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HomeMy WebLinkAbout86-22 - Reorganization of Group W Cable Inc.RESOLUTION No. 86 -22 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH CONSENTING TO THE REORGANIZA- TION OF GROUP W CABLE, INC. PURSUANT TO SECTION 5.44.060 (g) OF THE NEWPORT BEACH MUNICIPAL CODE. WHEREAS, Group W Cable, Inc., now a part of Westing- house Broadcasting and Cable Corporation, plans to reorganize; and WHEREAS, Section 5.44.060 (g) of the Newport Beach Municipal Code provides that a cable television franchise can- not be sold, transferred or otherwise disposed of, in whole or in part, by sale, merger, consolidation or otherwide, without the prior consent of the City Council, expressed by resolution; and WHEREAS, COMCAST has requested the City Council of the City of Newport Beach to consent to the reorganization, as set forth in the attached correspondence dated March 3, 1986, attached hereto and marked Exhibit "A" and incorporated herein as though fully set forth at length; and WHEREAS, the City Council finds and determines that the reorganization into COMCAST CABLE COMMUNICATIONS, INC., a parent company, is in the best interests of the City of Newport Beach. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Newport Beach, that pursuant to Section 5.44.060 (g) of the Newport Beach Municipal Code, the City Council hereby consents to subject reorganization. BE IT FURTHER RESOLVED that the City Clerk is hereby authorized and directed to send a certified copy of this Resolu- tion to COMCAST CABLE COMMUNICATIONS, INC., evidencing the City of Newport Beach's prior consent to the merger. City Clerk ADOPTED this 24th d, ay of March 1986 Comcast Cable Communications, Inc. One Belmont Avenue Bala Cynwyd, PA 19004 215 667 -4200 (B CommmST March 3, 1986 Mr. Kenneth J. Delino Executive Assistant to City Manager • City of Newport Beach 3300 Newport Boulevard, P. 0. Box 1768 Newport Beach, California 92663 Re: Cable Franchise Transfer Dear Mr. Delino: This letter is written in reference to Comcast's plans to purchase a portion of the stock of Group W Cable, Inc. and thereafter to own and operate the cable system in the City of Newport Beach, California. As has been communicated to you previously, Westinghouse Broadcasting and Cable, Inc. is selling all of the stock of Group W Cable, Inc. to a group of buyers, including affiliates of major cable operators such as Comcast, American Television and Communications, Inc. (ATC) and Tele- Communications, Inc. (TCI). Closing of this transaction is expected in June, 1986. Group W Cable, Inc. will continue to own and operate the cable system serving the City of Newport Beach. However, the stock of Group W Cable, Inc. will be owned by these buyers instead of Westinghouse Broadcasting and Cable, Inc. The buyers intend to allocate the Group W Cable cable communications systems among themselves at or after the time of their acquisition. Under the plan of allocation, the cable communications system serving the City of Newport Beach will be owned and operated by Comcast Cable - vision of California, a Partnership. On behalf of both the buyers and the Comcast Partnership which will become the owner of the City of Newport Beach cable system, I am authorized to accept the terms of the Franchise Agreement. If you have any questions concerning the foregoing, please do not hesitate to raise them with me. Very truly yours, Robert B. Clasen ,President RBC /mm EXHIBIT "A" COMCAMY CORPORATION ONE BELMONT AVENUE • BALA- CYNWYD, PENNSYLVANIA 19004- (215)667 -4200 • SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10 -Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 1985 Commission file number 0 -6983 COMCAST CORPORATION (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.) Suite 22T1 One Belmont Avenue,Bala Cynwyd, PA 19004 (Address of principal executive offices) Registrant's telephone number, including area code (215) 667 -4200 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock, at September 30, 1985: Class A Common Stock, $1 par value 18,147,925 Class B Common Stock, $1 par value 3,150,000 -V COMCAST CORPORATION AND SUBSIDIARIES FORM 10 —Q Quarter Ended September 30, 1985 INDEX Page • Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheet September 30, 1985 (Unaudited) and December 31, 1984 1 — 2 Condensed Consolidated Statement of Operations and Retained Earnings Nine and Three Months Ended September 30, 1985 and 1984 (Unaudited) 3 Condensed Consolidated Statement of Changes in Financial Position Nine Months Ended September 30, 1985 and 1984 (Unaudited) 4 Notes to Condensed Consolidated Financial Statements (Unaudited) 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 — 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8 —K 9 COMCAST CORPORATION AND SUBSIDIARIES FORM 10 —Q Quarter Ended September 30, 1985 Part I FINANCIAL INFORMATION Item 1. Financial Statements • --------------------------- Condensed Consolidated Balance Sheet Assets Current Assets Page 1 (Dollars in thousands) September 30, December 31, 1985 1984 (Unaudited) N Cash and short -term investments $187,428 $120,820 Accounts receivable, less allowance for doubtful accounts of $1,329 and $913 7,079 3,973 Other current assets 9,771 8,184 Total Current Assets -------- 204,278 -------- -- - - - - -- 132,977 -- - - - - -- Short —Term Investments — designated 11989 Investment in Affiliates 36,551 12,176 Property and Equipment 159,014 148,256 Less accumulated depreciation 61,581 50,517 -- 97,433 97,739 Deferred Charges 15,192 13,221 $353,454 -- ------ -------- $258,102 -- -- ---- --- - -- -- See notes to condensed consolidated financial statements F COMCAST CORPORATIOM AND SUBSIDIARIES Page 2 FORM 10 -Q Quarter Ended September 30, 1985 Condensed Consolidated Balance Sheet - Continued ------------------------- ------ ---------- - ----- (Dollars in thousands) September 30, December 31, • - -1985w �1984N (Unaudited) Liabilities and Stockholders' Equity ---- ----------- ------- -----------w Current Liabilities Accounts payable and accrued expenses $ 16,643 $ 19,002 Accrued interest 4,654 2,755 Subscribers' advance payments 3,845 3,752 Income and other taxes 1,261 1,299 Current portion of long -term debt 5,012 3,481 Total Current Liabilities 31,415 30,289 w -- - - - - -- -- - - - - -- Long -Term Debt, less current portion 195,756 126,117 Deferred Income Taxes 17,461 15,318 Minority Interest in Subsidiary 1,609 1,692 Stockholders' Equity -- - - - - -- -- - - - - -- Class A Common Stock, $1 par value Authorized 80,000,000 shares Issued 19,099,927 shares and 16,925,067 shares 19,100 16,925 Class B Common Stock, $1 par value Authorized 10,000,000 shares Issued and outstanding 3,150,000 shares 3,150 3,150 Additional capital 41,896 27,194 Retained earnings 43,581 37,931 107,727 85,200 Less 952,002 Class A Common Stock In Treasury - at cost 514 514 107,213 -- 84,686 $353,454 -- - - - - -- -------- $258,102 -- - - - - -- -- - - - --- See notes to condensed consolidated financial statements 7 Ll 0 COMCAST CORPORATION AND SUBSIDIARIES Page 3 FORM 10 -Q Quarter Ended September 30, 1985 Condensed Consolidated Statement of Operations and Retained Earnings (Unaudited) • Service Income Costs and Expenses Operating Selling, general and administrative Depreciation and amortization Interest (income) expense, net of interest (expense) income of ($12„140); $6,906; ($4,615) and $2,777 Earnings Before Income Taxes Income Taxes Net Earnings Retained Earnings Balance - beginning of period Dividends declared Balance - end of period Earnings per Share Primary Fully diluted Weighted Average Number of Common and Common Equivalent Shares Out- standing During the Period Primary Fully diluted Dividends Declared Per Share (Dollars in thousands, except per share data) Nine Months Ended Three Months Ended September 30, September 30, 1985 1984 1985 1984 ---- --- $86,700 - -- ---- $75,807 -- --- -- $29,983 - - -- - -- $26,322 35,929 32,112 12,421 11,020 26,947 17,253 11,952 5,823 12,249 10,536 4,142 3.502 ( 600) 2,172 ( 179) 659 - - - - - -- 74,525 ------- 62,073 ----- -- 28,336 - - - - -- 21,004 - -- - --- 12,175 - - - - - -- 13,734 - --- --- 1,647 -- ---- 5,318 4,870 5,769 554 2,234 ------- 7,305 - - - - - -- 7,965 ------ 1,093 - - - - - -- 3,084 37,931 27,208 43,162 31,419 ( 1,655) ( 1,041) ( 674) ( 371) - --- --- $43.581 - ---- -- $34,132 - --- --- $43,581 - -- ---- $34,132 $ .36 $ .42 $ .05 $ .16 $ .36 $ .40 $ .05 $ .15 20,530 19035 21,360 19,102 20,544 21,698 21060 21,769 $ .08 $ .05 $ .03 $ .02 See notes to condensed consolidated financial statements 0 COMCAST CORPORATION AND SUBSIDIARIES FORM 10 -Q Quarter Ended September 30, 1985 Condensed Consolidated Statement of Changes in Financial Position (Unaudited) • Source of Funds Operations Net earnings Add noncash items Depreciation and amortization Deferred income taxes Funds provided by operations Proceeds from long -term borrowings Issuance of common stock upon conversion of debentures Proceeds from exercise of stock options Utilization of short -term investments - designated Increase in current liabilities Application of Funds Additions to property and equipment, net Increase in investment in affiliates Retirement of bonds upon conversion to common stock Repayment of long -term debt and change in current maturities Dividends declared Increase in accounts receivable and other current assets Increase in deferred charges Minority interest in subsidiary Increase in Cash and Short -Term Investments Page 4 (Dollars in thousands) Nine Months Ended September 30, 1985 1984 8 7,305 E 7,965 12,249 10,536 2,142 3,839 21,696 22,340 93,353 16,334 16,625 252 221 11989 5,372 1,126 9,754 135,041 54,021 10,858 11,685 24,375 15,146 17,385 6,329 5,328 1,655 1,041 4,693 2,413 3,055 928 83 68,433 36,541 $66,608 817,480 - - -- --- -- --- -- ------- - - - - --- See notes to condensed consolidated financial statements COMCAST CORPORATION AND SUBSIDIARIES Page 5 Notes to Condensed Consolidated Financial Statements (Unaudited) Quarter Ended September 30, 1985 1. Condensed Consolidated Financial Statements The condensed consolidated balance sheet at December 31, 1984 has been condensed from the audited financial statements at that date. The condensed consolidated balance sheet at September 30, 1985, the condensed consolidated statement of operations and retained earnings for the nine and three months ended September 30, 1985 and 1984, and the condensed consolidated statement of changes in financial position for the nine months ended September 30, 1985 and 1984 have been prepared by the Company without audit. In the opinion of manage- ment, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and changes in financial position at September 30, 1985 and for all periods present- ed have been made. Certain information and note disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consoli- dated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1984 Annual Report on Form 10 -K filed with the Securities and Exchange Commission. The results of operations for the period ended September 30, 1985 are not necessarily indicative of operating results for the full year. 2. Earnings Per Share Primary earnings per share is computed based on the weighted average number of shares outstanding plus shares issuable under stock option plans, reduced by the shares which could be purchased with the assumed proceeds from stock option shares. The primary earnings per share does not give effect to the conversion of convertible subordinated debentures when such debentures are not considered common stock equivalents or have an antidilutive effect on earnings per share. Fully diluted earnings per share assumes conversion of all debentures unless antidilutive. 3. Common Stock and Additional Capital The financial statements and all share and per share data have been retroactively adjusted for the three - for -two stock split effected by a 50% stock dividend on June 27, 1985. /O COMCAST CORPORATION AND SUBSIDIARIES Page 6 FORM 10 —Q Quarter Ended September 30, 19.85 0 Liquidity and Capital Resources Cable communications is a capital intensive business requiring continual financing for development and expansion. For the nine months ended September 30, 1985, capital expenditures were approximately $11,000,000. The Company's anticipated capital expenditures for 1985 (excluding any expenditures relating to the Philadelphia franchise and the acquisitions described below), are estimated to be $15,000,000 which will include expenditures to complete construction, expansion and modernization of various cable communications systems. On September 30, 1985 the Company acquired all of the assets of two corpor- ations which operate the cable communications systems serving the residents of the City of Pontiac and Waterford Township, Michigan. The aggregate purchase price was approximately $24,000,000. The Company intends to finance this acquisition through a non - majority owned joint venture or limited partnership and has used its own resources until this financing is arranged. The Company has included the acquisition as an investment in affiliates on the Company's balance sheet. In the event the Company does not finance this acquisition by these methods, the Company will use its own resources and will reclassify the assets acquired to the appropriate balance sheet classifications. A partnership comprised of two subsidiaries of the Company has been awarded a franchise, and on September 12, 1985 executed a definitive franchise agree- ment, to construct and operate a cable communications system in the Northeast quadrant of the City of Philadelphia. The Company has committed to provide up to $60,000,000 to the partnership if funds are not otherwise available. On June 24, 1985 the Company entered into a letter of intent to acquire all of the outstanding capital stock of Citizens Cable Communications, Inc. ( "Citizens "), which operates the cable communications systems serving the residents of the Fort Wayne, Indiana area. The aggregate purchase price (including existing debt of $16,000,000) is approximately $62,000,000, subject to certain adjustments contained in the letter of intent. The consummation of the acquisition, anticipated to occur by January 31, 1986, is subject to various conditions, including the execution of an acquisition agreement, approval of the transaction by Citizens' shareholders, approval of the transfer of the systems' franchises by the franchising municipalities, approval of the transfer of certain licenses by the FCC and the expiration or termination of "specified waiting periods under Federal anti -trust law. 0 COMCAST CORPORATION AND SUBSIDIARIES Page 7 FORM 10 -Q Quarter Ended September 30, 1985 The Company may finance the Philadelphia franchise and the Citizens acquisitions discussed above through borrowings and /or the participation of a • partner or partners in a joint venture or limited partnership. In the event the Company does not use these financing techniques the Company will be obligated to meet these commitments using its own financial resources. In the event the financing of the Philadelphia franchise or either of the acquisitions discussed above is through a non - majority owned joint venture or limited partnership, the entity's results of operations will be included in the Company's results of operations to the extent required by the equity method of accounting. The Company expects that it will manage the business of the entity and receive management fees in such a case resulting thereto. Otherwise, the results of operations of the entity will be consolidated with the Company's results of operations, which may have a negative impact on those results. The Company's ability to generate cash adequate to meet its needs depends on its results of operations and on the availability of external financing. funds provided by operations of $21,696,000 and $22,340,000 for the nine months ended September 30, 1985 and 1984, respectively and of $5,478,000 and $7,492,000 for the three months ended September 30, 1985 and 1984, respectively, include net earnings plus noncash charges thereto such as depreciation, amortization and deferred income taxes. External sources of funds includes issuance of securities to the public and funds available under bank lines of credit. It generally has been the practice of the Company to finance a significant portion of capital expenditures . for the acquisition, construction, development and expansion of its cable communications systems through the proceeds of long -term indebtedness on a project basis. The Company intends to continue this practice. In addition, the Company may consider various other financial transactions, including joint ventures, partnerships and the issuance of securities to finance these expenditures. On August 9, 1985 the Company issued $50,000,000 convertible subordinated debentures due In 2000 "eurobonds ". The eurobonds bear interest at 7% per annum and are convertible beginning March 13, 1986 into class A common stock of the Company at $23.875 per share. At September 30, 1985, the Company had unused sources of liquidity, consisting principally of cash and short -term investments of approximately $187,000,000 and funds available under various bank lines of credit and capital lease commitments of approximately $13,000,000. /102 0 COMCAST CORPORATION AND SUBSIDIARIES Page 8 FORM 10 —Q Quarter Ended September 30, 1985 Results of Operations ------------------ --- • The growth in service income is attributable to (a) the increase in subscribers in cable communications systems; (b) the increase in the number of Pay Cable subscriptions; (c) higher rates in effect for both basic cable and Pay Cable services; (d) partnership and management fees; and (e) the growth in sound communications' service income due to continued increases in the number of customers, increased rates and increased revenues from commercial sound contracting services. Growth in service income is expected to continue. /.3 Operating expenses have tended to rise along with the growth in service income. The most significant portion of these increased expenses arose from the cost of providing programming services to subscribers. In addition, charges from suppliers of non —Pay Cable satellite services have begun to increase. Increased depreciation expense is a result of increased additions to property and equipment. These trends are expected to. continue. Reoccuring selling, general and administrative expenses have tended to rise along with the growth in service income. On July 30, 1985, the Company's offer of July 16, 1985 to the Board of Directors of Storer Communications Incorporated ( "Storer ") to acquire Storer was not accepted. Included in selling, general and administrative expenses is approximately $5,000,000 representing the Company's estimated liability for the payment of fees and expenses relating to the offer. The after tax effect on net income is approximately $2,500,000 reducing earnings per share by approximately $.12 for the nine and three months ended September 30, 1985, respectively. Net interest income for the quarter ended September 30, 1985 is due primarily to gains on sale of short —term investments, higher levels of short — term investments earning interest income in 1985 and the reduction of interest due to conversion of bonds. This was offset by increased interest expense due to higher levels of debt outstanding in 1985. For the nine months ended September 30, 1985 the effective income tax rate decreased to 40% from 42% for the nine months ended September 30, 1984. The effective income tax rates for 1985 are expected to be less than the 46% statutory rate primarily due to the use of investment tax credits and greater investment in tax free securities. The percentage decrease in earnings -per share is greater than the percentage decrease in net earnings primarily due to an increase in shares outstanding from the completion on August 15, 1985 of the conversion of $22,500,000, 8% convertible subordinated bonds into class A common stock. 4 0 COMCAST CORPORATION AND SUBSIDIARIES Page 9 FORM 10 -Q Quarter Ended September 30, 1985 The results of operations and operating margins of recently constructed cable communications systems reflect higher overall construction and operating costs resulting from the effects of inflation, the introduction of modern and more complex technology necessary to provide subscribers with the increasing variety of cable services and the more expensive devices placed in customers' homes to modify television receivers to accommodate such increased variety and quantity of cable services. In addition, expenses of a new cable communications system are a greater percentage of service income than those of a mature system as many fixed costs are incurred prior to the time the system is fully developed. Thus, new systems generally have a short -term adverse effect on profits. Item 6. Exhibits and Reports on Form 8 -K (a) Exhibit 11 - Schedule of Computation of Earnings Per Share. (b) There were no reports filed on Form 8 -K during the three months ended September 30, 1985. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the under- signed thereunto duly authorized. Date: November 11, 1985 COMCAST CORPORATION ------------------------------ (Registrant) r vice President and f Financial Officer u /.S E f COMCAST CORPORATION AND SUBSIDIARIES Schedule of Computation of Earnings Per Share (in thousands, except per share data) Nine Months Ended September 30, 1985 1984 PRIMARY Net Income $ 7,305 $ 7,965 Weighted average number of common shares outstanding Add: Common equivalent shares representing shares issuable upon exercise of employee stock options Weighted average number of shares used in calculation of primary earnings per share Primary earnings per share FULLY DIL41TED Net Income Plus — interest on conversion of debentures net of applicable income taxes Net Income for fully diluted earnings per share Weighted average number of common shares outstanding Add: Common stock equivalent shares representing shares issuable upon exercise of employee stock options using the greater of period and or average for the period stock prices. Add: shares issuable upon conversion of debentures Which have a dilutive effect on earnings per share Weighted average number of shares used in calculation of fully diluted earnings per share Fully diluted earnings per share 19,866 18,472 664 563 20,530 19,035 - ------ - - - ---- ------- - - -- --- $ .36 $ .42 ------- ------- ------- ------- $ 7,305 $ 7,965 686 $ 7,305 19,866 678 20,544 $ .36 $ 8,651 18,472 588 2,638 21,698 $ .40 EXHIBIT 11 Three Months Ended September 30, 1985 1984 E 1,093 $ 3,084 20,677 18,494 683 608 21,360 19,102 ----- =- - - - -- -- $ .05 $ .16 - --- --- - -- ---- ------- ------- $ 1,093 $ 3,084 229 $ 1,093 $ 3,313 20,677 18,494 683 627 2,648 21,360 21,769 - ------ - ------ $ .05 $ .15