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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, 2000
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.)
1500 Market Street, Philadelphia, PA 19102-2148
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
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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, 2000, there were 138.89 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.
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business.............................................................1
Item 2 Properties..........................................................13
Item 3 Legal Proceedings...................................................13
Item 4 Submission of Matters to a Vote of Security Holders.................13
PART II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters.........................................14
Item 6 Selected Financial Data.............................................14
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................15
Item 8 Financial Statements and Supplementary Data.........................20
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................................41
PART III
Item 10 Directors and Executive Officers of the Registrant..................41
Item 11 Executive Compensation..............................................41
Item 12 Security Ownership of Certain Beneficial Owners and Management......41
Item 13 Certain Relationships and Related Transactions......................41
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.....42
SIGNATURES...................................................................44
This Annual Report on Form 10-K is for the year ended December 31, 2000.
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 acquired and we anticipate 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 are being and must continue to 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, our businesses may be affected by, among other things:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o industry consolidation and mergers,
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
cable applications and high- speed cable modem service to expand the products
available on our cable communications networks.
We are an indirect wholly owned subsidiary of Comcast Corporation. Our
consolidated cable operations served approximately 7.6 million subscribers and
passed approximately 12.7 million homes in the United States as of December 31,
2000. We and Comcast have entered into an agreement to acquire, subject to
receipt of necessary regulatory and other approvals, up to 700,000 cable
subscribers from AT&T Corp. Upon completion of this pending transaction, which
is expected to close by the end of the second quarter of 2001 and the merger of
Comcast Cablevision of Philadelphia Area I, Inc. with and into us, which is
expected to close by the end of the third quarter of 2001, we will serve
approximately 8.4 million subscribers.
We are a Delaware corporation that was organized in 1981. We have our
principal executive offices at 1500 Market Street, Philadelphia, Pennsylvania
19102-2148. Our telephone number is (215) 665-1700. 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 a number of significant transactions in 2000 which have
closed or are expected to close in 2001. 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, 2000
Adelphia Cable Systems Exchange
On January 1, 2001, we and Comcast completed our previously announced cable
systems exchange with Adelphia Communications pursuant to which we received
cable communications systems serving approximately 460,000 subscribers from
Adelphia. In exchange, Adelphia received certain of our cable communications
systems serving approximately 440,000 subscribers.
AT&T Cable Systems Acquisition
In August 2000, we and Comcast entered into an agreement with AT&T to
acquire cable communications systems serving up to 700,000 subscribers from AT&T
in exchange for AT&T common stock that we and Comcast currently own or may
acquire, in a transaction intended to qualify as tax-free to us, to Comcast and
to AT&T. The transaction is subject to customary closing conditions and
regulatory approvals and is expected to close by the end of the second quarter
2001.
Philadelphia Area I Merger
Comcast intends to merge, subject to receipt of necessary regulatory and
other approvals, its subsidiary, Comcast Cablevision of Philadelphia Area I,
Inc. ("Greater Philadelphia"), a cable communications company serving
approximately 85,000 subscribers in Philadelphia, Pennsylvania, with and into
us. Upon completion of the merger, which is expected to close by the end of the
third quarter of 2001, the operating results of Greater Philadelphia will be
included in our consolidated financial statements from the June 1999 date of
Comcast's acquisition of Greater Philadelphia.
Completed Transactions During 2000
Acquisition of Lenfest Communications, Inc.
In January 2000, Comcast acquired Lenfest Communications, Inc., a cable
communications company serving approximately 1.1 million subscribers primarily
in the Philadelphia area from AT&T and the other Lenfest stockholders for
approximately 120.1 million shares of Comcast Class A Special Common Stock with
a value of $6.014 billion. In connection with Comcast's acquisition of Lenfest,
Comcast assumed approximately $1.326 billion of debt. Immediately upon closing
of Comcast's acquisition of Lenfest, Lenfest was merged with and into Comcast's
wholly owned subsidiary, Comcast LCI Holdings, Inc., with LCI Holdings as the
successor to Lenfest. In August 2000, LCI Holdings was merged with and into us.
The operating results of LCI Holdings are included in our consolidated financial
statements from the January 2000 date of Comcast's acquisition of Lenfest.
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., formerly a 55% owned
consolidated subsidiary of ours, which serves subscribers in Michigan, New
Jersey and Florida. As a result, we now
own 100% of Comcast MHCP. The consideration was $750.0 million in cash.
Acquisition of Remaining Interest in Jones Intercable, Inc.
In April 1999, Comcast acquired a controlling interest in Jones Intercable,
Inc. and contributed such interest to us. In March 2000, Comcast acquired from
the public shareholders the approximate 60% interest in Jones Intercable not
previously held by us for approximately 35.6 million shares of Comcast Class A
Special Common Stock with a value of $1.727 billion. Immediately upon closing,
Jones Intercable was merged with and into Comcast's wholly owned subsidiary,
Comcast JOIN Holdings, Inc., with JOIN Holdings as the successor to Jones
Intercable. In August 2000, JOIN Holdings was merged with and into us. The
operating results of JOIN Holdings are included in our consolidated financial
statements from the April 1999 date of Comcast's acquisition of a controlling
interest in Jones Intercable.
Acquisition of Prime Communications LLC
In August 2000, we acquired Prime Communications LLC, a cable
communications company serving approximately 406,000 subscribers, for cash and
through our conversion to equity of previously made loans to Prime that were
contributed by Comcast to us. Upon closing of our acquisition of Prime, we
assumed and immediately repaid $532.0 million of Prime's debt with proceeds from
borrowings under existing credit facilities.
Consolidation of Comcast Cablevision of Garden State, L.P.
Comcast Cablevision of Garden State, L.P. , formerly Garden State
Cablevision L.P., a cable communications company serving approximately 216,000
subscribers in New Jersey, is a partnership which was owned 50% by Lenfest and
50% by Comcast. As a result of Comcast's contribution of its 50% partnership
interest in Garden State Cable to us in December 2000, we now own 100% of Garden
State Cable. As such, the operating results of Garden State Cable have been
included in our consolidated financial statements from the January 2000 date of
Comcast's acquisition of Lenfest.
AT&T Cable Systems Exchange
On December 31, 2000, we and Comcast completed our previously announced
cable systems exchange with AT&T Corp. pursuant to which we received cable
communications systems serving approximately 770,000 subscribers. In exchange,
AT&T received certain of our cable communications systems serving approximately
700,000 subscribers.
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.
Products and Services
We offer a variety of services over our cable communications networks,
including traditional analog video and new services such as digital cable and
high- speed cable modem service. Available service offerings depend on the
bandwidth capacity of the cable communications system. Bandwidth, expressed in
megahertz (MHz), is a measure of information-carrying capacity. It is the range
of usable frequencies that can be carried by a cable communications system. The
greater the bandwidth, the greater the capacity of the system. As of January 31,
2001, approximately 84% of our cable subscribers were served by a system with a
capacity of at least 550-MHz and approximately 70% of our cable subscribers were
served by a system with a capacity of at least 750-MHz.
Digital compression technology enables us to substantially increase the
number of channels our cable communications systems can carry. Digital
compression technology converts up to twelve analog signals into a digital
format and compresses such signals into the bandwidth normally occupied by one
analog signal. At the home, a set-top video terminal converts the digital signal
into analog signals that can be viewed on a normal television set. Digital
compression technology enables us to provide a significant number of additional
programming choices to our subscribers.
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 cable
modem service and, in some areas, telephony.
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We will incur significant capital expenditures in the future for the
upgrading and rebuilding of the cable communications systems acquired or to be
acquired by us as a result of Comcast's acquisitions of Lenfest Communications
and Jones Intercable, the systems exchanges with AT&T and Adelphia, as well as
the pending systems acquisition from AT&T.
Franchises
Cable communications systems are constructed and operated under
non-exclusive franchises granted by state or local governmental authorities for
varying lengths of time and are subject to federal, state and local legislation
and regulation. 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.
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. As of
January 31, 2001, we served approximately 1,775 franchise areas in the United
States.
Traditional Analog Video Services
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.
We offer a full range of traditional analog video services. We tailor both
our basic channel line-up and our additional channel offerings to each system
according to demographics, programming preferences, competition, price
sensitivity and local regulation. Our service offerings include the following
programming packages:
o basic programming,
o expanded basic programming,
o premium services, and
o pay-per-view programming.
All of our video subscribers receive our basic cable service. This service
generally consists of national television networks, local broadcast television,
locally- originated programming, including governmental and public access, and
limited satellite-delivered programming.
Our expanded basic cable service includes a group of satellite-delivered or
non-broadcast channels such as Entertainment and Sports Programming Network
(ESPN), Cable News Network (CNN) and MTV Networks (MTV), in addition to the
basic channel line-up.
For an additional monthly fee, subscribers can also subscribe to our
premium services either individually or in packages of several channels. Our
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. Our premium services may include offerings
such as:
o Home Box Office(R),
o Cinemax(R),
o Showtime(R),
o The Movie Channel(TM),
o Encore(R), and
o Starz(R).
Our pay-per-view service permits our subscribers to order, for a separate
fee, individual feature motion pictures and special event programs, such as
professional boxing, professional wrestling and concerts on an unedited,
commercial-free basis.
New Service Offerings
The high bandwidth capacity of our cable communications networks enables us
to deliver substantially more channels and/or new and advanced products and
services to our subscribers. A variety of emerging technologies and the rapid
growth of the Internet have presented us with substantial opportunities to
provide new or expanded products and services to our subscribers and to expand
our sources of revenue. As a result, we have introduced the following new
services for the benefit of both our residential and commercial subscribers:
o digital cable television service, and
o high-speed cable modem service installed in
personal computers.
We have and will continue to upgrade our cable communications systems so
that we can provide these and other new services such as video on demand,
commonly
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known as VOD, interactive television and cable telephony more rapidly to our
subscribers.
Digital Cable Service
We offer digital cable television services to subscribers in substantially
all of our cable communi- cations systems.
Subscribers to our digital cable service may receive a mix of additional
television programming, an interactive program guide and multiple channels of
digital music. The additional programming falls into four categories:
o additional expanded basic channels,
o additional premium channels,
o "multiplexes" of premium channels to which a subscriber previously
subscribed, such as multiple channels of Home Box Office or Showtime,
which are varied as to time of broadcast or programming content theme,
and
o additional pay-per-view programming, such as more pay-per-view options
and/or frequent showings of the most popular films to provide near
video-on-demand.
Subscribers typically pay us on a monthly basis for digital cable services
and generally may discontinue services at any time. Monthly subscription rates
vary generally according to the level of service and the number of digital
converters selected by the subscriber. We expect that purchases of these
services by our subscribers will increase in the future.
High-Speed Cable Modem Service
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. We also provide businesses with Internet
connectivity solutions and networked business applications. We provide national
and local content and sell advertising to businesses.
Other Revenue Sources
We also generate revenues from advertising sales, 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.
Sales and Marketing
Our sales efforts are primarily directed toward generating incremental
revenues in our franchise areas and increasing the number of subscribers we
serve. We sell our products and services through:
o telemarketing,
o direct mail advertising,
o door-to-door selling,
o cable television advertising,
o local media advertising, and
o retail outlets.
Programming
We generally pay a monthly fee per subscriber per channel. 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 have experienced increases in our cost of programming
and we anticipate that future contract renewals will result in programming costs
that are higher than our costs today, particularly for sports programming.
We utilize interactive programming guides to provide our subscribers with
current programming information, as well as advertising and other content.
Comcast recently formed a joint venture with other companies, including various
cable companies, to develop additional sources for the interactive guide.
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
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service and support. As part of our clustering strategy, we have 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.
Our Cable Communications Systems
The table below summarizes certain subscriber information for our cable
communications systems as of December 31 (homes, subscribers and subscriptions
in thousands):
2000(9) 1999(9) 1998 1997 1996
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Cable
Homes Passed (1)........................ 12,503 9,358 7,382 7,138 6,975
Subscribers (2)......................... 7,522 5,642 4,511 4,366 4,280
Penetration (3)......................... 60.2% 60.3% 61.1% 61.2% 61.4%
Digital Cable
"Digital Ready" Subscribers (4)......... 7,173 4,559 1,570
Subscriptions (5)....................... 1,339 515 78
Penetration (6)......................... 18.7% 11.3% 5.0%
Comcast@Home
"Modem Ready" Homes Passed (7).......... 6,360 3,259 1,804 866
Subscribers............................. 400 142 51 10
"Modem Ready" Penetration (8)........... 6.3% 4.4% 2.8% 1.2%
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<FN>
(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 cable subscriber.
(3) Cable penetration means the number of cable subscribers as a percentage of
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) Each digital converter box counts as one digital cable subscription.
(6) Digital cable penetration means the number of digital cable subscriptions
as a percentage of "digital ready" subscribers. Certain subscribers may
have multiple digital cable subscriptions.
(7) A home passed is "modem ready" if we can connect it to our Internet service
connection system without further upgrading the transmission lines.
(8) "Modem ready" penetration means the number of Comcast@Home subscribers as a
percentage of "modem ready" homes passed.
(9) In April 1999, Comcast acquired and contributed to us its controlling
interest in Jones Intercable, Inc. In January 2000, Comcast acquired
Lenfest Communications, Inc. and in August 2000 the successor to Lenfest
was merged with and into us. In August 2000, we acquired Prime
Communications LLC. In 2000, we began consolidating Comcast Cablevision of
Garden State, L.P. as a result of Comcast's contribution of its 50%
interest in Garden State Cable to us in December 2000. On January 1, 2001
and December 31, 2000, we and Comcast completed our cable systems exchanges
with Adelphia Communications and AT&T Corp., respectively. The subscriber
information as of December 31, 2000 excludes the effects of our exchanges
with Adelphia and AT&T.
</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 other operators who build and operate communi- cations systems in the
same communities that we serve,
o interactive online computer services,
o newspapers, magazines and book stores,
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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 and services.
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 provide or plan to
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.
A local telephone company, Ameritech, and facilities-based competitors such
as RCN Corporation and Knology Holdings, Inc., among others, are now offering
cable and other communications services in various areas where we hold
franchises. We anticipate that facilities- based competitors will develop in
other franchise areas that 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 programming to over 14.5 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 programming
services substantially 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. 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 are transmitting
local broadcast signals in many markets which we serve. As a result, satellite
carriers are more competitive to cable communications system operators like us
because they offer programming which more closely resembles what we offer. These
companies and others are also developing ways to bring advanced communications
services to their customers. They are currently offering satellite-delivered
high-speed Internet access services with a telephone return path and are
beginning to provide true two-way interactivity. We are unable to predict the
effects 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
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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.
Many of our cable communications systems are currently offering high-speed
cable modem services to subscribers. These systems 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.
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 broadband infrastructure so that
these companies and others may deliver high-speed Internet access and
interactive television services directly to customers over cable facilities.
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
companies are seeking to provide high-speed broadband 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, state and local governmental authorities. The courts, 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 continue to
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.
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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.
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,
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.
Content Requirements
The Communications Act and the FCC's regulations contain broadcast signal
carriage requirements that allow certain 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 and the FCC's regulations require a cable operator
to devote up to one-third of its activated channel capacity for the mandatory
carriage of local commercial television stations. The Communi- cations 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 recently adopted regulations which require us to carry the signals
of local digital-only broadcast stations (both commercial and non-commercial)
and the digital signals of those local broadcast stations that return their
analog spectrum to the government and convert to a digital broadcast format. The
FCC's rules give the digital only broadcast stations the discretion to elect
whether the operator will carry the station's signal in a digital or converted
analog format and to tie the carriage of their digital signals with the carriage
of their analog signals as a retransmission consent condition. We are unable to
predict the ultimate 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.
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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.
The FCC has concluded that the program access rules do not apply to certain
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 area. The FCC decision is
currently under appeal.
The Communications Act contains restrictions on the transmission by cable
operators of obscene or indecent programming. The Communications Act requires
the cable operator, upon the request of the subscriber, to scramble or otherwise
fully block any channel the subscriber does not wish to receive. A three-judge
federal district court determined that certain restrictions on channels
primarily dedicated to sexually oriented programming were unconstitutional. The
United States Supreme Court recently affirmed 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,
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.
Recently, a number of companies, including telephone companies and ISPs
have asked local, state and federal governments to mandate that cable
communications systems operators provide capacity on their broadband
infrastructure so that these companies and others may deliver high-speed
Internet access and interactive television services directly to customers over
cable facilities. Some cable operators, including us, have initiated litigation
challenging municipal efforts to unilaterally impose so-called "open access"
requirements. The few court decisions dealing with this issue have been
inconsistent. The FCC recently initiated a regulatory proceeding to consider
"open access" and related regulatory issues and, in connection with its review
of the recent AOL-Time Warner merger, imposed, together with the Federal Trade
Commission, "open access," technical performance and other requirements related
to the merged company's Internet and Instant Messaging platforms. Whether the
policy framework reflected in these agencies' merger reviews will be imposed on
an industry- wide basis is uncertain. We cannot predict the ultimate outcome of
this administrative proceeding or the impact of any new access requirements on
the operation of our cable systems.
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,
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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 telecom- munications 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 can 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 franchise agreements 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 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' constitu- tional and statutory 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 and on the
number of channels that can be occupied on a cable system by video programmers
in which the cable operator has an attributable ownership interest.
A federal appellate court rejected constitutional challenges to the statutory
ownership limitations and the United States Supreme Court recently declined to
review that case. However, the same federal appellate court in a separate case
recently reversed the FCC's adoption of a 30% nationwide subscriber ownership
limit, the FCC's limitation on the number of affiliated video programming
services carried on an operator's system, and the FCC's modification of certain
ownership attribution rules. We are unable to predict the final outcome of this
judicial proceeding or of any FCC reconsideration of its ownership rules, or the
impact any revised FCC 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 retained
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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 competition,
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 decision. 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 original rate formula governs the
maximum rate certain utilities may charge for attachments to their poles and
conduit by cable operators providing only cable services. The FCC also adopted a
second rate formula that became effective in February 2001 and governs 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 challenged the new rules in court. A
federal appellate court 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. However, the same court determined in
a separate case that the FCC did not have authority to regulate the rates, terms
and conditions of cable operators' pole attachments that are simultaneously used
to provide high-speed Internet access and cable services. Based upon this
decision, a number of companies that control utility poles in areas served by us
have already announced and unilaterally implemented significant changes in
contract terms and increases in the rates charged for cable pole attachments. We
have joined in several complaints filed at the FCC by various state cable
associations challenging certain utilities' rate increases and the unilateral
imposition of new contract terms. Although the adverse appellate court decision
has been stayed pending review by the United States Supreme Court, if the
decision is not reversed, the contract terms imposed by utilities on cable
operators for pole attachments will likely be more onerous. 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, any new pole attachment rate
regulations or any elimination or modification of the FCC's regulatory authority
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
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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 performing rights organizations who negotiate on behalf of their
members for license fees covering each performance. The cable industry and one
of these organizations 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 performing 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.
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
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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, 2000, we had approximately 18,000 employees. We believe
that our relationships with our employees are good.
ITEM 2 PROPERTIES
A central receiving apparatus, distribution cables, servers, analog and
digital converters, cable modems, 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.
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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.
Holders
All of our shares of common stock, $1.00 par value, are owned either directly or
indirectly 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.
- 14 -
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.
We are an indirect wholly owned subsidiary of Comcast Corporation
("Comcast").
In August 2000, two wholly owned subsidiaries of Comcast, Comcast LCI
Holdings, Inc. ("LCI Holdings") and Comcast JOIN Holdings, Inc. ("JOIN
Holdings") were merged into us (the "Reorganization"). Jones Intercable, Inc.
("Jones Intercable"), the predecessor to JOIN Holdings, owned cable systems and
was acquired by Comcast in April 1999 and March 2000. Lenfest Communications,
Inc. ("Lenfest"), the predecessor to LCI Holdings, owned cable systems and was
acquired by Comcast in January 2000. The Reorganization was accounted for at
Comcast's historical cost in a manner similar to a pooling of interests.
Accordingly, our consolidated financial statements include the accounts of the
merged subsidiaries since the dates of their acquisition by Comcast.
In August 2000, Comcast contributed a note, convertible into 90% of the
equity of Prime Communications LLC ("Prime"), loans and related accrued interest
which was due to Comcast from Prime, and cash to us (the "Prime Contribution").
Immediately thereafter, we converted the note, plus accrued interest on the note
and the loans to equity and the owners of Prime sold their remaining 10% equity
interest in Prime to us for $87.7 million (the "Prime Acquisition"). The Prime
Acquisition was funded with the proceeds from a capital contribution from
Comcast and was accounted for under the purchase method of accounting. As such,
the operating results of Prime have been included in our consolidated statement
of operations from the date of the Prime Acquisition.
In December 2000, Comcast contributed its 50% interest in Comcast
Cablevision of Garden State, L.P. ("Garden State Cable") (formerly Garden State
Cablevision L.P.) to us. Garden State Cable is a partnership which was owned 50%
by Lenfest and 50% by Comcast. As a result of Comcast's acquisition of Lenfest
and Comcast's contribution of its 50% interest in Garden State Cable (the
"Garden State Contribution"), we now own 100% of Garden State Cable. The Garden
State Cable Contribution was accounted for at Comcast's historical cost in a
manner similar to a pooling of interests. Accordingly, our consolidated
financial statements include the accounts of Garden State Cable from the January
2000 date of Comcast's acquisition of Lenfest.
See Notes 2 and 3 to our consolidated financial statements included in Item
8.
Liquidity and Capital Resources
Financing
See Note 5 to our consolidated financial statements included in Item 8.
The $1.776 billion increase in our long-term debt, including current
portion, results principally from the $2.146 billion of aggregate debt that we
assumed in connection with the Reorganization, the Prime Contribution and the
Garden State Contribution (see Notes 3 and 5 to our consolidated financial
statements included in Item 8) and $369.2 million of retirements and repayments,
net of borrowings.
As of December 31, 2000 and 1999, our long-term debt, including current
portion, was $6.714 billion and $4.938 billion, respectively. Excluding the
effects of interest rate risk management instruments, 36.5% and 34.3% of our
long-term debt as of December 31, 2000 and 1999, respectively, was at variable
rates.
In December 2000, Comcast contributed to us $196.7 million principal amount
of our 10 1/2% senior subordinated notes due 2006 which were held by Comcast. As
such, amounts outstanding as of December 31, 2000 have been treated as
effectively retired.
In December 2000, Comcast issued $1.285 billion principal amount at
maturity of Zero Coupon Convertible Debentures due 2020 (the "Zero Coupon
Debentures") for proceeds of $1.002 billion. Comcast advanced substantially all
of the net proceeds from the offering to us in order to repay a portion of the
amounts outstanding under our commercial paper program and bank credit facility.
As such, in addition to our outstanding long term debt, we had an aggregate of
$860.1 million of notes payable to Comcast and Comcast's subsidiaries as of
December 31, 2000 (see Note 6 to our consolidated financial statements included
in Item 8).
In January 2001, we sold an aggregate of $1.5 billion of public debt
consisting of $500.0 million of 6.375% Senior Notes due 2006 and $1.0 billion of
6.75% Senior Notes due 2011. In January 2001, Comcast issued $192.8 million
principal amount at maturity of Zero Coupon Convertible Debentures. We and
Comcast used substantially all of the net proceeds from the offerings to repay a
portion of the amounts outstanding under our
- 15 -
commercial paper program and bank credit facility. After giving effect to these
subsequent transactions, and excluding the effects of interest rate risk
management instruments, 12.2% of our long-term debt was at variable rates.
Interest Rate Risk Management
We are exposed to the market risk of adverse changes in interest rates. To
manage the volatility relating to these exposures, we maintain a mix of fixed
and variable rate debt and enter into various derivative transactions pursuant
to our policies. 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.
Using interest rate exchange agreements ("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. Interest
rate cap agreements ("Caps") are used to lock in a maximum interest rate should
variable rates rise, but enable us to otherwise pay lower market rates. Interest
rate collar agreements ("Collars") limit our exposure to and benefits from
interest rate fluctuations on variable rate debt to within a certain range of
rates.
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, 2000 (dollars in millions):
Expected Maturity Date
-----------------------------------------------------------------------------
Fair
Value at
2001 2002 2003 2004 2005 Thereafter Total 12/31/00
--------- --------- --------- --------- --------- ----------- --------- ----------
Debt
Fixed Rate.................... $3.3 $203.0 $0.6 $300.5 $697.0 $3,061.4 $4,265.8 $4,423.7
Average Interest Rate...... 9.7% 9.6% 8.2% 8.1% 8.3% 7.9% 8.1%
Variable Rate................. $2,448.5 $2,448.5 $2,448.5
Average Interest Rate...... 6.8% 6.8%
Interest Rate Instruments
Fixed to Variable Swaps....... $300.0 $150.0 $450.0 $3.2
Average Pay Rate........... 7.5% 7.9% 7.7%
Average Receive Rate....... 8.1% 8.3% 8.2%
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, 2000, plus the borrowing margin in
effect for each credit facility at December 31, 2000. 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, 2000. 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, 2000, 1999 and 1998 was not
significant.
Results of Operations
The effects of the Reorganization, the Prime Contribution and the Garden
State Contribution were to increase our revenues and expenses, resulting in
increases in our operating income before depreciation and amortization. The
increases in our property and equipment, deferred charges and long-term debt
(see Notes 5 and 9 to our consolidated financial statements included in Item 8)
and the corresponding increases in depreciation expense, amortization expense
and interest expense from 1999 to 2000 are primarily due to the effects of the
Reorganization, the Prime Contribution and the Garden State Contribution, as
well as our increased levels of capital expenditures.
Our depreciation and amortization expense for years subsequent to 2000 will
increase significantly as a result of our cable systems exchanges with AT&T
Corp. ("AT&T") and Adelphia Communications ("Adelphia"),
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which closed on December 31, 2000 and January 1, 2001, respectively.
Our summarized consolidated financial information for the years ended
December 31, 2000 and 1999 is as follows (dollars in millions, "NM" denotes
percentage is not meaningful):
Year Ended
December 31, Increase / (Decrease)
2000 1999 $ %
--------- --------- --------- --------
Analog video.............................................. $3,492.0 $2,535.9 $956.1 37.7%
Digital video............................................. 114.0 30.9 83.1 NM
Cable modem............................................... 114.4 44.5 69.9 NM
Advertising sales......................................... 288.6 190.0 98.6 51.9
Other..................................................... 132.9 105.2 27.7 26.3
--------- --------- ---------
Service income......................................... 4,141.9 2,906.5 1,235.4 42.5
Operating, selling, general and administrative expenses... 2,517.9 1,927.7 590.2 30.6
--------- --------- ---------
Operating income before depreciation and
amortization (1)....................................... 1,624.0 978.8 645.2 65.9
Depreciation and amortization............................. 2,382.7 1,017.7 1,365.0 NM
--------- --------- ---------
Operating loss............................................ (758.7) (38.9) 719.8 NM
--------- --------- ---------
Interest expense.......................................... 515.7 352.9 162.8 46.1
Interest expense on notes payable to affiliates........... 9.1 10.0 (0.9) (9.0)
Investment expense (income)............................... 1.5 (6.8) 8.3 NM
Equity in net losses of affiliates........................ 9.3 2.4 6.9 NM
Other (income) expense.................................... (1,707.3) 4.2 1,711.5 NM
Income tax expense (benefit).............................. 299.9 (46.2) 346.1 NM
Minority interest......................................... 107.9 (107.9) NM
--------- --------- ---------
Income (loss) before extraordinary items.................. $113.1 ($247.5) $360.6 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 $956.1 million increase from 1999 to 2000 in analog video service
income, which consists of our basic, expanded basic, premium and pay-per-view
services, $863.2 million is attributable to the effects of the Reorganization,
the Prime Contribution and the Garden State Contribution, and $92.9 million
relates principally to changes in rates and subscriber growth in our historical
operations, offset by slightly lower pay-per-view revenue. The increase from
1999 to 2000 in digital video service income is due primarily to the addition of
approximately 824,000 digital subscriptions during the year ended December 31,
2000 and, to a lesser extent, to the effects of a new, higher-priced digital
service offering made in the second half of 2000. The increase from 1999 to 2000
in cable modem service income is primarily due to the addition of approximately
258,000 cable modem subscribers during the year ended December 31, 2000.
Approximately one-half of the increase from 1999 to 2000 in advertising sales
revenue is attributable to the effects of the merger of LCI Holdings into us,
with the remaining increase attributable to the effects of the 2000 political
campaigns and increased cable viewership. The increase from 1999 to 2000 in
other service income, which includes installation revenues, guide revenues,
commissions from electronic retailing and other product offerings, is primarily
attributable to the Reorganization.
- 17 -
Operating, Selling, General and Administrative Expenses
See Note 7 to our consolidated financial statements included in Item 8.
The increases in operating, selling, general, and administrative expenses
from 1999 to 2000 are primarily due to the effects of the Reorganization, the
Prime Contribution and the Garden State Cable Contribution, increases in the
costs of cable programming as a result of changes in rates, subscriber growth
and additional channel offerings, the effects of cable modem subscriber growth,
and, to a lesser extent, to increases in labor costs and other volume related
expenses in our historical operations. We anticipate the cost of cable
programming will increase in the future as cable programming rates increase and
additional sources of cable programming become available.
Interest Expense
The $162.8 million increase from 1999 to 2000 is primarily due to the
effects of the Reorganization offset, in part, by the effects of our repayments
and retirement of debt. We anticipate that, for the foreseeable future, interest
expense will be a significant cost to us.
Interest Expense on Notes Payable to Affiliates
The $0.9 million decrease from 1999 to 2000 is primarily attributable to
the elimination of outstanding notes payable to affiliates as a result of a
capital contribution from Comcast.
Investment Expense (Income)
During the year ended December 31, 2000, in connection with the merger of
certain publicly traded companies held by us and accounted for as investments
available for sale, we recognized a pre-tax gain of $33.0 million, representing
the difference between the fair value of the securities received by us and our
basis in the securities exchanged. This gain was recorded as a reclassification
from accumulated other comprehensive (loss) income to investment income.
During the year ended December 31, 2000, we recorded pre-tax losses of
$42.8 million on certain of our investments based on a decline in value that was
considered other than temporary.
Equity In Net Losses of Affiliates
The $6.9 million increase from 1999 to 2000 is primarily attributable to
our proportionate interest in the net loss of Susquehanna Cable, an equity
investee of ours as a result of the Reorganization.
Other (Income) Expense
In December 2000, in connection with our cable systems exchange with AT&T
pursuant to which we received cable communications systems serving approximately
770,000 subscribers in exchange for certain of our cable communications systems
serving approximately 700,000 subscribers, we recorded a pre-tax gain of $1.711
billion, representing the difference between the estimated fair value as of the
closing date of the transaction and our cost basis in the systems exchanged.
The $4.2 million of other expense for the year ended December 31, 1999
relates primarily to the non-cable operations of Jones Intercable.
Income Tax Expense (Benefit)
Income tax expense for the year ended December 31, 2000 is primarily the
result of the effects of our income before income tax expense, minority interest
and extraordinary items, and non-deductible goodwill amortization.
Minority Interest
The $107.9 million decrease from 2000 to 1999 is attributable to the
effects of Comcast's contribution of Jones Intercable to us in April 1999 and to
the effects of our acquisition of the minority interest of MHCP Holdings, L.L.C.
in February 2000.
Extraordinary Items
Extraordinary items for the years ended December 31, 2000 and 1999 consist
of unamortized debt issue costs and debt extinguishment costs, net of related
tax benefits, expensed in connection with the redemption and refinancing of
certain indebtedness.
We believe that our operations are not materially affected by inflation.
Anticipated Transaction
Comcast intends to merge its subsidiary, Comcast Cablevision of
Philadelphia Area I, Inc. ("Greater Philadelphia") with and into us (the
"Greater Philadelphia Merger"). The Greater Philadelphia Merger is expected to
close by the end of the third quarter of 2001, subject to receipt of regulatory
approvals. Greater Philadelphia was acquired by Comcast on June 30, 1999 for
approximately 8.5 million shares of Comcast Class A Special Common Stock with a
value of $291.7 million. Upon closing, the
- 18 -
Greater Philadelphia Merger will be accounted for at Comcast's historical cost,
in a manner similar to a pooling of interests and our consolidated financial
statements will include the results of Greater Philadelphia since the June 1999
date of Comcast's acquisition.
Expected Impact of Adoption of SFAS No. 133
We adopted Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities", as amended, on January 1,
2001, as required by the new statement. This statement establishes accounting
and reporting standards for derivatives and hedging activities (see Note 2 to
our consolidated financial statements included in Item 8). Adoption of the new
statement will affect our accounting for our equity warrant agreements and
interest rate exchange agreements.
Under the new statement, our derivative instruments, which are comprised
solely of derivative financial instruments, must be recorded at fair value on
our consolidated balance sheet with changes in fair value recorded, except under
specific circumstances, to our consolidated statement of operations. Recording
changes in the fair value of our derivative instruments to our consolidated
statement of operations represents a change from our current accounting whereby
generally these changes are recorded as a component of stockholders' equity.
When specific circumstances exist, hedge accounting is permitted when the
derivative instrument is designated as a hedge. Hedge accounting permits changes
in the fair value of our derivative instruments to be either substantially
offset in our consolidated statement of operations by changes in the fair value
of the hedged item or deferred as a component of stockholders' equity until the
hedged item is recognized in our consolidated statement of operations.
In connection with the adoption of the new statement, we expect to
recognize as expense a cumulative effect of change in accounting principle, net
of tax, of approximately $60 million in the first quarter of 2001, principally
related to the reclassification of losses previously recognized as a component
of other comprehensive (loss) income on our equity derivative instruments, net
of related deferred income tax benefits.
The adoption of the new statement will also result in a decrease in other
comprehensive loss as a result of the reclassification to our consolidated
statement of operations of pre-tax losses of approximately $85 million,
primarily related to our equity warrant agreements as discussed above. The
decrease will be recorded in the first quarter of 2001, net of related deferred
income tax benefits, of approximately $30 million.
Adoption of the new statement will likely result in volatility from period
to period in investment (income) expense as reported on our consolidated
statement of operations. We are unable to predict the effects this volatility
may have on our future earnings.
- 19 -
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Comcast Cable Communications, Inc.
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheet of Comcast Cable
Communications, Inc. (an indirect wholly owned subsidiary of Comcast
Corporation) and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended December 31, 2000. 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 consolidated financial statements of Jones
Intercable, Inc. ("Jones") (a consolidated subsidiary) as of December 31, 1999
and for the year then ended, 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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 23, 2001
- 20 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
CONSOLIDATED BALANCE SHEET
(Dollars in millions, except share data)
December 31,
2000 1999
--------- -------
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................... $44.2 $61.0
Investments.................................................................. 52.6 0.4
Cash held by an affiliate.................................................... 74.2 34.0
Accounts receivable, less allowance for doubtful accounts of $39.9 and $31.2. 241.7 128.4
Due from affiliate........................................................... 0.6
Other current assets......................................................... 48.0 29.7
--------- -------
Total current assets..................................................... 461.3 253.5
--------- -------
INVESTMENTS..................................................................... 590.9 119.4
--------- -------
NOTES RECEIVABLE FROM AFFILIATES................................................ 99.3
--------- -------
PROPERTY AND EQUIPMENT.......................................................... 5,720.5 4,354.0
Accumulated depreciation..................................................... (1,322.6) (1,477.4)
--------- -------
Property and equipment, net.................................................. 4,397.9 2,876.6
--------- -------
DEFERRED CHARGES
Franchise and license acquisition costs...................................... 15,297.2 3,898.6
Excess of cost over net assets acquired and other............................ 8,492.6 5,111.4
--------- -------
23,789.8 9,010.0
Accumulated amortization..................................................... (3,535.2) (2,291.7)
--------- -------
Deferred charges, net........................................................ 20,254.6 6,718.3
--------- -------
$25,804.0 $9,967.8
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses........................................ $798.8 $461.2
Accrued interest............................................................. 74.1 62.6
Current portion of long-term debt............................................ 3.3 202.6
Due to affiliates............................................................ 160.2
--------- -------
Total current liabilities................................................ 876.2 886.6
--------- -------
LONG-TERM DEBT, less current portion............................................ 6,711.0 4,735.3
--------- -------
NOTES PAYABLE TO AFFILIATES..................................................... 860.1
--------- -------
DUE TO AFFILIATE................................................................ 664.2
--------- -------
DEFERRED INCOME TAXES, due to affiliate, net.................................... 5,016.4 1,635.6
--------- -------
MINORITY INTEREST AND OTHER..................................................... 283.1 237.3
--------- -------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY
Common stock, $1 par value - authorized 1,000 shares;
issued, 138.89 and 1,000 shares
Additional capital........................................................... 15,272.8 4,931.4
Accumulated deficit.......................................................... (3,044.1) (3,150.1)
Accumulated other comprehensive (loss) income................................ (171.5) 27.5
--------- -------
Total stockholders' equity............................................... 12,057.2 1,808.8
--------- -------
$25,804.0 $9,967.8
========= ========
See notes to consolidated financial statements.
- 21 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions)
Year Ended December 31,
2000 1999 1998
--------- --------- --------
SERVICE INCOME.................................................... $4,141.9 $2,906.5 $2,277.4
--------- --------- --------
COSTS AND EXPENSES
Operating...................................................... 1,636.8 1,242.4 972.5
Selling, general and administrative............................ 881.1 685.3 520.5
Depreciation and amortization.................................. 2,382.7 1,017.7 674.1
--------- --------- --------
4,900.6 2,945.4 2,167.1
--------- --------- --------
OPERATING (LOSS) INCOME........................................... (758.7) (38.9) 110.3
OTHER (INCOME) EXPENSE
Interest expense............................................... 515.7 352.9 223.6
Interest expense on notes payable to affiliates, net........... 9.1 10.0 52.1
Investment expense (income).................................... 1.5 (6.8) (6.7)
Equity in net losses of affiliates............................. 9.3 2.4 0.4
Other (income) expense......................................... (1,707.3) 4.2 (9.1)
--------- --------- --------
(1,171.7) 362.7 260.3
--------- --------- --------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT),
MINORITY INTEREST AND EXTRAORDINARY ITEMS...................... 413.0 (401.6) (150.0)
INCOME TAX EXPENSE (BENEFIT)...................................... 299.9 (46.2) (35.8)
--------- --------- --------
INCOME (LOSS) BEFORE MINORITY INTEREST AND
EXTRAORDINARY ITEMS............................................ 113.1 (355.4) (114.2)
MINORITY INTEREST................................................. 107.9 17.0
--------- --------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS.......................... 113.1 (247.5) (97.2)
EXTRAORDINARY ITEMS............................................... (7.1) (6.2) (0.1)
--------- --------- --------
NET INCOME (LOSS)................................................. $106.0 ($253.7) ($97.3)
========= ========= ========
See notes to consolidated financial statements.
- 22 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
Year Ended December 31,
2000 1999 1998
--------- --------- --------
OPERATING ACTIVITIES
Net income (loss).............................................. $106.0 ($253.7) ($97.3)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization................................ 2,382.7 1,017.7 674.1
Non-cash interest expense.................................... 3.2 0.9 0.4
Non-cash interest expense on notes payable to affiliates..... 5.0 2.3
Deferred expenses charged by an affiliate.................... 95.9 139.4 126.0
Equity in net losses of affiliates........................... 9.3 2.4 0.4
Gains on sales of investments and other income, net.......... (1,697.1) (0.9) (7.9)
Minority interest............................................ (107.9) (17.0)
Extraordinary items.......................................... 7.1 6.2 0.1
Deferred income tax expense (benefit), due to affiliate...... 288.4 (71.2) (43.1)
Other........................................................ (0.1) (4.4) (1.2)
--------- --------- --------
1,195.4 733.5 636.8
Changes in working capital................................... 94.7 48.4 64.3
--------- --------- --------
Net cash provided by operating activities.................. 1,290.1 781.9 701.1
--------- --------- --------
FINANCING ACTIVITIES
Proceeds from borrowings....................................... 4,252.6 176.6 1,724.9
Repayments of long-term debt................................... (4,628.5) (201.6) (870.9)
Proceeds from notes payable to affiliates...................... 986.2 40.3 137.4
Repayment of notes payable to affiliates....................... (126.1) (40.3) (700.3)
Increase in notes receivable from affiliates................... (63.8)
Capital contributions from parent.............................. 418.7 960.1
Net transactions with affiliates............................... 53.2 (6.4) 41.0
Deferred financing costs and other............................. (34.6) 8.1 (12.0)
--------- --------- --------
Net cash provided by financing activities.................. 857.7 936.8 320.1
--------- --------- --------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired............................. (164.7) (41.8) (259.7)
(Purchases of) proceeds from sales of short-term investments... (0.1) (0.1) 0.1
Investments in affiliates...................................... (576.3) (750.0)
Proceeds from sales of investments............................. 76.4 5.9
Capital expenditures........................................... (1,248.0) (731.8) (711.1)
(Increase) decrease in cash held by an affiliate............... (40.2) 23.1 (0.5)
Additions to deferred charges and other........................ (211.7) (197.5) (56.2)
--------- --------- --------
Net cash used in investing activities...................... (2,164.6) (1,692.2) (1,027.4)
--------- --------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.................. (16.8) 26.5 (6.2)
CASH AND CASH EQUIVALENTS, beginning of year 61.0 34.5 40.7
--------- --------- --------
CASH AND CASH EQUIVALENTS, end of year $44.2 $61.0 $34.5
========= ========= ========
See notes to consolidated financial statements.
- 23 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in millions)
Accumulated
Other
Common Additional Accumulated Comprehensive
Stock Capital Deficit (Loss) Income Total
---------- ---------- ----------- ------------- ---------
BALANCE, JANUARY 1, 1998....................... $ $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:
Net loss.................................... (253.7)
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
Comprehensive loss:
Net income.................................. 106.0
Unrealized losses on marketable securities,
net of deferred taxes of $107.1........... (199.0)
Total comprehensive loss.................... (93.0)
Capital contributions from parent........... 10,341.4 10,341.4
---------- ---------- ----------- ------------- ---------
BALANCE, DECEMBER 31, 2000..................... $ $15,272.8 ($3,044.1) ($171.5) $12,057.2
========== ========== =========== ============= =========
See notes to consolidated financial statements.
- 24 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
1. BUSINESS
Comcast Cable Communications, Inc., a Delaware corporation, and
subsidiaries (the "Company") is an indirect wholly owned subsidiary of
Comcast Corporation ("Comcast"). The Company and its subsidiaries are
engaged in the development, management and operation of broadband
communications networks in the United States. The Company's consolidated
cable operations served approximately 7.6 million subscribers and passed
approximately 12.7 million homes as of December 31, 2000.
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
In August 2000, two wholly owned subsidiaries of Comcast, Comcast LCI
Holdings, Inc. ("LCI Holdings") and Comcast JOIN Holdings, Inc. ("JOIN
Holdings") were merged into the Company (the "Reorganization"). Lenfest
Communications, Inc. ("Lenfest"), the predecessor to LCI Holdings, owned
cable systems and was acquired by Comcast in January 2000. Jones
Intercable, Inc. ("Jones Intercable"), the predecessor to JOIN Holdings,
owned cable systems and was acquired by Comcast in April 1999 and March
2000. The Reorganization was accounted for at Comcast's historical cost in
a manner similar to a pooling of interests. Accordingly, the accompanying
consolidated financial statements include the accounts of the merged
subsidiaries since the dates of their acquisition by Comcast (see Note 3).
The Reorganization had no significant impact on the Company's consolidated
statement of cash flows during the year ended December 31, 2000 due to its
noncash nature (see Note 9).
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 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, 2000 and 1999, and have not been comprehensively revalued for
purposes of these consolidated financial statements since such dates.
A reasonable estimate of fair value of the notes receivable from
affiliates, the notes payable to affiliates and the amounts due from/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 consist principally of certificates of deposit with
maturities of three months or less when purchased. The carrying amounts of
the Company's cash equivalents approximate their fair values.
- 25 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Cash held by an affiliate consists of cash held by a subsidiary of Comcast
under a cash management program (see Note 7).
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 (loss) income.
Restricted publicly traded investments and investments in privately held
companies are stated at cost, adjusted for any known diminution in value
(see Note 4).
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 $66.0 million, $19.7 million and $34.4
million during the years ended December 31, 2000, 1999 and 1998,
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 ranging principally from 3
to 20 years. The excess of cost over the fair value of net assets acquired
is being amortized on a straight-line basis principally over estimated
useful lives of 20 years. Debt issue costs are being amortized on a
straight-line basis over the term of the related debt.
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
- 26 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
or other determinants of fair value. If the total of the expected future
undiscounted cash flows is less than the carrying amount of the asset, 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. Advertising
sales revenue is recognized at estimated realizable values when the
advertising is aired.
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, dividend 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. Investment income also includes impairment
losses resulting from adjustments to the net realizable value of certain of
the Company's investments (see Note 4).
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 employs derivative financial instruments for a number of
purposes. The Company manages its exposure to fluctuations in interest
rates by entering into interest rate exchange agreements ("Swaps"),
interest rate cap agreements ("Caps") and interest rate collar agreements
("Collars"). 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.
The Company makes investments in businesses, to some degree, through the
purchase of equity call option or call warrant agreements ("Equity
Warrants"). Equity warrants are marked to market on a current basis with
the result included in accumulated other comprehensive (loss) income in the
Company's consolidated balance sheet.
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 matched 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.
- 27 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
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. 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.
SFAS No. 133, as Amended
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement establishes accounting and reporting standards for
derivatives and hedging activities. The new standard requires that all
derivative instruments be reported on the balance sheet at their fair
values. For derivative instruments designated and effective as fair value
hedges, changes in the fair value of the derivative instrument will be
substantially offset in the statement of operations by changes in the fair
value of the hedged item. For derivative instruments designated as cash
flow hedges, the effective portion of any hedge is reported in other
comprehensive (loss) income until it is recognized in earnings during the
same period in which the hedged item affects earnings. The ineffective
portion of all hedges will be recognized in current earnings each period.
Changes in the fair value of derivative instruments that are not designated
as a hedge will be recorded each period in current earnings.
In July 1999, the FASB issued SFAS No. 137 which deferred the effective
date for implementation of SFAS No. 133 to fiscal years beginning after
June 15, 2000. In June 2000, the FASB issued SFAS No. 138 which addressed
certain issues causing implementation difficulties for entities that apply
SFAS No. 133. The Company adopted SFAS No. 133, as amended, on January 1,
2001. Instruments that the Company has entered into that will be accounted
for under SFAS No. 133, as amended, include Equity Warrants and Swaps. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Item 7 of the Company's Annual Report on Form 10-K
for a discussion of the expected impact the adoption of SFAS No. 133 will
have on the Company's consolidated financial position and results of
operations.
SAB No. 101, as Amended
In December 1999, the staff of the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements," which provides guidance in applying
generally accepted accounting principles to selected revenue recognition
issues. In March 2000 and June 2000, the staff of the SEC amended SAB No.
101 to delay the required implementation date of SAB No. 101 to the fourth
quarter of fiscal years beginning after December 15, 1999. The Company
adopted SAB No. 101, as amended, on October 1, 2000. The adoption of SAB
No. 101, as amended, did not have a material impact on the Company's
results of operations.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 2000.
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
AT&T Cable Systems Exchange
On December 31, 2000, the Company and Comcast completed their previously
announced cable systems exchange with AT&T Corp. ("AT&T") pursuant to which
the Company received cable communications systems serving approximately
770,000 subscribers. In exchange, AT&T received certain of the Company's
cable communications systems serving approximately 700,000 subscribers. In
connection with the exchange, the Company recorded to other income a
pre-tax gain of $1.711 billion, representing the difference between the
estimated fair value as of the closing date of the transaction and the
Company's cost basis in the systems exchanged.
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COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Acquisition of Prime Communications LLC
In December 1998, Comcast agreed to invest in Prime Communications LLC
("Prime"), a cable communications company serving approximately 406,000
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. Since that time, Comcast made an additional $70.0 million
in loans to Prime (on the same terms as the original loan). In August 2000,
Comcast made a capital contribution of the note, plus accrued interest of
$51.7 million on the note and the loans to the Company (the "Prime
Contribution"). Immediately thereafter, the Company converted the note,
plus accrued interest on the note and the loans to equity and the owners of
Prime sold their remaining 10% equity interest in Prime to the Company for
$87.7 million. As a result, the Company owns 100% of Prime and assumed
management control of Prime's operations (the "Prime Acquisition"). The
Prime Acquisition was funded with proceeds from a capital contribution from
Comcast. The Company assumed and immediately repaid $532.0 million of
Prime's debt with proceeds from borrowings under existing credit
facilities.
Acquisition of Jones Intercable, Inc.
In April 1999, Comcast acquired a controlling interest in Jones Intercable,
a cable communications company serving approximately 1.1 million
subscribers for aggregate consideration of $706.3 million in cash. Also on
that date, Comcast contributed its shares in Jones Intercable to the
Company. In June 1999, Comcast purchased an additional 1.0 million shares
of Jones Intercable Class A Common Stock for $50.0 million in cash in a
private transaction and contributed such shares to the Company. The
acquisitions were accounted for under the purchase method of accounting.
In March 2000, the Jones Intercable shareholders approved a merger
agreement pursuant to which the Jones Intercable shareholders, including
the Company, received 1.4 shares of Comcast's Class A Special Common Stock
in exchange for each share of Jones Intercable Class A Common Stock and
Common Stock (the "Jones Merger"), and Jones Intercable was merged with and
into JOIN Holdings, with JOIN Holdings as the successor to Jones
Intercable. 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 the
consideration received for the Company's interest in Jones Intercable was
shares of Comcast Class A Special Common Stock, the exchange had no
significant impact on the Company's consolidated statement of cash flows
during the year ended December 31, 2000 (see Note 9).
In May 2000, the Company sold its interest in its wholly owned subsidiary
which held the Comcast Class A Special Common Stock to a wholly owned
subsidiary of Comcast in consideration for amounts due to affiliates
totaling $758.1 million related to management fees and programming charges
(see Note 7). The Company did not record any gain or loss on the
transaction as it was between subsidiaries under the common control of
Comcast. In August 2000, JOIN Holdings was merged into the Company (see
Note 2).
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"), formerly a 55% owned consolidated subsidiary of
the Company which serves subscribers in Michigan, New Jersey and Florida.
As a result, 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).
Acquisition of Lenfest Communications, Inc.
In January 2000, Comcast acquired Lenfest, a cable communications company
serving approximately 1.1 million subscribers primarily in the Philadelphia
area from AT&T and the other Lenfest stockholders for approximately 120.1
million shares of Comcast's Class A Special Common Stock, with a value of
$6.014 billion (the "Lenfest Acquisition"). In connection with the Lenfest
Acquisition, Comcast assumed approximately $1.326 billion of debt.
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COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Immediately upon closing of the Lenfest Acquisition, Lenfest was merged
with and into LCI Holdings with LCI Holdings as the successor to Lenfest.
In August 2000, LCI Holdings was merged into the Company (see Note 2).
Consolidation of Comcast Cablevision of Garden State, L.P.
Comcast Cablevision of Garden State, L.P. ("Garden State Cable") (formerly
Garden State Cablevision L.P.), a cable communications company serving
approximately 216,000 subscribers in New Jersey, is a partnership which was
owned 50% by Lenfest and 50% by Comcast. In December 2000, Comcast
contributed its 50% interest in Garden State Cable to the Company. As a
result of the Lenfest Acquisition and Comcast's contribution of its 50%
interest in Garden State Cable, the Company now owns 100% of Garden State
Cable. The contribution of Comcast's 50% interest in Garden State Cable was
accounted for at Comcast's historical cost in a manner similar to a pooling
of interests. Accordingly, the accompanying consolidated financial
statements include the accounts of Garden State Cable since the date of the
Lenfest Acquisition. The contribution did not have a significant impact on
the Company's consolidated statement of cash flows during the year ended
December 31, 2000 due to its noncash nature (see Note 9).
The acquisitions completed by the Company and Comcast during the years
ended December 31, 2000 and 1999 were accounted for under the purchase
method of accounting. As such, the operating results of the acquired
systems have been included in the Company's consolidated statement of
operations from the acquisition date. The Company recorded the final
purchase price allocation related to the acquisitions of Lenfest, Garden
State Cable, CalPERS' interest in Comcast MHCP and of the public
shareholders' interest in Jones Intercable during the fourth quarter of
2000. The allocation of the purchase price for the acquisition of Prime and
the AT&T cable systems exchange, is preliminary pending completion of final
appraisals.
Unaudited Pro Forma Information
The following unaudited pro forma information for the years ended December
31, 2000, 1999 and 1998 has been presented as if the Jones Merger and the
acquisitions of Lenfest, CalPERS' interest in Comcast MHCP and Prime, the
consolidation of Garden State Cable and the cable systems acquired through
the exchange with AT&T each occurred on January 1, 1999, and the
acquisition by Comcast of a controlling interest in Jones Intercable
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, Comcast MHCP, Lenfest,
Garden State Cable, Prime and the AT&T cable systems received in the
exchange since such dates.
(Amounts in millions)
Year Ended December 31,
2000 1999 1998
---------- ---------- ----------
Revenues $4,320.6 $3,950.6 $2,768.5
Income (loss) before extraordinary items $31.2 ($1,106.8) ($257.1)
Net income (loss) $24.1 ($1,113.0) ($257.2)
Adelphia Cable Systems Exchange
On January 1, 2001, the Company and Comcast completed their previously
announced cable systems exchange with Adelphia Communications ("Adelphia")
pursuant to which the Company received cable communications systems serving
approximately 460,000 subscribers from Adelphia. In exchange, Adelphia
received certain of the Company's cable communications systems serving
approximately 440,000 subscribers. In connection with the exchange, the
Company expects to record a gain and the acquisition will be accounted for
as a purchase.
AT&T Cable Systems Acquisition
In August 2000, the Company and Comcast entered into an agreement with AT&T
to acquire cable communications systems serving up to 700,000 subscribers
from AT&T in exchange for AT&T common stock that the Company
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COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
and Comcast currently own or may acquire, in a transaction intended to
qualify as tax-free to the Company, to Comcast and to AT&T. Pursuant to the
agreement, the agreed upon value of the cable communications systems to be
acquired by the Company from AT&T is up to $3.2 billion (subject to
adjustment based on the actual number of subscribers acquired). Also
pursuant to the agreement, approximately 39.6 million shares of the AT&T
common stock currently owned by Comcast and the Company will be valued at
$54.41 per share. The transaction is subject to customary closing
conditions and regulatory approvals, will be accounted for as a purchase,
and is expected to close by the end of the second quarter of 2001 (see Note
4).
4. INVESTMENTS
Fair Value Method
The Company holds unrestricted equity investments in certain publicly
traded companies, with an historical cost of $751.7 million and $68.2
million as of December 31, 2000 and 1999, respectively. The unrealized
pre-tax (losses) gains on these investments of ($263.9) million and $42.3
million, respectively, have been reported in the Company's consolidated
balance sheet as a component of other comprehensive (loss) income, net of
related deferred income taxes of $92.4 million and ($14.8) million,
respectively.
AT&T Common Stock
As of December 31, 2000 and 1999, the Company holds approximately 25.3
million and approximately 0.3 million shares of AT&T common stock. The
Company has recorded its investment in AT&T at its estimated fair value of
$435.7 million and $13.2 million, respectively (see Note 3).
Excite@Home Warrants
Excite@Home Corporation ("Excite@Home") provides Internet services to
subscribers and businesses over the cable communications infrastructure in
a limited number of cities in the United States. As of December 31, 2000
and 1999, the Company has earned warrants to purchase 2.1 million shares
and 0.6 million shares, respectively, of Excite@Home Series A Common Stock
(the "Excite@Home Stock"). As of December 31, 2000 and 1999, the Company
has recorded the Excite@Home warrants, which are classified as available
for sale, at their estimated fair value of $6.9 million and $23.3 million,
respectively. The investment in the Excite@Home warrants is included in
current investments as of December 31, 2000.
Pursuant to an agreement between Excite@Home and its principal cable
partners, including Comcast (the "Founding Cable Stockholders"), AT&T
granted Comcast the right to exchange its Excite@Home Stock, including the
Excite@Home warrants held by the Company, with AT&T at any time between
January 1, 2001 and June 4, 2002 at a price equal to the higher of $48 per
share or the average per share trading price for a 30-day trading period
(as defined). Comcast has the right to elect payment in the form of cash or
in shares of AT&T common stock. In January 2001, Comcast exercised its
right to exchange all of its Excite@Home Stock, including the Excite@Home
warrants held by the Company, with AT&T at $48 per share for shares of AT&T
common stock. Under the terms of such exercise, the transaction is expected
to close by March 31, 2001.
The Company agreed to enter into a new non-exclusive distribution agreement
with Excite@Home for the period from June 2002 through June 2006. The
Company may elect to terminate its existing exclusive distribution
agreement with Excite@Home (which would otherwise expire in June 2002) or
the new distribution agreement at any time beginning June 2001 on at least
six months notice. In addition, unearned warrants previously held by the
Company were amended to eliminate any previous performance vesting
conditions and the Company received additional new warrants with an
exercise price of $29.54 per share to purchase two shares of Excite@Home
Stock for each home passed by the Company's cable communications systems at
the announcement date of the agreements. The new warrants and the unearned
previously held warrants vest in installments every six months beginning in
June 2001 and will be fully vested in June 2006 provided that the Company
has not elected to earlier terminate its existing or the new distribution
agreement. The new warrants include customary registration rights and will
expire in March 2015. Comcast's right to exchange its Excite@Home Stock,
including the Excite@Home
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COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
warrants held by the Company, with AT&T is not dependent upon its election
to either continue or terminate its existing or the new distribution
agreement.
Gain on Exchange of Fair Value Method Investments
During the year ended December 31, 2000, in connection with the merger of
certain publicly traded companies held by the Company accounted for as
investments available for sale, the Company recognized a pre-tax gain of
$33.0 million, representing the difference between the fair value of the
securities received by the Company and the Company's cost basis in the
securities exchanged. Such gain was recorded as a reclassification from
accumulated other comprehensive (loss) income to investment income.
Impairment Losses
During the year ended December 31, 2000, the Company recorded to investment
expense pre-tax losses of $42.8 million on certain of its investments based
on declines in value that were considered other than temporary.
Equity Method
The Company records its proportionate interests in the net income (loss) of
certain of its equity method investees in arrears. The Company's recorded
investments exceed its proportionate interests in the book value of the
investees' net assets by $154.7 million as of December 31, 2000 (related to
the Company's investment in Susquehanna Cable). Such excess is being
amortized to equity in net income or loss, over a period of twenty years,
which is consistent with the estimated lives of the underlying assets.
The Company does not have any additional significant contractual
commitments with respect to any of its investments. However, to the extent
the Company does not fund its investees' capital calls, it exposes itself
to dilution of its ownership interests.
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.
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COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
5. LONG-TERM DEBT
December 31,
2000 1999
-------- ---------
(Dollars in millions)
Commercial paper........................................................... $1,323.5
Notes payable to banks, due 2005........................................... 1,125.0 $1,694.0
9-5/8% Senior notes, due 2002.............................................. 200.0 200.0
8-1/8% Senior notes, due 2004.............................................. 299.9 299.8
8-3/8% Senior notes, due 2005.............................................. 696.3
8-3/8% Senior notes, due 2007.............................................. 597.2 596.8
8-7/8% Senior notes, due 2007.............................................. 249.0 248.9
6.20% Senior notes, due 2008............................................... 798.2 798.1
7-5/8% Senior notes, due 2008.............................................. 197.1 196.8
7-5/8% Senior notes, due 2008.............................................. 147.4
8-7/8% Senior notes, due 2017.............................................. 545.8 545.7
8-1/2% Senior notes, due 2027.............................................. 249.6 249.6
10-1/2% Senior subordinated debentures, due 2006........................... 123.8
8-1/4% Senior subordinated debentures, due 2008............................ 149.1
10-1/2% Senior subordinated debentures, due 2008........................... 100.0
Other debt, due in installments............................................ 12.4 8.2
-------- ---------
6,714.3 4,937.9
Less current portion....................................................... 3.3 202.6
-------- ---------
$6,711.0 $4,735.3
======== ========
Maturities of long-term debt outstanding as of December 31, 2000 for the
four years after 2001 are as follows (dollars in millions):
2002................................................. $203.0
2003................................................. 0.6
2004................................................. 300.5
2005................................................. 3,145.5
In addition to the Company's outstanding long-term debt as presented in the
table above, the Company had an aggregate of $860.1 million of notes
payable to Comcast and Comcast's subsidiaries as of December 31, 2000 (see
Note 6).
Contribution of 10 1/2% Senior Subordinated Notes Due 2006
In December 2000, Comcast contributed to the Company $196.7 million
principal amount of the Company's 10 1/2% senior subordinated notes due
2006 which were held by Comcast. As such, amounts outstanding as of
December 31, 2000 have been treated as effectively retired.
Senior Notes Offerings
In January 2001, the Company sold an aggregate of $1.5 billion of public
debt consisting of $500.0 million of 6.375% Senior Notes due 2006 and $1.0
billion of 6.75% Senior Notes due 2011. The Company used substantially all
of the net proceeds from the offerings to repay a portion of the amounts
outstanding under its commercial paper program and bank credit facility.
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COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Refinancing
In August 2000, the Company repaid and retired all amounts outstanding
under the existing bank credit facilities of its cable communications
subsidiaries totaling approximately $2.4 billion, with the proceeds from a
new senior bank credit facility and new commercial paper program. The
Company's new senior bank credit facility consists of a $2.25 billion,
five-year revolving credit facility and a $2.25 billion, 364-day revolving
credit facility (together, the "Comcast Cable Revolver"). The 364-day
revolving credit facility supports the Company's new commercial paper
program. The Company borrowed $1.4 billion under the five-year facility and
$1.0 billion under the commercial paper program to repay and retire the
subsidiaries' credit facilities.
Amounts outstanding under the commercial paper program are classified as
long-term in the Company's consolidated balance sheet as of December 31,
2000 as the Company refinanced a portion of these obligations on a
long-term basis with proceeds from the Company's senior notes offerings in
January 2001 and has both the ability and the intent to refinance these
obligations, if necessary, on a long-term basis with amounts available
under the Comcast Cable Revolver.
Debt Assumed
In connection with the Reorganization, the consolidation of Garden State
Cable and the contribution by Comcast of Prime to the Company (see Notes 2
and 3), the Company assumed aggregate debt of $2.146 billion with interest
rates ranging between 6.95% and 10.5%, and maturities between 2001 and
2008.
Senior Notes
Interest on all of the Company's Senior Notes is payable semiannually. The
6.375% Senior Notes and the 6.20% Senior Notes are redeemable only upon
maturity in January 2006 and November 2008, respectively. 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
certain of the Company's subsidiaries (as defined) to create liens or enter
into sale and leaseback transactions, and enter into mergers,
consolidations, or sales of all or substantially all of their assets.
Redemptions of Debt
During 2000, the Company repaid $100.0 million principal amount of its 10
1/2% senior subordinated debentures due 2008 with proceeds from a loan from
Comcast (see Note 6). During 1999, the Company repaid $200.0 million in
notes payable to insurance companies having an interest rate of 8.6%. The
redemption was funded with the proceeds from a capital contribution that
the Company received from Comcast (see Note 7).
Extraordinary Items
Extraordinary items for the years ended December 31, 2000, 1999 and 1998 of
$7.1 million, $6.2 million and $0.1 million, respectively, consist of
unamortized debt issue costs and debt extinguishment costs, net of related
tax benefits, expensed principally in connection with the redemptions and
refinancings of certain indebtedness described above.
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COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Interest Rates
Bank debt interest rates vary based upon one or more of the following rates
at the option of the Company:
Prime rate
Federal Funds rate plus 0.5%; and
LIBOR plus 0.19% to 0.8%
As of December 31, 2000 and 1999, the Company's effective weighted average
interest rate on its long-term debt outstanding was 7.85% and 7.56%,
respectively.
Interest Rate Risk Management
The Company is exposed to the market risk of adverse changes in interest
rates. To manage the volatility relating to these exposures, the Company's
policy is to maintain a mix of fixed and variable rate debt and enter into
various interest rate derivative transactions as described below.
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.
All derivative transactions must comply with a Comcast board-approved
derivatives policy. In addition to prohibiting the use of derivatives for
trading purposes or that increase risk, this policy requires quarterly
monitoring of the portfolio, including portfolio valuation, measuring
counterparty exposure and performing sensitivity analyses.
The following table summarizes the terms of the Company's existing Swaps,
Caps and Collars as of December 31, 2000 and 1999 (dollars in millions):
Notional Average Estimated
Amount Maturities Interest Rate Fair Value
-------- ---------- ------------- ----------
As of December 31, 2000
-----------------------
Fixed to Variable Swaps......................... $450.0 2004-2008 7.7% $3.2
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
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, 2000, 1999 and 1998 was not
significant.
Estimated Fair Value
The Company's long-term debt had estimated fair values of $6.872 billion
and $4.922 billion as of December 31, 2000 and 1999, 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.
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COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Debt Covenants
The Comcast Cable Revolver contains restrictive covenants which, for
example, 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. The Comcast Cable Revolver also
contains financial covenants which require that certain ratios and cash
flow levels be maintained. The Company and its subsidiaries were in
compliance with all financial covenants for all periods presented.
Lines and Letters of Credit
As of December 31, 2000, certain subsidiaries of the Company had unused
lines of credit of $1.946 billion under their respective credit facilities.
As of December 31, 2000 the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totaling $94.7 million to
cover potential fundings associated with several projects.
6. NOTES RECEIVABLE FROM AFFILIATES AND NOTES PAYABLE TO AFFILIATES
As of December 31, 2000, notes receivable from affiliates consist of $99.3
million principal amount of notes receivable from Comcast and certain of
its wholly owned subsidiaries. The notes receivable bear interest at rates
ranging from 9.25% to 10.5% (weighted average interest rate of 10.05% as of
December 31, 2000) and are due between 2010 and 2027.
As of December 31, 2000, notes payable to affiliates consist of $860.1
million principal amount of notes payable to Comcast and certain of its
wholly owned subsidiaries. The notes payable bear interest at rates ranging
from 7.75% to 8.96% (weighted average interest rate of 8.05% as of December
31, 2000) and are due between 2009 and 2027.
7. RELATED PARTY TRANSACTIONS
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,
2000, 1999 and 1998, the Company's service income includes $14.7 million,
$10.4 million and $13.3 million, respectively, relating to QVC.
Through July 31, 2000, Comcast, through management agreements, managed the
operations of the Company's subsidiaries, including rebuilds and upgrades.
The management agreements generally provided that Comcast would supervise
the management and operations of the cable systems and arrange for and
supervise certain administrative functions. As compensation for such
services, the agreements provided for Comcast to charge management fees of
up to 6% of gross revenues. Comcast charged the Company's subsidiaries
management fees of $145.5 million, $161.8 million and $130.4 million in
2000, 1999 and 1998, respectively. These management fees are included in
selling, general and administrative expenses in the Company's consolidated
statement of operations.
Through July 31, 2000, on behalf of the Company, Comcast secured long-term
programming contracts that generally provided for payment based on either a
monthly fee per subscriber per channel or a percentage of certain
subscriber revenues. Comcast charged each of the Company's subsidiaries for
programming on a basis which generally approximated 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
- 36 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
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 $1.035 billion, $971.2 million and $760.9 million, including
$835.6 million, $822.5 million and $640.5 million of Programming Charges,
in 2000, 1999 and 1998, respectively. The Programming Charges include
$107.0 million, $83.6 million and $59.4 million in 2000, 1999 and 1998,
respectively, relating to programming purchased by the Company from
suppliers in which Comcast holds an equity interest.
Effective August 1, 2000, Comcast assigned its intercompany management and
programming agreements with the Company's subsidiaries and with certain of
Comcast's other cable communications subsidiaries to the Company. As such,
effective August 1, 2000, amounts charged by the Company to the Company's
subsidiaries for management fees and programming are eliminated in the
Company's consolidated financial statements.
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, 2000 and 1999,
$74.2 million and $34.0 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, 2000, 1999 and 1998, the Company recognized investment
income of $7.2 million, $2.7 million and $3.1 million, respectively, on
cash held by CFAC.
As of December 31, 2000, current due from affiliates in the Company's
consolidated balance sheet includes amounts due from CFAC, partially offset
by amounts due to Comcast and its affiliates. As of December 31, 1999,
current due to affiliates includes 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.
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).
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. 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.
- 37 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Income tax expense (benefit) consists of the following components (dollars
in millions):
Year Ended December 31,
2000 1999 1998
-------- --------- ---------
Current expense
Federal....................................................... $ $18.9 $1.9
State......................................................... 11.5 6.1 5.4
-------- --------- ---------
11.5 25.0 7.3
-------- --------- ---------
Deferred expense (benefit)
Federal....................................................... 206.6 (66.8) (41.1)
State......................................................... 81.8 (4.4) (2.0)
-------- --------- ---------
288.4 (71.2) (43.1)
-------- --------- ---------
Income tax expense (benefit).................................. $299.9 ($46.2) ($35.8)
======== ========= =========
The income tax expense (benefit) of the Company differs from the statutory
amount because of the effect of the following items (dollars in millions):
Year Ended December 31,
2000 1999 1998
--------- --------- ---------
Federal tax at statutory rate................................... $144.6 ($140.6) ($52.5)
Non-deductible depreciation and amortization.................... 82.2 25.5 21.5
State income taxes, net of federal benefit...................... 60.6 1.0 2.2
Interest income, taxable to CalPERS............................. (1.0) (8.1) (7.5)
Increase to valuation allowance................................. 14.1 75.3
Other........................................................... (0.6) 0.7 0.5
--------- --------- ---------
Income tax expense (benefit).................................... $299.9 ($46.2) ($35.8)
========= ========= =========
Significant components of the Company's net deferred tax liability are as
follows (dollars in millions):
December 31,
2000 1999
----------- -----------
Deferred tax assets:
Net operating loss carryforwards...................................... $436.7 $256.3
Less valuation allowance.............................................. (207.5)
----------- -----------
436.7 48.8
----------- -----------
Deferred tax liabilities, principally differences between book
and tax basis of property and equipment and deferred charges..... 5,453.1 1,684.4
----------- -----------
Net deferred tax liability............................................ $5,016.4 $1,635.6
=========== ===========
The Company recorded $3.281 billion of deferred tax liabilities in 2000,
including the elimination of $221.6 million of valuation allowances, in
connection with acquisitions principally related to basis differences in
property and equipment and deferred charges. As of December 31, 2000, the
Company has available net operating loss carryforwards of approximately
$1.1 billion, which expire primarily in periods through 2019.
- 38 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
9. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest on its long-term debt of $501.0
million, $324.8 million and $214.4 million in 2000, 1999 and 1998,
respectively. The Company made cash payments for interest on the notes
payable to affiliates of $9.1 million, $8.9 million and $70.5 million in
2000, 1999 and 1998, respectively.
The Company made cash payments to Comcast for income taxes of $6.1 million,
$7.4 million and $5.4 million in 2000, 1999 and 1998, respectively.
During the year ended December 31, 2000, the Company acquired the assets
and liabilities and/or partnership interests of Lenfest, Garden State
Cable, Jones Intercable, Prime and Comcast MHCP, principally through
mergers or contributions from Comcast (see Note 3). In addition, on
December 31, 2000, the Company and Comcast completed their cable systems
exchange with AT&T (see Note 3). The fair values of the assets and
liabilities acquired by the Company during the year ended December 31, 2000
are presented as follows (in millions):
Current assets............................... $198.1
Investments.................................. 369.1
Property, plant & equipment.................. 1,030.9
Deferred charges............................. 14,558.6
Current liabilities.......................... (260.4)
Long-term debt............................... (2,146.5)
Deferred income taxes and other.............. (3,245.6)
------------
Net assets acquired..................... $10,504.2
============
During 2000, the Company (i) redeemed certain shares of its common stock
for nominal consideration, and then (ii) in consideration for the Prime
Contribution and the Reorganization, issued certain shares of its common
stock to Comcast and to a wholly-owned subsidiary of Comcast, resulting in
a net redemption of 861.11 shares.
During the year ended December 31, 1999, the Company eliminated the
outstanding balance of notes payable to affiliates of $139.6 million
through a non-cash capital contribution from Comcast.
10. COMMITMENTS AND CONTINGENCIES
Commitments
Minimum annual rental commitments for office space and equipment under
noncancelable operating leases are as follows (dollars in millions):
2001........................................... $20.5
2002........................................... 15.8
2003........................................... 13.1
2004........................................... 9.7
2005........................................... 7.7
Thereafter..................................... 24.6
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 $44.6 million, $33.7 million and
$23.8 million has been charged to operations in 2000, 1999 and 1998,
respectively.
- 39 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Concluded)
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.
- 40 -
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.
- 41 -
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.......................................20
Consolidated Balance Sheet--December 31, 2000 and 1999.............21
Consolidated Statement of Operations--Years
Ended December 31, 2000, 1999 and 1998...........................22
Consolidated Statement of Cash Flows--Years
Ended December 31, 2000, 1999 and 1998...........................23
Consolidated Statement of Stockholders' Equity --
Years Ended December 31, 2000, 1999 and 1998.....................24
Notes to Consolidated Financial Statements.........................25
(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:
None.
(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 The Bank of New York (as successor in
interest to Bank of Montreal Trust Company), as Trustee
(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,
6.375% Senior Notes due 2006, 6.75% Senior Notes due 2011, 8
7/8% Senior Notes due 2017 and 8 1/2% Senior Notes due 2027
(incorporated by reference to Exhibit 4.1(b) to our
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., AT&T Corp (as successor to 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 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).
- 42 -
10.4 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).
10.5 Agreement and Plan of Merger, dated as of November 16, 1999,
by and among Comcast Corporation, Comcast LCI Holdings, Inc.,
a wholly owned subsidiary of Comcast, Lenfest Communications,
Inc. ("Lenfest") and Lenfest's stockholders as named therein.
(incorporated by reference to Exhibit 10.1 to the Comcast
Corporation Current Report on Form 8-K filed on December 13,
1999).
10.6 Agreement and Plan of Merger among Jones Intercable, Inc.,
Comcast Corporation and Comcast JOIN Holdings, Inc., dated as
of December 22, 1999 (incorporated by reference to Exhibit 2.1
to the Comcast Corporation Registration Statement on Form S-4
filed on January 10, 2000).
10.7 Agreement and Plan of Merger, dated as of July 28, 2000, by
and among Comcast Cable Communications, Inc., Comcast LCI
Holdings, Inc., formerly a wholly owned subsidiary of Comcast
Corporation and Comcast JOIN Holdings, Inc., formerly a wholly
owned subsidiary of Comcast Corporation (incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K
filed on September 27, 2000).
10.8 Asset Exchange Agreement, dated as of August 11, 2000, among
AT&T Corp. and Comcast Corporation (incorporated by reference
to Exhibit 10.1 to the Comcast Corporation Quarterly Report on
Form 10-Q for the Quarter Ended September 30, 2000).
10.9 Agreement and Plan of Reorganization, dated as of August 11,
2000, among Comcast Corporation, Comcast Cable Communications,
Inc., Comcast CCCI II, LLC, Comcast Teleport, Inc., Comcast
Heritage, Inc., Comcast Communications Properties, Inc., and
AT&T Corp. (incorporated by reference to Exhibit 10.2 to the
Comcast Corporation Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2000).
10.10 Five-Year Revolving Credit Agreement, dated as of August 24,
2000, among Comcast Cable Communications, Inc. and the
Financial Institutions Party Hereto, Banc of America
Securities LLC and Chase Securities Inc., as Joint Lead
Arrangers and Joint Book Managers, BNY Capital Markets, Inc.
and Salomon Smith Barney Inc., as Co-Arrangers, Bank of
America, N.A., as Administrative Agent, Swing Line Lender and
Letter of Credit Issuing Lender, Chase Securities Inc., as
Syndication Agent and Citibank, N.A. and The Bank of New York,
as Co- Documentation Agents (incorporated by reference to
Exhibit 10.4 to our Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2000).
10.11 364-Day Revolving Credit Agreement, dated as of August 24,
2000, among Comcast Cable Communications, Inc. and the
Financial Institutions Party Hereto, Banc of America
Securities LLC and Chase Securities Inc., as Joint Lead
Arrangers and Joint Book Managers, BNY Capital Markets, Inc.
and Salomon Smith Barney Inc., as Co-Arrangers, Bank of
America, N.A., as Administrative Agent, Chase Securities Inc.,
as Syndication Agent and Citibank, N.A. and The Bank of New
York, as Co-Documentation Agents. (incorporated by reference
to Exhibit 10.5 to our Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2000).
10.12 Asset Exchange Closing Agreement dated as of January 1, 2001
among Comcast Corporation, the Comcast Parties, Adelphia
Communications Corporation and the Adelphia Parties
(incorporated by reference to Exhibit 10.24 to the Comcast
Corporation Annual Report on Form 10-K for the year ended
December 31, 2000).
12.1 Statement re: Computation of Ratio of Earnings to Fixed
Charges.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consents of Arthur Andersen LLP.
99.1 Report of Independent Public Accountants to Jones Intercable,
Inc. as of December 31, 1999 and for the year then ended.
- 43 -
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, 2001.
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, 2001
- -------------------------
Ralph J. Roberts
/s/ Brian L. Roberts Vice Chairman; Director (Principal March 16, 2001
- ------------------------- Executive Officer)
Brian L. Roberts
/s/ Lawrence S. Smith Executive Vice President; Director March 16, 2001
- -------------------------
Lawrence S. Smith
/s/ Stanley L. Wang Executive Vice President, Secretary; March 16, 2001
- ------------------------- Director
Stanley L. Wang
/s/ John R. Alchin Executive Vice President, Treasurer March 16, 2001
- ------------------------- (Principal Financial Officer)
John R. Alchin
/s/ Lawrence J. Salva Senior Vice President March 16, 2001
- ------------------------- (Principal Accounting Officer)
Lawrence J. Salva
- 44 -
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
-----------------------------------------
To the Board of Directors and Stockholders
Comcast Cable Communications, Inc.
Philadelphia, Pennsylvania
Our audits of the financial statements referred to in our report dated February
23, 2001, 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, 2000 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 23, 2001
- 45 -
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
--------------
ASSETS
Investments in and amounts due to/from subsidiaries eliminated
upon consolidation, net...................................................... $4,395.3
Deferred charges, net........................................................... 24.2
--------------
$4,419.5
--------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accrued interest and other................................................... $29.8
--------------
Total current liabilities................................................ 29.8
--------------
Long-term debt............................................................... 2,490.0
--------------
Deferred income taxes, due to affiliates..................................... 89.4
--------------
Other liabilities ........................................................... 1.5
--------------
STOCKHOLDER'S EQUITY
Common stock, $1 par value - authorized and issued, 1,000 shares
Additional capital........................................................... 4,931.4
Accumulated deficit.......................................................... (3,150.1)
Accumulated other comprehensive income....................................... 27.5
--------------
Total stockholder's equity............................................... 1,808.8
--------------
$4,419.5
==============
- 46 -
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
----------- -----------
AMORTIZATION.................................................. $2.5 $1.7
----------- -----------
OPERATING LOSS................................................ 2.5 1.7
OTHER (INCOME) EXPENSE
Interest income on affiliate notes, net.................... (142.4)
Interest expense, net...................................... 192.5 149.9
Equity in net losses of affiliates......................... 120.2 82.1
----------- -----------
312.7 89.6
----------- -----------
LOSS BEFORE INCOME TAX (BENEFIT) EXPENSE...................... (315.2) (91.3)
INCOME TAX (BENEFIT) EXPENSE.................................. (61.5) 6.0
----------- -----------
NET LOSS...................................................... (253.7) (97.3)
ACCUMULATED DEFICIT
Beginning of year.......................................... (2,896.4) (2,799.1)
----------- -----------
End of year................................................ ($3,150.1) ($2,896.4)
=========== ===========
- 47 -
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
--------- ---------
OPERATING ACTIVITIES
Net loss.............................................................. ($253.7) ($97.3)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Amortization........................................................ 2.5 1.7
Non-cash interest expense........................................... 0.6 0.4
Equity in net losses of affiliates.................................. 120.2 82.1
Deferred income tax benefit, due to affiliates...................... 5.8 31.8
--------- ---------
(124.6) 18.7
Changes in working capital and other liabilities.................... (0.9) 6.9
--------- ---------
Net cash (used in) provided by operating activities............. (125.5) 25.6
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings.............................................. 797.9
Proceeds from notes payable to affiliate.............................. 72.4
Repayment of notes payable to affiliates.............................. (144.7)
Capital contributions from parent..................................... 960.1
Deferred financing costs.............................................. (11.7)
--------- ---------
Net cash provided by financing activities....................... 960.1 713.9
--------- ---------
INVESTING ACTIVITIES
Net transactions with affiliates...................................... (834.6) (739.5)
--------- ---------
Net cash used in investing activities........................... (834.6) (739.5)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS....................................
CASH AND CASH EQUIVALENTS, beginning of year.............................
--------- ---------
CASH AND CASH EQUIVALENTS, end of year................................... $ $
========= =========
- 48 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
---------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
--------------------------------------------
(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
2000 $31.2 $10.7 $33.7 $35.7 $39.9
1999 19.4 3.1 23.6 14.9 31.2
1998 16.7 15.8 13.1 19.4
(A) Uncollectible accounts written off.
- 49 -