UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended:
MARCH 31, 2001
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Market Street, Philadelphia, PA 19102-2148
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
-------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes X No
---- -----
--------------------------
As of March 31, 2001, there were 138.39 shares of Common Stock outstanding.
The Registrant meets the conditions set forth in General Instructions H(1)(a)
and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet as of March 31,
2001 and December 31, 2000 (Unaudited).......................................2
Condensed Consolidated Statement of Operations and
Accumulated Deficit for the Three Months Ended
March 31, 2001 and 2000 (Unaudited)..........................................3
Condensed Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 2001 and 2000 (Unaudited).......................4
Notes to Condensed Consolidated Financial Statements (Unaudited)........5 - 10
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................11 - 13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings...........................................................14
ITEM 6. Exhibits and Reports on Form 8-K............................................14
SIGNATURE..............................................................................15
-----------------------------------
This Quarterly Report on Form 10-Q is for the three months ended March 31,
2001. This Quarterly Report modifies and supersedes documents filed prior to
this Quarterly 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 Quarterly Report. In
addition, information that we file with the SEC in the future will automatically
update and supersede information contained in this Quarterly Report. In this
Quarterly Report, "Comcast Cable," the "Company," "we," "us" and "our" refer to
Comcast Cable Communications, Inc. and its subsidiaries.
You should carefully review the information contained in this Quarterly
Report and in other reports or documents that we file from time to time with the
SEC. In this Quarterly 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, the cable communications industry may be affected by, among
other things:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o 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; and
o general economic conditions.
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in millions, except share data)
March 31, December 31,
2001 2000
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................................... $21.7 $44.2
Investments..................................................................... 38.8 52.6
Cash held by an affiliate....................................................... 338.6 74.2
Accounts receivable, less allowance for doubtful accounts of $38.8 and $39.9.... 205.8 241.7
Due from affiliates............................................................. 99.7 0.6
Other current assets............................................................ 93.1 48.0
--------- ---------
Total current assets........................................................ 797.7 461.3
--------- ---------
INVESTMENTS........................................................................ 689.8 590.9
--------- ---------
NOTES RECEIVABLE FROM AFFILIATES................................................... 339.3 99.3
--------- ---------
PROPERTY AND EQUIPMENT............................................................. 6,188.0 5,720.5
Accumulated depreciation........................................................ (1,384.9) (1,322.6)
--------- ---------
Property and equipment, net..................................................... 4,803.1 4,397.9
--------- ---------
DEFERRED CHARGES 24,872.8 23,789.8
Accumulated amortization........................................................ (3,900.6) (3,535.2)
--------- ---------
Deferred charges, net........................................................... 20,972.2 20,254.6
--------- ---------
$27,602.1 $25,804.0
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses........................................... $781.1 $798.8
Accrued interest................................................................ 149.6 74.1
Current portion of long-term debt............................................... 203.3 3.3
--------- ---------
Total current liabilities................................................... 1,134.0 876.2
--------- ---------
LONG-TERM DEBT, less current portion............................................... 6,839.7 6,711.0
--------- ---------
NOTES PAYABLE TO AFFILIATES........................................................ 1,023.4 860.1
--------- ---------
DEFERRED INCOME TAXES, due to affiliate, net....................................... 5,426.3 5,016.4
--------- ---------
OTHER LONG-TERM LIABILITIES........................................................ 586.0 283.1
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY
Common stock, $1 par value - authorized 1,000 shares; issued 138.89 shares .....
Additional capital.............................................................. 15,272.8 15,272.8
Accumulated deficit............................................................. (2,678.1) (3,044.1)
Accumulated other comprehensive loss............................................ (2.0) (171.5)
--------- ---------
Total stockholders' equity.................................................. 12,592.7 12,057.2
--------- ---------
$27,602.1 $25,804.0
========= =========
See notes to condensed consolidated financial statements.
2
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
(Dollars in millions)
Three Months Ended March 31,
2001 2000
---------- ----------
SERVICE INCOME.................................................................. $1,126.2 $965.9
---------- ----------
COSTS AND EXPENSES
Operating.................................................................... 415.7 417.0
Selling, general and administrative.......................................... 227.3 225.4
Depreciation and amortization................................................ 666.7 495.3
---------- ----------
1,309.7 1,137.7
---------- ----------
OPERATING LOSS.................................................................. (183.5) (171.8)
OTHER INCOME (EXPENSE)
Interest expense............................................................. (132.8) (124.1)
Interest (expense) income on notes payable/receivable to/from affiliates..... (17.4) 0.9
Investment (expense) income.................................................. (79.0) 35.5
Equity in net losses of affiliates........................................... (2.8)
Other income (expense)....................................................... 1,198.0 (0.3)
---------- ----------
966.0 (88.0)
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY
ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE............................. 782.5 (259.8)
INCOME TAX (EXPENSE) BENEFIT.................................................... (355.2) 65.4
---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE....................................... 427.3 (194.4)
EXTRAORDINARY ITEMS............................................................. (0.9)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE.......................................... (61.3)
---------- ----------
NET INCOME (LOSS)............................................................... 366.0 (195.3)
ACCUMULATED DEFICIT
Beginning of period.......................................................... (3,044.1) (3,150.1)
---------- ----------
End of period................................................................ ($2,678.1) ($3,345.4)
========== ==========
See notes to condensed consolidated financial statements.
3
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in millions)
Three Months Ended March 31,
2001 2000
--------- ---------
OPERATING ACTIVITIES
Net income (loss)................................................................ $366.0 ($195.3)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization.................................................. 666.7 495.3
Extraordinary items............................................................ 0.9
Non-cash interest expense (income)............................................. 1.2 (0.1)
Non-cash interest expense on notes payable to affiliates....................... 3.1
Deferred expenses charged by an affiliate...................................... 95.9
Equity in net losses of affiliates............................................. 2.8
Gains on investments and other income, net..................................... (1,112.5) (30.0)
Cumulative effect of accounting change......................................... 61.3
Deferred income tax expense (benefit), due to affiliate........................ 345.0 (67.3)
Other.......................................................................... (13.0) 8.3
--------- ---------
320.6 307.7
Changes in working capital..................................................... 62.5 44.8
--------- ---------
Net cash provided by operating activities................................ 383.1 352.5
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings......................................................... 2,445.5 75.0
Retirements and repayments of long-term debt..................................... (2,159.5) (461.1)
Proceeds from notes payable to affiliates........................................ 359.2
Repayment of notes payable to affiliates......................................... (199.0)
Capital contributions from Parent................................................ 331.0
Net transactions with affiliates................................................. (99.1) 12.4
--------- ---------
Net cash provided by (used in) financing activities...................... 347.1 (42.7)
--------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired............................................... (27.8) (75.3)
Capital expenditures............................................................. (436.8) (226.4)
(Increase) decrease in cash held by an affiliate................................. (264.4) 15.6
Purchases of short-term investments.............................................. (0.8) (9.7)
Purchases of investments......................................................... (126.4) (0.4)
Proceeds from sales of investments............................................... 130.1 76.1
Additions to deferred charges.................................................... (26.6) (48.4)
--------- ---------
Net cash used in investing activities.................................... (752.7) (268.5)
--------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.................................... (22.5) 41.3
CASH AND CASH EQUIVALENTS, beginning of period...................................... 44.2 61.0
--------- ---------
CASH AND CASH EQUIVALENTS, end of period............................................ $21.7 $102.3
========= =========
See notes to condensed consolidated financial statements.
4
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The condensed consolidated balance sheet as of December 31, 2000 has been
condensed from the audited consolidated balance sheet as of that date. The
condensed consolidated balance sheet as of March 31, 2001 and the condensed
consolidated statements of operations and accumulated deficit and of cash
flows for the three months ended March 31, 2001 and 2000 have been prepared
by Comcast Cable Communications, Inc. (the "Company"), an indirect wholly
owned subsidiary of Comcast Corporation ("Comcast"), and have not been
audited by the Company's independent auditors. In the opinion of
management, all adjustments necessary to present fairly the financial
position, results of operations and cash flows as of March 31, 2001 and for
all periods presented have been made.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's December
31, 2000 Annual Report on Form 10-K filed with the Securities and Exchange
Commission. The results of operations for the period ended March 31, 2001
are not necessarily indicative of operating results for the full year.
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
condensed consolidated financial statements include the accounts of the
merged subsidiaries since the dates of their acquisition by Comcast.
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
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 Reorganization 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 condensed consolidated financial statements include the
accounts of Garden State Cable since the date of the Lenfest acquisition.
2. ADOPTION OF NEW ACCOUNTING STANDARD
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards for derivatives and hedging activities.
SFAS No. 133 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 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.
5
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Upon adoption of SFAS No. 133, the Company recognized as a loss a
cumulative effect of accounting change, net of related income taxes, of
$61.3 million and a cumulative decrease in other comprehensive loss, net of
related income taxes, of $54.2 million. The loss consisted of $94.3 million
principally related to the reclassification of losses previously recognized
as a component of accumulated other comprehensive loss on the Company's
equity derivative instruments, net of related deferred income taxes. The
decrease in other comprehensive loss consisted principally of the
reclassification of the losses noted above.
3. COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) for the three months ended March 31, 2001
and 2000 was $535.5 million and ($230.1) million, respectively. Total
comprehensive income (loss) includes net income (loss) and unrealized gains
(losses) on marketable securities.
4. ACQUISITIONS
Adelphia Cable Systems Exchange
On January 1, 2001, the Company and Comcast completed their previously
announced cable systems exchange with Adelphia Communications Corporation
("Adelphia") pursuant to which the Company received cable communications
systems serving approximately 445,000 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 recorded to other income a pre-tax gain of $1.199
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. The acquisition was accounted for under the purchase
method of accounting. As such, the operating results of the acquired
systems have been included in the Company's condensed consolidated
statement of operations and accumulated deficit from the acquisition date.
The allocation of the purchase price is preliminary pending completion of
final appraisals (see Note 9).
AT&T Cable Systems Acquisition
On April 30, 2001, the Company and Comcast acquired interests in cable
communications systems serving approximately 595,000 subscribers from AT&T
Corp. ("AT&T") in exchange for approximately 63.9 million shares of AT&T
common stock then held by the Company and Comcast, including substantially
all of the shares held by the Company. The market value of the shares of
AT&T common stock delivered in connection with the exchange was
approximately $1.423 billion, based on the closing price of the AT&T common
stock on the closing date of the transaction. Pursuant to the terms of the
agreement between Comcast and AT&T, however, approximately 39.6 million
shares of the AT&T common stock included in the exchange were valued at
$54.41 per share for purposes of the exchange. Immediately upon closing of
the transaction, Comcast contributed its interests in the acquired systems
to the Company. The transaction will be accounted for as a purchase and is
expected to qualify as tax free to the Company, to Comcast and to AT&T.
Baltimore, Maryland System Acquisition
On May 7, 2001, the Company, Comcast and AT&T entered into an agreement
pursuant to which the Company will acquire the cable communications system
serving approximately 110,000 subscribers in Baltimore, Maryland for
approximately $500 million in cash, subject to adjustment. The transaction
is subject to customary closing conditions and regulatory approvals and is
expected to close by the end of the second quarter of 2001.
Unaudited Pro Forma Information
The following unaudited pro forma information for the three months ended
March 31, 2000 has been presented as if the Adelphia cable systems
exchange, the AT&T cable systems exchange (which occurred in December
2000), the acquisition of Prime Communications LLC (which occurred in
August 2000) and the acquisition of the minority
6
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
interest in Comcast MHCP Holdings, L.L.C. (which occurred in February 2000)
each occurred on January 1, 2000. 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 the cable systems acquired since January 1,
2000.
(Amounts in millions)
Three Months Ended
March 31,
2000
----------
Revenues.................................................. $1,049.2
Loss before extraordinary items and cumulative
effect of accounting change........................... ($322.8)
Net loss.................................................. ($323.7)
5. INVESTMENTS
Fair Value Method
The Company holds unrestricted equity investments in certain publicly
traded companies which it accounts for as available for sale securities.
The unrealized pre-tax losses on available for sale investments as of March
31, 2001 and December 31, 2000 of $3.1 million and $263.9 million,
respectively, have been reported in the Company's condensed consolidated
balance sheet as a component of accumulated other comprehensive loss, net
of related deferred income taxes of $1.1 million and $92.4 million,
respectively.
Excite@Home. As of March 31, 2001 and December 31, 2000, the Company has
earned warrants to purchase 2.1 million shares of Excite@Home common stock.
In January 2001, Comcast exercised its right to exchange its Excite@Home
common stock and the Excite@Home warrants held by the Company with AT&T for
shares of AT&T common stock. Comcast and AT&T are currently in discussions
to renegotiate the terms of the transaction, which may or may not result in
a change to the number of shares of AT&T common stock that the Company and
Comcast will receive, as well as the number of Excite@Home shares, if any,
the Company and Comcast transfer to AT&T. As of March 31, 2001 and December
31, 2000, the Company has recorded the Excite@Home warrants at their
estimated fair value.
Derivatives
The Company employs derivative financial instruments to manage its exposure
to fluctuations in interest rates . The Company has designated these
derivative instruments as fair value hedges. The impact of recording these
fair value hedges was not significant to the Company's condensed
consolidated financial statements as of and for the three months ended
March 31, 2001.
The Company makes investments in businesses, to some degree, through the
purchase of equity call option or call warrant agreements ("Equity
Warrants"). Subsequent to the adoption of SFAS No. 133, changes in the fair
value of Equity Warrants are recorded to investment (expense) income.
7
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Investment (Expense) Income
Investment (expense) income for the three months ended March 31, 2001 and
2000 is comprised of the following (in millions):
Three Months Ended
March 31,
2001 2000
---------- ---------
Interest and dividend income....................... $7.1 $3.6
Gains on sales and exchanges of investments........ 8.5 31.9
Investment impairment losses....................... (88.9)
Mark to market adjustments on derivatives.......... (5.7)
---------- ---------
Investment (expense) income................... ($79.0) $35.5
========== =========
The Company records losses on its investments for which the Company has
determined that a decline in value of the investment was considered other
than temporary. The loss for the three months ended March 31, 2001 relates
principally to the Company's investments in Motorola, Inc. and AT&T (see
Note 4).
6. LONG-TERM DEBT
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.
Interest Rates
As of March 31, 2001 and December 31, 2000, the Company's effective
weighted average interest rate on its long-term debt outstanding was 7.26%
and 7.85%, respectively.
Lines and Letters of Credit
As of March 31, 2001, the Company had unused lines of credit of $3.153
billion under its bank credit facility.
As of March 31, 2001, the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totaling $96.2 million to
cover potential fundings associated with several projects.
7. NOTES RECEIVABLE FROM AFFILIATES AND NOTES PAYABLE TO AFFILIATES
As of March 31, 2001 and December 31, 2000, notes receivable from
affiliates consist of $339.3 million and $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 7.75% to 10.5%
(weighted average interest rate of 9.31% and 10.05% as of March 31, 2001
and December 31, 2000, respectively) and are due between 2010 and 2027.
In February 2001, Comcast acquired Home Team Sports (now known as Comcast
SportsNet - MidAtlantic), a regional sports programming network serving
approximately 4.8 million homes in the Mid-Atlantic region, from Viacom,
Inc. ("Viacom") and Affiliated Regional Communications, Ltd. (an affiliate
of Fox Cable Network Services, LLC ("Fox")). Comcast agreed to increase the
distribution of certain of Viacom's and Fox's programming networks on
certain of the Company's cable communications systems. As of March 31,
2001, the estimated fair value of these agreements of $240.0 million is due
from Comcast and is included in notes receivable from affiliates.
As of March 31, 2001 and December 31, 2000, notes payable to affiliates
consist of $1.020 billion and $860.1 million principal amount of notes
payable to Comcast and certain of its wholly owned subsidiaries. The notes
8
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
payable bear interest at rates ranging from 7.75% to 8.96% (weighted
average interest rate of 8.0% and 8.05% as of March 31, 2001, and December
31, 2000) and are due between 2009 and 2027. Accrued interest relating to
such notes of $3.1 million is included in notes payable to affiliates as of
March 31, 2001.
8. 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 three months ended March 31,
2001 and 2000, the Company's service income includes $4.2 million and $3.8
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 $54.2 million during the three months ended March 31,
2000. These charges are included in selling, general and administrative
expenses in the Company's condensed consolidated statement of operations
and accumulated deficit.
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 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 of $48.3 million during the three months ended March 31, 2000
are included in operating expenses in the Company's condensed consolidated
statement of operations and accumulated deficit.
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 purchases certain other services, including insurance and
employee benefits, from Comcast under cost-sharing arrangements on terms
that reflect Comcast's actual cost. The Company reimburses Comcast for
certain other costs (primarily salaries) under cost-reimbursement
arrangements. Under these arrangements, the Company incurred total expenses
of $29.7 million and $34.1 million during the three months ended March 31,
2001 and 2000, respectively. Programming purchased by the Company from
suppliers in which Comcast holds an equity interest amounted to $37.2
million and $31.2 million during the three months ended March 31, 2001 and
2000, respectively.
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 March 31, 2001 and December
31, 2000, $338.6 million and $74.2 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 condensed consolidated balance sheet. During
the three months ended March 31, 2001 and 2000, the Company recognized
investment income of $4.1 million and $1.9 million, respectively, on cash
held by CFAC.
9
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
As of March 31, 2001 and December 31, 2000, current due from affiliates in
the Company's condensed consolidated balance sheet includes amounts due
from CFAC, partially offset by amounts due to Comcast and its affiliates.
9. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
During the three months ended March 31, 2001, the Company completed its
cable systems exchange with Adelphia (see Note 4). The fair values of the
assets and liabilities acquired by the Company during the three months
ended March 31, 2001 are presented as follows (in millions):
Current assets..................................... $3.3
Property, plant & equipment........................ 141.6
Deferred charges................................... 1,070.7
Current liabilities................................ (17.0)
-----------
Net assets acquired....................... $1,198.6
===========
The Company made cash payments for interest on its long-term debt of $56.1
million and $74.1 million during the three months ended March 31, 2001 and
2000, respectively. The Company made cash payments for interest on the
notes payable to affiliates of $14.3 million during the three months ended
March 31, 2001.
The Company made cash payments for state income taxes of $0.4 million
during the three months ended March 31, 2001.
10. COMMITMENTS AND 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 such actions is not expected to
materially affect the financial position, results of operations or
liquidity of the Company.
10
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information for this item is omitted pursuant to Securities and Exchange
Commission General Instruction H to Form 10-Q, except as noted below.
Results of Operations
Our summarized consolidated financial information for the three months
ended March 31, 2001 and 2000 is as follows (dollars in millions, "NM" denotes
percentage is not meaningful):
Three Months Ended
March 31, Increase / (Decrease)
2001 2000 $ %
--------- -------- --------- --------
Analog video........................................... $926.8 $835.4 $91.4 10.9%
Digital video.......................................... 45.6 20.6 25.0 NM
Cable modem............................................ 54.3 20.5 33.8 NM
Advertising sales...................................... 65.7 57.9 7.8 13.5
Other.................................................. 33.8 31.5 2.3 7.3
--------- -------- ---------
Service income...................................... 1,126.2 965.9 160.3 16.6
Operating, selling, general and administrative
expenses............................................ 643.0 642.4 0.6 0.1
--------- -------- ---------
Operating income before depreciation and
amortization (1).................................... 483.2 323.5 159.7 49.4
Depreciation and amortization.......................... 666.7 495.3 171.4 34.6
--------- -------- ---------
Operating loss......................................... (183.5) (171.8) 11.7 6.8
--------- -------- ---------
Interest expense....................................... (132.8) (124.1) 8.7 7.0
Interest (expense) income on notes
payable/receivable to/from affiliates............... (17.4) 0.9 18.3 NM
Investment (expense) income............................ (79.0) 35.5 114.5 NM
Equity in net losses of affiliates..................... (2.8) 2.8 NM
Other income (expense)................................. 1,198.0 (0.3) 1,198.3 NM
Income tax (expense) benefit........................... (355.2) 65.4 420.6 NM
--------- -------- ---------
Income (loss) before extraordinary items and
cumulative effect of accounting change.............. $427.3 ($194.4) $621.7 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>
In August 2000, two wholly owned subsidiaries of Comcast Corporation
("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.
11
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
The Reorganization was accounted for at Comcast's historical costs in a manner
similar to a pooling of interests. Accordingly, our condensed consolidated
financial statements include the accounts of the merged subsidiaries since the
dates of their acquisition by Comcast.
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 the Reorganization 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 condensed consolidated financial
statements include the accounts of Garden State Cable from the January 2000 date
of Comcast's acquisition of Lenfest.
See Notes 1 and 4 to our condensed consolidated financial statements
included in Item 1.
The effects of our cable systems exchanges with AT&T Corp. ("AT&T") and
Adelphia Communications Corporation ("Adelphia") on December 31, 2000 and
January 1, 2001, respectively, the Reorganization, the Garden State Contribution
and our acquisition of Prime Communications LLC ("Prime") in August 2000 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 and deferred charges and the corresponding increases in depreciation
expense and amortization expense for the three month period from 2000 to 2001 is
primarily due to our cable system exchanges with AT&T and Adelphia, the effects
of our acquisition of Prime, as well as our increased levels of capital
expenditures.
Service Income
Of the $91.4 million increase for the three month period from 2000 to 2001
in analog video service income, which consists of our basic, expanded basic,
premium and pay-per-view services, $57.7 million is attributable to the effects
of our acquisition of Prime and the AT&T and Adelphia cable system exchanges in
August 2000, December 2000 and January 2001, respectively, and $33.7 million
relates principally to changes in rates and subscriber growth in our historical
operations. The increase from 2000 to 2001 in digital video service income is
due primarily to the addition of approximately 201,000 digital subscriptions
during the quarter ended March 31, 2001 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 2000 to 2001 cable modem service income is primarily due
to the addition of approximately 142,000 cable modem subscribers during the
quarter ended March 31, 2001. The increase from 2000 to 2001 in advertising
sales revenue is attributable to the effects of new advertising contracts,
market-wide fiber interconnects and the continued leveraging of our existing
fiber networks. The increase from 2000 to 2001 in other service income, which
includes installation revenues, guide revenues, commissions from electronic
retailing and other product offerings, is primarily attributable to our
acquisition of Prime and the AT&T and Adelphia cable systems exchanges.
Operating, Selling, General and Administrative Expenses
See Note 8 to our condensed consolidated financial statements included in
Item 1.
The increases in operating, selling, general and administrative expenses
for the three month period from 2000 to 2001 is primarily due to the effects of
increases in the costs of cable programming as a result of changes in rates,
subscriber growth and additional channel offerings, our acquisition of Prime and
the AT&T and Adelphia cable system exchanges, 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. Such increases were
substantially offset by the effects of the assignment by Comcast to the Company
in August 2000 of its intercompany management and programming agreements with
the Company's subsidiaries. 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 $8.7 million increase in interest expense for the three month period
from 2000 to 2001 is primarily due to the effects of our offering of our senior
notes in January 2001, offset, in part, by the effects of our repayments and
retirement of debt.
Interest Expense on Notes Payable to Affiliates
Interest expense on notes payable to affiliates for the three months ended
March 31, 2001 is due to the increase in notes payable to affiliates outstanding
as compared to the prior year period.
12
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
Investment (Expense) Income
During the three months ended March 31, 2001 and 2000, we recognized
pre-tax gains of $8.5 million and $31.9 million, respectively, on sales and
exchanges of certain of our investments.
During the three months ended March 31, 2001, we recorded losses of $88.9
million on certain of our investments based on a decline in value that was
considered other than temporary. The loss relates principally to our investments
in Motorola, Inc. and AT&T (see Note 4 to our condensed consolidated financial
statements included in Item 1).
Other Income (Expense)
On January 1, 2001, in connection with our cable systems exchange with
Adelphia pursuant to which we received cable communications systems serving
approximately 445,000 subscribers from Adelphia in exchange for certain of our
cable communications systems serving approximately 440,000 subscribers, we
recorded a pre-tax gain of $1.199 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.
Income Tax (Expense) Benefit
The change in income tax (expense) benefit for the three month period from
2000 to 2001 is primarily the result of the effects of changes in our income
(loss) before income taxes, extraordinary items and cumulative effect of
accounting change.
Cumulative Effect of Accounting Change
In connection with the adoption of Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended, we recognized as a loss a cumulative effect of
accounting change, net of related income taxes, of $61.3 million during the
three months ended March 31, 2001. The loss consisted of $94.3 million
principally related to the reclassification of losses previously recognized as a
component of accumulated other comprehensive loss on our equity derivative
instruments, net of related deferred income taxes.
See Note 2 to our condensed consolidated financial statements included in
Item 1.
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 Greater Philadelphia Merger will be
accounted for at Comcast's historical cost, in a manner similar to a pooling of
interests and our condensed consolidated financial statements will include the
results of Greater Philadelphia since the June 1999 date of Comcast's
acquisition. Upon closing of the Greater Philadelphia Merger, the Company will
hold all of Comcast's consolidated cable communications systems.
13
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
PART II. OTHER INFORMATION
ITEM 1. 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 such actions is not expected to
materially affect our financial position, results of operations or
liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
None.
(b) Reports on Form 8-K:
We filed a Current Report on Form 8-K under Item 5 on January 4, 2001
relating to our announcement that we had completed our cable systems
exchanges with AT&T Corporation and Adelphia Communications
Corporation.
14
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMCAST CABLE COMMUNICATIONS, INC.
-------------------------------------
/S/ LAWRENCE J. SALVA
-------------------------------------
Lawrence J. Salva
Senior Vice President
(Principal Accounting Officer)
Date: May 15, 2001
15