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FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
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 333-30745
COMCAST CABLE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2175755
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1201 Market Street, Suite 2201
Wilmington, Delaware 19801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (302) 594-8700
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [Not applicable]
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As of December 31, 1999, there were 1,000 shares of Common Stock outstanding.
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The Registrant meets the conditions set forth in General Instructions I(1)(a)
and (b) of Form 10-K and is therefore filing this form with the reduced
disclosure format.
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DOCUMENTS INCORPORATED BY REFERENCE
NONE
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COMCAST CABLE COMMUNICATIONS, INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business..............................................................1
Item 2 Properties...........................................................12
Item 3 Legal Proceedings....................................................12
Item 4 Submission of Matters to a Vote of Security Holders..................12
PART II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters..........................................13
Item 6 Selected Financial Data..............................................13
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................14
Item 8 Financial Statements and Supplementary Data..........................18
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.............................................37
PART III
Item 10 Directors and Executive Officers of the Registrant...................37
Item 11 Executive Compensation...............................................37
Item 12 Security Ownership of Certain Beneficial Owners and Management.......37
Item 13 Certain Relationships and Related Transactions.......................37
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K......38
SIGNATURES...................................................................40
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This Annual Report on Form 10-K is for the year ending December 31, 1999.
This Annual Report modifies and supersedes documents filed prior to this Annual
Report. The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you directly to those documents. Information incorporated by reference
is considered to be part of this Annual Report. In addition, information that we
file with the SEC in the future will automatically update and supersede
information contained in this Annual Report. In this Annual Report, "Comcast
Cable," "we," "us" and "our" refer to Comcast Cable Communications, Inc. and its
subsidiaries.
You should carefully review the information contained in this Annual
Report, but should particularly consider any risk factors that we set forth in
this Annual Report and in other reports or documents that we file from time to
time with the SEC. In this Annual Report, we state our beliefs of future events
and of our future financial performance. In some cases, you can identify those
so-called "forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
Factors Affecting Future Operations
We have in the past acquired and will be acquiring cable communications
systems in new communities in which we do not have established relationships
with the franchising authority, community leaders and cable subscribers.
Further, a substantial number of new employees must be integrated into our
business practices and operations. Our results of operations may be
significantly affected by our ability to efficiently and effectively manage
these changes.
In addition, the cable communications industry may be affected by, among
other things:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o franchise related matters,
o market conditions that may adversely affect the availability of debt
and equity financing for working capital, capital expenditures or
other purposes,
o demand for the programming content we distribute, and
o general economic conditions.
PART I
ITEM 1 BUSINESS
We are principally engaged in developing, managing and operating broadband
communications networks. We are currently the third largest cable communications
system operator in the United States and are in the process of deploying digital
video applications and high-speed Internet access service to expand the products
available on our cable communications networks.
Our consolidated cable operations served 5.6 million subscribers and
passed 9.4 million homes in the United States as of December 31, 1999. We have
entered into a series of transactions whereby we will acquire, subject to
receipt of necessary regulatory and other approvals, 1.2 million cable
subscribers over the next twelve months. Upon completion of these pending
transactions, we will serve 6.8 million subscribers.
We are a wholly owned subsidiary of Comcast Corporation. We are a Delaware
corporation that was organized in 1981. We have our principal executive offices
at 1201 Market Street, Suite 2201, Wilmington, Delaware 19801. Our telephone
number is (302) 594-8700. We also have a world wide web site at
http://www.comcast.com. The information posted on our web site is not
incorporated into this Annual Report.
GENERAL DEVELOPMENTS OF OUR BUSINESS
We entered into certain significant transactions in 1999 which have or are
expected to close in 2000. We have summarized these transactions below and have
more fully described them in Note 3 to our consolidated financial statements in
Item 8 of this Annual Report.
Pending Transactions as of December 31, 1999
Exchange of Jones Intercable Interest for Comcast Class A Special Common
Stock
In April 1999, Comcast acquired a controlling interest in Jones
Intercable, Inc., a cable communications company serving 1.1 million
subscribers, through Comcast's purchase of 12.8 million shares of Jones
Intercable Class A Common Stock and 2.9 million shares of Jones Intercable
Common Stock for $706.3 million in cash. In June 1999, Comcast acquired an
additional 1.0 million shares of Jones Intercable Class A Common Stock for $50.0
million in cash through a private transaction. Comcast contributed its interest
in Jones Intercable to us. In connection with Comcast's contribution of Jones
Intercable to us, we assumed $1.499 billion of Jones Intercable debt. We have
consolidated the operating results of Jones Intercable since April 1999.
On March 2, 2000, in connection with the closing of the merger agreement
between Comcast, Comcast's wholly owned subsidiary, Comcast JOIN Holdings, Inc.
and Jones Intercable, we exchanged our 39.6% interest in Jones Intercable for
23.3 million shares of Comcast Class A Special Common Stock. As such, beginning
March 2, 2000, the results of Jones Intercable will not be included in our
consolidated financial statements.
Acquisition of CalPERS' Interest in Jointly Owned Cable Properties
In February 2000, we acquired the California Public Employees Retirement
System's 45% interest in Comcast MHCP Holdings, L.L.C., a 55% owned consolidated
subsidiary of ours which serves 642,000 cable subscribers in Michigan, New
Jersey and Florida pursuant to an agreement entered into in December 1999. We
now own 100% of Comcast MHCP. The consideration was $750.0 million in cash and
was funded with the proceeds from a capital contribution from Comcast.
Time Warner Agreement
In November 1999, we entered into an agreement to exchange certain of our
cable communications systems with Time Warner Cable, a division of Time Warner
Entertainment Company, L.P. Under the terms of the agreement, we will receive
cable communications systems serving 120,000 subscribers. In exchange, Time
Warner will receive systems that we currently own serving 133,000 subscribers.
At closing, Time Warner will pay us an equalizing payment of $31.2 million,
reflecting the agreed upon difference in fair value of the Time Warner assets
and our assets to be exchanged, subject to adjustment. The transaction is
subject to customary closing conditions and regulatory approvals and is expected
to close in the second quarter of 2000.
Prime Communications Agreement
In December 1998, Comcast agreed to invest in Prime Communications LLC, a
cable communications company serving 430,000 subscribers. Pursuant to the terms
of this agreement, in December 1998 Comcast acquired from Prime a $50.0 million
12.75% subordinated note due 2008 issued by Prime. In July 1999, Comcast made a
loan to Prime in the form of a
$733.5 million 6% ten year note, convertible into 90% of the equity of Prime. In
November 1999, Comcast made an additional $20.0 million loan to Prime (on the
same terms as the original loan), and delivered a notice of its intention to
convert the 6% note. Comcast will contribute the 6% note to us. The note will be
converted upon receipt of customary closing conditions and regulatory approvals,
which are expected to be obtained in the second quarter of 2000. The owners of
Prime have agreed that at the time of conversion, they will sell their remaining
10% equity interest in Prime to us for $82.0 million, plus accrued interest from
July 1999 at 7% per annum. As a result, we would then own 100% of Prime and
assume management control of Prime's operations. Upon closing, we will assume
$550 million of Prime's debt.
AT&T Agreement
In May 1999, Comcast entered into an agreement with AT&T Corp. to exchange
various of our cable systems. Under the terms of the agreement, we will receive
cable communications systems serving 1.5 million subscribers. In exchange, AT&T
will receive systems that we currently own or will acquire serving 750,000
subscribers. At closing, we will pay AT&T an equalizing payment of approximately
$3.4 billion (subject to adjustment based on the actual number of net
subscribers acquired and the per subscriber price of certain subscribers) for
the 750,000 net subscribers to be acquired as a result of the exchanges. We will
pay for the net subscribers acquired in connection with the exchanges with
shares of AT&T common stock that Comcast currently owns or may acquire and other
securities or assets that Comcast will contribute to us which would permit the
exchanges to be tax-free to the maximum extent possible. The agreed upon value
of any AT&T common stock used in the exchange that was owned by Comcast at the
time of the agreement is $54.41 per share.
Under the terms of the agreement, Comcast also agreed to offer
AT&T-branded residential wireline telephony in our cable communications system
markets, provided AT&T has concluded separate residential telephony agreements
with at least two other non-AT&T affiliated multi-system cable operators. AT&T
has agreed to grant Comcast the most favorable terms AT&T has reached with any
of those or other multi-system cable operators.
The majority of the system exchanges are contingent upon the completion of
AT&T's acquisition of MediaOne Group, Inc., which is expected to close in 2000,
subject to customary closing conditions and regulatory approvals.
Adelphia Agreement
In May 1999, we entered into an agreement to exchange certain cable
communications systems with Adelphia Communications. Under the terms of the
agreement, we will receive cable communications systems serving 464,000
subscribers from Adelphia. In exchange, Adelphia will receive cable
communications systems currently owned by us serving 440,000 subscribers. All of
the systems will be valued based upon independent appraisals with any difference
in relative value to be funded with cash or additional cable communications
systems. The transaction is subject to customary closing conditions and
regulatory approvals and is expected to close in the third quarter of 2000.
DESCRIPTION OF OUR BUSINESS
Technology and Capital Improvements
Our cable communications networks receive signals by means of:
o special antennae,
o microwave relay systems,
o earth stations, and
o coaxial and fiber optic cables.
These networks distribute a variety of video, telecommunications and data
services to residential and commercial subscribers.
As of December 31, 1999, 81% of our cable subscribers were served by a
system with a capacity of at least 550-MHz and 60% of our cable subscribers were
served by a system with a capacity of at least 750-MHz. We are deploying fiber
optic cable and upgrading the technical quality of our cable communications
networks. As a result, the reliability and capacity of our systems have
increased, aiding in the delivery of additional video programming and other
services such as enhanced digital video, high-speed Internet access service and,
potentially, telephony.
We will incur significant capital expenditures in the future for the
upgrading and rebuilding of the cable communications systems to be acquired by
us as a result of the pending system exchanges with AT&T, Time Warner and
Adelphia.
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Franchises
Cable communications systems are constructed and operated under
non-exclusive franchises granted by state or local governmental authorities and
are subject to federal, state and local legislation and regulation. Franchises
typically contain many conditions which may include:
o rate and service conditions,
o construction schedules,
o types of programming and provision of services to schools and other
public institutions, and
o insurance and indemnity bond requirements.
Our franchises typically provide for periodic payment of fees to
franchising authorities of up to 5% of "revenues" (as defined by each franchise
agreement). We normally pass those fees on to subscribers. In many cases, we
need the consent of the franchising authority to transfer our franchises. The
franchises are granted for varying lengths of time.
Although franchises historically have been renewed, renewals may include
less favorable terms and conditions. Under existing law, franchises should
continue to be renewed for companies that have provided adequate service and
have complied generally with franchise terms. The franchising authority may
choose to award additional franchises to competing companies at any time.
Revenue Sources
We receive the majority of our revenues from subscription services.
Subscribers typically pay us on a monthly basis and generally may discontinue
services at any time. Monthly subscription rates and related charges vary
according to the type of service selected and the type of equipment used by
subscribers. Packages of programming services offered to subscribers may consist
of:
o national television networks,
o local and distant independent, specialty and educational television
stations,
o satellite-delivered programming,
o locally originated programs,
o audio programming, and
o electronic retailing programs.
We also offer, for an additional monthly fee, premium services, such as:
o Home Box Office(R),
o Cinemax(R),
o Showtime(R),
o The Movie Channel(TM), and
o Encore(R).
These premium services generally offer, without commercial interruption,
feature motion pictures, live and taped sporting events, concerts and other
special features. The charge for premium services depends upon the type and
level of service selected by the subscriber.
We also generate revenues from advertising sales, pay-per-view services,
installation services, commissions from electronic retailing and other services.
We generate revenues from the sale of advertising time to local, regional and
national advertisers on non-broadcast channels. Pay-per-view services permit a
subscriber to order, for a separate fee, individual feature motion pictures and
special event programs, such as professional boxing, professional wrestling and
concerts.
During 1999, we made our digital cable service available to over 80% of
our subscribers. As of December 31, 1999, more than 515,000 subscribers were
receiving our digital cable service for an additional monthly fee. Digital cable
service allows us to use digital compression to substantially increase the
capacity of our cable communications systems, as well as to improve picture
quality.
We market Excite@Home's high-speed cable modem services as Comcast@Home in
areas served by certain of our cable communications systems. Residential
subscribers can connect their personal computers via cable modems to a
high-speed national network developed and managed by Excite@Home. Subscribers
can then access online information, including the Internet, at faster speeds
than that of conventional modems. Through Excite@Home, we also provide
businesses with Internet connectivity solutions and networked business
applications. Together with Excite@Home, we provide national and local content,
sell advertising to businesses and provide services to residential subscribers.
As of December 31, 1999, the Comcast@Home service was available to over 3.2
million homes in 14 markets and served 142,000 subscribers.
Our sales efforts are primarily directed toward increasing the number of
subscribers we serve and generating incremental revenues in our franchise areas.
We sell our cable communications services through:
o telemarketing,
o direct mail advertising,
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o door-to-door selling, and
o local media advertising.
Programming
We generally pay either a monthly fee per subscriber per channel or a
percentage of certain revenues for programming. Our programming costs are
increased by:
o increases in the number of subscribers,
o expansion of the number of channels provided to customers, and
o increases in contract rates from programming suppliers.
We attempt to secure long-term programming contracts with volume discounts
and/or marketing support and incentives from programming suppliers. Our
programming contracts are generally for a fixed period of time and are subject
to negotiated renewal. We anticipate that future contract renewals will result
in programming costs that are higher than our costs today, particularly for
sports programming.
Customer Service
We manage most of our cable communications systems in geographic clusters.
Clustering improves our ability to sell advertising, enhances our ability to
efficiently introduce and market new products, and allows us to more efficiently
and effectively provide customer service and support. As part of our clustering
strategy, we have recently consolidated our local customer service operations
into large regional call centers. These regional call centers have
technologically advanced telephone systems that provide 24-hour per day, 7-day
per week call answering capability, telemarketing and other services. We have 10
call centers in operation as of December 31, 1999 which serve approximately 2.4
million subscribers. Subscribers in our remaining cable communications systems
receive customer service primarily through our local, system-based
representatives.
Our Cable Communications Systems
The table below summarizes certain subscriber information for our cable
communications systems as of December 31 (homes and subscribers in thousands):
1999(8) 1998 1997 1996(8) 1995
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Basic Cable
Homes Passed (1)........................................ 9,358 7,382 7,138 6,975 5,570
Subscribers (2)......................................... 5,642 4,511 4,366 4,280 3,407
Penetration (3)......................................... 60.3% 61.1% 61.2% 61.4% 61.2%
Digital Cable
"Digital Ready" Subscribers (4)......................... 4,559 1,570
Subscribers............................................. 515 78
Penetration (5)......................................... 11.3% 5.0%
Comcast@Home
"Modem Ready" Homes Passed (6).......................... 3,259 1,804 866
Subscribers............................................. 142 51 10
"Modem Ready" Penetration (7)........................... 4.4% 2.8% 1.2%
<FN>
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(1) A home is "passed" if we can connect it to our distribution system without
further extending the transmission lines.
(2) A dwelling with one or more television sets connected to a system counts
as one basic cable subscriber.
(3) Basic cable penetration means the number of basic cable subscribers as a
percentage of basic cable homes passed.
(4) A subscriber is "digital ready" if the subscriber is in a market where we
have launched our digital cable service.
(5) Digital cable penetration means the number of digital cable subscribers as
a percentage of "digital ready" subscribers.
(6) A home passed is "modem ready" if we can connect it to our internet
service connection system without further extending the transmission
lines.
(7) "Modem ready" penetration means the number of Comcast@Home customers as a
percentage of "modem ready" homes passed.
(8) In November 1996, we acquired the cable operations of The E.W. Scripps
Company. In April 1999, Comcast acquired and contributed to us its
controlling interest in Jones Intercable, Inc. In March 2000, we exchanged
our interest in Jones Intercable with Comcast JOIN Holdings, Inc., a
wholly owned subsidiary of Comcast, for 23.3 million shares of Comcast
Class A Special Common Stock.
</FN>
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Competition
Our cable communications systems compete with a number of different
sources which provide news, information and entertainment programming to
consumers, including:
o local television broadcast stations that provide off-air programming
which can be received using a roof-top antenna and television set,
o program distributors that transmit satellite signals containing video
programming, data and other information to receiving dishes of varying
sizes located on the subscriber's premises,
o satellite master antenna television systems, commonly known as SMATV,
which generally serve condominiums, apartment and office complexes and
residential developments,
o multichannel, multipoint distribution service operators, commonly known
as MMDS or wireless cable operators, which use low-power microwave
frequencies to transmit video programming and other information
over-the-air to subscribers,
o other cable operators who build and operate cable systems in the same
communities that we serve, commonly known as overbuilders,
o interactive online computer services,
o newspapers, magazines and book stores,
o movie theaters,
o live concerts and sporting events, and
o home video products.
In order to compete effectively, we strive to provide, at a reasonable
price to subscribers:
o superior technical performance,
o superior customer service,
o a greater variety of video programming, and
o new products such as digital cable and cable modem Internet access and
potential products such as telephony.
Federal law allows local telephone companies to provide, directly to
subscribers, a wide variety of services that are competitive with our cable
communications services. Some local telephone companies:
o provide video services within and outside their telephone service areas
through a variety of methods, including cable networks, satellite
program distribution and wireless transmission facilities, and/or
o have announced plans to construct and operate cable communications
systems in various states.
A local telephone company, Ameritech, has obtained cable franchises in
communities in Michigan that we also serve. It competes directly with us in
these areas by providing video and other cable communications services to
subscribers. New facilities-based competitors such as RCN Corporation and
Knology Holdings, Inc. are now offering cable and related communications
services in various areas where we hold franchises. We anticipate that
facilities-based competitors will develop in other franchise areas we serve.
Local telephone companies and other businesses construct and operate
communications facilities that provide access to the Internet and distribute
interactive computer-based services, data and other non-video services to homes
and businesses. These competitors are not required, in certain circumstances, to
comply with some of the material obligations imposed upon our cable
communications systems under our franchises. We are unable to predict the
likelihood of success of competing video or cable service ventures by local
telephone companies or other businesses. Nor can we predict the impact these
competitive ventures might have on our business and operations.
We operate each of our cable communications systems pursuant to a
non-exclusive franchise that is issued by the community's governing body such as
a city council, a county board of supervisors or a state regulatory agency.
Federal law prohibits franchising authorities from unreasonably denying requests
for additional franchises, and it permits franchising authorities to operate
cable systems. Companies that traditionally have not provided cable services and
that have substantial financial resources (such as public utilities that own
certain of the poles to which our cables are attached) may also obtain cable
franchises and may provide competing communications services.
In the past few years, Congress has enacted legislation and the Federal
Communications Commission, commonly known as the FCC, has adopted regulatory
policies intended to provide a more favorable operating environment for existing
and new technologies that provide, or have the potential to provide, substantial
competition to our cable communications systems. These technologies include
direct broadcast satellite service, commonly known as DBS, among others.
According to recent government and industry reports, conventional, medium and
high-power satellites currently provide video
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programming to over 13.1 million individual households, condominiums, apartment
and office complexes in the United States. DBS providers with high-power
satellites typically offer to their subscribers more than 300 channels of
programming, including program services similar to those provided by cable
communications systems.
DBS service can be received virtually anywhere in the continental United
States through the installation of a small roof top or side-mounted antenna. DBS
systems use video compression technology to increase channel capacity and
digital technology to improve the quality of the signals transmitted to their
subscribers. Our digital cable service is competitive with the programming,
channel capacity and the digital quality of signals delivered to subscribers by
DBS systems. We are and will continue to deploy digital cable service in the
communities that we serve.
Two major companies, DirecTV and Echostar, are currently offering
nationwide high-power DBS services. Recently enacted federal legislation
establishes, among other things, a permanent compulsory copyright license that
permits satellite carriers to retransmit local broadcast television signals to
subscribers who reside inside the local television station's market. These
companies have already begun transmitting local broadcast signals in certain
major televison markets and have announced their intention to expand this local
television broadcast retransmission service to other domestic markets. With this
legislation, satellite carriers become more competitive to cable communications
system operators like us because they are now able to offer programming which
more closely resembles what we offer. We are unable to predict the effects this
legislation and these competitive developments might have on our business and
operations.
Our cable communications systems also compete for subscribers with SMATV
systems. SMATV system operators typically are not subject to regulation like
local franchised cable communications system operators. SMATV systems offer
subscribers both improved reception of local television stations and many of the
same satellite-delivered programming services offered by franchised cable
communications systems. In addition, some SMATV operators are developing and/or
offering packages of telephony, data and video services to private residential
and commercial developments. SMATV system operators often enter into exclusive
service agreements with building owners or homeowners' associations, although
some states have enacted laws to provide cable communications systems access to
these complexes. Courts have reviewed challenges to these laws and have reached
varying results. Our ability to compete for subscribers in residential and
commercial developments served by SMATV system operators is uncertain. However,
we are developing competitive packages of services (video, data and telephony)
to offer to these residential and commercial developments.
Cable communications systems also compete with MMDS or wireless cable
systems, which are authorized to operate in areas served by our cable
communications systems. The FCC recently amended its regulations to provide
flexibility to wireless system operators to employ digital technology in
delivering two-way communications services, including high-speed Internet
access. Federal law significantly limits certain local restrictions on the use
of roof-top, satellite and microwave antennae to receive satellite programming
and over-the-air broadcasting services.
Many of our cable communications systems are currently offering, or plan
to offer, interactive online computer services to subscribers. These systems
will compete with a number of other companies, many of whom have substantial
resources, such as:
o existing Internet service providers, commonly known as ISPs,
o local telephone companies, and
o long distance telephone companies.
Recently, a number of companies, including telephone companies and ISP's,
have asked local, state and federal governments to mandate that cable
communications systems operators provide capacity on their cable infrastructure
so that these companies and others may deliver Internet services directly to
customers over cable facilities. In response, several local jurisdictions
attempted to impose these capacity obligations on several cable communications
operators. Various cable communications companies, including us, have initiated
litigation challenging these municipal requirements. In addition, two antitrust
lawsuits have been filed in federal courts alleging that we and other cable
communications companies have improperly refused to allow our cable facilities
to be used by certain ISPs to serve their customers. Franchise renewals and
transfers could become more difficult depending upon the outcome of this issue.
In a 1999 report to Congress, the FCC declined to institute an administrative
proceeding to examine this issue. It is expected that the FCC, Congress, and
state and local regulatory authorities will continue to consider actions in this
area.
The deployment of Digital Subscriber Line technology, known as DSL, allows
Internet access to subscribers at data transmission speeds equal to or greater
than that of modems over conventional telephone lines. Numerous companies,
including telephone companies, have introduced DSL service and certain telephone
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companies are seeking to provide high-speed broadband services, including
interactive online services, without regard to present service boundaries and
other regulatory restrictions. We are unable to predict the likelihood of
success of competing online services offered by our competitors or what impact
these competitive ventures may have on our business and operations.
We expect advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment to occur in the
future. We refer you to the discussion below for a detailed discussion of
legislative and regulatory factors. Other new technologies and services may
develop and may compete with services that our cable communications systems
offer. Consequently, we are unable to predict the effect that ongoing or future
developments might have on our business and operations.
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LEGISLATION AND REGULATION
The Communications Act of 1934, as amended, establishes a national policy
to regulate the development and operation of cable communications systems. The
Communications Act allocates responsibility for enforcing federal policies among
the FCC, and state and local governmental authorities. The courts, and
especially the federal courts, play an important oversight role as these
statutory and regulatory provisions are interpreted and enforced by the various
federal, state and local governmental units.
We expect that court actions and regulatory proceedings will refine the
rights and obligations of various parties, including the government, under the
Communications Act. The results of these judicial and administrative proceedings
may materially affect our business operations. In the following paragraphs, we
summarize the principal federal laws and regulations materially affecting the
growth and operation of the cable communications industry. We also provide a
brief description of certain state and local laws applicable to our businesses.
The Communications Act and FCC Regulations
The Communications Act and the regulations and policies of the FCC affect
significant aspects of our cable system operations, including:
o subscriber rates,
o the content of programming we offer our subscribers, as well as the way
we sell our program packages to subscribers and other video program
distributors,
o the use of our cable systems by local franchising authorities, the
public and other unrelated third parties,
o our franchise agreements with governmental authorities,
o cable system ownership limitations and prohibitions, and
o our use of utility poles and conduit.
Subscriber Rates
The Communications Act and the FCC's regulations and policies limit the
ability of cable systems to raise rates for basic services and equipment in
communities that are not subject to effective competition, as defined by federal
law. Where there is no effective competition, federal law gives franchising
authorities the power to regulate the monthly rates charged by the operator for:
o the lowest level of programming service, typically called basic
service, which generally includes local broadcast channels and public
access or governmental channels required by the operator's franchise,
and
o the installation, sale and lease of equipment used by subscribers to
receive basic service, such as converter boxes and remote control
units.
The FCC has adopted detailed rate regulations, guidelines and rate forms
that we and the franchising authority must use in connection with the regulation
of our basic service and equipment rates. If the franchising authority concludes
that our rates are not in accordance with the FCC's rate regulations, it may
require us to reduce our rates and to refund overcharges to subscribers, with
interest. We may appeal adverse rate decisions to the FCC. Rate regulation of
non-basic cable programming service tiers ended after March 31, 1999.
The Communications Act and the FCC's regulations also:
o prohibit regulation of rates charged by cable operators for programming
offered on a per channel or per program basis, and for multi-channel
groups of non-basic programming,
o require operators to charge uniform rates throughout each franchise
area that is not subject to effective competition,
- 7 -
o prohibit regulation of non-predatory bulk discount rates offered by
operators to subscribers in commercial and residential developments,
and
o permit regulated equipment rates to be computed by aggregating costs of
broad categories of equipment at the franchise, system, regional or
company level.
Over the past few years, we have reached agreements with various
regulatory bodies to resolve outstanding rate disputes. We believe that the
resolution of these proceedings did not have and will not have a material
adverse impact on our financial position, results of operations or liquidity.
Content Requirements
The Communications Act and the FCC's regulations contain broadcast signal
carriage requirements that allow local commercial television broadcast stations:
o to elect once every three years to require a cable communications
system to carry the station, subject to certain exceptions, or
o to negotiate with us on the terms by which we carry the station on our
cable communications system, commonly called retransmission consent.
The Communications Act requires a cable operator to devote up to one-third
of its activated channel capacity for the mandatory carriage of local commercial
television stations. The Communications Act also gives local non-commercial
television stations mandatory carriage rights; however, such stations are not
given the option to negotiate retransmission consent for the carriage of their
signals by cable systems. Additionally, cable systems must obtain retransmission
consent for:
o all "distant" commercial television stations (except for commercial
satellite-delivered independent "superstations" such as WGN),
o commercial radio stations, and
o certain low-power television stations.
The FCC has also initiated an administrative proceeding to consider the
requirements, if any, for the mandatory carriage of digital television signals
offered by local broadcasters. We are unable to predict the outcome of this
proceeding or the impact any new carriage requirements might have on the
operations of our cable systems.
The Communications Act requires our cable systems to permit subscribers to
purchase video programming on a per channel or a per program basis without the
necessity of subscribing to any tier of service, other than the basic cable
service tier. However, we are not required to comply with this requirement until
2002 for any of our cable systems that do not have addressable converter boxes
or that have other substantial technological limitations. A limited number of
our systems do not have the technological capability to offer programming in the
manner required by the statute and thus currently are exempt from complying with
this requirement.
To increase competition between cable operators and other video program
distributors, the Communications Act:
o precludes any satellite video programmer affiliated with a cable
company, or with a common carrier providing video programming directly
to its subscribers, from favoring an affiliated company over
competitors,
o requires such programmers to sell their satellite- delivered
programming to other video program distributors, and
o limits the ability of such programmers to offer exclusive programming
arrangements to their affiliates.
In two administrative decisions, the FCC's Cable Services Bureau concluded
that the program access rules did not apply to terrestrially-delivered
programming, such as Comcast SportsNet, Comcast's 24-hour regional sports
programming network which is available to approximately 2.6 million of our
subscribers in the Philadelphia region. The FCC is currently reviewing the Cable
Services Bureau's decisions.
The Communications Act contains restrictions on the transmission by cable
operators of obscene or indecent programming. It requires cable operators to
block fully both the video and audio portion of sexually explicit or indecent
programming on channels that are primarily dedicated to sexually oriented
programming or alternatively to carry such programming only at "safe harbor"
time periods. A three-judge federal district court determined that this
provision was unconstitutional. The United States Supreme Court is currently
reviewing the lower court's ruling.
The FCC actively regulates other aspects of our programming, involving
such areas as:
o our use of syndicated and network programs and local sports broadcast
programming,
- 8 -
o advertising in children's programming,
o political advertising,
o origination cablecasting,
o sponsorship identification, and
o closed captioning of video programming.
Use of Our Cable Systems by The Government and Unrelated Third Parties
The Communications Act allows franchising authorities and unrelated third
parties to have access to our cable systems' channel capacity. For example, it:
o permits franchising authorities to require cable operators to set aside
channels for public, educational and governmental access programming;
and
o requires a cable system with 36 or more activated channels to designate
a significant portion of its channel capacity for commercial leased
access by third parties to provide programming that may compete with
services offered by the cable operator.
The FCC regulates various aspects of third party commercial use of channel
capacity on our cable systems, including the rates and certain terms and
conditions of the commercial use.
Franchise Matters
Although franchising matters are normally regulated at the local level
through a franchise agreement and/or a local ordinance, the Communications Act
provides oversight and guidelines to govern our relationship with local
franchising authorities. For example, the Communications Act:
o affirms the right of franchising authorities (state or local, depending
on the practice in individual states) to award one or more franchises
within their jurisdictions,
o generally prohibits us from operating in communities without a
franchise,
o encourages competition with our existing cable systems by:
o allowing municipalities to operate cable systems without franchises,
and
o preventing franchising authorities from granting exclusive
franchises or from unreasonably refusing to award additional
franchises covering an existing cable system's service area,
o permits local authorities, when granting or renewing our franchises, to
establish requirements for certain cable-related facilities and
equipment, but prohibits franchising authorities from establishing
requirements for specific video programming or information services
other than in broad categories,
o permits us to obtain modification of our franchise requirements from
the franchise authority or by judicial action if warranted by changed
circumstances,
o generally prohibits franchising authorities from:
o imposing requirements during the initial cable franchising process
or during franchise renewal that require, prohibit or restrict us
from providing telecommunications services,
o imposing franchise fees on revenues we derive from providing
telecommunications services over our cable systems, or
o restricting our use of any type of subscriber equipment or
transmission technology, and
o limits our payment of franchise fees to the local franchising authority
to 5% of our gross revenues derived from providing cable services over
our cable system.
The Communications Act contains procedures designed to protect us against
arbitrary denials of the renewal of our franchises, although a franchising
authority under various conditions could deny us a franchise renewal. Moreover,
even if our franchise is renewed, the franchising authority may seek to impose
upon us new and more onerous requirements such as significant upgrades in
facilities and services or increased franchise fees as a condition of renewal.
Similarly, if a franchising authority's consent is required for the purchase or
sale of our cable system or franchise, the franchising authority may attempt to
impose more burdensome or onerous franchise requirements on us in connection
with a request for such consent. Historically, cable operators providing
satisfactory services to their subscribers and complying with the terms of their
franchises have typically obtained franchise renewals. We believe that we have
generally met the terms of our franchises and have provided quality levels of
service. We anticipate that our future franchise renewal prospects generally
will be favorable.
Various courts have considered whether franchising authorities have the
legal right to limit the number of
- 9 -
franchises awarded within a community and to impose certain substantive
franchise requirements (e.g. access channels, universal service and other
technical requirements). These decisions have been inconsistent and, until the
United States Supreme Court rules definitively on the scope of cable operators'
First Amendment protections, the legality of the franchising process generally
and of various specific franchise requirements is likely to be in a state of
flux.
Ownership Limitations
The Communications Act generally prohibits us from owning or operating a
SMATV or wireless cable system in any area where we provide franchised cable
service. We may, however, acquire and operate SMATV systems in our franchised
service areas if the programming and other services provided to SMATV
subscribers are offered according to the terms and conditions of our franchise
agreement.
The Communications Act also authorizes the FCC to impose nationwide limits
on the number of subscribers under the control of a cable operator. While a
federal district court has declared this limitation to be unconstitutional and
delayed its enforcement, the FCC has reconsidered its cable ownership
regulations and:
o reaffirmed its 30% nationwide subscriber ownership limit, but
maintained its voluntary stay on enforcement of that regulation pending
further court action,
o reaffirmed its subscriber ownership information reporting requirements,
and
o modified its attribution rules that identify when the ownership or
management by us or third parties of other communications businesses,
including cable systems, television broadcast stations and local
telephone companies, may be imputed to us for purposes of determining
our compliance with the FCC's ownership restrictions.
Also pending on appeal is a challenge to the statutory and FCC regulatory
limitations on the number of channels that can be occupied on a cable system by
a video programmer in which a cable operator has an attributable ownership
interest. We are unable to predict the outcome of these judicial and regulatory
proceedings or the impact any ownership restrictions might have on our business
and operations.
The Communications Act eliminated the statutory prohibition on the common
ownership, operation or control of a cable system and a television broadcast
station in the same market. While the FCC has eliminated its regulations which
precluded the cross-ownership of a national broadcasting network and a cable
system, it has not yet completed its review of other regulations which prohibit
the common ownership of other broadcasting interests and cable systems in the
same geographical areas.
The 1996 amendments to the Communications Act made far-reaching changes in
the relationship between local telephone companies and cable service providers.
These amendments:
o eliminated federal legal barriers to competition in the local telephone
and cable communications businesses, including allowing local telephone
companies to offer video services in their local telephone service
areas,
o preempted state and local laws and regulations which impose barriers to
telecommunications competitions,
o set basic standards for relationships between telecommunications
providers, and
o generally limited acquisitions and prohibited certain joint ventures
between local telephone companies and cable operators in the same
market.
Local telephone companies may provide service as traditional cable
operators with local franchises or they may opt to provide their programming
over unfranchised "open video systems," subject to certain conditions,
including, but not limited to, setting aside a portion of their channel capacity
for use by unaffiliated program distributors on a non-discriminatory basis. A
federal appellate court overturned various parts of the FCC's open video rules,
including the FCC's preemption of local franchising requirements for open video
operators. The FCC has modified its open video rules to comply with the federal
court's decision, but we are unable to predict the impact these rule
modifications may have on our business and operations.
Pole Attachment Regulation
The Communications Act requires the FCC to regulate the rates, terms and
conditions imposed by public utilities for cable systems' use of utility pole
and conduit space unless state authorities demonstrate to the FCC that they
adequately regulate pole attachment rates, as is the case in certain states in
which we operate. In the absence of state regulation, the FCC administers pole
attachment rates on a formula basis. The FCC's current rate formula, which is
being reevaluated by the FCC, governs the maximum rate certain utilities may
charge for attachments to their poles and conduit by cable operators providing
- 10 -
only cable services and, until 2001, by certain companies providing
telecommunications services. The FCC also adopted a second rate formula that
will be effective in 2001 and will govern the maximum rate certain utilities may
charge for attachments to their poles and conduit by companies providing
telecommunications services, including cable operators.
Any resulting increase in attachment rates due to the FCC's new rate
formula will be phased in over a five-year period in equal annual increments,
beginning in February 2001. Several parties have requested the FCC to reconsider
its new regulations and several parties have challenged the new rules in court.
A federal appellate court recently upheld the constitutionality of the new
statutory provision which requires that utilities provide cable systems and
telecommunications carriers with nondiscriminatory access to any pole, conduit
or right-of-way controlled by the utility. We are unable to predict the outcome
of the legal challenge to the FCC's new regulations or the ultimate impact any
revised FCC rate formula or any new pole attachment rate regulations might have
on our business and operations.
Other Regulatory Requirements of the Communications Act and the FCC
The Communications Act also includes provisions, among others, regulating:
o customer service,
o subscriber privacy,
o marketing practices,
o equal employment opportunity, and
o technical standards and equipment compatibility.
The FCC actively regulates other parts of our cable operations and has
adopted regulations implementing its authority under the Communications Act.
The FCC may enforce its regulations through the imposition of substantial
fines, the issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in connection with cable
operations. The FCC has ongoing rulemaking proceedings that may change its
existing rules or lead to new regulations. We are unable to predict the impact
that any further FCC rule changes may have on our business and operations.
Other bills and administrative proposals pertaining to cable
communications have previously been introduced in Congress or have been
considered by other governmental bodies over the past several years. It is
probable that further attempts will be made by Congress and other governmental
bodies relating to the regulation of cable communications services.
Copyright
Our cable communications systems provide our subscribers with local and
distant television and radio broadcast signals which are protected by the
copyright laws. We generally do not obtain a license to use this programming
directly from the owners of the programming; instead we comply with an
alternative federal copyright licensing process. In exchange for filing certain
reports and contributing a percentage of our revenues to a federal copyright
royalty pool, we obtain blanket permission to retransmit copyrighted material.
In a report to Congress, the U.S. Copyright Office recommended that
Congress make major revisions to both the cable television and satellite
compulsory licenses. Congress recently modified the satellite compulsory license
in a manner that permits DBS providers to become more competitive with cable
operators like us. The possible simplification, modification or elimination of
the cable communications compulsory copyright license is the subject of
continuing legislative review. The elimination or substantial modification of
the cable compulsory license could adversely affect our ability to obtain
suitable programming and could substantially increase the cost of programming
that remains available for distribution to our subscribers. We are unable to
predict the outcome of this legislative activity.
Our cable communications systems often utilize music in the programs we
provide to subscribers including local advertising, local origination
programming and pay-per-view events. The right to use this music is controlled
by music performance rights societies who negotiate on behalf of their copyright
owners for license fees covering each performance. The cable industry and one of
these societies have agreed upon a standard licensing agreement covering the
performance of music contained in programs originated by cable operators and in
pay-per-view events. Negotiations on a similar licensing agreement are in
process with another music performance rights organization. Rate courts
established by a federal court exist to determine appropriate copyright coverage
and payments in the event the parties fail to reach a negotiated settlement. We
are unable to predict the outcome of these proceedings or the amount of any
license fees we may be required to pay for the use of music. We do not believe
that the amount of such fees will be significant to our financial position,
results of operations or liquidity.
- 11 -
State and Local Regulation
Our cable systems use local streets and rights-of-way. Consequently, we
must comply with state and local regulation which is typically imposed through
the franchising process. The terms and conditions of our franchises vary
materially from jurisdiction to jurisdiction. Each franchise generally contains
provisions governing:
o cable service rates,
o franchise fees,
o franchise term,
o system construction and maintenance obligations,
o system channel capacity,
o design and technical performance,
o customer service standards,
o franchise renewal,
o sale or transfer of the franchise,
o service territory of the franchisee,
o indemnification of the franchising authority,
o use and occupancy of public streets, and
o types of cable services provided.
A number of states subject cable systems to the jurisdiction of state
governmental agencies. Those states in which we operate that have enacted such
state level regulation are Connecticut, New Jersey and Delaware. State and local
franchising jurisdiction is not unlimited, however; it must be exercised
consistently with federal law. The Communications Act immunizes franchising
authorities from monetary damage awards arising from the regulation of cable
systems or decisions made on franchise grants, renewals, transfers and
amendments.
The summary of certain federal and state regulatory requirements in the
preceding pages does not describe all present and proposed federal, state and
local regulations and legislation affecting the cable industry. Other existing
federal regulations, copyright licensing, and, in many jurisdictions, state and
local franchise requirements, are currently the subject of judicial proceedings,
legislative hearings and administrative proposals which could change, in varying
degrees, the manner in which cable systems operate. We are unable to predict the
outcome of these proceedings or their impact upon our cable operations at this
time.
EMPLOYEES
As of December 31, 1999, we had approximately 12,000 employees. We believe
that our relationships with our employees are good.
ITEM 2 PROPERTIES
A central receiving apparatus, distribution cables, converters, customer
service call centers and local business offices are the principal physical
assets of a cable communications system. We own or lease the receiving and
distribution equipment of each system and own or lease parcels of real property
for the receiving sites, customer service call centers and local business
offices. In order to keep pace with technological advances, we are maintaining,
periodically upgrading and rebuilding the physical components of our cable
communications systems.
We believe that substantially all of our physical assets are in good
operating condition.
ITEM 3 LEGAL PROCEEDINGS
We are subject to legal proceedings and claims which arise in the ordinary
course of our business. In the opinion of our management, the amount of ultimate
liability with respect to these actions will not materially affect our financial
position, results of operations or liquidity.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information for this Item is omitted pursuant to SEC General Instruction I
to Form 10-K.
- 12 -
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Common Stock
Absence of Trading Market
Our common stock is not publicly traded. Therefore, there is no established
public trading market for the common stock, and none is expected to develop in
the foreseeable future.
Holder
All of our shares of common stock, $1.00 par value, are owned by Comcast
Corporation.
Dividends
None.
ITEM 6 SELECTED FINANCIAL DATA
Information for this item is omitted pursuant to SEC General Instruction I to
Form 10-K.
- 13 -
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information for this item is omitted pursuant to SEC General Instruction I
to Form 10-K, except as noted below.
Liquidity and Capital Resources
Financing
See Note 5 to our consolidated financial statements included in Item 8.
Interest Rate Risk Management
We are exposed to market risk including changes in interest rates. To
manage the volatility relating to these exposures, we enter into various
derivative transactions pursuant to our policies in areas such as counterparty
exposure and hedging practices. Positions are monitored using techniques
including market value and sensitivity analyses. We do not hold or issue any
derivative financial instruments for trading purposes and are not a party to
leveraged instruments. The credit risks associated with our derivative financial
instruments are controlled through the evaluation and monitoring of the
creditworthiness of the counterparties. Although we may be exposed to losses in
the event of nonperformance by the counterparties, we do not expect such losses,
if any, to be significant.
The use of interest rate risk management instruments, such as interest
rate exchange agreements ("Swaps"), interest rate cap agreements ("Caps") and
interest rate collar agreements ("Collars"), is required under the terms of
certain of our outstanding debt agreements. Our policy is to manage interest
costs using a mix of fixed and variable rate debt. Using Swaps, we agree to
exchange, at specified intervals, the difference between fixed and variable
interest amounts calculated by reference to an agreed-upon notional principal
amount. Caps are used to lock in a maximum interest rate should variable rates
rise, but enable us to otherwise pay lower market rates. Collars limit our
exposure to and benefits from interest rate fluctuations on variable rate debt
to within a certain range of rates.
During the year ended December 31, 1999, we entered into Swaps with an
aggregate notional amount of $300.0 million and, as part of Comcast
Corporation's ("Comcast") contribution of a controlling interest in Jones
Intercable, Inc. ("Jones Intercable") to us, we acquired Swaps with an aggregate
notional amount of $400.0 million. Swaps with an aggregate notional amount of
$150.0 million either were terminated or expired during the year ended December
31, 1999.
The table set forth below summarizes the fair values and contract terms of
financial instruments subject to interest rate risk maintained by us as of
December 31, 1999 (dollars in millions):
Expected Maturity Date
--------------------------------------------------------------------------------------
Fair
Value at
2000 2001 2002 2003 2004 Thereafter Total 12/31/99
-------- --------- ---------- ---------- ---------- ------------- ---------- -----------
Debt
Fixed Rate..................... $2.6 $5.2 $200.1 $0.1 $299.9 $2,736.0 $3,243.9 $3,227.5
Average Interest Rate....... 10.0% 10.0% 9.6% 10.0% 8.1% 7.9% 8.0%
Variable Rate.................. $200.0 $88.0 $316.6 $699.4 $240.0 $150.0 $1,694.0 $1,694.0
Average Interest Rate....... 7.3% 7.6% 7.6% 7.6% 7.5% 7.6% 7.5%
Interest Rate Instruments
Variable to Fixed Swaps........ $50.0 $100.0 $150.0 $300.0 $6.4
Average Pay Rate............ 6.5% 5.3% 5.5% 5.6%
Average Receive Rate........ 6.7% 7.1% 7.0% 7.0%
Fixed to Variable Swaps........ $300.0 $300.0 ($3.9)
Average Pay Rate............ 8.6% 8.6%
Average Receive Rate........ 8.1% 8.1%
Caps........................... $140.0 $140.0
Average Cap Rate............ 6.8% 6.8%
Collar......................... $50.0 $50.0 $0.1
Average Cap Rate............ 6.3% 6.3%
Average Floor Rate.......... 4.0% 4.0%
-14-
The notional amounts of interest rate instruments, as presented in the
table above are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts. Interest
rates on variable debt are estimated by us using the average implied forward
London Interbank Offer Rate ("LIBOR") rates for the year of maturity based on
the yield curve in effect at December 31, 1999, plus the borrowing margin in
effect for each credit facility at December 31, 1999. Average receive rates on
the Variable to Fixed Swaps are estimated by us using the average implied
forward LIBOR rates for the year of maturity based on the yield curve in effect
at December 31, 1999. While Swaps, Caps and Collars represent an integral part
of our interest rate risk management program, their incremental effect on
interest expense for the years ended December 31, 1999, 1998 and 1997 was not
significant.
Year 2000 Readiness Disclosure
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000 (the "Year 2000 Issue"). If this situation
occurs, the potential exists for computer system failure or miscalculations by
computer programs, which could cause disruption of operations. We evaluated and
addressed the impact of the Year 2000 Issue on our operations to ensure that our
information technology and business systems recognize calendar Year 2000. We
utilized both internal and external resources in implementing our Year 2000
program.
Based on an inventory conducted in 1997, we identified computer systems
that required modification or replacement so that they would properly utilize
dates beyond December 31, 1999. Many of our critical systems were new and were
already Year 2000 compliant as a result of the recent rebuild of many of our
cable communications systems. In addition, we have communicated with our
significant software suppliers and service bureaus to determine their plans for
remediating the Year 2000 Issue in their software which we use or rely upon.
As of December 31, 1999, we have completed our Year 2000 remediation
program. We believe that all key systems are Year 2000 compliant and as of March
13, 2000 we have incurred no significant disruption in operations. Further,
contingency plans have been created for our key systems and operations.
Additionally, in the majority of our operations, business continuity
preparations have been implemented to create post-Year 2000 response teams to
further mitigate Year 2000 risk. There can be no guarantee that the systems of
other companies on which we rely are Year 2000 compliant, or that a failure to
be Year 2000 compliant by another company would not have a material adverse
effect on us.
Through December 31, 1999, we have incurred approximately $9.0 million in
connection with our Year 2000 remediation program.
Our management will continue to periodically report the results of our
Year 2000 remediation program to the Audit Committee of Comcast's Board of
Directors.
- 15 -
Results of Operations
We are a wholly owned subsidiary of Comcast. The effects of Comcast's
contribution of a controlling interest in Jones Intercable to us in April 1999
and the effects of our recent acquisitions were to increase our revenues and
expenses, resulting in increases in our operating income before depreciation and
amortization. On March 2, 2000, the Jones Intercable shareholders approved the
merger of Jones Intercable with and into Comcast's wholly owned subsidiary,
Comcast JOIN Holdings, Inc. In connection with the closing of the merger, we
exchanged our 39.6% interest in Jones Intercable for approximately 23.3 million
shares of Comcast Class A Special Common Stock. As such, beginning March 2,
2000, the results of Jones Intercable will not be included in our consolidated
financial statements. Our summarized consolidated financial information for the
years ended December 31, 1999 and 1998 is as follows (dollars in millions, "NM"
denotes percentage is not meaningful):
Year Ended
December 31, Increase / (Decrease)
1999 1998 $ %
---------- ---------- ---------- -----------
Service income.................................................. $2,906.5 $2,277.4 $629.1 27.6%
Operating, selling, general and administrative expenses......... 1,927.7 1,493.0 434.7 29.1
---------- ----------
Operating income before depreciation and
amortization (1)............................................. 978.8 784.4 194.4 24.8
Depreciation and amortization................................... 1,017.7 674.1 343.6 51.0
---------- ----------
Operating (loss) income......................................... (38.9) 110.3 (149.2) NM
---------- ----------
Interest expense................................................ 352.9 223.6 129.3 57.8
Interest expense on notes payable to affiliates................. 10.0 52.1 (42.1) (80.8)
Investment income............................................... (6.8) (6.7) 0.1 1.5
Other expense (income).......................................... 6.6 (8.7) 15.3 NM
Income tax benefit.............................................. (46.2) (35.8) 10.4 29.1
Minority interest income........................................ (107.9) (17.0) 90.9 NM
Extraordinary items............................................. 6.2 0.1 6.1 NM
---------- ----------
Net loss........................................................ ($253.7) ($97.3) $156.4 NM
========== ==========
<FN>
- ------------
(1) Operating income before depreciation and amortization is commonly referred
to in the cable communications business 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 cable communications business and the resulting
significant level of non-cash depreciation and amortization expense,
operating cash flow is frequently used as one of the bases for comparing
businesses in the cable communications industry, although our measure of
operating cash flow may not be comparable to similarly titled measures of
other companies. Operating cash flow is the primary basis used by our
management to measure the operating performance of our business. Operating
cash flow does not purport to represent net income or net cash provided by
operating activities, as those terms are defined under generally accepted
accounting principles, and should not be considered as an alternative to
such measurements as an indicator of our performance.
</FN>
Service Income
Of the $629.1 million increase in service income from 1998 to 1999, $425.5
million is attributable to the effects of Comcast's contribution of Jones
Intercable to us in April 1999 and the acquisitions of cable communications
systems, $27.1 million is attributable to subscriber growth, $83.6 million
relates to the changes in rates, $21.9 million is attributable to growth in
cable advertising sales and $71.0 million relates to other product offerings,
including the increase in digital cable and cable modem services.
Operating, Selling, General and Administrative Expenses
See Note 7 to our consolidated financial statements included in Item 8.
Of the $434.7 million increase in operating, selling, general and
administrative expenses from 1998 to 1999, $301.5 million is attributable to the
effects of Comcast's contribution of Jones Intercable to us in April 1999 and
the acquisitions of cable communications systems, $54.5 million is attributable
to an increase in the costs of cable
- 16 -
programming as a result of subscriber growth, additional channel offerings and
changes in rates, $3.4 million is attributable to growth in cable advertising
sales and $75.3 million results from an increase in the costs of labor, other
volume related expenses and costs associated with new product offerings. It is
anticipated that our cost of cable programming will increase in the future as
cable programming rates increase and additional sources of cable programming
become available.
Depreciation and Amortization Expense
The $343.6 million increase from 1998 to 1999 is primarily attributable to
the effects of Comcast's contribution of Jones Intercable to us in April 1999,
the effects of our capital expenditures and the effects of our acquisitions of
cable communications systems.
Interest Expense
The $129.3 million increase from 1998 to 1999 is primarily due to the
effects of Comcast's contribution of Jones Intercable to us in April 1999 and to
the issuance in November 1998 of our $800.0 million aggregate principal amount
6.20% Senior notes due 2008.
We anticipate that, for the foreseeable future, interest expense will be a
significant cost to us and will have a significant adverse effect on our ability
to realize net earnings. We believe we will continue to be able to meet our
obligations through our ability both to generate operating income before
depreciation and amortization and to obtain external financing.
Interest Expense on Notes Payable to Affiliates
The $42.1 million decrease from 1998 to 1999 is primarily attributable to
the elimination of outstanding notes payable to affiliates as a result of a
capital contribution from Comcast.
Other Expense (Income)
The $6.6 million of other expense for the year ended December 31, 1999
relates primarily to the non-cable operations of Jones Intercable.
In July 1998, AT&T Corp. ("AT&T") completed its merger with Teleport
Communications Group, Inc. ("Teleport"). Upon closing of the merger, we received
260,298 shares (as adjusted for AT&T's 3-for-2 stock split in April 1999) of
AT&T common stock in exchange for the 184,022 shares of Teleport Class B Common
Stock held by us. As a result of the exchange, we recognized a pre-tax gain of
$7.9 million during 1998, representing the difference between the fair value of
the AT&T stock received by us and our basis in Teleport.
Income Tax Benefit
The $10.4 million increase from 1998 to 1999 is primarily attributable to
the increase in our loss before income tax benefit, minority interest and
extraordinary items.
Minority Interest Income
The $90.9 million increase from 1998 to 1999 is attributable to the
effects of Comcast's contribution of Jones Intercable to us in April 1999 and to
increases in the net loss of our majority owned subsidiary, Comcast MHCP
Holdings, L.L.C. in 1999 as compared to 1998.
Extraordinary Items
In December 1999, we repaid $200.0 million in notes payable to insurance
companies. In connection with this repayment, we incurred debt extinguishment
costs of $9.2 million and wrote off unamortized debt issue costs of $0.3
million, resulting in an extraordinary loss, net of tax, of $6.2 million during
the year ended December 31, 1999.
We believe that our operations are not materially affected by inflation.
- 17 -
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Comcast Cable Communications, Inc.
Wilmington, Delaware
We have audited the accompanying consolidated balance sheet of Comcast Cable
Communications, Inc. (a wholly owned subsidiary of Comcast Corporation) and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholder's equity and of cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did not
audit the financial statements of Jones Intercable. Inc. ("Jones") (a
consolidated subsidiary), which statements reflect total assets constituting 18%
of consolidated total assets as of December 31, 1999, and total revenues
constituting 14% of consolidated total revenues for the year then ended. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Jones, is
based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Comcast Cable Communications, Inc. and subsidiaries as of
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 24, 2000 (except for Note 3
as to which the date is March 2, 2000)
- 18 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions, except share data)
December 31,
1999 1998
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................................................... $61.0 $34.5
Investments......................................................................... 0.4 13.4
Cash held by an affiliate........................................................... 34.0 57.1
Accounts receivable, less allowance for doubtful accounts of $31.2 and $19.4........ 128.4 90.9
Inventories......................................................................... 53.8 34.6
Other current assets................................................................ 29.7 14.9
--------- ---------
Total current assets........................................................... 307.3 245.4
--------- ---------
INVESTMENTS............................................................................ 119.4 4.9
--------- ---------
PROPERTY AND EQUIPMENT................................................................. 4,300.2 3,276.5
Accumulated depreciation............................................................ (1,477.4) (1,180.4)
--------- ---------
Property and equipment, net......................................................... 2,822.8 2,096.1
--------- ---------
DEFERRED CHARGES
Franchise and license acquisition costs............................................. 3,898.6 3,833.1
Excess of cost over net assets acquired and other................................... 5,111.4 2,038.4
--------- ---------
9,010.0 5,871.5
Accumulated amortization............................................................ (2,291.7) (1,768.5)
--------- ---------
Deferred charges, net............................................................... 6,718.3 4,103.0
--------- ---------
$9,967.8 $6,449.4
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses............................................... $510.2 $324.0
Accrued interest.................................................................... 62.6 35.4
Deferred income taxes, due to affiliate............................................. 4.6
Current portion of long-term debt................................................... 202.6 0.1
Due to affiliates................................................................... 160.2 166.6
--------- ---------
Total current liabilities...................................................... 935.6 530.7
--------- ---------
LONG-TERM DEBT, less current portion................................................... 4,735.3 3,462.1
--------- ---------
MINORITY INTEREST AND OTHER............................................................ 188.3 181.8
--------- ---------
NOTES PAYABLE TO AFFILIATES............................................................ 134.6
--------- ---------
DUE TO AFFILIATE....................................................................... 664.2 524.8
--------- ---------
DEFERRED INCOME TAXES, due to affiliate................................................ 1,635.6 1,442.4
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock, $1 par value - authorized and issued, 1,000 shares....................
Additional capital.................................................................. 4,931.4 3,066.2
Accumulated deficit................................................................. (3,150.1) (2,896.4)
Accumulated other comprehensive income.............................................. 27.5 3.2
--------- ---------
Total stockholder's equity..................................................... 1,808.8 173.0
--------- ---------
$9,967.8 $6,449.4
========= =========
See notes to consolidated financial statements.
- 19 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions)
Year Ended December 31,
1999 1998 1997
---------- ---------- ----------
SERVICE INCOME......................................................... $2,906.5 $2,277.4 $2,073.0
---------- ---------- ----------
COSTS AND EXPENSES
Operating........................................................... 1,242.4 972.5 884.1
Selling, general and administrative................................. 685.3 520.5 479.5
Depreciation and amortization....................................... 1,017.7 674.1 626.1
---------- ---------- ----------
2,945.4 2,167.1 1,989.7
---------- ---------- ----------
OPERATING (LOSS) INCOME................................................ (38.9) 110.3 83.3
OTHER (INCOME) EXPENSE
Interest expense.................................................... 352.9 223.6 227.9
Interest expense on notes payable to affiliates..................... 10.0 52.1 37.3
Investment income................................................... (6.8) (6.7) (5.1)
Other expense (income).............................................. 6.6 (8.7) (0.1)
---------- ---------- ----------
362.7 260.3 260.0
---------- ---------- ----------
LOSS BEFORE INCOME TAX BENEFIT, MINORITY
INTEREST AND EXTRAORDINARY ITEMS.................................... (401.6) (150.0) (176.7)
INCOME TAX BENEFIT..................................................... 46.2 35.8 43.6
---------- ---------- ----------
LOSS BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEMS.................. (355.4) (114.2) (133.1)
MINORITY INTEREST INCOME............................................... 107.9 17.0 21.0
---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY ITEMS........................................ (247.5) (97.2) (112.1)
EXTRAORDINARY ITEMS.................................................... (6.2) (0.1) (16.7)
---------- ---------- ----------
NET LOSS............................................................... ($253.7) ($97.3) ($128.8)
========== ========== ==========
See notes to consolidated financial statements.
- 20 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
Year Ended December 31,
1999 1998 1997
---------- ---------- ----------
OPERATING ACTIVITIES
Net loss............................................................... ($253.7) ($97.3) ($128.8)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization....................................... 1,017.7 674.1 626.1
Non-cash interest expense........................................... 0.9 0.4 1.4
Non-cash interest expense on notes payable to affiliates............ 5.0 2.3 1.2
Deferred expenses charged by an affiliate........................... 139.4 126.0 107.0
(Gain) loss on sales of investments................................. (0.9) (7.9) 1.6
Minority interest income............................................ (107.9) (17.0) (21.0)
Extraordinary items................................................. 6.2 0.1 16.7
Deferred income tax benefit, due to affiliate....................... (71.2) (43.1) (49.7)
Other............................................................... (2.0) (0.8)
---------- ---------- ----------
733.5 636.8 554.5
Changes in working capital.......................................... 48.4 64.3 (5.0)
---------- ---------- ----------
Net cash provided by operating activities......................... 781.9 701.1 549.5
---------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from borrowings............................................... 176.6 1,724.9 1,805.8
Repayments of long-term debt........................................... (201.6) (870.9) (2,395.1)
Proceeds from notes payable to affiliates.............................. 40.3 137.4 699.1
Repayment of notes payable to affiliates............................... (40.3) (700.3) (104.7)
Capital contributions from parent...................................... 960.1
Net transactions with affiliates....................................... (6.4) 41.0 (26.7)
Deferred financing costs and other..................................... 8.1 (12.0) (15.8)
---------- ---------- ----------
Net cash provided by (used in) financing activities............... 936.8 320.1 (37.4)
---------- ---------- ----------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired..................................... (41.8) (259.7) (7.1)
(Purchases) sales of short-term investments............................ (0.1) 0.1 21.6
Investments in affiliates, net......................................... (744.1)
Capital expenditures................................................... (731.8) (711.1) (497.8)
Decrease (increase) in cash held by an affiliate....................... 23.1 (0.5) (3.1)
Additions to deferred charges and other................................ (197.5) (56.2) (23.4)
---------- ---------- ----------
Net cash used in investing activities............................. (1,692.2) (1,027.4) (509.8)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................... 26.5 (6.2) 2.3
CASH AND CASH EQUIVALENTS, beginning of year 34.5 40.7 38.4
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year $61.0 $34.5 $40.7
========== ========== ==========
See notes to consolidated financial statements.
- 21 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(Dollars in millions)
Notes Accumulated
Receivable Other
Common Additional Accumulated from Comprehensive
Stock Capital Deficit Affiliate (Loss) Income Total
------ --------- ---------- ---------- ----------- ---------
BALANCE, JANUARY 1, 1997.............................. $ $3,050.6 ($2,124.0) ($829.9) ($1.4) $95.3
Comprehensive loss:
Net loss........................................... (128.8)
Change in unrealized loss on marketable securities,
net of deferred taxes of $0.7................... 1.4
Total comprehensive loss........................... (127.4)
Interest income on notes receivable from affiliate. 23.9 (23.9)
Income taxes on interest income on notes receivable
from affiliate.................................. (8.3) (8.3)
Exchange of outstanding notes payable to and
notes receivable from affiliates................ 307.5 307.5
Elimination of outstanding notes receivable from
affiliate through a non-cash dividend to Comcast (546.3) 546.3
------- --------- ---------- ---------- ----------- ---------
BALANCE, DECEMBER 31, 1997............................ 3,066.2 (2,799.1) 267.1
Comprehensive loss:
Net loss........................................... (97.3)
Unrealized gains on marketable securities,
net of deferred taxes of $1.7................... 3.2
Total comprehensive loss........................... (94.1)
------- --------- ---------- ---------- ----------- ---------
BALANCE, DECEMBER 31, 1998............................ 3,066.2 (2,896.4) 3.2 173.0
Comprehensive loss: (253.7)
Net loss...........................................
Unrealized gains on marketable securities,
net of deferred taxes of $13.0.................. 24.3
Total comprehensive loss........................... (229.4)
Capital contributions from parent.................. 1,865.2 1,865.2
------- --------- ---------- ---------- ----------- ---------
BALANCE, DECEMBER 31, 1999............................ $ $4,931.4 ($3,150.1) $ $27.5 $1,808.8
======= ========= ========== ========== =========== =========
See notes to consolidated financial statements.
- 22 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. BUSINESS
Comcast Cable Communications, Inc., a Delaware corporation, and
subsidiaries (the "Company") is a wholly owned subsidiary of Comcast
Corporation ("Comcast"). The Company and its subsidiaries are engaged in
the development, management and operation of broadband cable networks. The
Company's systems served approximately 5.6 million subscribers and passed
approximately 9.4 million homes as of December 31, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER ITEMS
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly owned or controlled subsidiaries. All significant
intercompany accounts and transactions among consolidated entities have
been eliminated.
Reorganization
On April 24, 1997, Comcast completed a restructuring of the legal
organization of certain of its subsidiaries (the "Reorganization"). The
Reorganization involved Comcast's contribution to the Company of ownership
interests in certain of its consolidated subsidiaries, all of which were
under Comcast's direct or indirect control (the "Contributed
Subsidiaries"). The Reorganization has been accounted for in a manner
similar to a pooling of interests. Accordingly, the Company's consolidated
financial statements include the accounts of the Contributed Subsidiaries
for the entire year ended December 31, 1997.
In addition, certain expenses directly related to the Company's operations
which were historically paid by Comcast on behalf of the Company have been
reflected in the Company's consolidated statement of operations for the
entire year ended December 31, 1997.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Values
The estimated fair value amounts presented in these notes to consolidated
financial statements have been determined by the Company using available
market information and appropriate methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates
of fair value. The estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts. Such fair value estimates are based on pertinent information
available to management as of December 31, 1999 and 1998, and have not
been comprehensively revalued for purposes of these consolidated financial
statements since such dates.
A reasonable estimate of fair value of the amounts due to affiliates in
the Company's consolidated balance sheet is not practicable to obtain
because of the related party nature of these items and the lack of quoted
market prices.
Cash Equivalents and Cash Held by an Affiliate
Cash equivalents principally consist of repurchase agreements with
maturities of three months or less when purchased. The carrying amounts of
the Company's cash equivalents approximate their fair values.
Cash held by an affiliate consists of cash held by a subsidiary of Comcast
under a cash management program (see Note 7).
- 23 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
Investments
Investments consist principally of equity securities and certificates of
deposit with maturities of greater than three months when purchased.
Investments in entities in which the Company has the ability to exercise
significant influence over the operating and financial policies of the
investee are accounted for under the equity method. Equity method
investments are recorded at original cost and adjusted periodically to
recognize the Company's proportionate share of the investees' net income
or losses after the date of investment, additional contributions made and
dividends received.
Unrestricted publicly traded investments are classified as available for
sale and recorded at their fair value, with unrealized gains or losses
resulting from changes in fair value between measurement dates recorded as
a component of other comprehensive income.
Restricted publicly traded investments and investments in privately held
companies are stated at cost, adjusted for any known diminution in value.
Inventories
Inventories, which include materials and supplies, are stated at average
cost which is less than market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over estimated useful lives as follows:
Buildings and improvements ......................... 10-40 years
Operating facilities................................ 5-20 years
Other equipment..................................... 2-10 years
Improvements that extend asset lives are capitalized; other repairs and
maintenance charges are expensed as incurred. The cost and related
accumulated depreciation applicable to assets sold or retired are removed
from the accounts and the gain or loss on disposition is recognized as a
component of depreciation expense.
In connection with the rebuild and upgrade of cable systems, the Company
depreciates the remaining net book value of the assets over the estimated
rebuild or upgrade period. Under this policy, the Company recorded
additional depreciation expense of $19.7 million, $34.4 million and $24.6
million during the years ended December 31, 1999, 1998 and 1997,
respectively.
Capitalized Costs
The costs associated with the construction of cable transmission and
distribution facilities and new cable service installations are
capitalized. Costs include all direct labor and materials as well as
certain indirect costs.
Deferred Charges
Franchise and license acquisition costs are amortized on a straight-line
basis over their legal or estimated useful lives of 1 to 40 years. The
excess of cost over the fair value of net assets acquired is being
amortized on a straight-line basis over estimated useful lives of 20 to 40
years. Debt issue costs are being amortized on a straight-line basis over
the term of the related debt.
- 24 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
Valuation of Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets, including property and equipment and deferred charges, using
objective methodologies whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. Such
methodologies include evaluations based on the cash flows generated by the
underlying assets, profitability information, including estimated future
operating results, trends or other determinants of fair value. If the
total of the expected future undiscounted cash flows is less than the
carrying amount, a loss is recognized for the difference between the fair
value and the carrying value of the asset.
Revenue Recognition
Service income is recognized as service is provided. Credit risk is
managed by disconnecting services to customers who are delinquent.
Postretirement and Postemployment Benefits
The estimated costs of retiree benefits and benefits for former or
inactive employees, after employment but before retirement, are accrued
and recorded as a charge to operations during the years the employees
provide services. The Company's retiree benefit obligation is unfunded and
all benefits are provided and paid by Comcast. Accordingly, the Company's
liability for these costs is included in due to affiliates.
Investment Income
Investment income includes interest income and gains, net of losses, on
the sale or exchange of marketable securities and long-term investments.
Gross realized gains and losses are recognized using the specific
identification method.
Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities and expected benefits of utilizing net
operating loss carryforwards. The impact on deferred taxes of changes in
tax rates and laws, if any, applied to the years during which temporary
differences are expected to be settled, are reflected in the consolidated
financial statements in the period of enactment.
Derivative Financial Instruments
The Company uses derivative financial instruments, including interest rate
exchange agreements ("Swaps"), interest rate cap agreements ("Caps") and
interest rate collar agreements ("Collars"), to manage its exposure to
fluctuations in interest rates. Swaps, Caps and Collars are matched with
either fixed or variable rate debt and periodic cash payments are accrued
on a settlement basis as an adjustment to interest expense. Any premiums
associated with these instruments are amortized over their term and
realized gains or losses as a result of the termination of the instruments
are deferred and amortized over the remaining term of the underlying debt.
Unrealized gains and losses as a result of these instruments are
recognized when the underlying hedged item is extinguished or otherwise
terminated.
Those instruments that have been entered into by the Company to hedge
exposure to interest rate risk are periodically examined by the Company to
ensure that the instruments are marked with underlying liabilities, reduce
the Company's risks relating to interest rates, and, through market value
and sensitivity analysis, maintain a high correlation to the interest
expense of the hedged item. For those instruments that do not meet the
above criteria, variations in their fair value are marked-to-market on a
current basis in the Company's consolidated statement of operations.
The Company does not hold or issue any derivative financial instruments
for trading purposes and is not a party to leveraged instruments (see Note
5). The credit risks associated with the Company's derivative financial
instruments are controlled through the evaluation and monitoring of the
creditworthiness of the counterparties.
- 25 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
Although the Company may be exposed to losses in the event of
nonperformance by the counterparties, the Company does not expect such
losses, if any, to be significant.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivatives and hedging
activities. Upon the adoption of SFAS No. 133, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In July 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - an
amendment of FASB Statement No. 133" deferring the effective date for
implementation of SFAS No. 133 to fiscal years beginning after June 15,
2000. The Company is currently evaluating the impact the adoption of SFAS
No. 133 will have on its financial position and results of operations.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 1999.
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Acquisition of CalPERS' Interest in Jointly Owned Cable Properties
In February 2000, the Company acquired the California Public Employees
Retirement System's ("CalPERS") 45% interest in Comcast MHCP Holdings,
L.L.C. ("Comcast MHCP"), a 55% owned consolidated subsidiary of the
Company which serves approximately 642,000 cable subscribers in Michigan,
New Jersey and Florida pursuant to an agreement entered into in December
1999. The Company now owns 100% of Comcast MHCP. The consideration was
$750.0 million in cash and was funded with the proceeds from a capital
contribution that the Company received from Comcast (see Note 7).
Jones Intercable Agreement
In May 1998, Comcast agreed to purchase from BCI Telecom Holding ("BTH")
6.4 million Class A Common Shares in Jones Intercable, Inc. ("Jones
Intercable"), and a 49% interest in the BTH subsidiaries which were to
continue to own BTH's remaining 6.4 million shares of Jones Intercable
Class A Common Stock. At the same time, Comcast agreed to acquire
approximately 2.9 million shares of Common Stock of Jones Intercable (the
"Control Shares"), if and when acquired by BTH from affiliates of Jones
Intercable's controlling shareholder under an existing option (the
"Control Option") to acquire such shares (which absent extraordinary
circumstances would not have been exercisable until December 2001).
Comcast was to purchase the remaining 51% of the BTH subsidiaries when the
Control Shares were acquired. Comcast, BTH, Jones Intercable and Jones
Intercable's controlling shareholder agreed in August 1998 to accelerate
the Control Option to permit its early exercise and the early closing of
the transactions with BTH. The transaction closed in April 1999. Comcast
paid $706.3 million in cash to acquire the 12.8 million shares of Jones
Intercable Class A Common Stock and the Control Shares. In June 1999,
Comcast purchased an additional 1.0 million shares of Jones Intercable
Class A Common Stock for $50.0 million through a private transaction.
Comcast contributed its interest in Jones Intercable to the Company. In
connection with Comcast's contribution of Jones Intercable to the Company,
the Company assumed $1.499 billion of Jones Intercable debt (see Note 5).
As a result, the Company controlled 39.6% of the economic and 48.3% of the
voting interest in Jones Intercable. In addition, the Control Shares
represent shares having the right to elect approximately 75% of the Board
of Directors of Jones Intercable. Jones Intercable is a public company,
which owns cable operations serving approximately 1.1 million subscribers.
The acquisition was accounted for under the purchase method of accounting.
As such, the operating results of Jones Intercable have been included in
the Company's consolidated statement of operations from the acquisition
date. The allocation of the purchase price to the assets and liabilities
of Jones Intercable is preliminary pending completion of final appraisals.
As the contribution of Jones
- 26 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
Intercable to the Company was a non-cash transaction, it had no impact on
the Company's consolidated statement of cash flows.
In December 1999, Comcast entered into a merger agreement with Jones
Intercable to acquire all of the remaining shares of Jones Intercable not
currently owned by the Company. Under the terms of the merger agreement,
Jones Intercable shareholders, including the Company, received 1.4 shares
of Comcast's Class A Special Common Stock for each share of Jones
Intercable Class A Common Stock and Common Stock. On March 2, 2000, the
Jones Intercable shareholders approved the merger. In connection with the
closing of the merger, the Company exchanged its 39.6% interest in Jones
Intercable for approximately 23.3 million shares of Comcast Class A
Special Common Stock. As such, beginning March 2, 2000, the results of
Jones Intercable will not be included in the Company's consolidated
financial statements.
Time Warner Agreement
In November 1999, the Company entered into an agreement to exchange
certain cable communications systems with Time Warner Cable ("Time
Warner"), a division of Time Warner Entertainment Company, L.P. Under the
terms of the agreement, the Company will receive cable communications
systems serving approximately 120,000 subscribers. In exchange, Time
Warner will receive systems that the Company currently owns serving
approximately 133,000 subscribers. At closing, Time Warner will pay the
Company an equalizing payment of $31.2 million, reflecting the agreed upon
difference in fair value of the Time Warner assets and the Company's
assets to be exchanged, subject to adjustment. The transaction is subject
to customary closing conditions and regulatory approvals and is expected
to close in the second quarter of 2000.
Prime Communications Agreement
In December 1998, Comcast agreed to invest in Prime Communications LLC
("Prime"), a cable communications company serving approximately 430,000
subscribers. Pursuant to the terms of this agreement, in December 1998
Comcast acquired from Prime a $50.0 million 12.75% subordinated note due
2008 issued by Prime. In July 1999, Comcast made a loan to Prime in the
form of a $733.5 million 6% ten year note, convertible into 90% of the
equity of Prime. In November 1999, the Company made an additional $20.0
million loan to Prime (on the same terms as the original loan), and
delivered a notice of its intention to convert the 6% note. Comcast will
contribute the 6% note to the Company. The note will be converted upon
receipt of customary closing conditions and required regulatory approvals,
which are expected to be obtained in the second quarter of 2000. The
owners of Prime have agreed that at the time of conversion, they will sell
their remaining 10% equity interest in Prime to the Company, for
approximately $82.0 million, plus accrued interest from July 1999 at 7%
per annum. As a result, the Company would then own 100% of Prime and
assume management control of Prime's operations. Upon closing, the Company
will assume approximately $550 million of Prime's debt.
AT&T Agreement
In May 1999, Comcast entered into an agreement with AT&T Corp. ("AT&T") to
exchange various of the Company's cable systems. Under the terms of the
agreement, the Company will receive cable communications systems serving
approximately 1.5 million subscribers. In exchange, AT&T will receive
systems that the Company currently owns or will acquire serving 750,000
subscribers. At closing, the Company will pay AT&T an equalizing payment
of approximately $3.4 billion (subject to adjustment based on the actual
number of net subscribers acquired and the per subscriber price of certain
subscribers) for the 750,000 net subscribers to be acquired as a result of
the exchanges. The Company will pay for the net subscribers acquired in
connection with the exchanges with shares of AT&T common stock that
Comcast currently owns or may acquire and other securities or assets the
Comcast will contribute to the Company which would permit the exchanges to
be tax-free to the maximum extent possible. The agreed upon value of any
AT&T common stock used in the exchange that was owned by Comcast at the
time of the agreement is $54.41 per share.
Under the terms of the agreement, Comcast also agreed to offer
AT&T-branded residential wireline telephony in the Company's cable
communications system markets, provided AT&T has concluded separate
residential
- 27 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
telephony agreements with at least two other non-AT&T affiliated
multi-system cable operators. AT&T has agreed to grant Comcast the most
favorable terms AT&T has reached with any of those or other multi-system
cable operators.
The majority of the exchanges are contingent upon the completion of AT&T's
acquisition of MediaOne Group, Inc., which is expected to close in 2000,
subject to customary closing conditions and regulatory approvals.
Adelphia Agreement
In May 1999, the Company entered into an agreement to exchange certain
cable communications systems with Adelphia Communications ("Adelphia").
Under the terms of the agreement, the Company will receive approximately
464,000 cable subscribers from Adelphia. In exchange, Adelphia will
receive cable communications systems currently owned by the Company
serving approximately 440,000 subscribers. All of the systems involved
will be valued based upon independent appraisals with any difference in
relative value to be funded with cash or additional cable communications
systems. The transaction is subject to customary closing and regulatory
approvals and is expected to close in the third quarter of 2000.
Unaudited Pro Forma Information
The following unaudited pro forma information for the years ended December
31, 1999 and 1998 has been presented as if the Jones Intercable
contribution occurred on January 1, 1998. This information is based on
historical results of operations, adjusted for acquisition costs, and, in
the opinion of management, is not necessarily indicative of what the
results would have been had the Company operated Jones Intercable since
January 1, 1998 (dollars in millions).
Year Ended
December 31,
1999 1998
------ ------
Revenues................................ $3,035.2 $2,768.5
Net loss................................ (293.0) (257.2)
4. INVESTMENTS
At Home Warrants
In June 1998, Jones Intercable entered into a six year Distribution
Agreement with At Home Corporation ("@Home"), which provides for the
distribution of high speed Internet services in certain of the Company's
cable communications systems. Jones Intercable began deployment in
December 1998. In conjunction with the Distribution Agreement, Jones
Intercable and @Home entered into a Warrant Purchase Agreement providing
for the Company's purchase of up to a maximum of 4,092,200 shares of @Home
Series A Common Stock at $5.25 per share (as adjusted for @Home's 2-for-1
stock split in June 1999). The warrants become exercisable after March 31
each year, beginning in 1999, as the Company launches @Home services in
its cable communications systems. During 1999, warrants to purchase
584,172 shares of @Home Series A Common Stock became exercisable.
Accordingly, the Company recorded an investment in @Home warrants of $44.2
million based on the fair value of the warrants when the performance
measures were achieved. Deferred revenue of an equal amount was recorded
and is being amortized over the term of the Distribution Agreement. During
1999, the Company recognized $6.3 million as a reduction of operating
expenses. Due to restrictions on the stock underlying the warrants, the
Company's investment is not adjusted for subsequent changes in fair value.
As of December 31, 1999, the fair value of the investment was $23.3
million.
General Instruments Warrants
The Company entered into agreements to purchase digital converters from
General Instruments Corporation ("GI"). In connection therewith, the
Company received warrants to purchase up to a maximum of 1,133,502 shares
of GI
- 28 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
Common Stock at $14.25 per share. The warrants become exercisable in three
annual installments, beginning in 1998, as the Company meets certain
thresholds for digital converter purchases. During 1999 and 1998, warrants
to purchase 542,110 shares and 197,132 shares of GI Common Stock became
exercisable. Accordingly, the Company recorded its investment in GI
warrants based on the fair value of the warrants when the performance
measures were achieved. During 1999 and 1998, the Company recorded the
value of the exercisable warrants as a reduction to the cost of the
digital converters. As of December 31, 1999 and 1998, the Company recorded
its investment in the GI warrants at its estimated fair value of $53.0
million and $4.2 million, respectively.
AT&T Common Stock
As of December 31, 1999 and 1998, the Company holds 260,298 shares of AT&T
common stock (as adjusted for AT&T's 3-for-2 stock split in April 1999).
The Company has recorded its investment in AT&T at its estimated fair
value of $13.2 million and $13.1 million, respectively. The Company's
investment in AT&T was reclassified from current at December 31, 1998 to
long-term at December 31, 1999 as the Company plans to use its AT&T shares
in connection with the acquisition of cable communications systems
pursuant to the AT&T Agreement (see Note 3).
Cost Method Investments
It is not practicable to estimate the fair value of the Company's
investments in privately held companies, accounted for under the cost
method, due to lack of quoted market prices and excessive costs involved
in determining such fair value.
5. LONG-TERM DEBT
December 31,
1999 1998
---------- ----------
(Dollars in millions)
Notes payable to banks and insurance companies,
due in installments through 2003.................................................. $1,694.0 $972.0
9-5/8% Senior notes, due 2002........................................................... 200.0
8-1/8% Senior notes, due 2004........................................................... 299.8 299.8
8-3/8% Senior notes, due 2007........................................................... 596.8 596.5
8-7/8% Senior notes, due 2007........................................................... 248.9
6.20% Senior notes, due 2008............................................................ 798.1 797.9
7-5/8% Senior notes, due 2008........................................................... 196.8
8-7/8% Senior notes, due 2017........................................................... 545.7 545.6
8-1/2% Senior notes, due 2027........................................................... 249.6 249.6
10-1/2% Senior subordinated debentures, due 2008........................................ 100.0
Other debt, due in installments principally through 2007................................ 8.2 0.8
---------- ----------
4,937.9 3,462.2
Less current portion.................................................................... 202.6 0.1
---------- ----------
$4,735.3 $3,462.1
========== ==========
- 29 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
Maturities of long-term debt outstanding as of December 31, 1999 for the
four years after 2000 are as follows (dollars in millions):
2001......................................... $93.2
2002......................................... 516.7
2003......................................... 699.5
2004......................................... 539.9
In addition to the Company's outstanding long-term debt as presented in
the table above, the Company had an aggregate of $134.6 million of notes
payable to Comcast and Comcast's subsidiaries as of December 31, 1998 (see
Note 6).
Jones Intercable Assumed Debt
In April 1999, as part of Comcast's contribution of Jones Intercable to
the Company, the Company assumed $1.499 billion of debt held by Jones
Intercable. As of December 31, 1999, borrowings under credit facilities of
certain of Jones Intercable's subsidiaries totaling $922.0 million and
senior notes and senior subordinated debentures totaling $745.7 million,
with interest rates ranging between 7 5/8% to 10 1/2%, and maturities
between 2002 and 2008 were outstanding.
Senior Notes
In November 1998, the Company sold $800.0 million aggregate principal
amount of 6.20% senior notes due 2008. The Company used substantially all
of the net proceeds from the offering to repay existing notes payable to
affiliates (see Note 6) and for general purposes.
In May 1997, the Company sold a total of $1.7 billion of nonrecourse
public debt with interest rates ranging from 8 1/8% to 8 7/8% and maturity
dates from 2004 to 2027 (together with the 6.20% senior notes due 2008,
the "Senior Notes"). The Company used the net proceeds from the offerings
to repay existing borrowings by its subsidiaries.
Interest on all of the Senior Notes is payable semiannually in May and
November of each year. The 6.20% Senior Notes are redeemable only upon
maturity on November 15, 2008, the 8 1/2% Senior Notes are redeemable, in
whole or in part, at the option of the Company at any time after May 1,
2009, and the remaining Senior Notes are redeemable, in whole or in part,
at the option of the Company at any time. In each case, the Senior Notes
are redeemable at a price equal to the greater of (i) 100% of their
principal amount, plus accrued interest thereon to the date of redemption,
or (ii) the sum of the present values of the remaining scheduled payments
of principal and interest thereon discounted to the date of redemption on
a semiannual basis at the Adjusted Treasury Rate (as defined), plus
accrued interest on the Senior Notes to the date of redemption. Each
holder of the 8 1/2% Senior Notes may require the Company to repurchase
all or a portion of the 8 1/2% Senior Notes owned by such holder on May 1,
2009 at a purchase price equal to 100% of the principal amount thereof.
The Senior Notes are unsecured and unsubordinated obligations of the
Company and rank pari passu with all other unsecured and unsubordinated
indebtedness and other obligations of the Company. The Senior Notes are
effectively subordinated to all liabilities of the Company's subsidiaries,
including trade payables.
The indenture for the Senior Notes, among other things, contains
restrictions (with certain exceptions) on the ability of the Company and
its Restricted Subsidiaries (as defined) to: (i) make dividend payments or
other restricted payments; (ii) create liens or enter into sale and
leaseback transactions; and (iii) enter into mergers, consolidations, or
sales of all or substantially all of their assets.
- 30 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
Redemption of Debt
In December 1999, the Company repaid $200.0 million in notes payable to
insurance companies having an interest rate of 8.6%. In connection with
this repayment, the Company incurred debt extinguishment costs of $9.2
million and wrote off unamortized debt issue costs of $0.3 million,
resulting in an extraordinary loss, net of tax of $6.2 million during the
year ended December 31, 1999. The redemption was funded with the proceeds
from a capital contribution that the Company received from Comcast (see
Note 7).
In connection with the refinancing, redemption and optional repayment of
certain indebtedness, the Company expensed unamortized debt issue costs
and incurred debt extinguishment costs of $27.1 million, resulting in
extraordinary losses, net of tax, of $16.7 million during the year ended
December 31, 1997.
Interest Rates
Bank debt interest rates vary based upon one or more of the following
rates at the option of the Company:
Prime rate to prime plus 0.75%
Federal Funds rate plus 0.5% to 1.5%; and
LIBOR plus 0.375% to 1.750%
As of December 31, 1999 and 1998, the Company's effective weighted average
interest rate on its long-term debt outstanding was 7.56% and 7.48%,
respectively.
Interest Rate Risk Management
The Company is exposed to market risk including changes in interest rates.
To manage the volatility relating to these exposures, the Company enters
into various derivative transactions pursuant to the Company's policies in
areas such as counterparty exposure and hedging practices. Positions are
monitored using techniques including market value and sensitivity
analyses.
The use of interest rate risk management instruments, such as Swaps, Caps
and Collars, is required under the terms of certain of the Company's
outstanding debt agreements. The Company's policy is to manage interest
costs using a mix of fixed and variable rate debt. Using Swaps, the
Company agrees to exchange, at specified intervals, the difference between
fixed and variable interest amounts calculated by reference to an
agreed-upon notional principal amount. Caps are used to lock in a maximum
interest rate should variable rates rise, but enable the Company to
otherwise pay lower market rates. Collars limit the Company's exposure to
and benefits from interest rate fluctuations on variable rate debt to
within a certain range of rates.
The following table summarizes the terms of the Company's existing Swaps,
Caps and Collars as of December 31, 1999 and 1998 (dollars in millions):
Notional Average Estimated
Amount Maturities Interest Rate Fair Value
------ ---------- ------------- ----------
As of December 31, 1999
Variable to Fixed Swaps.......................... $300.0 2000-2003 5.6% $6.4
Fixed to Variable Swaps.......................... 300.0 2004 7.7% (3.9)
Caps............................................. 140.0 2000 6.8%
Collar........................................... 50.0 2000 6.3%/4.0% 0.1
As of December 31, 1998
Variable to Fixed Swaps.......................... $50.0 1999 5.7% ($0.1)
Caps............................................. 240.0 1999 7.0%
Collar........................................... 50.0 2000 6.3%/4.0%
- 31 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
The notional amounts of interest rate instruments, as presented in the
above table, are used to measure interest to be paid or received and do
not represent the amount of exposure to credit loss. The estimated fair
value approximates the proceeds (costs) to settle the outstanding
contracts. While Swaps, Caps and Collars represent an integral part of the
Company's interest rate risk management program, their incremental effect
on interest expense for the years ended December 31, 1999, 1998 and 1997
was not significant.
Estimated Fair Value
The Company's long-term debt had estimated fair values of $4.922 billion
and $3.766 billion as of December 31, 1999 and 1998, respectively. The
estimated fair value of the Company's publicly traded debt is based on the
quoted market price for that debt. Interest rates that are currently
available to the Company for issuance of debt with similar terms and
remaining maturities are used to estimate fair value for debt issues for
which quoted market prices are not available.
Debt Covenants
Certain of the Company's subsidiaries' loan agreements contain restrictive
covenants which, among other things, limit the Company's ability to enter
into arrangements for the acquisition or disposition of property and
equipment, investments, mergers and the incurrence of additional debt.
Certain of these agreements require that certain ratios and cash flow
levels be maintained and contain certain restrictions on dividend
payments, payment of management fees and advances of funds to affiliated
entities and the Company. The Company and its subsidiaries were in
compliance with such restrictive covenants for all periods presented.
As of December 31, 1999, all of the Company's cash, cash equivalents,
short-term investments and cash held by an affiliate is restricted to use
by subsidiaries of the Company under contractual arrangements, including
subsidiary credit agreements.
Restricted net assets of the Company's subsidiaries were approximately
$2.5 billion as of December 31, 1999. The restricted net assets of
subsidiaries exceeds the Company's consolidated net assets as certain of
the Company's subsidiaries have a stockholder's deficiency.
Lines and Letters of Credit
As of December 31, 1999, certain subsidiaries of the Company had unused
lines of credit of $866.0 million, $266.0 million of which is restricted
by the covenants of the related debt agreements and to subsidiary general
purposes and dividend declaration.
As of December 31, 1999 the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totaling $34.5 million to
cover potential fundings associated with several projects.
6. NOTES PAYABLE TO AFFILIATES
During the year ended December 31, 1999, the Company eliminated the
remaining notes payable to affiliate through a non-cash capital
contribution from Comcast (see Note 7). As the contribution was a non-cash
transaction, it had no impact on the Company's consolidated statement of
cash flows.
As of December 31, 1998, notes payable to affiliates (the "Notes Payable")
include $130.7 million principal amount of Notes Payable to Comcast and
certain of its wholly owned subsidiaries. As of December 31, 1998, accrued
interest relating to such Notes Payable of $3.9 million was added to the
principal. The Notes Payable bear interest at rates ranging from 7.25% to
9.25% (weighted average interest rate of 7.73% as of December 31, 1998).
- 32 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
7. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1999, the Company received capital
contributions from Comcast of $960.1 million, the proceeds of which were
used to acquire CalPERS' 45% interest in Comcast MHCP (see Note 3) and to
repay notes payable to insurance companies (see Note 5).
Comcast, on behalf of the Company, has an affiliation agreement with QVC,
Inc. ("QVC"), an electronic retailer and a majority-owned and controlled
subsidiary of Comcast, to carry its programming. In return for carrying
QVC programming, the Company receives an allocated portion, based upon
market share, of a percentage of net sales of merchandise sold to QVC
customers located in the Company's service area. For the years ended
December 31, 1999, 1998 and 1997, the Company's service income includes
$10.4 million, $13.3 million and $10.2 million, respectively, relating to
QVC.
Comcast, through management agreements, manages the operations of the
Company's subsidiaries, including rebuilds and upgrades. The management
agreements generally provide that Comcast will supervise the management
and operations of the cable systems and arrange for and supervise (but not
necessarily perform itself) certain administrative functions. As
compensation for such services, the agreements provide for Comcast to
charge management fees of up to 6% of gross revenues. Comcast charged the
Company's subsidiaries management fees of $161.8 million, $130.4 million
and $119.7 million in 1999, 1998 and 1997, respectively. These management
fees are included in selling, general and administrative expenses in the
Company's consolidated statement of operations. Payment of certain of
these expenses has been deferred until CalPERS no longer has an interest
in Comcast MHCP (see Note 3). Comcast has agreed to permit certain
subsidiaries of the Company to defer payment of a portion of these
expenses with the deferred portion being treated as a subordinated
long-term liability due to affiliate which will not be paid prior to
January 1, 2001. Management fees deferred in 1999, 1998 and 1997 were $5.8
million, $5.5 million and $4.7 million, respectively. Deferred management
fees were $148.2 million and $142.4 million as of December 31, 1999 and
1998, respectively.
On behalf of the Company, Comcast seeks and secures long-term programming
contracts that generally provide for payment based on either a monthly fee
per subscriber per channel or a percentage of certain subscriber revenues.
Comcast charges each of the Company's subsidiaries for programming on a
basis which generally approximates the amount that each such subsidiary
would be charged if it purchased such programming directly from the
supplier, subject to limitations imposed by debt facilities for certain
subsidiaries, and did not benefit from the purchasing power of Comcast's
consolidated operations. Amounts charged to the Company by Comcast for
programming (the "Programming Charges") are included in operating expenses
in the Company's consolidated statement of operations. The Company
purchases certain other services, including insurance and employee
benefits, from Comcast under cost-sharing arrangements on terms that
reflect Comcast's actual cost. The Company reimburses Comcast for certain
other costs (primarily salaries) under cost-reimbursement arrangements.
Under all of these arrangements, the Company incurred total expenses of
$971.2 million, $760.9 million and $674.6 million, including $822.5
million, $640.5 million and $560.9 million of Programming Charges, in
1999, 1998 and 1997, respectively. The Programming Charges include $83.6
million, $59.4 million and $49.0 million in 1999, 1998 and 1997,
respectively, relating to programming purchased by the Company, through
Comcast, from suppliers in which Comcast holds an equity interest.
Payment of certain of these expenses has been deferred until CalPERS no
longer has an interest in Comcast MHCP (see Note 3). Comcast has agreed to
permit certain of the Company's subsidiaries to defer payment of a portion
of the Programming Charges with the deferred portion being treated as a
subordinated long-term liability due to affiliate which will not be paid
prior to January 1, 2001. Programming Charges deferred in 1999, 1998 and
1997 were $133.6 million, $120.5 million and $102.3 million, respectively.
Deferred Programming Charges were $516.0 million and $382.4 million as of
December 31, 1999 and 1998, respectively.
- 33 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
Current due to affiliates in the Company's consolidated balance sheet
primarily consists of amounts due to Comcast and its affiliates under the
cost-sharing arrangements described above and amounts payable to Comcast
and its affiliates as reimbursement for payments made, in the ordinary
course of business, by such affiliates on behalf of the Company.
The Company has entered into a custodial account arrangement with Comcast
Financial Agency Corporation ("CFAC"), a wholly owned subsidiary of
Comcast, under which CFAC provides cash management services to the
Company. Under this arrangement, the Company's cash receipts are deposited
with and held by CFAC, as custodian and agent, which invests and disburses
such funds at the direction of the Company. As of December 31, 1999 and
1998, $34.0 million and $57.1 million, respectively, of the Company's cash
was held by CFAC. These amounts have been classified as cash held by an
affiliate in the Company's consolidated balance sheet. During the years
ended December 31, 1999, 1998 and 1997, the Company recognized investment
income of $2.7 million, $3.1 million and $3.9 million, respectively, on
cash held by CFAC.
8. INCOME TAXES
The Company and its 80% or more owned subsidiaries join with Comcast in
filing a consolidated federal income tax return. Comcast allocates income
tax expense or benefit to the Company as if the Company was filing a
separate federal income tax return. Comcast Communications Properties,
Inc. ("CCP"), an indirect majority owned subsidiary of the Company, and
Jones Intercable each file separate consolidated federal income tax
returns. Tax benefits from both losses and tax credits are made available
to the Company as it is able to realize such benefits on a separate return
basis. The Company pays Comcast for income taxes an amount equal to the
amount of tax it would pay if it filed a separate tax return.
Comcast MHCP is treated as a partnership for income tax purposes. As such,
any taxable income or loss attributable to Comcast MHCP, excluding any
income or loss from its subsidiaries, flows through to the Company and
CalPERS based on their respective ownership percentages.
Income tax benefit consists of the following components (dollars in
millions):
Year Ended December 31,
1999 1998 1997
----------- ----------- -----------
Current expense
Federal................................................ $18.9 $1.9 $
State.................................................. 6.1 5.4 6.1
----------- ----------- -----------
25.0 7.3 6.1
----------- ----------- -----------
Deferred benefit
Federal................................................ (66.8) (41.1) (48.2)
State.................................................. (4.4) (2.0) (1.5)
----------- ----------- -----------
(71.2) (43.1) (49.7)
----------- ----------- -----------
Income tax benefit..................................... ($46.2) ($35.8) ($43.6)
=========== =========== ===========
- 34 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
The effective income tax benefit of the Company differs from the statutory
amount because of the effect of the following items (dollars in millions):
Year Ended December 31,
1999 1998 1997
---------- ---------- ----------
Federal tax at statutory rate................................... ($140.6) ($52.5) ($61.8)
Non-deductible depreciation and amortization.................... 25.5 21.5 21.5
State income taxes, net of federal benefit...................... 1.0 2.2 3.1
Interest income, taxable to CalPERS............................. (8.1) (7.5) (6.7)
Increase to valuation allowance................................. 75.3
Other........................................................... 0.7 0.5 0.3
---------- ---------- ----------
Income tax benefit.............................................. ($46.2) ($35.8) ($43.6)
========== ========== ==========
Significant components of the Company's net deferred tax liability are as
follows (dollars in millions):
December 31,
1999 1998
------------- -------------
Deferred tax assets:
Net operating loss carryforwards............................................. $256.3 $110.1
Less valuation allowance..................................................... (207.5) (95.6)
------------- -------------
48.8 14.5
------------- -------------
Deferred tax liabilities, principally differences between book
and tax basis of property and equipment and deferred charges........... 1,684.4 1,461.5
------------- -------------
Net deferred tax liability................................................... $1,635.6 $1,447.0
============= =============
The Company recorded approximately $285.0 million of deferred tax
liabilities in 1999 in connection with the Jones Intercable contribution.
The Company's valuation allowance against deferred tax assets includes
approximately $60.0 million for which any subsequent tax benefit
recognized will be allocated to reduce goodwill and other noncurrent
intangible assets. The subsidiaries which are not consolidated with the
Company for income tax reporting purposes have aggregate net operating
loss carryforwards of approximately $500.0 million which expire primarily
in periods through 2019. A valuation allowance has been recorded for
certain of these losses due to uncertainty as to their realization.
9. STATEMENT OF CASH FLOWS-SUPPLEMENTAL INFORMATION
The Company made cash payments for interest on its long-term debt of
$324.8 million, $214.4 million and $225.4 million in 1999, 1998 and 1997,
respectively. The Company made cash payments for interest on the Notes
Payable of $8.9 million, $70.5 million and $17.7 million in 1999, 1998 and
1997, respectively.
The Company made cash payments to Comcast for income taxes of $7.4
million, $5.4 million and $39.9 million in 1999, 1998 and 1997,
respectively.
- 35 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Concluded)
10. COMMITMENTS AND CONTINGENCIES
Commitments
Minimum annual rental commitments for office space and equipment under
noncancelable operating leases are as follows (dollars in millions):
2000....................................... $13.7
2001....................................... 12.2
2002....................................... 9.5
2003....................................... 8.0
2004....................................... 6.2
Thereafter................................. 21.3
Pole rentals have been excluded from the above schedule as they are
generally cancelable after an initial period by either party upon notice.
Rental expense (including pole rentals) of $33.7 million, $23.8 million
and $22.6 million has been charged to operations in 1999, 1998 and 1997,
respectively.
Contingencies
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position, results of operations or liquidity of the
Company.
- 36 -
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information called for by Item 10, Directors and Executive Officers of the
Registrant, Item 11, Executive Compensation, Item 12, Security Ownership of
Certain Beneficial Owners and Management, and Item 13, Certain Relationships and
Related Transactions, is omitted pursuant to SEC General Instruction I of Form
10-K.
- 37 -
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements of ours are included
in Part II, Item 8:
Independent Auditors' Report..................................18
Consolidated Balance Sheet--December 31, 1999 and 1998........19
Consolidated Statement of Operations--Years
Ended December 31, 1999, 1998 and 1997......................20
Consolidated Statement of Cash Flows--Years
Ended December 31, 1999, 1998 and 1997......................21
Consolidated Statement of Stockholder's Equity --
Years Ended December 31, 1999, 1998 and 1997................22
Notes to Consolidated Financial Statements....................23
(b) (i) The following financial statement schedules required to be
filed by Items 8 and 14(d) of Form 10-K are included in Part
IV:
Schedule I - Condensed Financial Information of Registrant
Unconsolidated (Parent Only)
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable, not required or the required information is
included in the consolidated financial statements or notes
thereto.
(c) Reports on Form 8-K
(i) We filed a Current Report on Form 8-K under Item 5 on November
17, 1999 relating to our announcement that Comcast Corporation
had entered into an agreement to exchange certain of our cable
systems with Time Warner Cable, a division of Time Warner
Entertainment Company, L.P.
(ii) We filed a Current Report on Form 8-K under Item 5 on December
23, 1999 relating to our announcement that Comcast Corporation
had entered into an agreement to acquire the remaining
interest in Jones Intercable, Inc. that Comcast Corporation
did not already own.
(d) Exhibits required to be filed by Item 601 of Regulation S-K:
3.1 Certificate of Incorporation filed on April 2, 1981
(incorporated by reference to Exhibit 3.1(a) to our
Registration Statement on Form S-4, as amended, filed on
September 22, 1997).
3.2 By-laws (incorporated by reference to Exhibit 3.2 to our
Registration Statement on Form S-4, as amended, filed on
September 22, 1997).
4.1(a) Indenture dated as of May 1, 1997 by and between Comcast
Cable Communications, Inc. and Bank of Montreal Trust Company
(incorporated by reference to Exhibit 4.1(a) to our
Registration Statement on Form S-4, as amended, filed on
September 22, 1997).
4.1(b) Form of Notes relating to our 8 1/8% Senior Notes due 2004, 8
3/8% Senior Notes due 2007, 6.20% Senior Notes due 2008, 8
7/8% Senior Notes due 2017 and 8 1/2% Senior Notes due 2027
(incorporated by reference to Exhibit 4.1(b) to the Company's
Registration Statement on Form S-4, as amended, filed on
September 22, 1997).
10.1 Tax Sharing Agreement, dated as of December 2, 1992, among
Storer Communications, Inc., TKR Cable I, Inc., TKR Cable II,
Inc., TKR Cable III, Inc., Tele-Communications, Inc., Comcast
Corporation and each of the Departing Subsidiaries that are
signatories thereto (incorporated by reference to Exhibit 4
to Comcast Corporation's Current Report on Form 8-K filed on
December 17, 1992, as amended by Form 8 filed January 8,
1993).
10.2 Tax Sharing Agreement, dated December 2, 1992, between
Comcast Corporation and Comcast Storer, Inc. (incorporated by
reference to Exhibit 9 to Comcast Corporation's Current
Report on Form 8-K filed on December 17, 1992, as amended by
Form 8 filed January 8, 1993).
10.3 Comcast MHCP Holdings, L.L.C. Amended and Restated Limited
Liability Company Agreement, dated as of December 18, 1994,
among Comcast Cable Communications, Inc., The
- 38 -
California Public Employees' Retirement System and, for
certain limited purposes, Comcast Corporation (incorporated
by reference to Exhibit 10.1 to Comcast Corporation's Current
Report on Form 8-K filed on January 6, 1995).
10.4 Credit Agreement, dated as of December 22, 1994, among
Comcast MH Holdings, Inc., the banks listed therein, The
Chase Manhattan Bank (National Association), NationsBank of
Texas, N.A. and the Toronto-Dominion Bank, as Arranging
Agents, The Bank of New York, The Bank of Nova Scotia,
Canadian Imperial Bank of Commerce and Morgan Guaranty Trust
Company of New York, as Managing Agents and NationsBank of
Texas, N.A., as Administrative Agent (incorporated by
reference to Exhibit 10.2 to Comcast Corporation's Current
Report on Form 8- K filed on January 6, 1995).
10.5 Pledge Agreement, dated as of December 22, 1994, between
Comcast MH Holdings, Inc. and NationsBank of Texas, N.A., as
the secured party (incorporated by reference to Exhibit 10.3
to Comcast Corporation's Current Report on Form 8-K filed on
January 6, 1995).
10.6 Pledge Agreement dated as of December 22, 1994, between
Comcast Communications Properties, Inc. and NationsBank of
Texas, N.A., as the Secured Party (incorporated by reference
to Exhibit 10.4 to Comcast Corporation's Current Report on
Form 8-K filed on January 6, 1995).
10.7 Affiliate Subordination Agreement (as the same may be
amended, modified, supplemented, waived, extended or restated
from time to time, this "Agreement"), dated as of December
22, 1994, among Comcast Corporation, Comcast MH Holdings,
Inc. (the "Borrower"), any affiliate of the Borrower that
shall have become a party thereto and NationsBank of Texas,
N.A., as Administrative Agent under the Credit Agreement
dated as of December 22, 1994, among the Borrower, the Banks
listed therein, The Chase Manhattan Bank (National
Association), NationsBank of Texas, N.A. and The
Toronto-Dominion Bank, as Arranging Agents. The Bank of New
York, The Bank of Nova Scotia, Canadian Imperial Bank of
Commerce and Morgan Guaranty Trust Company of New York, as
Managing Agents, and the Administrative Agent (incorporated
by reference to Exhibit 10.5 to Comcast Corporation's Current
Report on Form 8- K filed on January 6, 1995).
10.8 Registration Rights and Price Protection Agreement, dated as
of December 22, 1994, by and between Comcast Corporation and
The California Public Employees' Retirement System
(incorporated by reference to Exhibit 10.8 to Comcast
Corporation's Current Report on Form 8- K filed on January 6,
1995).
10.9 Management Agreement, dated as of April 24, 1997, between
Comcast Cable Communications, Inc. and Comcast Corporation
(incorporated by reference to Exhibit 10.11 to our
Registration Statement on Form S-4, as amended, filed on
September 22, 1997).
10.10 Promissory Note, dated as of July 2, 1997, between Comcast
Cable Communications, Inc. and Comcast Corporation
(incorporated by reference to Exhibit 10.13 to our
Registration Statement on Form S-4, as amended, filed on
September 22, 1997).
10.11 Credit Agreement, dated as of November 15, 1996, among
Comcast SCH Holdings, Inc., the banks listed therein,
Nationsbank of Texas, N.A., as Documentation Agent, The Chase
Manhattan Bank, as Syndication Agent, The Bank of New York,
The Chase Manhattan Bank and Nationsbank of Texas, N.A., as
Managing Agents, and The Bank of New York, as Administrative
Agent (incorporated by reference to Exhibit 10.35 to Comcast
Corporation's Form 10-K filed on March 3, 1998).
12.1 Statement re: Computation of Ratio of Earnings to Fixed
Charges.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
99.1 Report of Independent Public Accountants to Jones Intercable,
Inc. as of December 31, 1999 and for the year then ended.
- 39 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in Philadelphia,
Pennsylvania on March 16, 2000.
Comcast Cable Communications, Inc.
By: /s/ Brian L. Roberts
------------------------------
Brian L. Roberts
Vice Chairman and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Ralph J. Roberts Chairman; Director March 16, 2000
- ----------------------
Ralph J. Roberts
/s/ Brian L. Roberts Vice Chairman; Director (Principal March 16, 2000
- ---------------------- Executive Officer)
Brian L. Roberts
/s/ Lawrence S. Smith Executive Vice President; Director March 16, 2000
- ----------------------
Lawrence S. Smith
/s/ Stanley L. Wang Executive Vice President, Secretary; March 16, 2000
- ---------------------- Director
Stanley L. Wang
/s/ John R. Alchin Executive Vice President, Treasurer March 16, 2000
- ---------------------- (Principal Financial Officer)
John R. Alchin
/s/ Lawrence J. Salva Senior Vice President March 16, 2000
- ---------------------- (Principal Accounting Officer)
Lawrence J. Salva
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INDEPENDENT AUDITORS' REPORT ON SCHEDULES
To the Board of Directors and Stockholder
Comcast Cable Communications, Inc.
Wilmington, Delaware
Our audits of the financial statements referred to in our report dated February
24, 2000, except for Note 3 as to which the date is March 2, 2000, appearing in
the Annual Report on Form 10-K of Comcast Cable Communications, Inc. and its
subsidiaries (the "Company") for the year ended December 31, 1999 also included
the financial statement schedules of the Company, listed in Item 14(b)(i). These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedules, when considered in relation to
the basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 24, 2000
- 41 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
CONDENSED BALANCE SHEET
(Dollars in millions, except share data)
December 31,
1999 1998
---------- -----------
ASSETS
Investments in and amounts due to/from subsidiaries eliminated
upon consolidation, net.......................................................... $4,395.3 $2,751.6
Deferred charges, net............................................................... 24.2 27.1
---------- -----------
$4,419.5 $2,778.7
========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accrued interest and other....................................................... $29.8 $30.9
---------- -----------
Total current liabilities................................................... 29.8 30.9
---------- -----------
Long-term debt................................................................... 2,490.0 2,489.4
---------- -----------
Deferred income taxes, due to affiliates......................................... 89.4 83.7
---------- -----------
Other liabilities ............................................................... 1.5 1.7
---------- -----------
STOCKHOLDER'S EQUITY
Common stock, $1 par value - authorized and issued, 1,000 shares
Additional capital............................................................... 4,931.4 3,066.2
Accumulated deficit.............................................................. (3,150.1) (2,896.4)
Accumulated other comprehensive income........................................... 27.5 3.2
---------- -----------
Total stockholder's equity.................................................. 1,808.8 173.0
---------- -----------
$4,419.5 $2,778.7
========== ===========
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COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
CONDENSED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(In millions)
Year Ended December 31,
1999 1998 1997
------------- ------------- -------------
AMORTIZATION.............................................. $2.5 $1.7 $1.0
------------- ------------- -------------
OPERATING LOSS............................................ 2.5 1.7 1.0
OTHER (INCOME) EXPENSE
Interest income on affiliate notes, net................ (142.4) (93.3)
Interest expense, net.................................. 192.5 149.9 96.5
Equity in net losses of affiliates..................... 120.2 82.1 117.9
------------- ------------- -------------
312.7 89.6 121.1
------------- ------------- -------------
LOSS BEFORE INCOME TAX EXPENSE............................ (315.2) (91.3) (122.1)
INCOME TAX (BENEFIT) EXPENSE.............................. (61.5) 6.0 6.7
------------- ------------- -------------
NET LOSS.................................................. (253.7) (97.3) (128.8)
ACCUMULATED DEFICIT
Beginning of year...................................... (2,896.4) (2,799.1) (2,124.0)
Elimination of outstanding notes receivable from
affiliate through a non-cash dividend to Comcast.... (546.3)
------------- ------------- -------------
End of year............................................ ($3,150.1) ($2,896.4) ($2,799.1)
============= ============= =============
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COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
CONDENSED STATEMENT OF CASH FLOWS
(In millions)
Year Ended December 31,
1999 1998 1997
---------- ----------- ----------
OPERATING ACTIVITIES
Net loss.......................................................................... ($253.7) ($97.3) ($128.8)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Amortization................................................................... 2.5 1.7 1.0
Non-cash interest expense...................................................... 0.6 0.4
Equity in net losses of affiliates............................................. 120.2 82.1 117.9
Deferred income tax benefit, due to affiliates................................. 5.8 31.8 50.4
---------- ----------- ----------
(124.6) 18.7 40.5
Changes in working capital and other liabilities............................... (0.9) 6.9 29.1
---------- ----------- ----------
Net cash (used in) provided by operating activities....................... (125.5) 25.6 69.6
---------- ----------- ----------
FINANCING ACTIVITIES
Proceeds from borrowings.......................................................... 797.9 1,691.1
Proceeds from notes payable to affiliate.......................................... 72.4 72.3
Repayment of notes payable to affiliates.......................................... (144.7) (45.0)
Capital contributions from parent................................................. 960.1
Deferred financing costs.......................................................... (11.7) (18.1)
---------- ----------- ----------
Net cash provided by financing activities................................. 960.1 713.9 1,700.3
---------- ----------- ----------
INVESTING ACTIVITIES
Net transactions with affiliates.................................................. (834.6) (739.5) (1,769.9)
---------- ----------- ----------
Net cash used in investing activities..................................... (834.6) (739.5) (1,769.9)
---------- ----------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS................................................
CASH AND CASH EQUIVALENTS, beginning of year.........................................
---------- ----------- ----------
CASH AND CASH EQUIVALENTS, end of year............................................... $ $ $
========== =========== ==========
- 44 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In millions)
Additions
Balance at Charged to Deductions Balance
Beginning Effect of Costs and from at End
of Year Acquisitions Expenses Reserves(A) of Year
------- ------------ -------- ----------- -------
Allowance for Doubtful Accounts
1999......................................... $19.4 $3.1 $23.6 $14.9 $31.2
1998......................................... 16.7 15.8 13.1 19.4
1997......................................... 12.0 18.4 13.7 16.7
<FN>
(A) Uncollectible accounts written off.
</FN>
- 45 -