-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RNl4G11MR4/6OjKNsyOcHOG6qSm8hkKIdK3ns4ntjRn20/3yIOLuSxkm5yw/FPAp /YaN9LgbYvf5efTKbgqjqA== 0000950159-96-000165.txt : 19960816 0000950159-96-000165.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950159-96-000165 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMCAST CORP CENTRAL INDEX KEY: 0000022301 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 231709202 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-06983 FILM NUMBER: 96614138 BUSINESS ADDRESS: STREET 1: 1500 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19102-2148 BUSINESS PHONE: 215-665-17 MAIL ADDRESS: STREET 1: 1500 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19102-2148 10-Q 1 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, 1996 OR ( ) Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period from ________ to ________. Commission File Number 0-6983 COMCAST CORPORATION [GRAPHIC OMITTED - LOGO] (Exact name of registrant as specified in its charter) PENNSYLVANIA 23-1709202 (State or other jurisdiction of (I.R.S. Employer 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, 1996, there were 190,199,646 shares of Class A Special Common Stock, 34,388,885 shares of Class A Common Stock and 8,786,250 shares of Class B Common Stock outstanding. COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 TABLE OF CONTENTS Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheet as of June 30, 1996 and December 31, 1995 (Unaudited).........................................2 Condensed Consolidated Statement of Operations and Accumulated Deficit for the Six and Three Months Ended June 30, 1996 and 1995 (Unaudited)................................3 Condensed Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1996 and 1995 (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 - 22 PART II. OTHER INFORMATION Item 1. Legal Proceedings ......................................23 Item 4. Submission of Matters to a Vote of Security Holders............................................23 - 24 Item 6. Exhibits and Reports on Form 8-K ..................24 - 25 ----------------------------------- The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Quarterly Report is forward-looking, such as information relating to future capital commitments and the effects of competition. Such forward-looking information involves important risks and uncertainties that could significantly affect expected results in the future from those expressed in any forward-looking statements made by, or on behalf of, the Company. These risks and uncertainties include, but are not limited to, uncertainties relating to economic conditions, acquisitions and divestitures, government and regulatory policies, the pricing and availability of equipment, materials, inventories and programming, technological developments and changes in the competitive environment in which the Company operates. COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in thousands) June 30, December 31, 1996 1995 ASSETS CURRENT ASSETS Cash and cash equivalents .......................................... $ 407,664 $ 539,061 Short-term investments, at cost which approximates fair value ...... 133,926 370,982 Accounts receivable, less allowance for doubtful accounts of $78,450 and $81,273 ........................................... 340,006 390,698 Inventories, net ................................................... 243,120 243,447 Prepaid charges and other .......................................... 54,441 49,671 Deferred income taxes .............................................. 63,912 59,799 ----------- ----------- Total current assets ........................................... 1,243,069 1,653,658 ----------- ----------- INVESTMENTS, principally in affiliates ................................ 1,135,104 906,383 ----------- ----------- PROPERTY AND EQUIPMENT ................................................ 2,989,329 2,575,633 Accumulated depreciation ........................................... (1,031,743) (932,031) ----------- ----------- Property and equipment, net ........................................ 1,957,586 1,643,602 ----------- ----------- DEFERRED CHARGES ...................................................... 6,640,735 6,552,437 Accumulated amortization ........................................... (1,352,921) (1,175,772) ----------- ----------- Deferred charges, net .............................................. 5,287,814 5,376,665 ----------- ----------- $ 9,623,573 $ 9,580,308 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES Accounts payable and accrued expenses .............................. $ 816,951 $ 963,991 Accrued interest ................................................... 78,731 72,675 Current portion of long-term debt .................................. 143,379 85,403 ----------- ----------- Total current liabilities ...................................... 1,039,061 1,122,069 ----------- ----------- LONG-TERM DEBT, less current portion .................................. 7,120,289 6,943,766 ----------- ----------- DEFERRED INCOME TAXES ................................................. 1,515,538 1,517,995 ----------- ----------- MINORITY INTEREST AND OTHER ........................................... 834,337 772,004 ----------- ----------- COMMITMENTS AND CONTINGENCIES COMMON EQUITY PUT OPTIONS ............................................. 69,625 52,125 ----------- ----------- STOCKHOLDERS' DEFICIENCY Class A special common stock, $1 par value - authorized, 500,000,000 shares; issued, 190,199,646 and 192,844,814 ..................... 190,200 192,845 Class A common stock, $1 par value - authorized, 200,000,000 shares; issued, 34,388,885 and 37,706,517 ....................... 34,389 37,707 Class B common stock, $1 par value - authorized, 50,000,000 shares; issued, 8,786,250 ....................................... 8,786 8,786 Additional capital ................................................. 818,046 843,113 Accumulated deficit ................................................ (2,030,633) (1,914,292) Unrealized gains on marketable securities .......................... 42,080 22,210 Cumulative translation adjustments ................................. (18,145) (18,020) ----------- ----------- Total stockholders' deficiency ................................. (955,277) (827,651) ----------- ----------- $ 9,623,573 $ 9,580,308 =========== ===========
See notes to condensed consolidated financial statements. 2 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT (Unaudited)
(Amounts in thousands, except per share data) Six Months Ended Three Months Ended June 30, June 30, 1996 1995 1996 1995 REVENUES Service income ................................................. $ 1,040,460 $ 902,752 $ 539,794 $ 466,165 Net sales from electronic retailing ............................ 855,846 584,426 405,768 357,407 ----------- ----------- ----------- ----------- 1,896,306 1,487,178 945,562 823,572 ----------- ----------- ----------- ----------- COSTS AND EXPENSES Operating ...................................................... 453,473 367,357 223,710 195,890 Cost of goods sold from electronic retailing ................... 512,380 350,246 242,234 212,172 Selling, general and administrative ............................ 364,256 289,145 183,544 154,686 Depreciation and amortization .................................. 324,272 387,043 167,399 143,566 ----------- ----------- ----------- ----------- 1,654,381 1,393,791 816,887 706,314 ----------- ----------- ----------- ----------- OPERATING INCOME .................................................. 241,925 93,387 128,675 117,258 INVESTMENT (INCOME) EXPENSE Interest expense ............................................... 267,993 250,551 133,179 132,964 Investment income .............................................. (47,491) (157,580) (28,846) (4,756) Equity in net losses of affiliates ............................. 60,321 37,906 25,819 21,489 Gain from equity offering of affiliate ......................... (40,638) (40,638) Other .......................................................... 22,966 368 11,577 658 ----------- ----------- ----------- ----------- 263,151 131,245 101,091 150,355 ----------- ----------- ----------- ----------- (LOSS) INCOME BEFORE INCOME TAX EXPENSE, MINORITY INTEREST AND EXTRAORDINARY ITEM ................................ (21,226) (37,858) 27,584 (33,097) INCOME TAX EXPENSE ................................................ 24,612 14,035 23,748 10,100 ----------- ----------- ----------- ----------- (LOSS) INCOME BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM ............................................. (45,838) (51,893) 3,836 (43,197) MINORITY INTEREST ................................................. (29,094) (21,971) (14,024) (13,903) ----------- ----------- ----------- ----------- (LOSS) INCOME BEFORE EXTRAORDINARY ITEM ........................... (16,744) (29,922) 17,860 (29,294) EXTRAORDINARY ITEM ................................................ 1,013 1,013 ----------- ----------- ----------- ----------- NET (LOSS) INCOME ................................................. (17,757) (29,922) 16,847 (29,294) ACCUMULATED DEFICIT Beginning of period ............................................ (1,914,292) (1,827,647) (1,997,138) (1,833,858) Dividends declared - $.0467, $.0467, $.0233 and $.0233 per share (11,054) (11,169) (5,474) (5,586) Retirement of common stock ..................................... (87,530) (44,868) ----------- ----------- ----------- ----------- End of period .................................................. ($2,030,633) ($1,868,738) ($2,030,633) ($1,868,738) =========== =========== =========== =========== (LOSS) INCOME PER SHARE (Loss) income before extraordinary item ........................ ($ .07) ($ .12) $ .07 ($ .12) Extraordinary item.............................................. ----------- ----------- ----------- ----------- Net (loss) income ......................................... ($ .07) ($ .12) $ .07 ($ .12) =========== =========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING DURING THE PERIOD ................................... 237,624 239,541 235,827 239,674 =========== =========== =========== ===========
See notes to condensed consolidated financial statements. 3 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(Dollars in thousands) Six Months Ended June 30, 1996 1995 OPERATING ACTIVITIES Net loss ................................................ ($ 17,757) ($ 29,922) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization ......................... 324,272 387,043 Non-cash interest expense, net ........................ 32,208 27,360 Equity in net losses of affiliates .................... 60,321 37,906 Gains on long-term investments, net ................... (16,301) (140,968) Gain from equity offering of affiliate ................ (40,638) Minority interest ..................................... (29,094) (21,971) Extraordinary item .................................... 1,013 Deferred income taxes and other ....................... 12,211 675 ----------- ----------- 326,235 260,123 Decrease in accounts receivable, net .................. 55,198 26,662 Decrease (increase) in inventories, net ............... 327 (10,889) Decrease (increase) in prepaid charges and other ...... 666 (12,348) Decrease in accounts payable and accrued expenses ..... (99,293) (69,778) Increase in accrued interest .......................... 6,038 13,069 ----------- ----------- Net cash provided by operating activities ......... 289,171 206,839 ----------- ----------- FINANCING ACTIVITIES Proceeds from borrowings ................................ 558,366 2,018,977 Retirement and repayment of debt ........................ (478,293) (194,378) (Repurchases) issuances of common stock, net ............ (107,022) 1,413 Equity contribution to a subsidiary ..................... 6,556 Dividends ............................................... (11,054) (11,169) Other ................................................... (4,809) 1,488 ----------- ----------- Net cash (used in) provided by financing activities (42,812) 1,822,887 ----------- ----------- INVESTING ACTIVITIES Acquisitions, net of cash acquired ...................... (46,494) (1,369,073) Proceeds from sales of short-term investments, net ...... 237,056 48,331 Investments, principally in affiliates .................. (357,421) (431,525) Proceeds from sales of long-term investments ............ 91,400 188,096 Additions to property and equipment ..................... (278,905) (338,960) Other ................................................... (23,392) (14,026) ----------- ----------- Net cash used in investing activities ............. (377,756) (1,917,157) ----------- ----------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ........... (131,397) 112,569 CASH AND CASH EQUIVALENTS, beginning of period ............. 539,061 335,320 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period ................... $ 407,664 $ 447,889 =========== ===========
See notes to condensed consolidated financial statements. 4 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Basis of Presentation The condensed consolidated balance sheet as of December 31, 1995 has been condensed from the audited balance sheet as of that date. The condensed consolidated balance sheet as of June 30, 1996, the condensed consolidated statement of operations and accumulated deficit for the six and three months ended June 30, 1996 and 1995 and the condensed consolidated statement of cash flows for the six months ended June 30, 1996 and 1995 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, 1996 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, 1995 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The results of operations for the periods ended June 30, 1996 are not necessarily indicative of operating results for the full year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES New Accounting Pronouncement Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." The Company has elected to continue to measure such compensation expense using the method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted by SFAS No. 123. Accordingly, there was no impact of the adoption of SFAS No. 123 on the Company's financial position or results of operations. Net (Loss) Income Per Share Net (loss) income per share is based on the weighted average number of common shares outstanding during the period. For the six months ended June 30, 1996 and for the six and three months ended June 30, 1995, 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. For the three months ended June 30, 1996, the Company's shares which are issuable upon conversion of its convertible debentures and upon exercise of the its outstanding common equity put options have not been included as common stock equivalents, since inclusion of these shares would have an antidilutive effect on net income per share. The Company's dilutive common stock equivalents, consisting solely of shares issuable under employee stock programs, did not have any impact on net income per share as presented in the Company's condensed consolidated statement of operations and accumulated deficit. Therefore, primary and fully diluted net income per share have not been presented herein. For the three months ended June 30, 1996, the primary and fully diluted weighted average number of common shares and common share equivalents outstanding was 241.0 million and 241.3 million, respectively. Reclassifications Certain reclassifications have been made to the prior year condensed consolidated financial statements to conform to those classifications used in 1996. 5 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS Regional Sports Venture On July 17, 1996, the Company completed its acquisition (the "Sports Venture Acquisition") of an interest of approximately 66% 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 (the "Class A Special Common Stock") and 6,370 shares of the Company's newly issued 5% Series A Convertible Preferred Stock (the "Preferred Stock"), which is convertible into approximately 1.3 million shares of Class A Special Common Stock (subject to certain conversion adjustments) and paid $15.0 million in cash for its current interest in Comcast Spectacor. The remaining interest of approximately 34% 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 approximately $155.0 million. The Company will account for its interest in Comcast Spectacor under the equity method. Sprint Spectrum Effective as of January 1996, the Company, Tele-Communications, Inc. ("TCI"), Cox Communications, Inc. ("Cox") and Sprint Corporation (collectively, the "Parents"), and certain subsidiaries of the Parents, entered into a series of agreements relating to their previously announced joint venture (March 1995) to engage in the communications business. Under an Amended and Restated Agreement of Limited Partnership of MajorCo, L.P. (known as "Sprint Spectrum"), the business of Sprint Spectrum will be the provision of wireless telecommunications services and will not include the previously authorized business of providing local wireline communications services to residences and businesses. A partnership owned entirely by subsidiaries of the Company owns 15% of Sprint Spectrum. The Company accounts for its investment in Sprint Spectrum under the equity method (see Note 4). Scripps Cable In October 1995, the Company announced its agreement to acquire the cable television operations ("Scripps Cable") of The E.W. Scripps Company ("E.W. Scripps") in exchange for shares of the Company's Class A Special Common Stock worth $1.575 billion, subject to certain closing adjustments (the "Scripps Transaction"). For purposes of determining the number of shares of Class A Special Common Stock to be delivered in the Scripps Transaction, such stock will be valued on the basis of the average closing price of the Class A Special Common Stock on The Nasdaq Stock Market for 15 trading days randomly selected from the 40 trading day period ending shortly before the closing date (the "Comcast Share Price"); provided that the Comcast Share Price will be no greater than $23.09 and, except as provided below, no less than $17.06. If the Comcast Share Price is below $17.06, E.W. Scripps has the right to terminate the agreement, subject to the right of the Company to increase the number of shares of Class A Special Common Stock to be delivered in the Scripps Transaction to that number of shares that would have been delivered if the Comcast Share Price were not subject to the minimum price of $17.06. 6 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Scripps Cable passes more than 1.2 million homes and serves more than 800,000 subscribers, with over 60% of its subscribers located in Sacramento, California and Chattanooga and Knoxville, Tennessee. The Scripps Transaction is expected to close in the fourth quarter of 1996, subject to shareholder and regulatory approval and certain other conditions. Share Repurchase Program Concurrent with the announcement of the Scripps Transaction, the Company announced that its Board of Directors authorized a market repurchase program (the "Repurchase Program") pursuant to which the Company may purchase, at such times and on such terms as it deems appropriate, up to $500.0 million of its outstanding common stock, subject to certain restrictions and market conditions. Pursuant to the Repurchase Program, the Company has repurchased shares of its common stock for aggregate consideration of $185.8 million through July 31, 1996, including $116.6 million and $59.9 million during the six and three months ended June 30, 1996, respectively. As part of the Repurchase Program, the Company has sold put options on 4.0 million shares of its Class A Special Common Stock through July 31, 1996, including put options on 1.0 million of such shares sold during the six months ended June 30, 1996. The put options give the holder the right to require the Company to repurchase such shares at specified prices on specific dates. In May 1996, the Company extended the original May through July 1996 maturities of the put options to October through December 1996 and received $1.1 million in connection with the extensions. Total proceeds of $4.6 million from the sale and subsequent extension of these put options were credited to additional capital. The amount the Company would be obligated to pay to repurchase such shares if all outstanding put options were exercised, totaling $69.6 million, has been reclassified to a temporary equity account in the Company's condensed consolidated balance sheet as of June 30, 1996. Cellular Rebuild In 1995, the Company's cellular division purchased approximately $172.0 million of switching and cell site equipment which replaced the existing switching and cell site equipment (the "Cellular Rebuild"). The Company substantially completed the Cellular Rebuild during 1995. During the first quarter of 1995, the Company charged approximately $110.0 million to depreciation expense which represented the difference between the net book value of the equipment replaced and the residual value realized upon its disposal. QVC In February 1995, the Company and TCI acquired all of the outstanding stock of QVC, Inc. and its subsidiaries ("QVC") not previously owned by them (approximately 65% of such shares on a fully diluted basis) for $46, in cash, per share (the "QVC Acquisition"), representing a total cost of approximately $1.4 billion. The QVC Acquisition, including the exercise of certain warrants held by the Company, was financed with cash contributions from the Company and TCI of $296.3 million and $6.6 million, respectively, borrowings of $1.1 billion under a $1.2 billion QVC credit facility and existing cash and cash equivalents held by QVC. Following the acquisition, the Company and TCI own, through their respective subsidiaries, 57.45% and 42.55%, respectively, of QVC. The Company has accounted for the QVC Acquisition under the purchase method and QVC was consolidated with the Company effective February 1, 1995. 7 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Pro Forma Results The following pro forma information for the six months ended June 30, 1995 has been presented as if the QVC Acquisition occurred on January 1, 1995. This unaudited pro forma information is based on historical results of operations, adjusted for acquisition costs, and is not necessarily indicative of what the results would have been had the Company operated QVC since such date.
(Dollars in millions, except per share data) Six Months Ended June 30, 1995 (1) Revenues....................................... $1,617.6 Net loss....................................... (34.9) Net loss per share............................. (.15) (1) Effective April 1, 1995, QVC commenced consolidating its United Kingdom ("UK") operations. Pro forma revenues presented above do not reflect revenues relating to QVC's UK operations prior to April 1, 1995.
8 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 4. INVESTMENTS Investments - Equity Method Summarized financial information for equity method investments is as follows (dollars in thousands):
Six Months Ended June 30, 1996: Sprint Spectrum (a) Other Combined Combined Results of Operations Revenues, net............................... $ $445,773 $445,773 Depreciation and amortization............... 304 91,082 91,386 Operating loss.............................. (75,757) (73,117) (148,874) Net loss as reported by affiliates............................ (152,671) (127,142) (279,813) Company's Equity in Net Loss Equity in current period net loss........... ($22,901) ($35,200) ($58,101) Amortization income (expense) (b)........... 636 (2,856) (2,220) -------- -------- -------- Total equity in net loss.................. ($22,265) ($38,056) ($60,321) ======== ======== ======== Three Months Ended June 30, 1996: Sprint Spectrum (a) Other Combined Combined Results of Operations Revenues, net............................... $ $224,654 $224,654 Depreciation and amortization............... 254 44,335 44,589 Operating loss.............................. (30,978) (32,293) (63,271) Net loss as reported by affiliates............................ (67,358) (58,872) (126,230) Company's Equity in Net Loss Equity in current period net loss........... ($10,104) ($15,250) ($25,354) Amortization income (expense) (b)........... 636 (1,101) (465) -------- -------- -------- Total equity in net loss.................. ($9,468) ($16,351) ($25,819) ======= ======== ======== As of June 30, 1996: Sprint Spectrum (a) Other Combined Combined Financial Position Current assets.................................. $4,962 $1,839,111 $1,844,073 Noncurrent assets............................... 2,333,692 2,232,785 4,566,477 Current liabilities............................. 96,872 804,703 901,575 Noncurrent liabilities.......................... 4,246 2,136,908 2,141,154 - --------------------- (a) See footnote (1) on page 10. (b) See footnote (3) on page 10.
9 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited)
Three Months Six Months Three Months Ended Ended Ended January 31,1995 June 30, 1995 June 30, 1995 QVC (2) Other Combined Combined (2) Combined Results of Operations Revenues, net............................... $425,921 $289,653 $715,574 $149,267 Depreciation and amortization............... 12,992 70,065 83,057 36,272 Operating income (loss)..................... 58,247 (99,549) (41,302) (50,594) Net income (loss) as reported by affiliates............................ $28,333 ($145,874) ($117,541) ($78,683) Company's Equity in Net Income (Loss) Equity in current period net income (loss).. $4,286 ($39,970) ($35,684) ($19,992) Amortization income (expense) (3)........... 1,194 (3,416) (2,222) (1,497) -------- -------- -------- -------- Total equity in net income (loss)......... $5,480 ($43,386) ($37,906) ($21,489) ======== ======== ======== ======== (1) The Company's equity interest in Sprint Spectrum's net loss is recorded three months in arrears. Accordingly, the summarized financial information presented above includes Sprint Spectrum's results of operations for the six and three months ended March 31, 1996 and its financial position as of March 31, 1996. (2) Through January 31, 1995, QVC's fiscal year end was January 31, and therefore, the Company recorded its equity interest in QVC's net income two months in arrears. For the six months ended June 30, 1995, the Company recorded its equity interest in QVC's net income for the period from November 1, 1994 through January 31, 1995, which was not previously recorded by the Company. The effect of this one-time adjustment was not significant to the Company's results of operations. Effective February 1, 1995, QVC's results of operations were consolidated with the Company. (3) The differences between the Company's recorded investments and its proportionate interests in the book value of the investees' net assets are being amortized to equity in net income or loss, primarily over a period of twenty years, which is consistent with the estimated lives of the underlying assets.
Through June 27, 1996, the Company held investments in Teleport Communications Group Inc. ("TCGI"), TCG Partners and certain local joint ventures (the "Joint Ventures") managed by TCGI and TCG Partners. On June 27, 1996, TCGI sold approximately 27 million shares of its Class A Common Stock (the "TCGI Class A Stock") for $16 per share in an initial public offering (the "IPO"). In connection with the 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 a reorganization agreement pursuant to which TCGI was reorganized (the "Reorganization"). The Reorganization consisted of, among other things: (i) the acquisition by TCGI of TCG Partners; (ii) the acquisition by TCGI of additional interests in the Joint Ventures (including 100% of those interests held by the Company); and (iii) the contribution to TCGI of $269.0 million aggregate principal amount of indebtedness, plus accrued interest thereon, owed by TCGI to the Cable Stockholders (including $53.8 million principal amount and $4.1 million of accrued interest owed to the Company). In connection with the Reorganization, the Company received 25.6 million shares of TCGI's Class B Common Stock (the "TCGI Class B Stock"). Each share of TCGI Class B Stock is entitled to voting power equivalent to ten shares of TCGI Class A Stock and is convertible, at the option of the holder, into one share of TCGI Class A Stock. The Company recorded a $40.6 million increase in its proportionate share of TCGI's net assets as a gain from equity offering of affiliate in its condensed consolidated statement of operations and accumulated deficit for the six and three months ended June 30, 1996. After giving effect to the Reorganization and the IPO, the Company owns 19.5% of the outstanding TCGI Class B Stock representing a 19.1% voting interest and a 16.1% equity interest. The Company will continue to account for its interest in TCGI under the equity method. 10 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Investments - Public Companies 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 a total cost of $99.9 million. During the three months ended June 30, 1996, the Company sold 4.4 million shares of Nextel common stock for $85.6 million and recognized a pre-tax gain of $29.7 million as investment income in its condensed consolidated statement of operations and accumulated deficit for the six and three months ended June 30, 1996. The Company holds unrestricted equity investments in certain publicly traded companies with an historical cost of $163.3 million and $115.9 million as of June 30, 1996 and December 31, 1995, respectively. The Company has recorded these investments, which are classified as available for sale, at their estimated fair values of $228.0 million and $150.1 million as of June 30, 1996 and December 31, 1995, respectively. The unrealized pre-tax gains as of June 30, 1996 and December 31, 1995 of $64.7 million and $34.2 million, respectively, have been reported in the Company's condensed consolidated balance sheet as decreases in stockholders' deficiency, net of related deferred income taxes of $22.6 million and $12.0 million, respectively. Investments - Privately Held Companies In January 1995, the Company exchanged its investments in Heritage Communications, Inc. with TCI for approximately 13.3 million publicly-traded Class A common shares of TCI with a fair market value of approximately $290.0 million. Shortly thereafter, the Company sold approximately 9.1 million unrestricted TCI shares for total proceeds of $188.1 million. As a result of these transactions, the Company recognized a pre-tax gain of $141.0 million in the first quarter of 1995. 5. LONG-TERM DEBT In May 1995, the Company issued $250.0 million principal amount of its 9-3/8% senior subordinated debentures due 2005. 6. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION The Company made interest payments of $229.7 million, $210.1 million, $127.7 million, and $115.3 million during the six and three months ended June 30, 1996 and 1995, respectively. The Company made cash payments for income taxes of $62.2 million, $19.1 million, $46.9 million, and $16.0 million during the six and three months ended June 30, 1996 and 1995, respectively. 7. 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 or results of operations of the Company. 11 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED (Unaudited) 8. FINANCIAL DATA BY BUSINESS SEGMENT (Dollars in thousands)
Domestic Cable Electronic Cellular Corporate Communications Retailing Communications and Other (1) Total Six Months Ended June 30, 1996 Revenues, net............................... $778,332 $855,846 $207,096 $55,032 $1,896,306 Depreciation and amortization............... 190,685 51,881 56,773 24,933 324,272 Operating income (loss)..................... 194,320 87,527 14,314 (54,236) 241,925 Interest expense............................ 110,654 35,053 43,973 78,313 267,993 Capital expenditures........................ 136,816 19,547 36,551 85,991 278,905 Equity in net (losses) income of affiliates.............................. (8,444) 84 (51,961) (60,321) Three Months Ended June 30, 1996 Revenues, net............................... $395,984 $405,768 $108,904 $34,906 $945,562 Depreciation and amortization............... 96,313 25,731 30,428 14,927 167,399 Operating income (loss)..................... 103,714 41,263 12,201 (28,503) 128,675 Interest expense............................ 53,969 16,884 23,187 39,139 133,179 Capital expenditures........................ 83,180 13,443 21,648 49,233 167,504 Equity in net (losses) income of affiliates.............................. (2,890) 27 (22,956) (25,819) As of June 30, 1996 Assets...................................... $4,645,902 $2,037,653 $1,341,965 $1,598,053 $9,623,573 Long-term debt, less current portion........ 3,049,417 887,979 1,091,035 2,091,858 7,120,289 Six Months Ended June 30, 1995 Revenues, net............................... $709,580 $584,426 $176,413 $16,759 $1,487,178 Depreciation and amortization............... 183,666 37,006 155,224 11,147 387,043 Operating income (loss)..................... 164,034 58,365 (84,443) (44,569) 93,387 Interest expense............................ 123,904 34,816 35,577 56,254 250,551 Capital expenditures........................ 111,042 8,472 167,963 51,483 338,960 Equity in net (losses) income of affiliates.............................. (6,921) 608 (31,593) (37,906) Three Months Ended June 30, 1995 Revenues, net............................... $362,458 $357,407 $94,260 $9,447 $823,572 Depreciation and amortization............... 94,168 22,734 20,742 5,922 143,566 Operating income (loss)..................... 88,398 33,965 18,853 (23,958) 117,258 Interest expense............................ 62,321 22,171 18,107 30,365 132,964 Capital expenditures........................ 68,825 7,237 117,710 35,570 229,342 Equity in net losses of affiliates.......... (3,952) (450) (17,087) (21,489) - --------------- (1) Corporate and other includes certain operating businesses and elimination entries related to the segments presented.
12 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 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 as well as its existing cash, cash equivalents and short-term investments. General Developments of Business Regional Sports Venture On July 17, 1996, the Company completed its acquisition (the "Sports Venture Acquisition") of an interest of approximately 66% 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 (the "Class A Special Common Stock") and 6,370 shares of the Company's newly issued 5% Series A Convertible Preferred Stock (the "Preferred Stock"), which is convertible into approximately 1.3 million shares of Class A Special Common Stock (subject to certain conversion adjustments) and paid $15.0 million in cash for its current interest in Comcast Spectacor. The remaining interest of approximately 34% 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 approximately $155.0 million. The Company will account for its interest in Comcast Spectacor under the equity method. Sprint Spectrum Effective as of January 1996, the Company, Tele-Communications, Inc. ("TCI"), Cox Communications, Inc. ("Cox") and Sprint Corporation (collectively, the "Parents"), and certain subsidiaries of the Parents (the "Partner Subsidiaries"), entered into a series of agreements relating to their previously announced joint venture (March 1995) to engage in the communications business. Under an Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement") of MajorCo, L.P. (known as "Sprint Spectrum"), the business of Sprint Spectrum will be the provision of wireless telecommunications services and will not include the previously authorized business of providing local wireline communications services to residences and businesses. A partnership owned entirely by subsidiaries of the Company owns 15% of Sprint Spectrum. The Company accounts for its investment in Sprint Spectrum under the equity method. 13 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 Scripps Cable In October 1995, the Company announced its agreement to acquire the cable television operations ("Scripps Cable") of The E.W. Scripps Company ("E.W. Scripps") in exchange for shares of the Company's Class A Special Common Stock worth $1.575 billion, subject to certain closing adjustments (the "Scripps Transaction"). For purposes of determining the number of shares of Class A Special Common Stock to be delivered in the Scripps Transaction, such stock will be valued on the basis of the average closing price of the Class A Special Common Stock on The Nasdaq Stock Market for 15 trading days randomly selected from the 40 trading day period ending shortly before the closing date (the "Comcast Share Price"); provided that the Comcast Share Price will be no greater than $23.09 and, except as provided below, no less than $17.06. If the Comcast Share Price is below $17.06, E.W. Scripps has the right to terminate the agreement, subject to the right of the Company to increase the number of shares of Class A Special Common Stock to be delivered in the Scripps Transaction to that number of shares that would have been delivered if the Comcast Share Price were not subject to the minimum price of $17.06. Scripps Cable passes more than 1.2 million homes and serves more than 800,000 subscribers, with over 60% of its subscribers located in Sacramento, California and Chattanooga and Knoxville, Tennessee. The Scripps Transaction is expected to close in the fourth quarter of 1996, subject to shareholder and regulatory approval and certain other conditions. Share Repurchase Program Concurrent with the announcement of the Scripps Transaction, the Company announced that its Board of Directors authorized a market repurchase program (the "Repurchase Program") pursuant to which the Company may purchase, at such times and on such terms as it deems appropriate, up to $500.0 million of its outstanding common stock, subject to certain restrictions and market conditions. Pursuant to the Repurchase Program, the Company has repurchased shares of its common stock for aggregate consideration of $185.8 million through July 31, 1996, including $116.6 million and $59.9 million during the six and three months ended June 30, 1996, respectively. QVC In February 1995, the Company and TCI acquired all of the outstanding stock of QVC, Inc. and its subsidiaries ("QVC") not previously owned by them (approximately 65% of such shares on a fully diluted basis) for $46, in cash, per share (the "QVC Acquisition"), representing a total cost of approximately $1.4 billion. The QVC Acquisition, including the exercise of certain warrants held by the Company, was financed with cash contributions from the Company and TCI of $296.3 million and $6.6 million, respectively, borrowings of $1.1 billion under a $1.2 billion QVC credit facility and existing cash and cash equivalents held by QVC. Following the acquisition, the Company and TCI own, through their respective subsidiaries, 57.45% and 42.55%, respectively, of QVC. The Company has accounted for the QVC Acquisition under the purchase method and QVC was consolidated with the Company effective February 1, 1995. 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, 1996 were $541.6 million. As of June 30, 1996, approximately $369.4 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 approximately $262.9 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 June 30, 1996, the Company's short-term investments of $133.9 million had a weighted average maturity of approximately 16 months. However, due to the high degree of liquidity and the intent of management to use these investments as needed to fund its commitments, the Company considers these as current assets. 14 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 Investments In connection with the Sports Venture Acquisition, the Company has agreed to lend up to $50.0 million to Comcast Spectacor, on a subordinated basis, in the event that Comcast Spectacor is unable to obtain financing from other sources. Under the provisions of the Partnership Agreement, the Partner Subsidiaries have committed to contribute $4.2 billion in cash to Sprint Spectrum through 1997, of which the Company's share is $630.0 million. Of this funding requirement, the Company has made total cash contributions to Sprint Spectrum of $415.3 million through June 30, 1996. The Company anticipates that Sprint Spectrum's capital requirements over the next several years will be significant. Requirements in excess of committed capital are planned to be funded by Sprint Spectrum through external financing, including, but not limited to, vendor financing, bank financing and securities offered to the public. Although it is anticipated that external financing will be available to Sprint Spectrum on acceptable terms and conditions, no assurances can be given as to such availability. In June 1996, Sprint Spectrum filed a preliminary registration statement on Form S-1 with the Securities and Exchange Commission to offer up to $650.0 million of Senior Notes and Senior Discount Notes due in 2006 in a public offering. The timing of the Company's remaining capital contributions to Sprint Spectrum is dependent upon a number of factors, including Sprint Spectrum's ability to obtain external financing as well as its working capital requirements. The Company anticipates funding its remaining capital commitments to Sprint Spectrum through its cash flows from operating activities, its existing cash, cash equivalents, short-term investments and lines of credit or other external financing, or by a combination of these sources. 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 a total cost of $99.9 million. The Company continues to hold options, which expire in 1997, to acquire an additional 25 million shares of Nextel common stock at $16 per share. During the three months ended June 30, 1996, the Company sold 4.4 million shares of Nextel common stock for $85.6 million and recognized a pre-tax gain of $29.7 million as investment income in its condensed consolidated statement of operations and accumulated deficit for the six and three months ended June 30, 1996 (the "Nextel Gain"). 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. Financing As part of the Repurchase Program, through July 31, 1996, the Company has sold put options on 4.0 million shares of its Class A Special Common Stock, including put options on 1.0 million of such shares sold during the six months ended June 30, 1996. The put options give the holder the right to require the Company to repurchase such shares at specified prices on specific dates. In May 1996, the Company extended the original May through July 1996 maturities of the put options to October through December 1996 and received $1.1 million in connection with the extensions. Total proceeds of $4.6 million from the sale and subsequent extension of these put options were credited to additional capital. The amount the Company would be obligated to pay to repurchase such shares if all outstanding put options were exercised, totaling $69.6 million, has been reclassified to a temporary equity account in the Company's condensed consolidated balance sheet as of June 30, 1996. ------------------------- The Company expects to recognize significant losses and to continue to pay dividends; therefore, it anticipates that it will continue to have a deficiency in stockholders' equity that will increase through the date of consummation of the Scripps Transaction. If the Scripps Transaction is consummated, the Company will no longer have a deficiency in stockholders' equity; however, the Company expects to recognize losses for the foreseeable 15 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 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, management believes that competition, technological changes and its significant losses and deficiency in stockholders' equity will not significantly affect its ability to obtain financing. The Company believes that it will be able to meet its current and long-term liquidity and capital requirements, including fixed charges, through its cash flows from operating activities, existing cash, cash equivalents, short-term investments and lines of credit and other external financing. Statement of Cash Flows Cash and cash equivalents decreased $131.4 million as of June 30, 1996 from December 31, 1995 and increased $112.6 million as of June 30, 1995 from December 31, 1994. Changes in cash and cash equivalents resulted from cash flows from operating, financing and investing activities which are explained below. Net cash provided by operating activities amounted to $289.2 million and $206.8 million for the six months ended June 30, 1996 and 1995, respectively. The increase of $82.4 million is primarily due to the effects of the QVC Acquisition, changes in working capital as a result of the timing of receipts and disbursements and the increase in the Company's operating income before depreciation and amortization (see "Results of Operations"). Net cash (used in) provided by financing activities was ($42.8) million and $1.8 billion for the six months ended June 30, 1996 and 1995, respectively. During the six months ended June 30, 1996, the Company borrowed $558.4 million under its existing lines of credit and repaid $478.3 million, including the effects of refinancings and $88.9 million of repayments under a vendor financing arrangement. In addition, the Company repurchased $116.6 million of its common stock during the six months ended June 30, 1996. During the six months ended June 30, 1995, the Company borrowed $2.0 billion consisting primarily of $1.1 billion in connection with the QVC Acquisition, $300.9 million for the funding of Sprint Spectrum and the Company's $250.0 million principal amount of its 9-3/8% senior subordinated debentures due 2005, issued in May 1995. In addition, the Company redeemed and retired $194.4 million of its long-term debt. Net cash used in investing activities was $377.8 million and $1.9 billion for the six months ended June 30, 1996 and 1995, respectively. During the six months ended June 30, 1996, net cash used in investing activities includes investments in affiliates of $357.4 million, including $125.0 million for the purchase of the Sixers and capital contributions to Sprint Spectrum of $69.3 million, and additions to property and equipment of $278.9 million, offset by proceeds from the sales of short-term and long-term investments of $328.5 million. During the six months ended June 30, 1995, net cash used in investing activities includes the QVC Acquisition, net of cash acquired, of $1.3 billion, investments in affiliates of $431.5 million, including capital contributions to Sprint Spectrum of $315.9 million, and additions to property and equipment of $339.0 million. Such amounts were offset by proceeds from sales of short-term and long-term investments of $236.4 million. Results of Operations The effects of the Company's recent acquisitions has been to increase significantly the Company's revenues and expenses resulting in substantial increases in its operating income before depreciation and amortization, depreciation and amortization expense and interest expense (see "Operating Results by Business Segment" following). As a result of the increases in depreciation and amortization expense and interest expense associated with these acquisitions and their financing, it is expected that the Company will recognize significant losses for the foreseeable future. 16 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 Summarized consolidated financial information for the Company for the six and three months ended June 30, 1996 and 1995 is as follows (dollars in millions, "NM" denotes percentage is not meaningful):
Six Months Ended June 30, Increase / (Decrease) 1996 1995 $ % Revenues, net ......................................... $ 1,896.3 $ 1,487.1 $ 409.2 27.5% Cost of goods sold from electronic retailing .......... 512.4 350.2 162.2 46.3 Operating, selling, general and administrative expenses 817.7 656.5 161.2 24.6 ---------- ---------- Operating income before depreciation and amortization (1) ................................... 566.2 480.4 85.8 17.9 Depreciation and amortization ......................... 324.3 387.0 (62.7) (16.2) ---------- ---------- Operating income ...................................... 241.9 93.4 148.5 NM ---------- ---------- Interest expense ...................................... 268.0 250.6 17.4 6.9 Investment income ..................................... (47.5) (157.6) (110.1) (69.9) Equity in net losses of affiliates .................... 60.3 37.9 22.4 59.1 Gain from equity offering of affiliate ................ (40.6) 40.6 NM Other ................................................. 23.0 0.4 22.6 NM Income tax expense .................................... 24.6 14.0 10.6 75.7 Minority interest ..................................... (29.1) (22.0) 7.1 32.3 Extraordinary item .................................... 1.0 1.0 NM ---------- ---------- Net loss .............................................. ($ 17.8) ($ 29.9) ($ 12.1) (40.5%) ========== ==========
Three Months Ended June 30, Increase 1996 1995 $ % Revenues, net ......................................... $ 945.6 $ 823.6 $ 122.0 14.8% Cost of goods sold from electronic retailing .......... 242.2 212.2 30.0 14.1 Operating, selling, general and administrative expenses 407.3 350.6 56.7 16.2 -------- -------- Operating income before depreciation and amortization (1) ................................... 296.1 260.8 35.3 13.5 Depreciation and amortization ......................... 167.4 143.5 23.9 16.7 -------- -------- Operating income ...................................... 128.7 117.3 11.4 9.7 -------- -------- Interest expense ...................................... 133.2 133.0 0.2 0.2 Investment income ..................................... (28.8) (4.8) 24.0 NM Equity in net losses of affiliates .................... 25.8 21.5 4.3 20.0 Gain from equity offering of affiliate ................ (40.6) 40.6 NM Other ................................................. 11.6 0.7 10.9 NM Income tax expense .................................... 23.7 10.1 13.6 NM Minority interest ..................................... (14.0) (13.9) 0.1 0.7 Extraordinary item .................................... 1.0 1.0 NM -------- -------- Net income (loss) ..................................... $ 16.8 ($ 29.3) $ 46.1 NM ======== ======== - ------------ (1) Operating income before depreciation and amortization is commonly referred to in the Company's businesses as "operating cash flow." Operating cash flow is a measure of a company's ability to generate cash to service its obligations, including debt service obligations, and to finance capital and other expenditures. In part due to the capital intensive nature of the Company's businesses and the resulting significant level of non-cash depreciation and amortization expense, operating cash flow is frequently used as one of the bases for evaluating the Company's businesses. Operating cash flow does not purport to represent net income or net cash provided 17 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 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.
Operating Results by Business Segment Domestic Cable Communications The following table sets forth operating results for the Company's domestic cable communications segment (dollars in millions).
Six Months Ended June 30, Increase 1996 1995 $ % Service income ..................... $ 778.3 $ 709.6 $ 68.7 9.7% Operating, selling, general and administrative expenses ....... 393.3 361.9 31.4 8.7 -------- -------- ------- Operating income before depreciation and amortization (a) .......... $ 385.0 $ 347.7 $ 37.3 10.7% ======== ======== ======= Three Months Ended June 30, Increase 1996 1995 $ % Service income ..................... $ 396.0 $ 362.5 $ 33.5 9.2% Operating, selling, general and administrative expenses ....... 196.0 179.9 16.1 8.9 -------- -------- ------- Operating income before depreciation and amortization (a) .......... $ 200.0 $ 182.6 $ 17.4 9.5% ======== ======== ======= - --------------- (a) See footnote (1) on page 17.
Of the increases in service income of $68.7 million and $33.5 million for the six and three month periods from 1995 to 1996, $17.3 million and $8.1 million are attributable to subscriber growth, $41.3 million and $21.4 million relate to changes in rates, $4.4 million and $3.6 million are attributable to growth in advertising sales and $5.7 million and $400,000 relate to growth in other product offerings. Of the $31.4 million and $16.1 million increases in operating, selling, general and administrative expenses for the six and three month periods from 1995 to 1996, $15.1 million and $6.5 million are attributable to increases in the costs of cable programming as a result of subscriber growth, additional programming offerings and changes in rates and $16.3 million and $9.6 million result from increases in the cost of labor and other volume related expenses. It is anticipated that the Company's cost of cable programming will increase in the future as cable programming rates increase and additional sources of cable programming become available. 18 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 Electronic Retailing As a result of the QVC Acquisition, the Company commenced consolidating the financial results of QVC effective February 1, 1995. The following table presents comparative financial information for the six and three months ended June 30, 1996 and for the three months ended June 30, 1995 and pro forma financial information for the six months ended June 30, 1995. Pro forma financial information is presented herein for purposes of analysis and may not reflect what actual operating results would have been had the Company owned QVC since January 1, 1995 (dollars in millions).
Six Months Ended June 30, Increase 1996 1995 $ % Net sales from electronic retailing .......... $ 855.8 $ 715.9 $ 139.9 19.5% Cost of goods sold from electronic retailing . 512.4 428.3 84.1 19.6 Operating, selling, general and administrative expenses ................................ 204.0 168.8 35.2 20.9 -------- -------- -------- Operating income before depreciation and amortization (a) .................... $ 139.4 $ 118.8 $ 20.6 17.3% ======== ======== ======== Gross margin ................................. 40.1% 40.2% Three Months Ended June 30, Increase 1996 1995 $ % Net sales from electronic retailing .......... $ 405.8 $ 357.4 $ 48.4 13.5% Cost of goods sold from electronic retailing . 242.2 212.2 30.0 14.1 Operating, selling, general and administrative expenses ................................ 96.6 88.5 8.1 9.2 -------- -------- -------- Operating income before depreciation and amortization (a) .................... $ 67.0 $ 56.7 $ 10.3 18.2% ======== ======== ======= Gross margin ................................. 40.3% 40.6% - ---- (a) See footnote (1) on page 17.
The consolidation of QVC's United Kingdom operations, effective April 1, 1995, resulted in increases in net sales from electronic retailing of $29.9 million and $8.6 million for the six and three month periods from 1995 to 1996. The remaining increases of $110.0 million and $39.8 million are primarily attributable to the effects of an approximate 9.0% increase in the average number of QVC homes receiving QVC services in the United States for these comparative periods. The increase in cost of goods sold from electronic retailing is directly related to the growth in net sales. Gross margin has remained relatively constant from 1995 to the same periods in 1996. The consolidation of QVC's United Kingdom operations, effective April 1, 1995, resulted in an increase in operating, selling, general and administrative expenses of $12.3 million and $2.1 million for the six and three month periods from 1995 to 1996. The remaining increases of $22.9 million and $6.0 million are attributable to higher sales volume and increases in advertising and administrative costs. 19 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 Cellular Communications The following table sets forth the operating results for the Company's cellular communications segment (dollars in millions).
Six Months Ended June 30, Increase 1996 1995 $ % Service income ............................... $ 207.1 $ 176.4 $ 30.7 17.4% Operating, selling, general and administrative expenses ................................ 136.0 105.6 30.4 28.8 -------- -------- ------- Operating income before depreciation and amortization (a) .................... $ 71.1 $ 70.8 $ 0.3 0.4% ======== ======== ======= Three Months Ended June 30, Increase 1996 1995 $ % Service income ............................... $ 108.9 $ 94.3 $ 14.6 15.5% Operating, selling, general and administrative expenses ................................ 66.3 54.7 11.6 21.2 -------- -------- ------- Operating income before depreciation and amortization (a) .................... $ 42.6 $ 39.6 $ 3.0 7.6% ======== ======= ======= - --------------- (a) See footnote (1) on page 17.
Of the $30.7 million and $14.6 million increases in service income for the six and three month periods from 1995 to 1996, $40.1 million and $19.4 million are attributable to the Company's subscriber growth. Offsetting these increases are decreases of $9.4 million and $4.8 million resulting primarily from a reduction in the average rate per minute of use from 1995 to the same periods in 1996. Of the $30.4 million and $11.6 million increases in operating, selling, general and administrative expenses for the six and three month periods from 1995 to 1996, $18.0 million and $5.3 million are related to subscriber growth, including the costs to acquire and service subscribers. The remaining increases of $12.4 million and $6.3 million are due to increases in other expenses, including subscriber retention costs, administrative costs and theft of service in 1996. Consolidated Analysis The $62.7 million decrease in depreciation and amortization expense for the six month period from 1995 to 1996 is attributable to the effects of the rebuild of certain of the Company's cellular equipment in 1995, as described below, partially offset by the effects of the QVC Acquisition and capital expenditures. The $23.9 million increase in depreciation and amortization expense for the three month period from 1995 to 1996 is primarily attributable to the effects of capital expenditures. In 1995, the Company's cellular division purchased approximately $172.0 million of switching and cell site equipment which replaced the existing switching and cell site equipment (the "Cellular Rebuild"). The Company substantially completed the Cellular Rebuild during 1995. During the first quarter of 1995, the Company charged approximately $110.0 million to depreciation expense which represented the difference between the net book value of the equipment replaced and the residual value realized upon its disposal. 20 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 The $17.4 million and $200,000 increases in interest expense for the six and three month periods from 1995 to 1996 are due to increased levels of debt, including the debt related to the QVC Acquisition, offset by interest capitalized in 1996 and decreases in rates. The Company anticipates that, for the foreseeable future, interest expense will be a significant cost to the Company and will have a significant adverse effect on the Company's ability to realize net earnings. The Company believes it will continue to be able to meet its obligations through its ability both to generate operating income before depreciation and amortization and to obtain external financing. The $110.1 million decrease in investment income for the six month period from 1995 to 1996 is primarily attributable to the effects of the Heritage Transaction (as defined below) in 1995, partially offset by gains recognized on sales of long-term investments, including the Nextel Gain. The $24.0 million increase in investment income for the three month period from 1995 to 1996 is primarily attributable to the Nextel Gain. In January 1995, the Company exchanged its investments in Heritage Communications, Inc. with TCI for approximately 13.3 million publicly-traded Class A common shares of TCI with a fair market value of approximately $290.0 million. Shortly thereafter, the Company sold approximately 9.1 million unrestricted TCI shares for total proceeds of $188.1 million (collectively, the "Heritage Transaction"). As a result of these transactions, the Company recognized a pre-tax gain of $141.0 million in the first quarter of 1995. The $22.4 million and $4.3 million increases in equity in net losses of affiliates for the six and three month periods from 1995 to 1996 are primarily due to the effects of increased losses incurred by Sprint Spectrum. Through June 27, 1996, the Company held investments in Teleport Communications Group Inc. ("TCGI"), TCG Partners and certain local joint ventures (the "Joint Ventures") managed by TCGI and TCG Partners. On June 27, 1996, TCGI sold approximately 27 million shares of its Class A Common Stock (the "TCGI Class A Stock") for $16 per share in an initial public offering (the "IPO"). In connection with the 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 a reorganization agreement pursuant to which TCGI was reorganized (the "Reorganization"). The Reorganization consisted of, among other things: (i) the acquisition by TCGI of TCG Partners; (ii) the acquisition by TCGI of additional interests in the Joint Ventures (including 100% of those interests held by the Company); and (iii) the contribution to TCGI of $269.0 million aggregate principal amount of indebtedness, plus accrued interest thereon, owed by TCGI to the Cable Stockholders (including $53.8 million principal amount and $4.1 million of accrued interest owed to the Company). In connection with the Reorganization, the Company received 25.6 million shares of TCGI's Class B Common Stock (the "TCGI Class B Stock"). Each share of TCGI Class B Stock is entitled to voting power equivalent to ten shares of TCGI Class A Stock and is convertible, at the option of the holder, into one share of TCGI Class A Stock. The Company recorded a $40.6 million increase in its proportionate share of TCGI's net assets as a gain from equity offering of affiliate in its condensed consolidated statement of operations and accumulated deficit for the six and three months ended June 30, 1996 (the "TCGI Gain"). After giving effect to the Reorganization and the IPO, the Company owns 19.5% of the outstanding TCGI Class B Stock representing a 19.1% voting interest and a 16.1% equity interest. The Company will continue to account for its interest in TCGI under the equity method. The increases in other expenses are primarily attributable to the settlement of certain litigation during the six months ended June 30, 1996. The increases in income tax expense are primarily attributable to the tax effect of the TCGI Gain recorded during the three months ended June 30, 1996. For the six and three months ended June 30, 1996 and 1995, the Company's earnings before extraordinary items, minority interest, income tax expense, equity in net losses of affiliates and fixed charges (interest expense) were $307.1 million, $250.6 million, $186.6 million and $121.4 million, respectively. Excluding the TCGI Gain and the Nextel Gain, totaling $70.3 million, recognized in the second quarter of 1996 and the $141.0 million gain recognized 21 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 in the first quarter of 1995 in connection with the Heritage Transaction, such earnings were not adequate to cover the Company's fixed charges, including capitalized interest of $14.7 million and $7.6 million for the six and three months ended June 30, 1996, respectively, of $282.7 million, $250.6 million, $140.8 million and $133.0 million for the six and three months ended June 30, 1996 and 1995, respectively. Fixed charges include non-cash interest, net of interest capitalized, of $32.2 million, $27.4 million, $16.1 million and $13.9 million for the six and three months ended June 30, 1996 and 1995, respectively. The inadequacy of these earnings to cover fixed charges is primarily due to the substantial non-cash charges for depreciation and amortization expense, including the first quarter 1995 charge associated with the Cellular Rebuild. The Company believes that its losses and inadequacy of earnings to cover fixed charges 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. 22 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 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 or results of operations. ITEM 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting on June 19, 1996, 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.
Director Class of Stock For Withheld Ralph J. Roberts Class A 29,547,034 149,492 Class B 131,793,750 Julian A. Brodsky Class A 29,584,638 111,888 Class B 131,793,750 Brian L. Roberts Class A 29,600,438 96,088 Class B 131,793,750 Daniel Aaron Class A 28,872,658 823,868 Class B 131,793,750 Gustave G. Amsterdam Class A 29,582,540 113,986 Class B 131,793,750 Sheldon M. Bonovitz Class A 28,874,811 821,715 Class B 131,793,750 Joseph L. Castle II Class A 29,598,588 97,938 Class B 131,793,750 Bernard C. Watson Class A 29,596,888 99,638 Class B 131,793,750 Irving A. Wechsler Class A 28,878,215 818,311 Class B 131,793,750 Anne Wexler Class A 29,580,506 116,020 Class B 131,793,750
To approve the Comcast Corporation 1996 Stock Option Plan.
Broker Class of Stock For Against Abstain Nonvote Class A 17,032,087 4,996,914 146,474 7,521,051 Class B 131,793,750
23 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 To amend the Company's Articles of Incorporation to conform the requirements for class voting with those of the Pennsylvania Business Corporation Law of 1988.
Broker Class of Stock For Against Abstain Nonvote Class A 20,242,047 2,117,823 71,878 7,264,778 Class B 131,793,750 Class A Special 131,777,911 5,048,537 346,024
To amend the Company's Articles of Incorporation to provide for mirror spin-offs, mergers and other similar transactions.
Broker Class of Stock For Against Abstain Nonvote Class A 20,230,396 2,103,749 97,603 7,264,778 Class B 131,793,750 Class A Special 131,051,853 5,731,711 388,908
To ratify the appointment of Deloitte & Touche LLP as the Company's independent auditors for the 1996 fiscal year.
Class of Stock For Against Abstain Class A 29,564,098 91,578 40,850 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/*/ Amendment, dated as of July 19, 1996, to the Credit Agreement, dated as of February 15, 1995, among QVC, Inc. and the Banks listed therein. 11.1 Computation of Net (Loss) Income Per Share. 27.1 Financial Data Schedule. 27.2 Restated Financial Data Schedule. - -------------- /*/ Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant agrees to furnish a copy of the referenced agreement to the Commission upon request. 24 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 (b) Reports on Form 8-K: (i) The Company filed a Current Report on Form 8-K under Item 5 on April 10, 1996 relating to its agreement to purchase the cable television operations of The E.W. Scripps Company, which included the Company's Unaudited Pro Forma Condensed Consolidated Financial Statements as of and for the year ended December 31, 1995. (ii) The Company filed a Current Report on Form 8-K under Item 5 on May 9, 1996 relating to its purchase of the National Basketball Association ("NBA") franchise to own and operate the Philadelphia 76ers basketball team, and related assets. (iii) The Company filed a Current Report on Form 8-K under Item 5 on May 28, 1996, as amended by a Current Report on Form 8-K/A filed on July 22, 1996, relating to its agreement to purchase the cable television operations of The E.W. Scripps Company, which included the Company's Unaudited Pro Forma Condensed Consolidated Financial Statements as of and for the three months ended March 31, 1996 and for the year ended December 31, 1995. 25 COMCAST CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1996 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 (Chief Accounting Officer) Date: August 14, 1996 26 EX-11.1 2 Exhibit 11.1 COMPUTATION OF NET (LOSS) INCOME PER SHARE (amounts in thousands, except per share data)
Six months ended June 30, Three months ended June 30, 1996 1995 1996 1995 (Loss) income before extraordinary item ($16,744) ($29,922) $17,860 ($29,294) Extraordinary item 1,013 1,013 --------- --------- --------- --------- Net (loss) income ($17,757) ($29,922) $16,847 ($29,294) ========= ========= ========= ========= NO DILUTION Weighted average number of common shares outstanding during the period 237,624 239,541 235,827 239,674 ========= ========= ========= ========= (Loss) income before extraordinary item per share ($.07) ($.12) $.07 ($.12) Extraordinary item per share --------- --------- --------- --------- Net (loss) income per share ($.07) ($.12) $.07 ($.12) ========= ========= ========= ========= PRIMARY Weighted average number of common shares outstanding during the period 237,624 239,541 235,827 239,674 --------- --------- --------- --------- Common share equivalents Stock options (b) (a) (a) 5,150 (a) Put options (a) (a) (a) (a) --------- --------- --------- --------- Weighted average number of common shares and common share equivalents outstanding during the period 237,624 239,541 240,977 239,674 ========= ========= ========= ========= (Loss) income before extraordinary item per share ($.07) ($.12) $.07 ($.12) Extraordinary item per share --------- --------- --------- --------- Net (loss) income per share ($.07) ($.12) $.07 ($.12) ========= ========= ========= ========= FULLY DILUTED Weighted average number of common shares outstanding during the period 237,624 239,541 235,827 239,674 --------- --------- --------- --------- Common share equivalents Stock options (b) (a) (a) 5,454 (a) Put options (a) (a) (a) (a) Convertible debentures (a) (a) (a) (a) --------- --------- --------- --------- Weighted average number of common shares and common share equivalents outstanding during the period 237,624 239,541 241,281 239,674 ========= ========= ========= ========= (Loss) income before extraordinary item per share ($.07) ($.12) $.07 ($.12) Extraordinary item per share --------- --------- --------- --------- Net (loss) income per share ($.07) ($.12) $.07 ($.12) ========= ========= ========= ========= - --------------- (a) Not applicable, as inclusion would be antidilutive. (b) Computed using the treasury stock method, where applicable.
EX-27.1 3
5 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. 0000022301 COMCAST CORPORATION 1,000 6-MOS DEC-31-1996 JUN-30-1996 407,664 133,926 418,456 (78,450) 243,120 1,243,069 2,989,329 (1,031,743) 9,623,573 1,039,061 7,120,289 0 0 233,375 (1,188,652) 9,623,573 1,896,306 1,896,306 (512,380) (1,654,381) (60,321) 0 (267,993) (21,226) (24,612) (16,744) 0 (1,013) 0 (17,757) (.07) (.07) loss before income tax expense and other items excludes the effect of minority interests, net of tax, of $29,094.
EX-27.2 4
5 This restated 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. 0000022301 COMCAST CORPORATION 1,000 3-MOS DEC-31-1996 MAR-31-1996 510,150 199,575 453,922 (86,133) 240,753 1,426,325 2,839,028 (982,195) 9,657,930 1,009,572 7,101,045 0 0 236,563 (1,128,133) 9,657,930 950,744 950,744 (270,146) (837,494) (34,502) 0 (134,814) (48,810) (864) (34,604) 0 0 0 (34,604) (.14) (.14) Loss before income tax expense and other items excludes the effect of minority interests, net of tax, of $15,070.
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