UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended:
MARCH 31, 1997
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ________ to ________.
Commission File Number 0-6983
COMCAST CORPORATION
[GRAPHIC OMITTED - LOGO]
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1709202
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Market Street, Philadelphia, PA 19102-2148
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes __X__ No ____
--------------------------
As of March 31, 1997, there were 283,525,310 shares of Class A Special Common
Stock, 33,283,729 shares of Class A Common Stock and 8,786,250 shares of Class B
Common Stock outstanding.
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheet as of March 31, 1997 and December 31,
1996 (Unaudited)..........................................2
Condensed Consolidated Statement of
Operations and Accumulated Deficit for
the Three Months Ended March 31,
1997 and 1996 (Unaudited).................................3
Condensed Consolidated Statement of Cash
Flows for the Three Months Ended March 31, 1997
and 1996 (Unaudited)......................................4
Notes to Condensed Consolidated
Financial Statements (Unaudited).....................5 - 12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations..........................................13 - 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .......................................22
Item 6. Exhibits and Reports on Form 8-K ........................22
SIGNATURE..........................................................23
-----------------------------------
This Quarterly Report on Form 10-Q 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>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in millions, except share data)
March 31, December 31,
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................... $454.9 $331.3
Short-term investments....................................................... 85.9 208.3
Accounts receivable, less allowance for doubtful
accounts of $103.4 and $97.1............................................... 423.6 439.3
Inventories, net............................................................. 288.6 258.4
Other current assets......................................................... 149.8 168.5
--------- ---------
Total current assets..................................................... 1,402.8 1,405.8
--------- ---------
INVESTMENTS, principally in affiliates ......................................... 1,108.0 1,177.7
--------- ---------
PROPERTY AND EQUIPMENT ......................................................... 3,751.2 3,600.1
Accumulated depreciation..................................................... (1,136.9) (1,061.3)
--------- ---------
Property and equipment, net.................................................. 2,614.3 2,538.8
--------- ---------
DEFERRED CHARGES................................................................ 8,937.9 8,578.8
Accumulated amortization..................................................... (1,729.5) (1,612.5)
--------- ---------
Deferred charges, net........................................................ 7,208.4 6,966.3
--------- ---------
$12,333.5 $12,088.6
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses........................................ $1,065.8 $1,044.3
Accrued interest............................................................. 90.2 91.1
Current portion of long-term debt............................................ 92.9 229.5
--------- ---------
Total current liabilities................................................ 1,248.9 1,364.9
--------- ---------
LONG-TERM DEBT, less current portion ........................................... 7,371.3 7,102.7
--------- ---------
DEFERRED INCOME TAXES........................................................... 2,119.9 2,140.5
--------- ---------
MINORITY INTEREST AND OTHER .................................................... 1,061.0 859.3
--------- ---------
COMMITMENTS AND CONTINGENCIES
COMMON EQUITY PUT OPTIONS ...................................................... 69.6
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, no par value - authorized, 20,000,000
shares; issued 5% series A convertible, 6,370 at redemption value ......... 31.9 31.9
Class A special common stock, $1 par value - authorized,
500,000,000 shares; issued, 283,525,310 and 283,281,675 ................... 283.5 283.3
Class A common stock, $1 par value - authorized,
200,000,000 shares; issued, 33,283,729 and 33,959,368 ..................... 33.3 34.0
Class B common stock, $1 par value - authorized,
50,000,000 shares; issued, 8,786,250 ...................................... 8.8 8.8
Additional capital........................................................... 2,399.0 2,327.4
Accumulated deficit.......................................................... (2,206.5) (2,127.9)
Unrealized (losses) gains on marketable securities (5.9) 0.1
Cumulative translation adjustments........................................... (11.7) (6.0)
--------- ---------
Total stockholders' equity............................................... 532.4 551.6
--------- ---------
$12,333.5 $12,088.6
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
(Amounts in millions, except per share data)
Three Months Ended March 31,
1997 1996
<S> <C> <C>
REVENUES
Service income............................................................... $651.1 $500.6
Net sales from electronic retailing.......................................... 479.7 450.1
--------- ---------
1,130.8 950.7
--------- ---------
COSTS AND EXPENSES
Operating.................................................................... 297.4 229.8
Cost of goods sold from electronic retailing................................. 291.9 270.1
Selling, general and administrative.......................................... 207.8 180.7
Depreciation................................................................. 95.8 68.4
Amortization................................................................. 116.6 88.5
--------- ---------
1,009.5 837.5
--------- ---------
OPERATING INCOME................................................................ 121.3 113.2
OTHER (INCOME) EXPENSE
Interest expense............................................................. 133.3 134.8
Investment income............................................................ (12.2) (18.6)
Equity in net losses of affiliates........................................... 70.1 34.5
Other........................................................................ 8.9 11.3
--------- ---------
200.1 162.0
--------- ---------
LOSS BEFORE INCOME TAX EXPENSE AND MINORITY INTEREST ........................... (78.8) (48.8)
INCOME TAX EXPENSE.............................................................. 9.9 0.9
--------- ---------
LOSS BEFORE MINORITY INTEREST .................................................. (88.7) (49.7)
MINORITY INTEREST............................................................... (24.0) (15.1)
--------- ---------
NET LOSS ....................................................................... (64.7) (34.6)
ACCUMULATED DEFICIT
Beginning of period ......................................................... (2,127.9) (1,914.3)
Dividends declared - $.0233 per common share ................................ (7.9) (5.6)
Retirement of common stock................................................... (6.0) (42.6)
--------- ---------
End of period................................................................ ($2,206.5) ($1,997.1)
========= =========
NET LOSS PER SHARE.............................................................. ($.20) ($.14)
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THE PERIOD ....................................... 325.9 239.4
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in millions)
Three Months Ended March 31,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net loss..................................................................... ($64.7) ($34.6)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation............................................................... 95.8 68.4
Amortization............................................................... 116.6 88.5
Non-cash interest expense, net............................................. 16.1 16.1
Equity in net losses of affiliates......................................... 70.1 34.5
Gain on sales of long-term investments, net of losses ..................... (1.2)
Minority interest.......................................................... (24.0) (15.1)
Deferred income taxes and other............................................ (7.7) (9.1)
------- -------
201.0 148.7
Decrease in accounts receivable, net....................................... 36.5 23.6
(Increase) decrease in inventories, net.................................... (30.2) 2.7
Decrease in other current assets........................................... 0.3 6.7
Decrease in accounts payable and accrued expenses ......................... (9.3) (70.3)
(Decrease) increase in accrued interest.................................... (0.9) 16.7
------- -------
Net cash provided by operating activities............................ 197.4 128.1
------- -------
FINANCING ACTIVITIES
Proceeds from borrowings..................................................... 192.8 191.2
Retirement and repayment of debt............................................. (90.9) (167.4)
Repurchases of common stock, net............................................. (7.0) (38.2)
Dividends.................................................................... (7.9) (5.6)
Other........................................................................ (1.8) (8.9)
------- -------
Net cash provided by (used in) financing activities ................. 85.2 (28.9)
------- -------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired........................................... (116.5) (16.2)
Proceeds from sales of short-term investments, net .......................... 123.6 171.4
Investments, principally in affiliates....................................... (32.4) (153.7)
Proceeds from sales of and distribution from long-term investments .......... 26.8 2.4
Proceeds from repayment of loan to investee.................................. 25.2
Capital expenditures......................................................... (180.0) (111.4)
Other........................................................................ (5.7) (20.6)
------- -------
Net cash used in investing activities................................ (159.0) (128.1)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................... 123.6 (28.9)
CASH AND CASH EQUIVALENTS, beginning of period ................................. 331.3 539.1
------- -------
CASH AND CASH EQUIVALENTS, end of period ....................................... $454.9 $510.2
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The condensed consolidated balance sheet as of December 31, 1996 has been
condensed from the audited balance sheet as of that date. The condensed
consolidated balance sheet as of March 31, 1997 and the condensed
consolidated statements of operations and accumulated deficit and of cash
flows for the three months ended March 31, 1997 and 1996 have been prepared
by Comcast Corporation (the "Company") and have not been audited by the
Company's independent auditors. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows
as of March 31, 1997 and for all periods presented have been made.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's December
31, 1996 Annual Report on Form 10-K filed with the Securities and Exchange
Commission. The results of operations for the period ended March 31, 1997
are not necessarily indicative of operating results for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
New Accounting Pronouncements
Effective January 1, 1997, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which was issued by the Financial Accounting Standards Board
("FASB") in June 1996. 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. Adoption of this statement did
not have a significant impact on the Company's consolidated 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.
Net Loss Per Share
Net loss per share amounts were computed by dividing net loss, after
deduction of preferred stock dividends of $398,000 for the three months
ended March 31, 1997, by the weighted average number of common shares
outstanding during the period. For the three months ended March 31, 1997
and 1996, the Company's common stock equivalents have an antidilutive
effect on net loss per share and, therefore, have not been used in
determining the total weighted average number of common shares outstanding.
Reclassifications
Certain reclassifications have been made to the prior year condensed
consolidated financial statements to conform to those classifications used
in 1997.
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Offerings of Subsidiary Debt
On May 8, 1997, Comcast Cellular Holdings, Inc. ("Comcast Cellular"), a
wholly owned subsidiary of the Company, completed the sale of $1.0 billion
of 9 1/2% Senior Notes due 2007 (the "Cellular Notes") through a 144A
offering with registration rights. The Cellular Notes are obligations of
Comcast Cellular and are not
5
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
obligations of, nor guaranteed by, the Company. Comcast Cellular will use
the net proceeds from the offering to repay existing borrowings by its
subsidiaries, including the Zero Notes (as defined in Note 5), with the
balance, if any, to be used for subsidiary general purposes.
On May 1, 1997, Comcast Cable Communications, Inc. ("Comcast Cable"), a
wholly owned subsidiary of the Company, completed the sale of $1.7 billion
of notes (the "Cable Notes") through a 144A offering with registration
rights. The Cable Notes were issued in four tranches: $300.0 million of 8
1/8% Notes due 2004, $600.0 million of 8 3/8% Notes due 2007, $550.0
million of 8 7/8% Notes due 2017 and $250.0 million of 8 1/2% Notes due
2027. The Notes due 2027 are subject to repurchase at the option of the
holder in 2009. The Cable Notes are obligations of Comcast Cable and are
not obligations of, nor guaranteed by, the Company. Comcast Cable used
substantially all of the net proceeds from the offering to repay existing
borrowings by its subsidiaries with the balance to be used for subsidiary
general purposes.
E! Entertainment
On March 31, 1997, the Company, through Comcast Entertainment Holdings LLC
(the "LLC"), which is owned 50.1% by the Company and 49.9% by The Walt
Disney Company ("Disney"), purchased a 58.4% interest in E! Entertainment
Television, Inc. ("E! Entertainment"), an entertainment programming service
that currently is distributed to more than 42 million subscribers, from
Time Warner, Inc. ("Time Warner") for $321.9 million (the "E!
Acquisition"). The E! Acquisition was funded by cash contributions to the
LLC by the Company and Disney of $132.8 million and $189.1 million,
respectively. In connection with the E! Acquisition, the Company
contributed its 10.4% interest in E! Entertainment to the LLC. Following
these transactions, the LLC owns a 68.8% interest in E! Entertainment. To
fund the cash contribution to the LLC, the Company borrowed $132.8 million
from Disney in the form of two 10-year, 7% notes (the "Disney Notes").
The Company accounted for the E! Acquisition under the purchase method and
E! Entertainment was consolidated with the Company effective March 31,
1997. The allocation of the purchase price relating to the assets and
liabilities of E! Entertainment is preliminary pending a final appraisal.
After September 1998, Disney, in certain circumstances, is entitled to
request that the LLC purchase Disney's entire interest in the LLC at its
then fair market value (as determined by an appraisal process). If the LLC
elects not to purchase Disney's interest, Disney has the right, at its
option, to purchase either the Company's entire interest in the LLC or all
of the shares of stock of E! Entertainment held by the LLC, in each case at
fair market value. In the event that Disney exercises its rights, as
described above, a portion or all of the Disney Notes may be replaced with
a three year note due to Disney.
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"). The Company accounted for the
Scripps Acquisition under the purchase method and Scripps Cable was
consolidated with the Company effective November 1, 1996.
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")
6
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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 approximately $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 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 (see Note 4).
Unaudited Pro Forma Information
The following unaudited pro forma information for the three months ended
March 31, 1996 has been presented as if the Scripps Acquisition occurred on
January 1, 1996. 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 Scripps Cable since
January 1, 1996 (dollars in millions, except per share data).
Three Months Ended
March 31, 1996
Revenues.................................... $1,025.3
Net loss.................................... (43.1)
Net loss per share.......................... (.13)
4. INVESTMENTS, PRINCIPALLY IN AFFILIATES
March 31, December 31,
1997 1996
(Dollars in millions)
Equity method............................... $911.6 $936.4
Public companies............................ 131.3 165.5
Privately held companies.................... 65.1 75.8
-------- --------
$1,108.0 $1,177.7
======== ========
Equity Method
The Company records its proportionate interests in the net income (loss) of
substantially all of its investees, other than the UK Investees (see
below), three months in arrears. The Company's recorded investments exceed
its proportionate interests in the book value of the investees' net assets
by $241.0 million as of March 31, 1997 (primarily related to the
investments in Comcast-Spectacor and Sprint PCS (see below)). 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 $1.216
7
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
billion and $1.241 billion as of March 31, 1997 and December 31, 1996,
respectively. Summarized financial information for the Company's equity
method investees is presented below (dollars in millions).
<TABLE>
<CAPTION>
Sprint UK
PCS TCGI Investees Other Combined
<S> <C> <C> <C> <C> <C>
Three Months Ended March 31, 1997:
Combined Results of Operations
Revenues, net............................... $4.1 $87.4 $44.5 $201.1 $337.1
Operating, selling, general and
administrative expenses................... 185.6 81.2 40.2 213.9 520.9
Depreciation and amortization............... 9.4 26.4 17.4 30.0 83.2
Operating loss.............................. (190.9) (20.2) (13.1) (42.8) (267.0)
Net loss (1)................................ (183.3) (42.7) (22.2) (50.8) (299.0)
Company's Equity in Net Loss
Equity in current period net loss (2) ...... ($27.5) ($6.8) ($8.4) ($25.1) ($67.8)
Amortization expense........................ (0.1) (0.2) (0.1) (1.9) (2.3)
------- ------- ----- ------- -------
Total equity in net loss.................. ($27.6) ($7.0) ($8.5) ($27.0) ($70.1)
======= ======= ===== ======= =======
Three Months Ended March 31, 1996:
Combined Results of Operations
Revenues, net............................... $ $56.4 $42.6 $122.1 $221.1
Operating, selling, general and
administrative expenses................... 44.8 52.3 39.1 123.7 259.9
Depreciation and amortization............... 15.3 15.4 16.1 46.8
Operating loss.............................. (44.8) (11.2) (11.9) (17.7) (85.6)
Net loss (1)................................ (85.3) (25.1) (20.3) (22.9) (153.6)
Company's Equity in Net Loss
Equity in current period net loss .......... ($12.8) ($4.8) ($8.6) ($6.5) ($32.7)
Amortization expense........................ (0.3) (1.5) (1.8)
------- ------- ----- ------- -------
Total equity in net loss.................. ($12.8) ($5.1) ($8.6) ($8.0) ($34.5)
======= ======= ===== ======= =======
Combined Financial Position
As of March 31, 1997:
Current assets................................ $399.5 $787.6 $121.0 $302.5 $1,610.6
Noncurrent assets............................. 3,923.9 1,262.5 704.3 1,169.1 7,059.8
Current liabilities........................... 450.9 242.2 86.4 248.6 1,028.1
Noncurrent liabilities........................ 1,412.5 1,011.0 552.3 1,071.2 4,047.0
<FN>
- --------
(1) Net loss also represents loss from continuing operations before
extraordinary items and cumulative effect of changes in accounting
principle.
(2) As a result of the E! Acquisition, the Company recorded a charge
representing the cumulative amount that would have been recorded had the
Company accounted for its investment in E! Entertainment under the equity
method since the date of initial investment (the "Cumulative Charge").
Since the Company's proportionate share of E! Entertainment's cumulative
losses were in excess of the Company's historical cost basis in E!
Entertainment and as the Company was under no contractual obligation to
fund the losses of E! Entertainment, the Cumulative Charge was limited to
the Company's historical cost basis of $12.1 million. Such amount is
included in equity in net losses of affiliates in the Company's condensed
consolidated statement of operations and accumulated deficit for the three
months ended March 31, 1997 as it is not significant for restatement of the
Company's prior year financial statements.
</FN>
</TABLE>
8
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Sprint PCS. The Company, Tele-Communications, Inc. ("TCI"), Cox
Communications, Inc. ("Cox") and Sprint Corporation ("Sprint," and together
with the Company, TCI and Cox, the "Parents"), and certain subsidiaries of
the Parents engage in the wireless communications business through a
limited partnership known as "Sprint Spectrum" or "Sprint PCS," a
development stage enterprise. The Company made its initial investment in
1994 and, as of March 31, 1997, holds a general and limited partnership
interest of 15% in Sprint PCS. The investment in Sprint PCS is accounted
for under the equity method based on the Company's general partnership
interest and its representation on the partnership's board 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
United States in terms of route miles. The Company had a 20.0% investment
in TCGI and interests in the Teleport Joint Ventures ranging from 12.4% to
20.3%. On June 27, 1996, TCGI sold approximately 27 million shares of its
Class A Common Stock (the "TCGI Class A Stock"), for $16 per share, in an
initial public offering (the "TCGI IPO"). In connection with the TCGI IPO,
TCGI, the Company and subsidiaries of Cox, TCI and Continental Cablevision
("Continental" and collectively with Cox, TCI and the Company, the "Cable
Stockholders") entered into an agreement pursuant to which TCGI was
reorganized (the "Reorganization"). The Reorganization consisted of, among
other things: (i) the acquisition by TCGI of TCG Partners; (ii) the
acquisition by TCGI of additional interests in the Teleport Joint Ventures
(including 100% of those interests held by the Company); and (iii) the
contribution to TCGI of $269.0 million aggregate principal amount of
indebtedness, plus accrued interest thereon, owed by TCGI to the Cable
Stockholders (except that TCI retained a $26 million subordinated note of
TCGI), including $53.8 million principal amount and $4.1 million of accrued
interest owed to the Company. In connection with the Reorganization, the
Company received 25.6 million shares of TCGI's Class B Common Stock (the
"TCGI Class B Stock"). Each share of TCGI Class B Stock is entitled to
voting power equivalent to ten shares of TCGI Class A Stock and is
convertible, at the option of the holder, into one share of TCGI Class A
Stock.
In addition to the TCGI Class B Stock held by the Company, as of March 31,
1997, the Company held 2.76 million shares of TCGI Class A Stock received
from TCGI in exchange for the shares of an alternate access provider. In
May 1997, the Company sold all of its shares of TCGI Class A Stock. The
Company anticipates recognizing a $68.9 million pre-tax gain on the sale
during the second quarter of 1997.
After giving effect to the transactions described above, the Company owns
TCGI Class B Stock representing a 19.6% voting interest and a 15.5% equity
interest. The Company continues to account for its interest in TCGI under
the equity method based on its voting interest maintained through the TCGI
Class B Stock, its representation on TCGI's board of directors and its
participation in a TCGI stockholder agreement granting certain rights to a
control group. After giving effect to the above transactions and assuming
conversion of the TCGI Class B Stock held by the Company into TCGI Class A
Stock, the Company's investment in TCGI would have a fair value of
approximately $717.4 million, based on the quoted market price of the TCGI
Class A Stock as of May 13, 1997.
UK Investees. As of March 31, 1997, Comcast UK Cable Partners Limited
("Comcast UK Cable"), a consolidated subsidiary of the Company, holds a
27.5% interest in Birmingham Cable Corporation Limited and a 50.0% interest
in Cable London PLC. In addition, Comcast UK Cable historically held an
investment in Cambridge Holding Company Limited ("Cambridge Cable"). In
March 1996, Comcast UK Cable purchased the 50.0% interest in Cambridge
Cable that it had not previously owned for cash and approximately 8.9
million of its Class A Common Shares (the "Cambridge Acquisition").
Following the Cambridge Acquisition, Comcast UK
9
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Cable owns 100.0% of Cambridge Cable and consolidated the financial
position and results of operations of Cambridge Cable effective March 31,
1996.
Other. The Company's 12 other equity method investees include investments
in wired telecommunications (including Garden State Cablevision, L.P., a
cable communications company serving more than 205,000 subscribers as of
March 31, 1997 in the State of New Jersey), wireless telecommunications and
content providers (including Comcast-Spectacor - see Note 3). The Company
holds interests representing less than 20% of the total outstanding
ownership interest in certain of its other 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 inves ments to be individually significant to its
consolidated financial position, results of operations or liquidity.
Investments - Public Companies
The Company holds unrestricted equity investments in certain publicly
traded companies with an historical cost of $140.3 million and $160.3
million as of March 31, 1997 and December 31, 1996, respectively. The
Company has recorded these investments, which are classified as available
for sale, at their estimated fair values of $131.3 million and $165.5
million as of March 31, 1997 and December 31, 1996, respectively. The
unrealized pre-tax (loss) gain as of March 31, 1997 and December 31, 1996
of ($9.0) million and $5.2 million, respectively, have been reported in the
Company's condensed consolidated balance sheet as a component of
stockholders' equity, net of related deferred income tax (benefit) expense
of ($3.1) million and $1.8 million, respectively.
In February 1996, in connection with certain preemptive rights of the
Company under previously existing agreements with Nextel Communications,
Inc. ("Nextel"), the Company purchased approximately 8.16 million shares,
classified as long-term investments available for sale, of Nextel common
stock at $12.25 per share, for $99.9 million. As of March 31, 1997 and
December 31, 1996, the Company held 3.3 million shares of Nextel common
stock. In addition, as of December 31, 1996, the Company held options to
acquire an additional 25.0 million shares of Nextel common stock at $16 per
share. As of December 31, 1996, these options, which had an historical cost
of $20.0 million, were included in the above amounts for investments in
publicly traded companies at their fair value of $32.6 million. In February
1997, the Company sold these options to Nextel for $25.0 million and
recognized a pre-tax gain of $5.0 million as investment income in its
condensed consolidated statement of operations and accumulated deficit.
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 pre-tax gain of
$47.3 million in the fourth quarter of 1996, representing the difference
between the Company's historical cost basis in the TBS Stock of $8.9
million and the new basis for the Company's investment in Time Warner Stock
of $56.2 million, which was based on the closing price of the Time Warner
Stock on the merger date of $41.375 per share. In December 1996 and January
1997, the Company sold 92,500 shares and 1.27 million shares, respectively,
of the Time Warner Stock, representing the Company's entire interest in
Time Warner, for $3.7 million and $48.6 million, respectively. In
connection with the January 1997 sales, the Company recognized a pre-tax
loss of $3.8 million, which is included in investment income in the
Company's condensed consolidated statement of operations and accumulated
deficit. As of December 31, 1996, the 1.27 million shares of Time Warner
Stock held by the Company were recorded at their fair value of $47.4
million and were included in short-term investments in the Company's
condensed consolidated balance sheet.
10
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
5. LONG-TERM DEBT
Zero Notes
As of March 31, 1997, the Company's long-term debt includes the senior
participating redeemable zero coupon notes, due 2000 (the "Zero Notes"), of
a subsidiary of Comcast Cellular. The Zero Notes outstanding 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.
Comcast Cellular intends to utilize a portion of the proceeds from the
offering of the Cellular Notes in May 1997 (see Note 3) to redeem the Zero
Notes. Accordingly, 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 $460.0 million as of March 31, 1997 has been
classified as long-term in the Company's condensed consolidated balance
sheet as of March 31, 1997.
6. STOCKHOLDERS' EQUITY
Concurrent with the announcement of the Scripps Acquisition in October
1995, the Company announced that its Board of Directors authorized a market
repurchase program (the "Repurchase Program") pursuant to which the Company
could purchase, at such times and on such terms as it deemed appropriate,
up to $500.0 million of its outstanding common equity securities, subject
to certain restrictions and market conditions. Based on the trade date for
stock repurchases, during the three months ended March 31, 1997 and 1996,
the Company repurchased 675,000 shares and 3.2 million shares,
respectively, of its common stock for aggregate consideration of $11.5
million and $56.7 million, respectively, pursuant to the Repurchase
Program. During the term of the Repurchase Program, the Company repurchased
a total of 13.5 million shares of its common stock for aggregate
consideration of $228.6 million. The Repurchase Program terminated on May
13, 1997.
As part of the Repurchase Program, the Company sold put options on shares
of its Class A Special Common Stock. Put options on 4.0 million shares,
sold by the Company during 1996 and 1995 and outstanding at December 31,
1996, expired unexercised during the first quarter of 1997. Upon
expiration, the Company reclassified $69.6 million, the amount it would
have been obligated to pay to repurchase such shares had the put options
been exercised, from common equity put options to additional capital in the
Company's condensed consolidated balance sheet.
In April 1997, the Company sold put options on 2.0 million shares of its
Class A Special Common Stock. The put options give the holder the right to
require the Company to repurchase such shares at a specified price on
specific dates in April and May 1998. The amount the Company would be
obligated to pay to repurchase such shares upon exercise of the put
options, totaling $31.4 million, will be reclassified from additional
capital to common equity put options in the Company's condensed
consolidated balance sheet during the second quarter of 1997.
7. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of $117.1 million and $102.0
million during the three months ended March 31, 1997 and 1996,
respectively.
The Company made cash payments for income taxes of $18.3 million and $15.3
million during the three months ended March 31, 1997 and 1996,
respectively.
11
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
8. CONTINGENCIES
The Company is subject to claims which arise in the ordinary course of its
business and other legal proceedings. In the opinion of management, the
amount of ultimate liability with respect to these actions will not
materially affect the financial position, results of operations or
liquidity of the Company.
9. FINANCIAL DATA BY BUSINESS SEGMENT
(Dollars in millions)
<TABLE>
<CAPTION>
Domestic
Cable Electronic Cellular Corporate
Communications Retailing Communications and Other (1) Total
<S> <C> <C> <C> <C> <C>
Three Months Ended March 31, 1997
Revenues, net............................... $501.1 $479.7 $104.1 $45.9 $1,130.8
Depreciation and amortization............... 138.8 26.8 30.0 16.8 212.4
Operating income (loss)..................... 91.5 52.3 7.7 (30.2) 121.3
Interest expense............................ 56.7 14.0 24.0 38.6 133.3
Capital expenditures........................ 106.6 15.0 17.9 40.5 180.0
Equity in net losses of affiliates ......... 70.1 70.1
As of March 31, 1997
Assets...................................... $6,166.5 $2,171.0 $1,434.5 $2,561.5 $12,333.5
Long-term debt, less current portion ....... 3,105.8 829.9 1,136.4 2,299.2 7,371.3
Three Months Ended March 31, 1996
Revenues, net............................... $382.3 $450.1 $98.2 $20.1 $950.7
Depreciation and amortization............... 95.3 26.2 26.3 9.1 156.9
Operating income (loss)..................... 88.8 46.2 2.2 (24.0) 113.2
Interest expense............................ 56.7 18.2 20.8 39.1 134.8
Capital expenditures........................ 54.0 6.1 14.9 36.4 111.4
Equity in net losses of affiliates ......... 0.1 34.4 34.5
<FN>
- ---------------
(1) Corporate and other includes certain operating businesses and elimination
entries related to the segments presented.
</FN>
</TABLE>
12
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company has experienced significant growth in recent years both through
strategic acquisitions and growth in its existing businesses. The Company has
historically met its cash needs for operations through its cash flows from
operating activities. Cash requirements for acquisitions and capital
expenditures have been provided through the Company's financing activities and
sales of long-term investments, as well as its existing cash, cash equivalents
and short-term investments.
General Developments of Business
Offerings of Subsidiary Debt
On May 8, 1997, Comcast Cellular Holdings, Inc. ("Comcast Cellular"), a wholly
owned subsidiary of the Company, completed the sale of $1.0 billion of 9 1/2%
Senior Notes due 2007 (the "Cellular Notes") through a 144A offering with
registration rights. The Cellular Notes are obligations of Comcast Cellular and
are not obligations of, nor guaranteed by, the Company. Comcast Cellular will
use the net proceeds from the offering to repay existing borrowings by its
subsidiaries with the balance, if any, to be used for subsidiary general
purposes.
On May 1, 1997, Comcast Cable Communications, Inc. ("Comcast Cable"), a wholly
owned subsidiary of the Company, completed the sale of $1.7 billion of notes
(the "Cable Notes") through a 144A offering with registration rights. The Cable
Notes were issued in four tranches: $300.0 million of 8 1/8% Notes due 2004,
$600.0 million of 8 3/8% Notes due 2007, $550.0 million of 8 7/8% Notes due 2017
and $250.0 million of 8 1/2% Notes due 2027. The Notes due 2027 are subject to
repurchase at the option of the holder in 2009. The Cable Notes are obligations
of Comcast Cable and are not obligations of, nor guaranteed by, the Company.
Comcast Cable used substantially all of the net proceeds from the offering to
repay existing borrowings by its subsidiaries with the balance to be used for
subsidiary general purposes.
E! Entertainment
On March 31, 1997, the Company, through Comcast Entertainment Holdings LLC (the
"LLC"), which is owned 50.1% by the Company and 49.9% by The Walt Disney Company
("Disney"), purchased a 58.4% interest in E! Entertainment Television, Inc. ("E!
Entertainment"), an entertainment programming service that currently is
distributed to more than 42 million subscribers, from Time Warner, Inc. ("Time
Warner") for $321.9 million (the "E! Acquisition"). The E! Acquisition was
funded by cash contributions to the LLC by the Company and Disney of $132.8
million and $189.1 million, respectively. In connection with the E! Acquisition,
the Company contributed its 10.4% interest in E! Entertainment to the LLC.
Following these transactions, the LLC owns a 68.8% interest in E! Entertainment.
To fund the cash contribution to the LLC, the Company borrowed $132.8 million
from Disney in the form of two 10-year, 7% notes (the "Disney Notes").
The Company accounted for the E! Acquisition under the purchase method and E!
Entertainment was consolidated with the Company effective March 31, 1997. The
allocation of the purchase price relating to the assets and liabilities of E!
Entertainment is preliminary pending a final appraisal.
After September 1998, Disney, in certain circumstances, is entitled to request
that the LLC purchase Disney's entire interest in the LLC at its then fair
market value (as determined by an appraisal process). If the LLC elects not to
purchase Disney's interest, Disney has the right, at its option, to purchase
either the Company's entire interest in the LLC or all of the shares of stock of
E! Entertainment held by the LLC, in each case at fair market value. In the
event that Disney exercises its rights, as described above, a portion or all of
the Disney Notes may be replaced with a three year note due to Disney.
13
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
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"). The Company accounted for the Scripps Acquisition under
the purchase method and Scripps Cable was consolidated with the Company
effective November 1, 1996.
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 approximately $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 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.
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 March 31,
1997 were $540.8 million. As of March 31, 1997, $354.5 million of the Company's
cash, cash equivalents and short-term investments was restricted to use by
subsidiaries of the Company under contractual or other arrangements, including
$165.7 million which is restricted to use by Comcast UK Cable Partners Limited
("Comcast UK Cable").
The Company's cash, cash equivalents and short-term investments are recorded at
cost which approximates their fair value. As of March 31, 1997, the Company's
short-term investments of $85.9 million had a weighted average maturity of
approximately eight months.
Investments
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
14
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
business through a limited partnership known as "Sprint Spectrum" or "Sprint
PCS," a development stage enterprise. The Company owns 15% of Sprint PCS and
accounts for its investment in Sprint PCS under the equity method.
Under the provisions of the Sprint PCS partnership agreement, the Partner
Subsidiaries have committed to contribute $4.2 billion in cash to Sprint PCS
through 1999, of which the Company's share is $630.0 million. Of this funding
requirement, the Company has made total cash contributions to Sprint PCS of
$451.0 million through March 31, 1997 and issued a $105.0 million guaranty on a
portion of Sprint PCS' outstanding debt. The Company anticipates that Sprint
PCS' capital requirements over the next several years will be significant.
Requirements in excess of committed capital are planned to be funded by Sprint
PCS through external financing, including, but not limited to, vendor financing,
bank financing and securities offered to the public. In August 1996, Sprint PCS
sold $750.0 million principal amount at maturity of Senior Notes and Senior
Discount Notes due 2006 in a public offering. In October 1996, Sprint PCS closed
three credit agreements providing a total of $5.1 billion in available
financing, including $2.0 billion in bank financing and $3.1 billion in vendor
financing. The timing of the Company's remaining capital contributions to Sprint
PCS is dependent upon a number of factors, including Sprint PCS' working capital
requirements. The Company anticipates funding its remaining capital commitments
to Sprint PCS 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.
In February 1996, in connection with certain preemptive rights of the Company
under previously existing agreements with Nextel Communications, Inc.
("Nextel"), the Company purchased approximately 8.16 million shares, classified
as long-term investments available for sale, of Nextel common stock at $12.25
per share, for $99.9 million. As of March 31, 1997 and December 31, 1996, the
Company held 3.3 million shares of Nextel common stock. In addition, as of
December 31, 1996, the Company held options to acquire an additional 25.0
million shares of Nextel common stock at $16 per share. As of December 31, 1996,
these options, which had an historical cost of $20.0 million, were included in
investments in publicly traded companies at their fair value of $32.6 million.
In February 1997, the Company sold these options to Nextel for $25.0 million and
recognized a pre-tax gain of $5.0 million as investment income in its condensed
consolidated statement of operations and accumulated deficit.
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 pre-tax gain of $47.3 million in the
fourth quarter of 1996, representing the difference between the Company's
historical cost basis in the TBS Stock of $8.9 million and the new basis for the
Company's investment in Time Warner Stock of $56.2 million, which was based on
the closing price of the Time Warner Stock on the merger date of $41.375 per
share. In December 1996 and January 1997, the Company sold 92,500 shares and
1.27 million shares, respectively, of the Time Warner Stock, representing the
Company's entire interest in Time Warner, for $3.7 million and $48.6 million,
respectively. In connection with the January 1997 sales, the Company recognized
a pre-tax loss of $3.8 million, which is included in investment income in the
Company's condensed consolidated statement of operations and accumulated
deficit. As of December 31, 1996, the 1.27 million shares of Time Warner Stock
held by the company were recorded at their fair value of $47.4 million and were
included in short-term investments in the Company's condensed consolidated
balance sheet.
15
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
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.
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.
The Company is in the process of repaying or otherwise restructuring a
significant portion of its debt outstanding as of March 31, 1997 with the
proceeds from the issuance of the Cable Notes and the Cellular Notes. The
following information depicts the impact that these anticipated transactions
would have on certain aspects of the Company's outstanding long-term debt
assuming that, as of March 31, 1997, the Cable Notes and Cellular Notes had been
issued and the Company had made the anticipated repayments (dollars in
millions):
<TABLE>
<CAPTION>
Actual as of "Pro forma" as of
March 31, 1997 March 31, 1997 (1)
<S> <C> <C>
Contractual Maturities of Long-Term Debt:
1997 (2).................................... $76.3 $76.3
1998........................................ 684.9 127.5
1999........................................ 538.7 279.6
2000........................................ 674.1 301.1
2001........................................ 1,300.4 622.2
Unused Lines of Credit (3)....................... $996.7 $1,216.7
Average Interest Rate............................ 7.65% 8.04%
<FN>
- ---------------
(1) In connection with the assumed repayments of debt outstanding as of March
31, 1997 with the proceeds from the issuance of the Cable Notes and the
Cellular Notes, the Company expects to record an extraordinary loss, net of
tax, of approximately $20.0 million in 1997. There can be no assurances
that all of the transactions contemplated by the "pro forma" presentation
will occur in the manner assumed herein or occur at all. The impact of the
transactions which ultimately occur may yield results which differ from
those presented above.
(2) Represents maturities of long-term debt for the remaining nine months of
1997.
(3) Actual as of March 31, 1997 excludes $625.0 million which was established
by a subsidiary of Comcast Cellular for debt refinancing.
</FN>
</TABLE>
The availability and use of the unused lines of credit is restricted by the
covenants of the related debt agreements and to subsidiary general purposes and
dividend declaration. The Company continually evaluates its debt structure with
the intention of reducing its debt service requirements when desirable.
Concurrent with the announcement of the Scripps Acquisition in October 1995, the
Company announced that its Board of Directors authorized a market repurchase
program (the "Repurchase Program") pursuant to which the Company could purchase,
at such times and on such terms as it deemed appropriate, up to $500.0 million
of its outstanding common equity securities, subject to certain restrictions and
market conditions. Based on the trade date for stock repurchases, during the
three months ended March 31, 1997 and 1996, the Company repurchased 675,000
shares and 3.2 million shares, respectively, of its common stock for aggregate
consideration of $11.5 million and $56.7 million, respectively, pursuant to the
Repurchase Program. During the term of the Repurchase Program, the
16
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
Company repurchased a total of 13.5 million shares of its common stock for
aggregate consideration of $228.6 million. The Repurchase Program terminated on
May 13, 1997.
As part of the Repurchase Program, the Company sold put options on shares of its
Class A Special Common Stock. Put options on 4.0 million shares, sold by the
Company during 1996 and 1995 and outstanding at December 31, 1996, expired
unexercised during the first quarter of 1997. Upon expiration, the Company
reclassified $69.6 million, the amount it would have been obligated to pay to
repurchase such shares had the put options been exercised, from common equity
put options to additional capital in the Company's condensed consolidated
balance sheet.
In April 1997, the Company sold put options on 2.0 million shares of its Class A
Special Common Stock. The put options give the holder the right to require the
Company to repurchase such shares at a specified price on specific dates in
April and May 1998. The amount the Company would be obligated to pay to
repurchase such shares upon exercise of the put options, totaling $31.4 million,
will be reclassified from additional capital to common equity put options in the
Company's condensed consolidated balance sheet during the second quarter of
1997.
-------------------------
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 increased $123.6 million as of March 31, 1997 from
December 31, 1996 and decreased $28.9 million as of March 31, 1996 from December
31, 1995. 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 $197.4 million and $128.1
million for the three months ended March 31, 1997 and 1996, respectively. The
increase of $69.3 million is principally due to the increase in the Company's
operating income before depreciation and amortization (see "Results of
Operations"), including the effects of the Scripps Acquisition, and changes in
working capital as a result of the timing of receipts and disbursements.
Net cash provided by (used in) financing activities was $85.2 million and
($28.9) million for the three months ended March 31, 1997 and 1996,
respectively. During the three months ended March 31, 1997, the Company borrowed
$192.8 million, including the Disney Notes of $132.8 million and borrowings
under its existing lines of credit, and repaid $90.9 million of its long-term
debt. In addition, the Company made net repurchases of $7.0 million of its
common stock during the three months ended March 31, 1997. During the three
months ended March 31, 1996, the Company borrowed $191.2 million under its
existing lines of credit and repaid $167.4 million of its long-term debt,
including approximately $78.5 million under a vendor financing arrangement. Net
repurchases of the Company's common stock during the three months ended March
31, 1996 were $38.2 million.
Net cash used in investing activities was $159.0 million and $128.1 million for
the three months ended March 31, 1997 and 1996, respectively. During the three
months ended March 31, 1997, net cash used in investing activities includes the
17
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
E! Acquisition, net of cash acquired, of $116.5 million, investments in
affiliates of $32.4 million and capital expenditures of $180.0 million, offset
by the proceeds from the sales of short-term and long-term investments and a
distribution from an investee of $150.4 million and the repayment of a $25.2
million loan to Sprint PCS. For the three months ended March 31, 1996, net cash
used in investing activities includes investments in affiliates of $153.7
million, including capital contributions to Sprint PCS of $17.0 million and the
purchase of Nextel shares of $99.9 million, and capital expenditures of $111.4
million, offset by the proceeds from the sales of short-term and long-term
investments of $173.8 million.
Results of Operations
The effects of the Company's recent acquisitions were to increase significantly
the Company's revenues and expenses resulting in substantial increases in its
operating income before depreciation and amortization, depreciation expense,
amortization expense and interest expense. In addition, the Company's equity in
net losses of affiliates has increased principally as a result of the start-up
nature of certain of the Company's equity investees (see "Operating Results by
Business Segment" and "Consolidated Analysis"). As a result of the increases in
depreciation expense, amortization expense and interest expense associated with
these acquisitions and their financing and the increases in equity in net losses
of affiliates, it is expected that the Company will continue to recognize
significant losses for the foreseeable future.
Summarized consolidated financial information for the Company for the three
months ended March 31, 1997 and 1996 is as follows (dollars in millions, "NM"
denotes percentage is not meaningful):
<TABLE>
<CAPTION>
Three Months Ended
March 31, Increase / (Decrease)
1997 1996 $ %
<S> <C> <C> <C> <C>
Revenues.................................................. $1,130.8 $950.7 $180.1 18.9%
Cost of goods sold from electronic retailing ............. 291.9 270.1 21.8 8.1
Operating, selling, general and administrative expenses .. 505.2 410.5 94.7 23.1
-------- ------
Operating income before depreciation and
amortization (1) ...................................... 333.7 270.1 63.6 23.5
Depreciation.............................................. 95.8 68.4 27.4 40.1
Amortization.............................................. 116.6 88.5 28.1 31.8
-------- ------
Operating income.......................................... 121.3 113.2 8.1 7.2
-------- ------
Interest expense.......................................... 133.3 134.8 (1.5) (1.1)
Investment income......................................... (12.2) (18.6) (6.4) (34.4)
Equity in net losses of affiliates........................ 70.1 34.5 35.6 NM
Other..................................................... 8.9 11.3 (2.4) (21.2)
Income tax expense........................................ 9.9 0.9 9.0 NM
Minority interest......................................... (24.0) (15.1) 8.9 58.9
-------- ------
Net loss.................................................. ($64.7) ($34.6) $30.1 87.0%
======== ======
<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 expense 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>
18
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
Operating Results by Business Segment
Domestic Cable Communications
As a result of the Scripps Acquisition, the Company commenced consolidating the
financial results of Scripps Cable effective November 1, 1996. The following
table presents actual financial information for the three months ended March 31,
1997 and pro forma financial information for the three months ended March 31,
1996 as if the Scripps Acquisition occurred on January 1, 1996. Pro forma
financial information is presented herein for purposes of analysis and may not
reflect what actual operating results would have been had the Company owned
Scripps Cable since January 1, 1996 (dollars in millions):
<TABLE>
<CAPTION>
Three Months Ended
March 31, Increase
1997 1996 $ %
<S> <C> <C> <C> <C>
Service income............................................ $501.1 $457.3 $43.8 9.6%
Operating, selling, general and
administrative expenses.............................. 270.8 240.6 30.2 12.6
------ ------ -----
Operating income before depreciation
and amortization (a)................................. $230.3 $216.7 $13.6 6.3%
====== ====== =====
<FN>
- ---------------
(a) See footnote (1) on page 18.
</FN>
</TABLE>
Of the $43.8 million increase in service income for the three month period from
1996 to 1997, $10.0 million is attributable to subscriber growth, $32.0 million
relates to changes in rates and $1.8 million relates to other product offerings.
Of the $30.2 million increase in operating, selling, general and administrative
expenses for the three month period from 1996 to 1997, $7.6 million is
attributable to increases in the costs of cable programming as a result of
subscriber growth, additional channel offerings and changes in rates, $5.0
million is attributable to increases in costs associated with the implementation
of three regional customer service call centers and $17.6 million results from
increases in the cost of labor, other volume related expenses and costs
associated with new product offerings. It is anticipated that the Company's cost
of cable programming will increase in the future as cable programming rates
increase and additional sources of cable programming become available.
Electronic Retailing
The following table sets forth operating results for the Company's electronic
retailing segment, consisting of the operations of QVC, Inc. and its
subsidiaries ("QVC"), a majority owned and controlled subsidiary of the Company
(dollars in millions):
<TABLE>
<CAPTION>
Three Months Ended
March 31, Increase
1997 1996 $ %
<S> <C> <C> <C> <C>
Net sales from electronic retailing....................... $479.7 $450.1 $29.6 6.6%
Cost of goods sold from electronic retailing ............. 291.9 270.1 21.8 8.1
Operating, selling, general and administrative
expenses............................................. 108.7 107.6 1.1 1.0
------ ------ -----
Operating income before depreciation
and amortization (a)................................. $79.1 $72.4 $6.7 9.3%
====== ====== =====
Gross margin.............................................. 39.1% 40.0%
<FN>
- ---------------
(a) See footnote (1) on page 18.
</FN>
</TABLE>
19
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
The increase in net sales from electronic retailing of $29.6 million for the
three month period from 1996 to 1997 is primarily attributable to the effects of
a 7.1% and a 14.0% increase in the average number of homes receiving QVC
services in the United States and the United Kingdom, respectively.
The increase in cost of goods sold from electronic retailing is primarily
related to the growth in net sales. The decline in gross margin from 1996 to the
same period in 1997 is a result of a change in product mix and an increase in
shipping and handling costs.
The increase in operating, selling, general and administrative expenses of $1.1
million for the three month period from 1996 to 1997 is primarily attributable
to start-up costs incurred by QVC in Germany, which began operations in the
fourth quarter of 1996, offset, in part, by the reduction in expenses realized
upon consolidation of QVC's multichannel operations and an increase in net
finance fee income from credit card operations.
Cellular Communications
The following table sets forth the operating results for the Company's cellular
communications segment (dollars in millions):
<TABLE>
<CAPTION>
Three Months Ended
March 31, Increase/(Decrease)
1997 1996 $ %
<S> <C> <C> <C> <C>
Service income ........................................... $104.1 $98.2 $5.9 6.0%
Operating, selling, general and administrative
expenses ............................................ 66.4 69.7 (3.3) (4.7)
------ ----- ----
Operating income before depreciation
and amortization (a) ................................ $37.7 $28.5 $9.2 32.3%
====== ===== ====
<FN>
- ---------------
(a) See footnote (1) on page 18.
</FN>
</TABLE>
Of the $5.9 million increase in service income for the three month period from
1996 to 1997, $8.5 million is attributable to the Company's subscriber growth.
Offsetting this increase is a decrease of $2.6 million resulting primarily from
a reduction in the average rate per minute of use from 1996 to the same period
in 1997.
The $3.3 million decrease in operating, selling, general and administrative
expenses for the three month period from 1996 to 1997 is primarily attributable
to expense reductions achieved through implementation of fraud management
programs and a reduction in commission costs resulting from fewer gross sales in
1997 as compared to the same period in 1996. These reductions were partially
offset by increases in volume related expenses resulting from subscriber growth.
Consolidated Analysis
The $27.4 million increase in depreciation expense for the three month period
from 1996 to 1997 is primarily attributable to the effects of the Scripps
Acquisition and the effects of capital expenditures.
The $28.1 million increase in amortization expense for the three month period
from 1996 to 1997 is primarily attributable to the effects of the Scripps
Acquisition.
The $1.5 million decrease in interest expense for the three month period from
1996 to 1997 is attributable to decreases in rates, offset, in part, by
increased levels of debt. 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
20
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
through its ability both to generate operating income before depreciation and
amortization and to obtain external financing.
The $6.4 million decrease in investment income for the three month period from
1996 to 1997 is primarily attributable to the effects of higher average balances
of cash, cash equivalents and short-term investments in 1996 as compared to
1997. In May 1997, the Company sold all of its 2.76 million shares of Teleport
Communications Group, Inc. Class A Common Stock. The Company anticipates
recognizing a $68.9 million pre-tax gain on the sale during the second quarter
of 1997.
The $35.6 million increase in equity in net losses of affiliates for the three
month period from 1996 to 1997 is primarily due to the effects of increased
losses incurred by Sprint PCS and certain of the Company's other equity
investees and the effects of the E! Acquisition (see below) and the Sports
Venture Acquisition. Based on Sprint PCS' current operations and business plan,
the Company anticipates that its proportionate share of Sprint PCS' losses will
be significant in future periods. In addition, as a result of the E!
Acquisition, the Company recorded a charge representing the cumulative amount
that would have been recorded had the Company accounted for its investment in E!
Entertainment under the equity method since the date of initial investment (the
"Cumulative Charge"). Since the Company's proportionate share of E!
Entertainment's cumulative losses were in excess of the Company's historical
cost basis in E! Entertainment and as the Company was under no contractual
obligation to fund the losses of E! Entertainment, the Cumulative Charge was
limited to the Company's historical cost basis of $12.1 million. Such amount is
included in equity in net losses of affiliates in the Company's condensed
consolidated statement of operations and accumulated deficit for the three
months ended March 31, 1997 as it is not significant for restatement of the
Company's prior year financial statements.
The $9.0 million increase in income tax expense for three month period from 1996
to 1997 is a result of increases in non-deductible foreign losses and equity in
net losses of affiliates as well as increased goodwill amortization resulting
from the Scripps Acquisition.
The $8.9 million increase in minority interest for the three month period from
1996 to 1997 is primarily attributable to the effects of changes in the net
income (loss) of QVC and Comcast UK Cable.
For the three months ended March 31, 1997 and 1996, the Company's distribution
from an investee and earnings before income tax expense, equity in net losses of
affiliates and fixed charges (interest expense) were $150.4 million and $135.6
million, respectively. Such earnings were adequate to cover the Company's fixed
charges, including interest capitalized of $8.6 million, of $141.9 million for
the three months ended March 31, 1997. Such earnings were not adequate to cover
the Company's fixed charges, including interest capitalized of $7.1 million, of
$141.9 million for the three months ended March 31, 1996. Fixed charges include
non-cash interest, net of interest capitalized, of $17.0 million and $16.1
million for the three months ended March 31, 1997 and 1996, respectively. The
inadequacy of earnings to cover fixed charges for the three months ended March
31, 1996 is primarily due to the substantial non-cash charges for depreciation
expense 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.
21
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
PART II. OTHER INFORMATION
ITEM 1. 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
(i) Comcast Corporation filed a Current Report on Form 8-K under
Item 5 on January 31, 1997 relating to the announcement of its
agreement with The Walt Disney Company to form a new company
to acquire a majority interest in E! Entertainment Television,
Inc.
(ii) Comcast Corporation filed a Current Report on Form 8-K under
Item 5 on March 27, 1997 relating to its announcement of the
intention of its wholly owned subsidiary, Comcast Cellular
Holdings, Inc., to offer approximately $900 million of senior
notes in a private placement.
22
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMCAST CORPORATION
-------------------------------------------
/S/ LAWRENCE S. SMITH
-------------------------------------------
Lawrence S. Smith
Executive Vice President
(Principal Accounting Officer)
Date: May 15, 1997
23
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 455
<SECURITIES> 86
<RECEIVABLES> 527
<ALLOWANCES> (103)
<INVENTORY> 289
<CURRENT-ASSETS> 1,403
<PP&E> 3,751
<DEPRECIATION> (1,137)
<TOTAL-ASSETS> 12,334
<CURRENT-LIABILITIES> 1,249
<BONDS> 7,371
0
32
<COMMON> 326
<OTHER-SE> 175
<TOTAL-LIABILITY-AND-EQUITY> 12,334
<SALES> 1,131
<TOTAL-REVENUES> 1,131
<CGS> (292)
<TOTAL-COSTS> (1,010)
<OTHER-EXPENSES> (70)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (133)
<INCOME-PRETAX> (79)<F1>
<INCOME-TAX> (10)
<INCOME-CONTINUING> (65)
<DISCONTINUED> 0
<EXTRAORDINARY> (0)
<CHANGES> 0
<NET-INCOME> (65)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
<FN>
<F1>loss before income tax expense and other items excludes the effect of
minority interests, net of tax, of $24.0.
</FN>
</TABLE>
