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:
JUNE 30, 1998
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 June 30, 1998, there were 328,639,831 shares of Class A Special Common
Stock, 31,792,325 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 JUNE 30, 1998
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheet as of June 30, 1998 and December 31,
1997 (Unaudited)...........................................2
Condensed Consolidated Statement of
Operations and Accumulated Deficit for
the Six and Three Months Ended June 30,
1998 and 1997 (Unaudited)..................................3
Condensed Consolidated Statement of Cash
Flows for the Six Months Ended June 30,
1998 and 1997 (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 - 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.........................................21
Item 4. Submission of Matters to a Vote of Security Holders.......21
Item 6. Exhibits and Reports on Form 8-K.....................21 - 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 JUNE 30, 1998
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in millions, except share data)
June 30, December 31,
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................... $516.6 $413.7
Short-term investments....................................................... 48.5 163.9
Accounts receivable, less allowance for doubtful
accounts of $114.3 and $115.0.............................................. 485.0 498.8
Inventories, net............................................................. 314.0 324.0
Other current assets......................................................... 173.0 159.1
--------- ---------
Total current assets..................................................... 1,537.1 1,559.5
--------- ---------
INVESTMENTS, principally in affiliates.......................................... 1,314.1 1,264.3
--------- ---------
PROPERTY AND EQUIPMENT.......................................................... 4,742.7 4,285.4
Accumulated depreciation..................................................... (1,564.9) (1,388.5)
--------- ---------
Property and equipment, net.................................................. 3,177.8 2,896.9
--------- ---------
DEFERRED CHARGES................................................................ 9,566.2 9,213.3
Accumulated amortization..................................................... (2,305.5) (2,129.8)
--------- ---------
Deferred charges, net........................................................ 7,260.7 7,083.5
--------- ---------
$13,289.7 $12,804.2
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses........................................ $1,262.9 $1,195.5
Accrued interest............................................................. 90.8 89.6
Current portion of long-term debt............................................ 103.9 132.7
--------- ---------
Total current liabilities................................................ 1,457.6 1,417.8
--------- ---------
LONG-TERM DEBT, less current portion............................................ 6,658.9 6,558.6
--------- ---------
DEFERRED INCOME TAXES........................................................... 2,129.0 2,112.2
--------- ---------
MINORITY INTEREST AND OTHER..................................................... 1,021.0 1,037.7
--------- ---------
COMMITMENTS AND CONTINGENCIES
COMMON EQUITY PUT OPTIONS....................................................... 31.4
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock - authorized, 20,000,000 shares; 5% series A convertible,
no par value, issued, 6,370 at redemption value............................ 31.9 31.9
5.25% series B mandatorily redeemable convertible, $1,000 par value,
issued, 526,771 and 513,211 at redemption value............................ 526.8 513.2
Class A special common stock, $1 par value - authorized,
500,000,000 shares; issued, 328,639,831 and 317,025,969.................... 328.6 317.0
Class A common stock, $1 par value - authorized,
200,000,000 shares; issued, 31,792,325 and 31,793,487 ..................... 31.8 31.8
Class B common stock, $1 par value - authorized,
50,000,000 shares; issued, 8,786,250 ...................................... 8.8 8.8
Additional capital........................................................... 3,409.7 3,030.6
Accumulated deficit.......................................................... (2,596.7) (2,415.9)
Unrealized gains on marketable securities.................................... 293.2 140.7
Cumulative translation adjustments........................................... (10.9) (11.6)
--------- ---------
Total stockholders' equity............................................... 2,023.2 1,646.5
--------- ---------
$13,289.7 $12,804.2
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
(Amounts in millions, except per share data)
Six Months Ended Three Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
REVENUES
Service income............................................. $1,606.9 $1,367.9 $791.7 $716.8
Net sales from electronic retailing........................ 1,074.6 947.4 530.0 467.7
--------- --------- --------- ---------
2,681.5 2,315.3 1,321.7 1,184.5
--------- --------- --------- ---------
COSTS AND EXPENSES
Operating.................................................. 758.1 611.3 361.6 313.9
Cost of goods sold from electronic retailing............... 652.4 571.8 320.0 279.0
Selling, general and administrative........................ 480.2 431.1 237.6 224.2
Depreciation............................................... 268.8 221.5 131.4 125.7
Amortization............................................... 257.6 240.9 127.7 124.3
--------- --------- --------- ---------
2,417.1 2,076.6 1,178.3 1,067.1
--------- --------- --------- ---------
OPERATING INCOME.............................................. 264.4 238.7 143.4 117.4
OTHER (INCOME) EXPENSE
Interest expense........................................... 291.9 278.9 144.3 145.6
Investment expense (income)................................ 1.2 (93.6) (0.1) (81.4)
Equity in net losses of affiliates......................... 237.0 131.2 107.3 61.1
Gain from equity offering of affiliate..................... (59.6)
Other...................................................... (3.5) 4.4 (1.0) (4.5)
--------- --------- --------- ---------
467.0 320.9 250.5 120.8
--------- --------- --------- ---------
LOSS BEFORE INCOME TAX EXPENSE (BENEFIT), MINORITY
INTEREST AND EXTRAORDINARY ITEMS........................... (202.6) (82.2) (107.1) (3.4)
INCOME TAX EXPENSE (BENEFIT).................................. 0.3 36.9 (0.3) 27.0
--------- --------- --------- ---------
LOSS BEFORE MINORITY INTEREST AND
EXTRAORDINARY ITEMS........................................ (202.9) (119.1) (106.8) (30.4)
MINORITY INTEREST............................................. (39.2) (39.8) (22.0) (15.8)
--------- --------- --------- ---------
LOSS BEFORE EXTRAORDINARY ITEMS............................... (163.7) (79.3) (84.8) (14.6)
EXTRAORDINARY ITEMS........................................... (22.8) (22.8)
--------- --------- --------- ---------
NET LOSS...................................................... (163.7) (102.1) (84.8) (37.4)
PREFERRED DIVIDENDS........................................... (14.3) (0.8) (7.2) (0.4)
--------- --------- --------- ---------
NET LOSS FOR COMMON STOCKHOLDERS.............................. ($178.0) ($102.9) ($92.0) ($37.8)
========= ========= ========= =========
ACCUMULATED DEFICIT
Beginning of period ....................................... ($2,415.9) ($2,127.1) ($2,503.3) ($2,205.3)
Net loss................................................... (163.7) (102.1) (84.8) (37.4)
Common dividends - $.0467, $.0467, $.0233 and $.0233
per share................................................ (17.1) (15.7) (8.6) (8.2)
Retirement of common stock................................. (17.7) (11.7)
--------- --------- --------- ---------
End of period.............................................. ($2,596.7) ($2,262.6) ($2,596.7) ($2,262.6)
========= ========= ========= =========
LOSS FOR COMMON STOCKHOLDERS PER COMMON SHARE
Loss before extraordinary items............................ ($.49) ($.25) ($.25) ($.05)
Extraordinary items........................................ (.07) (.07)
--------- --------- --------- ---------
Net loss.............................................. ($.49) ($.32) ($.25) ($.12)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING DURING THE PERIOD.............................. 363.5 325.3 369.0 324.8
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in millions)
Six Months Ended June 30,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net loss..................................................................... ($163.7) ($102.1)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation............................................................... 268.8 221.5
Amortization............................................................... 257.6 240.9
Non-cash interest expense, net............................................. 21.6 26.8
Equity in net losses of affiliates......................................... 237.0 131.2
Gain from equity offering of affiliate..................................... (59.6)
Non-cash investment expense (income), net.................................. 32.5 (70.2)
Minority interest.......................................................... (39.2) (39.8)
Extraordinary items........................................................ 22.8
Deferred income taxes and other............................................ (76.4) (12.8)
-------- --------
478.6 418.3
Changes in working capital accounts........................................ (40.5) 18.1
-------- --------
Net cash provided by operating activities............................ 438.1 436.4
-------- --------
FINANCING ACTIVITIES
Proceeds from borrowings..................................................... 1,029.4 2,958.0
Retirement and repayment of debt............................................. (815.9) (2,940.3)
Issuance of preferred stock.................................................. 500.0
Issuances of common stock, net............................................... 13.9 498.5
Repurchases of common stock, net............................................. (33.6)
Dividends.................................................................... (17.9) (16.5)
Deferred financing costs..................................................... (4.5) (43.2)
Other........................................................................ 2.2 1.8
-------- --------
Net cash provided by financing activities............................ 207.2 924.7
-------- --------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired........................................... (219.4) (125.8)
Proceeds from sales of short-term investments, net........................... 115.4 127.2
Investments, principally in affiliates....................................... (83.4) (78.5)
Proceeds from sales of and distribution from long-term investments........... 0.7 95.7
Proceeds from investee's repayment of loan................................... 74.7 25.2
Proceeds from sales of call options.......................................... 20.7
Capital expenditures......................................................... (419.6) (447.1)
Additions to deferred charges................................................ (30.0) (24.1)
Other........................................................................ (1.5) (0.4)
-------- --------
Net cash used in investing activities................................ (542.4) (427.8)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS........................................... 102.9 933.3
CASH AND CASH EQUIVALENTS, beginning of period.................................. 413.7 331.3
-------- --------
CASH AND CASH EQUIVALENTS, end of period........................................ $516.6 $1,264.6
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The condensed consolidated balance sheet as of December 31, 1997 has been
condensed from the audited consolidated balance sheet as of that date. The
condensed consolidated balance sheet as of June 30, 1998, the condensed
consolidated statement of operations and accumulated deficit for the six
and three months ended June 30, 1998 and 1997 and the condensed
consolidated statement of cash flows for the six months ended June 30, 1998
and 1997 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 June 30, 1998 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, 1997 Annual Report on Form 10-K filed with the Securities and Exchange
Commission. The results of operations for the periods ended June 30, 1998
are not necessarily indicative of operating results for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This statement, which
establishes accounting and reporting standards for derivatives and hedging
activities, is effective for fiscal years beginning after June 15, 1999.
Upon the adoption of SFAS No. 133, all derivatives are required to be
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. The Company is currently evaluating
the impact the adoption of SFAS No. 133 will have on its financial position
and results of operations.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement, which establishes standards for reporting and
disclosure of comprehensive income, is effective for interim and annual
periods beginning after December 15, 1997. The Company adopted SFAS No. 130
effective January 1, 1998. Total comprehensive loss for the six and three
months ended June 30, 1998 and 1997 was $10.5 million, $98.4 million, $3.8
million and $21.2 million, respectively. Total comprehensive income (loss)
includes net income (loss), unrealized gains (losses) on marketable
securities and foreign currency translation gains (losses) for the periods
presented.
Loss for Common Stockholders Per Common Share
Loss for common stockholders per common share is computed by dividing net
loss, after deduction of preferred stock dividends, by the weighted average
number of common shares outstanding during the period.
For the six and three months ended June 30, 1998 and 1997, the Company's
potential common shares of 47.0 million shares, 62.5 million shares, 47.0
million shares and 62.5 million shares, respectively, have an antidilutive
effect on loss for common stockholders per common 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 1998.
5
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
3. SIGNIFICANT EVENTS
Investment in Jones Intercable
In May 1998, the Company agreed to purchase from BCI Telecom Holding
("BTH") 6.4 million Class A Common Shares in Jones Intercable, Inc. ("Jones
Intercable"), and a 49% interest in the BTH subsidiaries which were to
continue to own BTH's remaining 6.4 million shares of Jones Intercable
Class A Common Stock. At the same time, the Company agreed to acquire
approximately 2.9 million shares of Common Stock of Jones Intercable (the
"Control Shares"), if and when acquired by BTH from affiliates of Jones
Intercable's controlling shareholder under an existing option (the "Control
Option") to acquire such shares (which absent extraordinary circumstances
would not have been exercisable until December 2001). The Company was to
purchase the remaining 51% of the BTH subsidiaries when the Control Shares
were acquired. The Company, BTH, Jones Intercable and Jones Intercable's
controlling shareholder agreed on August 12, 1998 to accelerate the Control
Option to permit its early exercise and the early closing of the
transactions with BTH. At closing (expected to occur in the first quarter
of 1999), the Company will pay BTH a total of $500 million in cash to
acquire the 12.8 million shares of Jones Intercable Class A Common Stock
and $200 million in cash to acquire the Control Shares. After closing, the
Company will control approximately 37% of the economic and 47% of the
voting interest in Jones Intercable. In addition, the Control Shares will
represent shares having the right to elect approximately 75% of the Board
of Directors of Jones Intercable. The transaction will be funded either
with new borrowings, with available borrowings under existing lines of
credit or by other means. Jones Intercable, a public company, owns or
manages cable operations serving approximately 1.4 million customers.
Sale of Comcast UK Cable
In February 1998, Comcast UK Cable Partners Limited ("Comcast UK Cable"), a
consolidated subsidiary of the Company, entered into a definitive agreement
to be acquired by NTL Incorporated ("NTL"), an alternative
telecommunications company in the United Kingdom ("UK"). Pursuant to
certain conditions, the Company may receive up to 4.8 million shares of NTL
common stock in exchange for all of the shares of Comcast UK Cable held by
the Company (the "NTL Transaction"). Certain conditions agreed to in the
NTL Transaction restrict the Company's ability to sell the NTL common stock
to be received for a period of 180 days after the closing of the NTL
Transaction. The NTL Transaction is expected to close in 1998, subject to
the receipt of necessary regulatory and shareholder approvals, the consent
of the bondholders of Comcast UK Cable and NTL, as well as the consent of
certain NTL bank lenders. As of June 30, 1998 and for the six months then
ended, the assets and revenues of Comcast UK Cable totaled $856.4 million
and $60.4 million, respectively.
AT&T Acquisition of TCGI
In January 1998, AT&T Corporation ("AT&T") entered into a definitive merger
agreement with Teleport Communications Group, Inc. ("TCGI"). Upon closing
of the merger (the "AT&T Transaction") on July 23, 1998, the Company
received 24.2 million shares of unregistered AT&T common stock in exchange
for the 25.6 million shares of TCGI Class B Stock, representing all of the
shares of TCGI held by the Company. The Company has registration rights,
subject to customary restrictions, which would allow the Company to effect
a registration of the AT&T shares received. The Company's investment in
AT&T common stock had a fair value, prior to consideration of the
restrictions on the AT&T common stock, of approximately $1.416 billion,
based on the quoted market price of $58.625 per share of AT&T common stock
as of July 23, 1998.
4. INVESTMENTS, PRINCIPALLY IN AFFILIATES
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(Dollars in millions)
<S> <C> <C>
Equity method.......................................... $596.5 $867.6
Fair value method...................................... 583.1 346.5
Cost method............................................ 134.5 50.2
-------- --------
$1,314.1 $1,264.3
======== ========
</TABLE>
6
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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 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 (e.g. general
partnership interest), board representation, participation in a controlling
investor group, significant shareholder rights or a combination of these
and other factors. The Company's recorded investments exceed its
proportionate interests in the book value of the investees' net assets by
$162.0 million as of June 30, 1998 (primarily related to the Company's
investments in The Golf Channel 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 $1.374 billion and $1.454 billion as of June 30, 1998
and December 31, 1997, 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>
Six Months Ended June 30, 1998:
Combined Results of Operations
Revenues, net............................................ $285.0 $310.5 $116.1 $535.3 $1,246.9
Operating, selling, general and
administrative expenses................................ 871.5 301.3 90.2 576.3 1,839.3
Depreciation and amortization............................ 238.4 97.1 40.8 43.5 419.8
Operating loss........................................... (824.9) (87.9) (14.9) (84.5) (1,012.2)
Net loss (a)............................................. (1,058.0) (134.7) (50.6) (113.9) (1,357.2)
Company's Equity in Net Loss
Equity in current period net loss........................ ($158.7) ($19.7) ($18.2) ($37.3) ($233.9)
Amortization expense..................................... (1.5) (0.3) (1.3) (3.1)
-------- -------- ------- -------- --------
Total equity in net loss............................... ($160.2) ($19.7) ($18.5) ($38.6) ($237.0)
======== ======== ======= ======== ========
Three Months Ended June 30, 1998:
Combined Results of Operations
Revenues, net............................................ $143.8 $160.1 $58.8 $244.6 $607.3
Operating, selling, general and
administrative expenses................................ 393.5 147.2 45.2 258.0 843.9
Depreciation and amortization............................ 115.7 49.1 21.1 14.4 200.3
Operating loss........................................... (365.4) (36.2) (7.5) (27.8) (436.9)
Net loss (a)............................................. (498.6) (62.2) (20.5) (41.3) (622.6)
Company's Equity in Net Loss
Equity in current period net loss........................ ($74.8) ($9.1) ($7.8) ($14.5) ($106.2)
Amortization expense..................................... (0.7) (0.1) (0.3) (1.1)
-------- -------- ------- -------- --------
Total equity in net loss............................... ($75.5) ($9.1) ($7.9) ($14.8) ($107.3)
======== ======== ======= ======== ========
Combined Financial Position
As of June 30, 1998:
Current assets........................................... $378.3 $481.5 $37.7 $202.0 $1,099.5
Noncurrent assets........................................ 5,997.5 2,028.9 725.3 897.4 9,649.1
Current liabilities...................................... 513.7 452.4 73.0 736.9 1,776.0
Noncurrent liabilities................................... 4,418.8 1,074.4 620.8 437.7 6,551.7
<FN>
- --------
(a) See footnote 1 on page 8.
</FN>
</TABLE>
7
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
Sprint UK
PCS TCGI Investees Other Combined
<S> <C> <C> <C> <C> <C>
Six Months Ended June 30, 1997:
Combined Results of Operations
Revenues, net............................................ $13.6 $184.2 $92.9 $442.3 $733.0
Operating, selling, general and
administrative expenses................................ 351.5 171.9 82.2 456.4 1,062.0
Depreciation and amortization............................ 43.8 56.2 36.0 54.1 190.1
Operating loss........................................... (381.7) (43.9) (25.3) (68.2) (519.1)
Net loss (1)............................................. (398.8) (87.7) (44.8) (89.6) (620.9)
Company's Equity in Net Loss
Equity in current period net loss (2).................... ($59.8) ($14.2) ($16.7) ($36.3) ($127.0)
Amortization expense..................................... (0.1) (0.4) (0.3) (3.4) (4.2)
-------- -------- ------- -------- --------
Total equity in net loss............................... ($59.9) ($14.6) ($17.0) ($39.7) ($131.2)
======== ======== ======= ======== ========
Three Months Ended June 30, 1997:
Combined Results of Operations
Revenues, net............................................ $9.5 $96.8 $48.4 $241.2 $395.9
Operating, selling, general and
administrative expenses................................ 165.9 90.7 42.0 240.8 539.4
Depreciation and amortization............................ 34.4 29.8 18.6 24.1 106.9
Operating loss........................................... (190.8) (23.7) (12.2) (23.7) (250.4)
Net loss (1)............................................. (215.5) (45.0) (22.6) (38.8) (321.9)
Company's Equity in Net Loss
Equity in current period net loss........................ ($32.3) ($7.4) ($8.3) ($11.2) ($59.2)
Amortization expense..................................... (0.2) (0.2) (1.5) (1.9)
-------- -------- ------- -------- --------
Total equity in net loss............................... ($32.3) ($7.6) ($8.5) ($12.7) ($61.1)
======== ======== ======= ======== ========
<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 acquisition of E! Entertainment Television, Inc.
("E! Entertainment") on March 31, 1997, 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 was 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 six months ended June 30, 1997 as it is not
significant for restatement of the Company's prior year financial
statements.
</FN>
</TABLE>
Sprint PCS. The Company, Tele-Communications, Inc. ("TCI"), Cox
Communications, Inc. ("Cox," and together with the Company and TCI, the
"Cable Partners") and Sprint Corporation ("Sprint," and together with the
Cable Partners, the "Parents"), engage in the wireless communications
business through a limited partnership known as "Sprint Spectrum" or
"Sprint PCS." The Company made its initial investment in 1994 to hold a
general and limited partnership interest of 15% in Sprint PCS. The Parents
had committed to contribute $4.2 billion in cash to Sprint PCS through
1999, of which the Company's share was $630.0 million. As of June 30, 1998,
the Company had contributed $609.5 million of its original funding
commitment. Under the terms of the Restructuring Agreement described below,
the Company has loaned $60.0 million to Sprint PCS, and no further amounts
are due with respect to the balance of the original funding commitment.
8
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
In May 1998, the Parents announced an agreement (the "Restructuring
Agreement") under which Sprint would assume total ownership and management
control of Sprint PCS.
At closing of the Restructuring Agreement, Sprint will issue a new class of
Sprint stock (the "Sprint PCS Stock") to track the performance of Sprint's
combined wireless operations. Initially, the Company will receive an
approximate 11.4% interest in the Sprint PCS Stock in exchange for its
interests in Sprint PCS. The Restructuring Agreement also contemplates an
initial public offering ("IPO") of Sprint PCS Stock to occur concurrently
with the above, followed by the distribution of Sprint's interest in the
Sprint PCS Stock to its existing shareholders. If the IPO can not be
completed at that time, the shareholder distribution will be made. The
Cable Partners' interests in the Sprint PCS Stock would be reduced
proportionately by the amount of ownership interests issued in connection
with the IPO, and in connection with any purchases made at that time by two
of Sprint's major shareholders under existing anti-dilution rights - France
Telecom S.A. ("France Telecom") and Deutsche Telekom AG ("Deutsche
Telekom").
The Sprint PCS Stock will be divided into three categories: (i) Series 1
(one vote per share) to be held by the public, (ii) Series 2 (1/10 vote per
share other than in class votes) to be held by the Cable Partners, and
(iii) Series 3 (one vote per share) to be held by France Telecom and
Deutsche Telekom. Under the terms of the Restructuring Agreement, the Cable
Partners have registration rights, subject to customary restrictions, and
certain anti-dilution rights of France Telecom and Deutsche Telekom, that,
if used, will permit the monetization of their Sprint PCS holdings through
equity offerings or derivatives. If the Series 2 shares are transferred by
a Cable Partner, the transferred shares become full vote Series 1 shares.
The Restructuring Agreement is expected to close in 1998, subject to the
receipt of necessary regulatory and shareholder approvals.
TCGI. In November 1997, TCGI filed a registration statement with the
Securities and Exchange Commission to sell 7.3 million shares of TCGI Class
A Stock (the "TCGI Offering"). As a result of the TCGI Offering, the
Company recognized a $59.6 million increase in its proportionate share of
TCGI's net assets as a gain from equity offering of affiliate. Such pre-tax
gain is included in the Company's condensed consolidated statement of
operations and accumulated deficit for the six months ended June 30, 1998
as the Company records its proportionate share of TCGI's net losses one
quarter in arrears.
UK Investees. As of June 30, 1998, Comcast UK Cable (see Note 3) holds a
27.5% interest in Birmingham Cable Corporation Limited and a 50.0% interest
in Cable London PLC.
Comcast-Spectacor. Effective January 1, 1998, the Company's condensed
consolidated financial statements include the accounts of Comcast
Spectacor, L.P. ("Comcast-Spectacor"), an affiliate previously accounted
for under the equity method, due to certain call rights held by the Company
which became exercisable effective January 16, 1998.
Other. The Company's other equity investees include investments in cable
communications (including Garden State Cablevision L.P., a cable
communications company serving more than 210,000 subscribers as of June 30,
1998 in the State of New Jersey), cellular/PCS telecommunications and
content providers. The Company does not consider these other equity method
investments to be individually significant to its consolidated financial
position, results of operations or liquidity.
Restructuring of Primestar's Operations. As of March 31, 1998, the Company
held a 10.4% general and limited partnership interest in PRIMESTAR Partners
L.P. ("Primestar"), which was principally engaged in the business of
acquiring, originating and/or providing television programming services
delivered by satellite through a network of distributors, including the
Company, throughout the United States ("US").
The Company, through a wholly owned subsidiary, distributed the Primestar
DBS service (the "Primestar Service") to subscribers within specified areas
of 19 states in the US. As of March 31, 1998, the Company provided the
Primestar Service to more than 189,000 subscribers.
9
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
On February 6, 1998, the Company entered into a Merger and Contribution
Agreement (the "Merger and Contribution Agreement") with Primestar and the
affiliates of each of the other partners of Primestar, including TCI
Satellite Entertainment, Inc. ("TSAT"), a publicly-traded company, pursuant
to which the Company's DBS operations, the Company's partnership interests
in Primestar and the Primestar partnership interests and the DBS operations
of the other partners of Primestar were to be consolidated into a newly
formed company ("New Primestar"). Under the terms of the Merger and
Contribution Agreement, which closed on April 1, 1998, in exchange for the
Company's DBS operations and equity interest in Primestar, New Primestar,
through a series of transactions, assumed $74.7 million of the Company's
debt and the Company received 9.5% of New Primestar common equity, both
subject to adjustment based on the number of the Company's subscribers to
the Primestar Service, inventory amounts and other factors. Subsequent to
the Merger and Contribution Agreement, New Primestar repaid indebtedness of
$74.7 million to the Company. During the three months ended June 30, 1998,
the Company recognized a pre-tax gain on the exchange of $9.9 million.
Subject to receipt of regulatory approval and other conditions, TSAT will
merge with and into New Primestar in a transaction in which TSAT's
outstanding common shares will be exchanged for common shares of New
Primestar.
In June 1997, Primestar entered into an agreement with The News Corporation
Limited, MCI Telecommunications Corporation and American Sky Broadcasting
LLC ("ASkyB"), pursuant to which Primestar (or, under certain conditions,
New Primestar) will acquire certain assets relating to a high-power DBS
business (the "ASkyB Transaction"). In exchange for such assets, ASkyB will
receive non-voting securities of New Primestar that will be convertible
into non-voting common stock of New Primestar, and, accordingly, will
reduce the Company's common equity interest in New Primestar to
approximately 7% on a fully diluted basis, subject to adjustment.
On May 12, 1998, the Antitrust Division of the Department of Justice
("DOJ") filed a Complaint in the United States District Court for the
District of Columbia seeking to permanently enjoin the ASkyB Transaction,
or, in the alternative, requiring that the cable stockholders of New
Primestar, including the Company, divest their ownership interests in New
Primestar. All parties have answered the DOJ's complaint. Discovery is
underway and a trial date has been set for early 1999.
Fair Value Method
The Company holds unrestricted equity investments in certain publicly
traded companies, with an historical cost of $132.1 million and $130.0
million as of June 30, 1998 and December 31, 1997, respectively. The
Company has recorded these investments, which are classified as available
for sale, at their estimated fair values of $583.1 million and $346.5
million as of June 30, 1998 and December 31, 1997, respectively. The
unrealized pre-tax gains as of June 30, 1998 and December 31, 1997 of
$451.0 million and $216.5 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 expense of $157.8
million and $75.8 million, respectively.
In March 1998, the Company sold call options relating to its unrestricted
equity investments in TCI, TCI Ventures Group, Inc. and Liberty Media Group
common stock (together, the "TCI Stock") for $20.7 million. Such call
options expire between March and September 1999. During the six and three
months ended June 30, 1998, the Company recorded pre-tax investment expense
of $40.2 million and $25.6 million, respectively, related to the increase
in the value of the call options.
5. LONG-TERM DEBT
Redemption of 1 1/8% Debentures
In March 1998, the Company completed the redemption of its $541.9 million
principal amount 1 1/8% discount convertible subordinated debentures due
2007 (the "1 1/8% Debentures"). The Company issued 10.4 million shares of
its Class A Special Common Stock upon conversion of $540.2 million
principal amount of 1 1/8% Debentures while $1.7 million principal amount
of 1 1/8% Debentures was redeemed for cash at a redemption price of 67.112%
of the principal amount, together with accrued interest thereon.
Stockholders' equity was increased by the full amount of 1 1/8% Debentures
converted plus accrued interest, less unamortized debt acquisition costs.
Unamortized debt acquisition costs related to the 1 1/8% Debentures
redeemed for cash were not significant. The issuance of the
10
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Company's Class A Special Common Stock upon conversion of the 1 1/8%
Debentures had no impact on the Company's condensed consolidated statement
of cash flows due to its noncash nature.
Interest Rates
As of June 30, 1998 and December 31, 1997, the Company's effective weighted
average interest rate on its long-term debt outstanding was 8.42% and
8.36%, respectively.
Lines of Credit
As of July 31, 1998, certain subsidiaries of the Company had unused lines
of credit of $1.164 billion. 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.
6. STOCKHOLDERS' EQUITY
In April 1997, in connection with the Company's market repurchase program
which terminated in May 1997, the Company sold put options on 2.0 million
shares of its Class A Special Common Stock. The put options, which expired
unexercised during the three months ended June 30, 1998, gave the holder
the right to require the Company to repurchase such shares at a specified
price on specific dates in April and May 1998. Upon expiration, the Company
reclassified $31.4 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.
7. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of $262.6 million, $233.8
million, $198.5 million and $116.7 million during the six and three months
ended June 30, 1998 and 1997, respectively.
The Company made cash payments for income taxes of $88.1 million, $75.0
million, $73.0 million and $56.7 million during the six and three months
ended June 30, 1998 and 1997, respectively.
8. CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position, results of operations or liquidity of the
Company.
11
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
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>
Six Months Ended June 30, 1998
Revenues, net............................... $1,109.5 $1,074.6 $221.3 $276.1 $2,681.5
Depreciation and amortization............... 323.6 58.4 57.7 86.7 526.4
Operating income (loss)..................... 201.8 129.5 31.0 (97.9) 264.4
Interest expense............................ 107.9 26.4 53.3 104.3 291.9
Capital expenditures........................ 293.7 41.6 17.4 66.9 419.6
Equity in net losses of affiliates.......... 237.0 237.0
Three Months Ended June 30, 1998
Revenues, net............................... $568.3 $530.0 $115.9 $107.5 $1,321.7
Depreciation and amortization............... 161.7 28.9 29.7 38.8 259.1
Operating income (loss)..................... 114.3 63.8 19.5 (54.2) 143.4
Interest expense............................ 54.4 13.1 26.1 50.7 144.3
Capital expenditures........................ 153.4 22.1 13.0 32.0 220.5
Equity in net losses of affiliates.......... 107.3 107.3
As of June 30, 1998
Assets...................................... $6,254.7 $2,221.0 $1,455.6 $3,358.4 $13,289.7
Long-term debt, less current portion........ 2,709.1 725.0 1,249.3 1,975.5 6,658.9
Six Months Ended June 30, 1997
Revenues, net............................... $1,021.9 $947.4 $220.3 $125.7 $2,315.3
Depreciation and amortization............... 306.8 51.6 53.6 50.4 462.4
Operating income (loss)..................... 169.9 103.0 35.0 (69.2) 238.7
Interest expense............................ 119.9 27.9 52.1 79.0 278.9
Capital expenditures........................ 251.5 41.1 57.9 96.6 447.1
Equity in net losses of affiliates.......... 131.2 131.2
Three Months Ended June 30, 1997
Revenues, net............................... $520.8 $467.7 $116.2 $79.8 $1,184.5
Depreciation and amortization............... 168.0 24.8 25.6 31.6 250.0
Operating income (loss)..................... 78.4 50.7 25.3 (37.0) 117.4
Interest expense............................ 63.2 13.9 28.1 40.4 145.6
Capital expenditures........................ 144.9 26.1 40.0 56.1 267.1
Equity in net losses of affiliates.......... 61.1 61.1
<FN>
- ---------------
(1) Other includes certain operating businesses, including Comcast-Spectacor
(effective January 1, 1998) and E! Entertainment (effective March 31,
1997), the Company's consolidated UK cable and telecommunications
operations, the Company's DBS operations (prior to April 1, 1998) and
elimination entries related to the segments presented.
</FN>
</TABLE>
12
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
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
See Note 3 to the Company's condensed consolidated financial statements included
in Item 1.
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 June 30,
1998 were $565.1 million. As of June 30, 1998, $402.8 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
$154.0 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 June 30, 1998, short-term investments
have a weighted average maturity of approximately eight months.
Investments
See Notes 3 and 4 to the Company's condensed consolidated financial statements
included in Item 1.
The Company does not have any 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
As of June 30, 1998 and December 31, 1997, the Company's long-term debt,
including current portion, was $6.763 billion and $6.691 billion, respectively,
of which 22.6% and 17.1%, respectively, was at variable rates. As of July 31,
1998, certain subsidiaries of the Company had unused lines of credit of $1.164
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. As of June 30, 1998 and December 31, 1997,
the Company's effective weighted average interest rate on its long-term debt
outstanding was 8.42% and 8.36%, respectively.
In March 1998, the Company completed the redemption of its $541.9 million
principal amount 1 1/8% discount convertible subordinated debentures due 2007
(the "1 1/8% Debentures"). The Company issued 10.4 million shares of its Class A
Special Common Stock upon conversion of $540.2 million principal amount of 1
1/8% Debentures while $1.7 million principal amount of 1 1/8% Debentures was
redeemed for cash at a redemption price of 67.112% of the principal amount,
together with accrued interest thereon. Stockholders' equity was increased by
the full amount of 1 1/8% Debentures converted plus accrued interest, less
unamortized debt acquisition costs. Unamortized debt acquisition costs related
to the 1 1/8% Debentures redeemed for cash were not significant. The issuance of
the Company's Class A Special Common Stock upon conversion of the 1 1/8%
Debentures had no impact on the Company's condensed consolidated statement of
cash flows due to its noncash nature.
__________________________________
13
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
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 history of 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 $102.9 million as of June 30, 1998 from
December 31, 1997 and increased $933.3 million as of June 30, 1997 from December
31, 1996. 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 $438.1 million and $436.4
million for the six months ended June 30, 1998 and 1997, respectively. The
increase of $1.7 million is principally due to the increase in the Company's
operating income before depreciation and amortization (see "Results of
Operations") and changes in working capital as a result of the timing of
receipts and disbursements, including the effects of the consolidation of
Comcast Spectacor, L.P. ("Comcast-Spectacor") effective January 1, 1998 (see
Note 4 to the Company's condensed consolidated financial statements included in
Item 1) and the acquisition of E! Entertainment Television, Inc. ("E!
Entertainment") on March 31, 1997 (the "E! Acquisition").
Net cash provided by financing activities was $207.2 million and $924.7 million
for the six months ended June 30, 1998 and 1997, respectively. During the six
months ended June 30, 1998, the Company borrowed $1.029 billion and repaid
$815.9 million of its long-term debt, primarily in connection with the
refinancing of certain subsidiary indebtedness in March 1998. In addition,
during the six months ended June 30, 1998, the Company had net issuances of
$13.9 million of its common stock and paid cash dividends of $17.9 million on
its common stock and Series A Preferred Stock. During the six months ended June
30, 1997, the Company borrowed $2.958 billion, primarily in connection with the
refinancing of certain subsidiary indebtedness and the acquisition of E!
Entertainment (the "E! Acquisition"), and repaid $2.940 billion of its long-term
debt, primarily in connection with the refinancing of certain subsidiary
indebtedness and the redemption of debt. Deferred financing costs of $43.2
million were incurred during the six months ended June 30, 1997 related to the
issuance of certain subsidiary senior notes. In addition, during the six months
ended June 30, 1997, the Company received $1.0 billion from Microsoft
Corporation for the issuance of its Class A Special Common Stock and Series B
Preferred Stock, repurchased $33.6 million of its common stock and paid cash
dividends of $16.5 million on its common stock and Series A Preferred Stock.
Net cash used in investing activities was $542.4 million and $427.8 million for
the six months ended June 30, 1998 and 1997, respectively. During the six months
ended June 30, 1998, net cash used in investing activities includes
acquisitions, net of cash acquired, of $219.4 million, investments in affiliates
of $83.4 million and capital expenditures of $419.6 million, offset by proceeds
from the sales of short-term investments and call options of $136.1 million and
repayment of a loan by an investee of $74.7 million. During the six months ended
June 30, 1997, net cash used in investing activities includes acquisitions, net
of cash acquired, of $125.8 million, investments in affiliates of $78.5 million
and capital expenditures of $447.1 million, offset by the proceeds from the
sales of short-term and long-term investments and a distribution from an
investee of $222.9 million and repayment of a loan by an investee of $25.2
million.
Results of Operations
The effects of the Company's recent acquisitions and the consolidation of
Comcast-Spectacor effective January 1, 1998, as well as increased levels of
capital expenditures, were to increase the Company's revenues and expenses
resulting in 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 "Consolidated Analysis").
14
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
Summarized consolidated financial information for the Company for the six and
three months ended June 30, 1998 and 1997 is as follows (dollars in millions,
"NM" denotes percentage is not meaningful):
<TABLE>
<CAPTION>
Six Months Ended
June 30, Increase / (Decrease)
1998 1997 $ %
<S> <C> <C> <C> <C>
Revenues.................................................. $2,681.5 $2,315.3 $366.2 15.8%
Cost of goods sold from electronic retailing.............. 652.4 571.8 80.6 14.1
Operating, selling, general and administrative expenses... 1,238.3 1,042.4 195.9 18.8
--------- --------
Operating income before depreciation and
amortization (1)....................................... 790.8 701.1 89.7 12.8
Depreciation.............................................. 268.8 221.5 47.3 21.4
Amortization.............................................. 257.6 240.9 16.7 6.9
--------- --------
Operating income.......................................... 264.4 238.7 25.7 10.8
--------- --------
Interest expense.......................................... 291.9 278.9 13.0 4.7
Investment expense (income), net.......................... 1.2 (93.6) (94.8) NM
Equity in net losses of affiliates........................ 237.0 131.2 105.8 80.6
Gain from equity offering of affiliate.................... (59.6) 59.6 NM
Other..................................................... (3.5) 4.4 (7.9) NM
Income tax expense........................................ 0.3 36.9 (36.6) (99.2)
Minority interest......................................... (39.2) (39.8) (0.6) (1.5)
Extraordinary items....................................... (22.8) (22.8) NM
--------- --------
Net loss.................................................. ($163.7) ($102.1) $61.6 60.3%
========= ========
Three Months Ended
June 30, Increase / (Decrease)
1998 1997 $ %
Revenues.................................................. $1,321.7 $1,184.5 $137.2 11.6%
Cost of goods sold from electronic retailing.............. 320.0 279.0 41.0 14.7
Operating, selling, general and administrative expenses... 599.2 538.1 61.1 11.4
--------- --------
Operating income before depreciation and
amortization (1) ...................................... 402.5 367.4 35.1 9.6
Depreciation.............................................. 131.4 125.7 5.7 4.5
Amortization.............................................. 127.7 124.3 3.4 2.7
--------- --------
Operating income.......................................... 143.4 117.4 26.0 22.1
--------- --------
Interest expense.......................................... 144.3 145.6 (1.3) (0.1)
Investment income......................................... (0.1) (81.4) (81.3) (99.9)
Equity in net losses of affiliates........................ 107.3 61.1 46.2 75.6
Other..................................................... (1.0) (4.5) (3.5) (77.8)
Income tax (benefit) expense.............................. (0.3) 27.0 (27.3) NM
Minority interest......................................... (22.0) (15.8) 6.2 39.2
Extraordinary items....................................... (22.8) (22.8) NM
--------- --------
Net loss.................................................. ($84.8) ($37.4) $47.4 NM
========= ========
<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, although the Company's measure of operating cash flow
may not be comparable to similarly titled measures of other companies.
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
15
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
principles, and should not be considered as an alternative to such
measurements as an indicator of the Company's performance. See "Statement
of Cash Flows" above for a discussion of net cash provided by operating
activities.
</FN>
</TABLE>
Operating Results by Business Segment
Domestic Cable Communications
The following table sets forth the operating results for the Company's domestic
cable communications segment (dollars in millions):
<TABLE>
<CAPTION>
Six Months Ended
June 30, Increase
1998 1997 $ %
<S> <C> <C> <C> <C>
Service income................................... $1,109.5 $1,021.9 $87.6 8.6%
Operating, selling, general and
administrative expenses..................... 584.2 545.2 39.0 7.2
-------- -------- -----
Operating income before depreciation
and amortization (a)........................ $525.3 $476.7 $48.6 10.2%
======== ======== =====
Three Months Ended
June 30, Increase
1998 1997 $ %
Service income................................... $568.3 $520.8 $47.5 9.1%
Operating, selling, general and
administrative expenses..................... 292.4 274.4 18.0 6.6
-------- -------- -----
Operating income before depreciation
and amortization (a)........................ $275.9 $246.4 $29.5 12.0%
======== ======== =====
<FN>
- ---------------
(a) See footnote (1) on page 15.
</FN>
</TABLE>
Of the respective $87.6 million and $47.5 million increases in service income
for the six and three month periods from 1997 to 1998, $9.9 million is
attributable to the effects of the acquisitions of cable communications systems,
$17.1 million and $8.6 million are attributable to subscriber growth, $50.2
million and $25.9 million relate to changes in rates, $9.3 million and $5.4
million are attributable to growth in cable advertising sales and the remaining
changes relate to other product offerings.
Of the respective $39.0 million and $18.0 million increases in operating,
selling, general and administrative expenses for the six and three months period
from 1997 to 1998, $5.4 million is attributable to the effects of the
acquisitions of cable communications systems, $22.4 million and $9.2 million are
attributable to increases in the costs of cable programming as a result of
changes in rates, subscriber growth and additional channel offerings, $3.6
million and $1.6 million are attributable to growth in advertising sales and
$7.6 million and $1.8 million result 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.
16
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
Electronic Retailing
The following table sets forth the 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>
Six Months Ended
June 30, Increase
1998 1997 $ %
<S> <C> <C> <C> <C>
Net sales from electronic retailing.............. $1,074.6 $947.4 $127.2 13.4%
Cost of goods sold from electronic retailing..... 652.4 571.8 80.6 14.1
Operating, selling, general and administrative
expenses.................................... 234.4 221.0 13.4 6.1
-------- ------ ------
Operating income before depreciation
and amortization (a)........................ $187.8 $154.6 $33.2 21.5%
======== ====== ======
Gross margin..................................... 39.3% 39.6%
======== ======
Three Months Ended
June 30, Increase
1998 1997 $ %
Net sales from electronic retailing.............. $530.0 $467.7 $62.3 13.3%
Cost of goods sold from electronic retailing..... 320.0 279.0 41.0 14.7
Operating, selling, general and administrative
expenses.................................... 117.3 113.2 4.1 3.6
-------- ------ ------
Operating income before depreciation
and amortization (a)........................ $92.7 $75.5 $17.2 22.8%
======== ====== ======
Gross margin..................................... 39.6% 40.3%
======== ======
<FN>
- ---------------
(a) See footnote (1) on page 15.
</FN>
</TABLE>
The respective increases in net sales from electronic retailing of $127.2
million and $62.3 million for the six and three month periods from 1997 to 1998
are primarily attributable to the effects of 7.2% and 6.8% increases in the
average number of homes receiving QVC services in the United States ("US") and
increases in net sales to existing subscribers in the United Kingdom ("UK"), and
to a lesser extent 13.3% and 13.0% increases in the average number of homes
receiving QVC services in the UK.
The increases in cost of goods sold from electronic retailing are primarily
related to the growth in net sales.
Of the $13.4 million increase in operating, selling, general and administrative
expenses for the six month period from 1997 to 1998, $12.1 million is
attributable to higher variable costs associated with the increase in sales
volume. The remaining increase is attributable to personnel and facilities based
costs associated with Studio Park, QVC's new production, studio and
administrative facility which was opened in the third quarter of 1997 and
expansion in the UK and Germany, partially offset by savings in marketing and
promotional costs in the US. Of the $4.1 million increase in operating, selling,
general and administrative expenses for the three month period from 1997 to
1998, $5.8 million is attributable to higher variable costs associated with the
increase in sales volume. The remaining decrease is primarily attributable to
reduced marketing and promotional costs in the US.
17
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
Cellular Communications
The following table sets forth the operating results for the Company's cellular
communications segment (dollars in millions):
<TABLE>
<CAPTION>
Six Months Ended
June 30, Increase
1998 1997 $ %
<S> <C> <C> <C> <C>
Service income................................... $221.3 $220.3 $1.0 0.5%
Operating, selling, general and administrative
expenses.................................... 132.6 131.7 0.9 0.7
------ ------ -----
Operating income before depreciation
and amortization (a)........................ $88.7 $88.6 $0.1 0.1%
====== ====== =====
Three Months Ended
June 30, Increase/(Decrease)
1998 1997 $ %
Service income................................... $115.9 $116.2 ($0.3) (0.3%)
Operating, selling, general and administrative
expenses.................................... 66.7 65.3 1.4 2.1
------ ------ -----
Operating income before depreciation
and amortization (a)........................ $49.2 $50.9 ($1.7) (3.3%)
====== ====== =====
<FN>
- ---------------
(a) See footnote (1) on page 15.
</FN>
</TABLE>
Service income was flat for the six and three month periods from 1997 to 1998,
as subscriber growth was offset, in part, by the effects of increased use of
promotional and free minute plans offered to subscribers. These plans generally
have higher access fees and increase the minutes of use per subscriber while
lowering the average rate per minute of use.
Operating, selling, general and administrative expenses were flat for the six
and three month periods from 1997 to 1998 as a result of improved bad debt
experience due to stronger credit procedures offset, in part, by an increase in
commission costs associated with more gross sales in 1998.
Consolidated Analysis
The respective $47.3 million and $5.7 million increases in depreciation expense
for the six and three month periods from 1997 to 1998 are primarily attributable
to the effects of capital expenditures, increased losses on asset disposals in
connection with the Company's domestic cable communications rebuild activities,
the consolidation of Comcast- Spectacor and the acquisition of cable
communications systems.
The respective $16.7 million and $3.4 million increases in amortization expense
for the six and three month periods from 1997 to 1998 are primarily attributable
to the effects of the consolidation of Comcast-Spectacor.
The $13.0 million increase in interest expense for the six month period from
1997 to 1998 is attributable to the effects of capitalized interest associated
with the Company's investment in Sprint PCS during the six months ended June 30,
1997, the consolidation of Comcast-Spectacor, the E! Acquisition and an increase
in the Company's effective weighted average interest rate, offset, in part, by
lower levels of debt outstanding. 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.
In March 1998, the Company sold call options relating to its unrestricted equity
investments in Tele-Communications, Inc. ("TCI"), TCI Ventures Group, Inc. and
Liberty Media Group common stock (together, the "TCI Stock") for $20.7 million.
Such call options expire between March and September 1999. During the six and
three months ended June 30, 1998, the Company recorded pre-tax investment
expense of $40.2 million and $25.6 million, respectively, related to the
increase in the value of the call options. In addition, as of June 30, 1998, the
Company recorded net unrealized gains of $53.1 million and $25.5 million related
to the TCI Stock, net of deferred income tax expense of $28.6 million and $13.7
18
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
million, to its condensed consolidated balance sheet, representing the increase
in fair value of the TCI Stock during the six and three months ended June 30,
1998, respectively. In April 1998, the Company received $74.7 million (repayment
of indebtedness) and a 9.5% common equity interest in New Primestar in exchange
for the Company's direct broadcast satellite operations and its 10.4% equity
interest in PRIMESTAR Partners L.P. ("Primestar"). During the three months ended
June 30, 1998, the Company recognized a pre-tax gain of $9.9 million on the
exchange.
During the first quarter of 1997 the Company received 2.76 million shares of
Teleport Communications Group, Inc. ("TCGI") Class A Stock from TCGI in exchange
for the Company's shares of an alternate access provider. In May 1997, the
Company sold all of its shares of TCGI Class A Stock for $68.9 million and
recognized a pre-tax gain of $68.9 million. In February 1997, the Company sold
options to acquire 25.0 million shares of Nextel Communications, Inc. ("Nextel")
common stock to Nextel for $25.0 million and recognized a pre-tax gain of $5.0
million. In January 1997, the Company sold 1.27 million shares of Time Warner,
Inc. ("Time Warner") common stock, representing the Company's entire interest in
Time Warner, for $48.6 million and recognized a pre-tax loss of $3.8 million.
The $105.8 million and $46.2 million increases in equity in net losses of
affiliates for the six and three month periods from 1997 to 1998 are primarily
due to the effects of increased losses incurred by Sprint PCS. 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
(see Note 4 to the Company's condensed consolidated financial statements
included in Item 1). 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 was 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 six and three months ended June 30, 1997.
In November 1997, TCGI filed a registration statement with the Securities and
Exchange Commission to sell 7.3 million shares of TCGI Class A Stock (the "TCGI
Offering"). As a result of the TCGI Offering, the Company recognized a $59.6
million increase in its proportionate share of TCGI's net assets as a gain from
equity offering of affiliate. Such pre-tax gain is included in the Company's
condensed consolidated statement of operations and accumulated deficit for the
six months ended June 30, 1998 as the Company records its proportionate share of
TCGI's net losses one quarter in arrears.
The fluctuations in other (income) expense for the six and three month periods
from 1997 to 1998 are primarily attributable to the effects of fluctuations in
the foreign currency exchange rate.
The $36.6 million and $27.3 million decreases in income tax expense for the six
and three month periods from 1997 to 1998 are primarily a result of the effects
of the increase in the Company's loss before income tax expense and minority
interest and decreases in non-deductible foreign losses and non-deductible
equity in net losses of affiliates.
The $6.2 million increase in minority interest for the three month period from
1997 to 1998 is primarily attributable to the effects of changes in the net
income (loss) of Comcast UK Cable and QVC, the consolidation of
Comcast-Spectacor and the E! Acquisition.
In connection with the refinancing of certain subsidiaries' indebtedness and the
redemption of debt, the Company expensed unamortized debt acquisition costs and
incurred debt extinguishment costs of $35.1 million, resulting in an
extraordinary loss, net of tax, of $22.8 million or $0.07 per common share
during the six and three months ended June 30, 1997.
For the six and three months ended June 30, 1998 and 1997, the Company's
earnings (net loss plus income tax expense (benefit), equity in net losses of
affiliates, fixed charges (interest expense)) were $365.5 million, $364.5
million, $166.5 million and $214.1 million, respectively. Such earnings were
adequate to cover the Company's fixed charges (including interest capitalized of
$18.0 million and $9.4 million for the six and three months ended June 30, 1997)
of $291.9 million, $296.9 million, $144.3 million and $155.0 million for the six
and three months ended June 30, 1998 and 1997,
19
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
respectively. Fixed charges include non-cash interest expense, net of interest
capitalized, of $26.1 million, $28.9 million, $11.6 million and $11.9 million
for the six and three months ended June 30, 1998 and 1997, respectively.
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.
20
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position, results of operations or liquidity of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting on June 17, 1998, the shareholders approved the
following proposals:
To elect ten directors to serve for the ensuing year and until their
respective successors shall have been duly elected and qualified.
<TABLE>
<CAPTION>
Director Class of Stock For Withheld
<S> <C> <C> <C>
Ralph J. Roberts Class A 29,109,733 67,115
Class B 131,793,750
Julian A. Brodsky Class A 29,110,945 65,903
Class B 131,793,750
Brian L. Roberts Class A 29,110,484 66,364
Class B 131,793,750
Daniel Aaron Class A 28,399,848 777,000
Class B 131,793,750
Gustave G. Amsterdam Class A 29,119,242 57,606
Class B 131,793,750
Sheldon M. Bonovitz Class A 28,399,229 777,619
Class B 131,793,750
Joseph L. Castle II Class A 29,123,323 53,525
Class B 131,793,750
Bernard C. Watson Class A 29,119,257 57,591
Class B 131,793,750
Irving A. Wechsler Class A 29,118,578 58,270
Class B 131,793,750
Anne Wexler Class A 28,397,716 779,132
Class B 131,793,750
</TABLE>
To ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the 1998 fiscal year.
Class of Stock For Against Abstain
Class A 29,105,521 21,817 49,510
Class B 131,793,750
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
10.1 Restructuring and Merger Agreement dated as of May 26, 1998
among Sprint Corporation, TeleCommunications, Inc., Comcast
Corporation, Cox Communications, Inc. and the entities
listed therein (incorporated by reference to Exhibit No. 2
to the Sprint Corporation Current Report on Form 8-K filed
on June 2, 1998).
27.1 Financial Data Schedule.
21
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
(b) Reports on Form 8-K:
(i) Comcast Corporation filed a Current Report on Form 8-K under Item
5 on May 28, 1998 relating to its announcement to, among other
things, purchase from BCI Telecom Holding, Inc. ("BTH") 6.4
million Class A common shares in Jones Intercable, Inc., as well
as a 49% interest in the BTH subsidiaries, which will continue to
own BTH's investment in another 6.4 million shares of Jones
Intercable, Inc. Class A common stock, and a control option to
acquire approximately 2.9 million shares.
(ii) Comcast Corporation filed a Current Report on Form 8-K under Item
5 on June 9, 1998 relating to the Restructuring Agreement between
Sprint Corporation, Comcast Corporation, Tele-Communications,
Inc. and Cox Communications, Inc.
22
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
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: August 14, 1998
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 517
<SECURITIES> 49
<RECEIVABLES> 599
<ALLOWANCES> 114
<INVENTORY> 314
<CURRENT-ASSETS> 1,537
<PP&E> 4,743
<DEPRECIATION> (1,565)
<TOTAL-ASSETS> 13,290
<CURRENT-LIABILITIES> 1,458
<BONDS> 6,763
527
32
<COMMON> 369
<OTHER-SE> 1,095
<TOTAL-LIABILITY-AND-EQUITY> 13,290
<SALES> 2,682
<TOTAL-REVENUES> 2,682
<CGS> 652
<TOTAL-COSTS> 2,417
<OTHER-EXPENSES> 175
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 292
<INCOME-PRETAX> (163)<F1>
<INCOME-TAX> 0
<INCOME-CONTINUING> (164)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (164)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
<FN>
<F1>loss before income tax expense and other items excludes the effect of
minority interests, net of tax, of $39.2.
</FN>
</TABLE>
