summary of the fair
value of the Company's long-term debt at December 31, 1996 is included in Note
5.
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 reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
9
<PAGE>
Reclassifications - Certain reclassifications have been made to the 1995 and
1994 financial statements to conform to the 1996 financial statement
presentation.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31, 1996 and
1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 905 $ --
Buildings and leasehold improvements 86,467 --
Office furniture and fixtures 68,210 2,902
Network equipment 255,691 --
Telecommunications plant - construction work in progress 1,006,990 29,200
----------- -----------
1,418,263 32,102
Less accumulated depreciation (9,583) (205)
----------- -----------
$ 1,408,680 $ 31,897
=========== ===========
</TABLE>
4. INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS
American PCS, L.P. - On January 9, 1995, WirelessCo acquired a 49% limited
partnership interest in American PCS, L.P. ("APC"). American Personal
Communications II, L.P. ("APC II") holds a 51% partnership interest in APC and
is the general managing partner. The investment in APC is accounted for under
the equity method. Concurrently with the execution of the partnership agreement,
the Company entered into an affiliation agreement with APC which provides for
the reimbursement of certain allocable costs and payment of affiliate fees.
Effective August 31, 1996, WirelessCo's interest in APC, the existing loans to
APC, and obligations to provide additional funding to APC were transferred to
Holdings pursuant to an amendment to the partnership agreement. Summarized
financial information is as follows (in thousands):
December 31, December 31,
1996 1995
Total assets.............................. $331,556 $ 237,326
Total liabilities......................... 450,690 171,180
Total revenues............................ 71,838 5,153
Net loss.................................. 202,626 51,551
The partnership agreement between the Company and APC II specifies that losses
are allocated based on percentage ownership interests and certain other factors.
In January 1997, the Company and APC II amended the APC partnership agreement
with respect to the allocation of profits and losses. For financial reporting
purposes, profits and losses are to be allocated in proportion to Holdings' and
APC
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II's respective partnership interests, except for costs related to stock
appreciation rights and interest expense attributable to the FCC interest
payments which shall be allocated entirely to APC II.
Holding's investment in APC was approximately $75,546,000 at December 31, 1995.
Holdings share of the losses of APC for the year ended December 31, 1996,
totaling approximately $96,850,000, has exceeded its investment balance by
approximately $20,554,000.
The unamortized excess of the Company's investment over its equity in the
underlying net assets of APC at the date of acquisition was approximately
$10,139,000. This excess investment has been eliminated as a result of the
recognition of Holding's equity in APC's losses. Amortization included in equity
in loss of unconsolidated partnership prior to such elimination totaled
approximately $128,000 and $240,000 for the years ended December 31, 1996 and
1995, respectively.
The call option in APC acquired on January 9, 1995, provides the Company with
the right to purchase an additional interest in APC from APC II in annual
increments beginning five years after the initial PCS network build-out is
completed. The first increment, an additional 20% of the APC II ownership
interest, can be acquired in each of the fifth through seventh years with the
remaining interest available for purchase in the eighth through tenth year. APC
II also has the right to put a portion of its ownership interest to the Company
on an annual basis beginning after the completion of the initial PCS network
build-out, through the fifth anniversary date the greater of (i) one-fifth of
APC II's initial percentage interest of 51% in APC or (ii) the portion of APC
II's interest equal to APC II's obligation for annual FCC payments to be made by
APC. The exercise price of the call and put options are based on the Fair Value,
as defined, of APC at the date of exercise. The amount recorded at December 31,
1996 and 1995 for such option, net of accumulated amortization, was $9,250,000
and $10,000,000, respectively. As of December 31, 1996, APC II has not exercised
any put options. The Company is committed to arrange or provide certain funding
for procurement of APC's CDMA network. APC is under a contractual obligation to
repay any amounts provided by the Company, plus interest.
During the initial five year build-out period, which began in December 1994, APC
II and the Company are obligated as follows: (a) APC II is obligated to make
capital contributions in an amount equal to the aggregate principal and interest
payments to the FCC, provided APC II has sufficient cash flows or can obtain
financing from a third party; (b) if APC II is unable to meet such obligation,
the Company is required to contribute the shortfall, upon ten days prior notice.
Under certain circumstances, APC II has the right and is obligated to exercise
its put right to the extent necessary to fund additional capital contributions;
(c) the Company is required to contribute to APC cash necessary for operations
up to an amount of approximately $98 million; and (d) the Company is obligated
to fund the cash requirements of APC in excess of that described in (a), (b),
and (c) above, in the form of either loans or additional capital up to $275
million. As of December 31, 1996, $98 million of equity had been contributed and
approximately $232 million of partner advances had been extended, fulfilling the
Company's obligations under (c) and (d) above. In January 1997, additional
advances of $20 million were extended. All advances were repaid in full in
February 1997 and no further obligation for (c) and (d) above exists.
Cox Communications PCS, L.P. - On December 31, 1996, the Company acquired a 49%
limited partner interest in Cox Communications PCS, L.P. ("Cox PCS"). Cox
Pioneer Partnership ("CPP") holds a 50.5% general and a 0.5% limited partner
interest and is the general and managing partner. The investment in Cox PCS is
accounted for under the equity method. As of December 31, 1996, approximately
$168 million in equity, including $2.45 million to PCS Leasing Co, L.P.
11
<PAGE>
("LeasingCo"), a wholly owned subsidiary of Cox PCS, had been contributed to Cox
PCS by the Company. The excess of the Company's investment over its equity in
the underlying net assets on December 31, 1996 was approximately $32.7 million.
A portion of the initial contribution totaling approximately $23 million was
payable at December 31, 1996.
Under the terms of the partnership agreement, CPP and the Company are obligated
as follows: (a) if the FCC consents to the assumption and recognition of the
license payment obligations by Cox PCS, CPP is obligated to make capital
contributions in an amount equal to such liability and related interest; (b) if
the FCC does not consent, Cox PCS is obligated to reimburse Cox Communications,
Inc. for interest payments exceeding the amount that would have been payable by
Cox Communications, Inc. to the FCC had the interest rate been 5.875% through
the date that Cox Communications, Inc. completes refinancing of the FCC
liability; (c) the Company is obligated to make capital contributions of
approximately $369,908,000 to Cox PCS; (d) the Company is not obligated to make
any cash capital contributions upon the assumption by Cox PCS of the FCC payment
obligations until CPP has contributed cash in an amount equal to the aggregate
principal and interest of such obligations; and, (e) CPP and the Company are
obligated to make additional capital contributions in an amount equal to such
partner's percentage interest times the amount of additional capital
contributions being requested. Additionally, the Company acquired a 49% limited
partner interest in LeasingCo. LeasingCo is a limited partnership formed to
acquire, construct or otherwise develop equipment and other personal property to
be leased to Cox PCS. The Company is not obligated to make additional capital
contributions beyond the initial funding of approximately $2,450,000.
Concurrently with the execution of the partnership agreement, the Company
entered into an affiliation agreement with Cox PCS which provides for the
reimbursement of certain allocable costs and payment of affiliate fees. For the
year ended December 31, 1996, allocable costs of approximately $7,339,000 are
netted against the related operating expense captions in the accompanying
consolidated statement of operations and in receivables from affiliates in the
consolidated balance sheet. In addition, the Company purchases certain
equipment, such as handsets, on behalf of Cox PCS. Receivables from affiliates
for handsets and related equipment were approximately $6 million at December 31,
1996.
5. LONG-TERM DEBT AND BORROWING ARRANGEMENTS
Long-term debt consists of the following at of December 31, 1996 (in thousands):
11% Senior Notes due in 2006 $250,000
12 1/2% Senior Discount Notes due in 2006,
net of unamortized
discount of $214,501 285,499
Credit facility - term loan 150,000
Other 742
--------
Total debt 686,241
Less current maturities 49
--------
Long-term debt $686,192
========
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<PAGE>
Senior Notes and Senior Discount Notes - In August 1996, Sprint Spectrum L.P.
and Sprint Spectrum Finance Corporation (together, the "Issuers") issued $250
million aggregate principal amount of 11% Senior Notes due 2006 ("the Senior
Notes"), and $500 million aggregate principal amount at maturity of 12 1/2%
Senior Discount Notes due 2006 (the "Senior Discount Notes" and, together with
the Senior Notes, the "Notes"). The Senior Discount Notes were issued at a
discount to their aggregate principal amount at maturity and generated proceeds
of approximately $273 million. Cash interest on the Senior Notes will accrue at
a rate of 11% per annum and is payable semi-annually in arrears on each February
15 and August 15, commencing February 15, 1997. Cash interest will not accrue or
be payable on the Senior Discount Notes prior to August 15, 2001. Thereafter,
cash interest on the Senior Discount Notes will accrue at a rate of 12 1/2% per
annum and will be payable semi-annually in arrears on each February 15 and
August 15, commencing February 15, 2002.
On August 15, 2001, the Issuers will be required to redeem an amount equal to
$384.772 per $1,000 principal amount at maturity of each Senior Discount Note
then outstanding ($192 million in aggregate principal amount at maturity,
assuming all of the Senior Discount Notes remain outstanding at such date).
The Notes are redeemable at the option of the Issuers, in whole or in part, at
any time on or after August 15, 2001 at the redemption prices set forth below,
respectively, plus accrued and unpaid interest, if any, to the redemption date,
if redeemed during the 12 month period beginning on August 15 of the years
indicated below:
Senior Discount
Senior Notes Notes
Redemption Redemption
Year Price Price
2001 105.500% 110.000%
2002 103.667% 106.500%
2003 101.833% 103.250%
2004 and thereafter 100.000% 100.000%
In addition, prior to August 15, 1999, the Issuers may redeem up to 35% of the
originally issued principal amount of the Notes. The redemption price of the
Senior Notes is equal to 111.0% of the principal amount of the Senior Notes so
redeemed, plus accrued and unpaid interest, if any, to the redemption date with
the net proceeds of one or more public equity offerings, provided that at least
65% of the originally issued principal amount of Senior Notes would remain
outstanding immediately after giving effect to such redemption. The redemption
price of the Senior Discount Notes is equal to 112.5% of the accreted value at
the redemption date of the Senior Discount Notes so redeemed, with the net
proceeds of one or more public equity offerings, provided that at least 65% of
the originally issued principal amount at maturity of the Senior Discount Notes
would remain outstanding immediately after giving effect to such redemption.
The Notes contain certain restrictive covenants, including (among other
requirements) limitations on additional indebtedness, limitations on restricted
payments, limitations on liens, and limitations on dividends and other payment
restrictions affecting certain restricted subsidiaries.
13
<PAGE>
Bank Credit Facility - Sprint Spectrum L.P. (the "Borrower") entered into an
agreement with The Chase Manhattan Bank ("Chase") as administrative agent for a
group of lenders for a $2 billion bank credit facility dated October 2, 1996.
The proceeds of this facility are to be used to finance working capital needs,
subscriber acquisition costs, capital expenditures and other general Borrower
purposes.
The facility consists of a revolving credit commitment of $1.7 billion and a
$300 million term loan commitment, $150 million of which was drawn down
subsequent to closing and $150 million of which was to be drawn within 90 days
after closing. The amount available under the revolving credit facility was $450
million on December 31, 1996. There were no borrowings under the revolving
credit facility as of December 31, 1996. The availability will be increased upon
the achievement of certain financial and operating conditions as defined in the
agreement. Commitment fees for the revolving portion of the agreement are
payable quarterly based on average unused revolving commitments.
The revolving credit commitment expires July 13, 2005. Availability will be
reduced in quarterly installments ranging from $75 million to $175 million
commencing January 2002. Further reductions may be required after January 1,
2000, to the extent that the Borrower meets certain financial conditions.
Subsequent to December 31, 1996, the Borrower drew down $200 million under the
revolving credit facility.
The term loans are due in sixteen consecutive quarterly installments beginning
January 2002 in aggregate principal amounts of $125,000 for each of the first
fifteen payments with the remaining aggregate outstanding principal amount of
the term loans due as the last installment.
Interest on the term loans and/or the revolving credit loans is at the
applicable LIBOR rate plus 2.5% ("Eurodollar Loans"), or the greater of the
prime rate or 0.5% plus the Federal Funds effective rate, plus 1.5% ("ABR
Loans"), at the Company's option. The interest rate may be adjusted downward for
improvements in the bond rating and/or leverage ratios. Interest on ABR Loans
and Eurodollar Loans with interest period terms in excess of 3 months is payable
quarterly. Interest on Eurodollar Loans with interest period terms of less than
3 months is payable on the last day of the interest period. As of December 31,
1996, the interest rate on the first $150 million term loan was 8.19%.
Borrowings under the Bank Credit Facility are secured by the Company's interests
in WirelessCo, RealtyCo and EquipmentCo and certain other personal and real
property (the "Shared Lien"). The Shared Lien equally and ratably secures the
Bank Credit Facility, the Vendor Financing (Note 6) and certain other
indebtedness of the Company. The credit facility is jointly and severally
guaranteed by WirelessCo, RealtyCo and EquipmentCo and is non-recourse to the
Parents and the Partners.
The Bank Credit Facility agreement and Vendor Financing agreements (Note 6)
contain certain restrictive financial and operating covenants, including (among
other requirements) maximum debt ratios (including debt to total
capitalization), limitations on capital expenditures, limitations on additional
indebtedness and limitations on dividends and other payment restrictions
affecting certain restricted subsidiaries. The loss of the right to use the
Sprint trademark, the termination or non-renewal of any FCC license that reduces
population coverage below specified limits, or changes in controlling interest
in the Company, as defined, among other provisions, constitute events of
default.
14
<PAGE>
The estimated fair value of the Company's long-term debt at December 31, 1996 is
as follows (in thousands):
Carrying Estimated
Amount Fair Value
11% Senior Notes $250,000 $270,625
12 1/2% Senior Discount Notes 285,499 337,950
Credit facility - term loan 150,000 151,343
At December 31, 1996, scheduled maturities of long-term debt during each of the
next five years are as follows (in thousands):
1997 $ 49
1998 54
1999 60
2000 66
2001 192,459
6. COMMITMENTS AND CONTINGENCIES
Operating Leases - Minimum rental commitments as of December 31, 1996, for all
noncancelable operating leases, consisting principally of leases for cell and
switch sites and office space, are as follows (in thousands):
1997 $68,616
1998 61,186
1999 57,407
2000 38,356
2001 13,468
Gross rental expense for cell and switch sites aggregated approximately
$13,097,000 for the year ended December 31, 1996. Gross rental expense for
office space approximated $11,432,000 and $687,000 for the years ended December
31, 1996 and December 31, 1995, respectively. Certain leases contain renewal
options that may be exercised from time to time and are excluded from the above
amounts.
Procurement Contracts - On January 31, 1996, the Company entered into
procurement and services contracts with AT&T Corp. (subsequently assigned to
Lucent Technologies, Inc., "Lucent") and Northern Telecom, Inc. ("Nortel" and
together with Lucent, the "Vendors") for the engineering and construction of a
PCS network. Each contract provides for an initial term of ten years with
renewals for additional one-year periods. The Vendors must achieve substantial
completion of the PCS network within an established time frame and in accordance
with criteria specified in the procurement contracts. Pricing for the initial
equipment, software and engineering services has been established in the
procurement contracts. The procurement contracts provide for payment terms based
on delivery dates, substantial completion dates, and final acceptance dates. In
the event of delay in the completion
15
<PAGE>
of the PCS network, the procurement contracts provide for certain amounts to be
paid to the Company by the Vendors. The minimum commitments for the initial term
are $0.8 billion and $1.0 billion from Lucent and Nortel, respectively, which
include, but are not limited to, all equipment required for the establishment
and installation of the PCS network.
Handset Purchase Agreements - In June, 1996, the Company entered into a
three-year purchase and supply agreement with a vendor for the purchase of
handsets and other equipment totaling approximately $500 million. During 1996,
the Company purchased $85 million under the agreement. The total purchase
commitment must be satisfied by April 30, 1998.
In September, 1996, the Company entered into a second three-year purchase and
supply agreement for the purchase of handsets and other equipment totaling more
than $600 million. Purchases under the second agreement will commence on or
after April 1, 1997, and the total purchase commitment must be satisfied during
the three-year period after the initial handset purchase.
Vendor Financing - As of October 2, 1996, the Company entered into financing
agreements with Nortel and Lucent for multiple drawdown term loan facilities
totaling $1.3 billion and $1.8 billion, respectively. The proceeds of such
facilities are to be used to finance the purchase of goods and services provided
by the Vendors.
Nortel has committed to provide financing in two phases. During the first phase,
Nortel will finance up to $800 million. Once the full $800 million has been
utilized and the Company obtains additional equity commitments and/or
subordinated unsecured loans of at least $400 million and achieves certain
operating conditions, Nortel will finance up to an additional $500 million. The
amount available under the Nortel facility was $1.3 billion on December 31,
1996. In addition, the Company will be obligated to pay origination fees on the
date of the initial draw down loan under the first and second phases. The Nortel
agreement terminates on the earliest of (a) the date the availability under the
commitments is reduced to zero, (b) December 31, 2000, or (c) March 31, 1997 if
no borrowings under the agreements have been drawn.
Lucent has committed to financing up to $1.5 billion through December 31, 1997,
and up to an aggregate of $1.8 billion thereafter. The Company pays a facility
fee on the daily amount of loans outstanding under the agreement, payable
quarterly. The Lucent agreement terminates June 30, 2001. Subsequent to December
31, 1996, the Company borrowed approximately $274 million under the Lucent
facility.
Certain amounts included under Construction Obligations on the consolidated
balance sheet may be financed under the Vendor Financing agreements.
The principal amounts of the loans drawn under both the Nortel and Lucent
agreements are due in twenty consecutive quarterly installments, commencing on
the date which is thirty-nine months after the last day of such "Borrowing Year"
(defined in the agreements as any one of the five consecutive 12-month periods
following the date of the initial drawdown of the loan). The aggregate amount
due each year is equal to percentages ranging from 10% to 30% multiplied by the
total principal amount of loans during each Borrowing Year.
The agreements provide two borrowing rate options. During the first phase of the
Nortel agreement and throughout the term of the Lucent agreement "ABR Loans"
bear interest at the greater of the
16
<PAGE>
prime rate or 0.5% plus the Federal Funds effective rate, plus 2%. "Eurodollar
Loans" bear interest at the London interbank (LIBOR) rate (any one of the 30-,
60- or 90-day rates, at the discretion of the Company), plus 3%. During the
second phase of the Nortel agreement, ABR Loans bear interest at the greater of
the prime rate or 0.5% plus the Federal Funds effective rate, plus 1.5%; and
Eurodollar loans bear interest at the LIBOR rate plus 2.5%. Interest from the
date of each loan through one year after the last day of the Borrowing Year is
added to the principal amount of each loan. Thereafter, interest is payable
quarterly.
Borrowings under the Vendor Financing are secured by the Shared Lien (Note 5).
The Vendor Financing is jointly and severally guaranteed by WirelessCo, RealtyCo
and EquipmentCo and is non-recourse to the Parents and the Partners.
Service Agreement - The Company has entered into an agreement with a vendor to
provide PCS call record and retention services. Monthly rates per subscriber are
variable based on overall subscriber volume. If subscriber fees are less than
specified annual minimum charges, the Company will be obligated to pay the
difference between the amounts paid for processing fees and the annual minimum.
Annual minimums range from $20 million to $60 million through 2001.
The agreement extends through December 31, 2001, with two automatic, two-year
renewal periods, unless terminated by the Company. The company may terminate the
agreement prior to the expiration date, but would be subject to specified
termination penalties.
8. EMPLOYEE BENEFITS
Employees performing services for the Company were employed by Sprint
Corporation through December 31, 1995. Amounts paid to Sprint Corporation
relating to pension expense and employer contributions to the Sprint Corporation
401(k) plan for these employees approximated $323,000 in 1995. No expense was
incurred through December 31, 1994.
The Company maintains short-term and long-term incentive plans. All salaried
employees are eligible for the short-term incentive plan commencing at date of
hire. Short-term incentive compensation is based on incentive targets
established for each position based on the Company's overall compensation
strategy. Targets contain both an objective Company component and a personal
objective component. Charges to operations for the short-term plan approximated
$12,332,000 and $3,491,000 for the years ended December 31, 1996 and 1995,
respectively. No expense was incurred through December 31, 1994.
Long-term Compensation Obligation - Effective July 1, 1996, a long-term
compensation plan was adopted. Employees meeting certain eligibility
requirements are considered to be participants in the plan. Participants will
receive 100% of the pre-established targets for the period from July 1, 1995 to
June 30, 1996 (the "Introductory Term"). Participants may elect a payout of the
amount due or convert 50% or 100% of the award to appreciation units. Unless
converted to appreciation units, payment for the Introductory Term will be made
in the third quarter of 1998. Appreciation units vest 25% per year commencing on
the second anniversary of the date of grant. Participants have until March 15,
1997 to make payout or conversion elections. For the years ended December 31,
1996 and 1995, $9.5 million and $1.9 million, respectively, has been expensed.
The ultimate liability will be based on actual payout vs. conversion elections
and the final results of an independent valuation of the
17
<PAGE>
Company as of June 30, 1997. The Company has applied APB Opinion No. 25,
"Accounting for Stock Issued to Employees" for 1996. No significant difference
would have resulted if SFAS No. 123, "Accounting for Stock-Based Compensation"
had been applied.
Savings Plan - Effective January, 1996, the Company established a savings and
retirement program (the "Savings Plan") for certain employees, which is intended
to qualify under Section 401(k) of the Internal Revenue Code. Most permanent
full-time, and certain part-time, employees are eligible to become participants
in the plan after one year of service or upon reaching age 35, whichever occurs
first. Participants make contributions to a basic before tax account and
supplemental before tax account. The maximum contribution for any participant
for any year is 16% of such participant's compensation. For each eligible
employee who elects to participate in the Savings Plan and makes a contribution
to the basic before tax account, the Company makes a matching contribution. The
matching contributions equal 50% of the amount of the basic before tax
contribution of each participant up to the first 6% that the employee elects to
contribute. Contributions to the Savings Plan are invested, at the participants
discretion, in several designated investment funds. Distributions from the
Savings Plan generally will be made only upon retirement or other termination of
employment, unless deferred by the participant. Expense under the Savings Plan
approximated $1,125,000 in 1996.
Profit Sharing (Retirement) Plan - Effective January, 1996, the Company
established a profit sharing plan for its employees. Employees are eligible to
participate in the plan after completing one year of service. Profit sharing
contributions are based on the compensation, age, and years of service of the
employee. Profit sharing contributions are deposited into individual accounts of
the Company's 401(k) plan. Vesting occurs once a participant completes five
years of service. For the year ended December 31, 1996, expense under the profit
sharing plan approximated $726,000.
9. RELATED PARTY TRANSACTIONS
Business Services - The Company reimburses Sprint Corporation for certain
accounting and data processing services, for participation in certain
advertising contracts, for certain cash payments made by Sprint Corporation on
behalf of the Company and other management services. The Company is allocated
the costs of such services based on direct usage. Allocated expenses of
approximately $11,900,000 and $2,646,000 are included in Selling and General and
administrative expense in the consolidated statement of operations for 1996 and
1995, respectively. No reimbursement was made through December 31, 1994.
Paging Services - In 1996, the Company commenced paging services pursuant to
agreements with Paging Network Equipment Company ("PageNet") and Sprint
Communications Company, L.P. ("Sprint Communications"). For the year ended
December 31, 1996, Sprint Communications received agency fees of approximately
$4.9 million.
Advances from Partners - In December 1996, the Partners advanced approximately
$168 million to the Company, which was contributed to Cox PCS (Note 4). The
advances bear interest at the prime rate (8.25% at December 31, 1996) and were
repaid in February 1997.
18
<PAGE>
10. Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 1996 and 1995 is as follows (in
thousands):
<TABLE>
<CAPTION>
1996 First Second Third Fourth
<S> <C> <C> <C> <C>
Operating revenues..... $ -- $ -- $ -- $ 4,175
Operating expenses..... 30,978 46,897 87,135 195,038
Net loss .............. 67,425 90,770 101,497 183,402
1995
Operating revenues..... $ -- $ -- $ -- $ --
Operating expenses..... 3,655 4,589 11,844 46,463
Net loss .............. 6,789 9,718 19,488 74,434
</TABLE>
19
