UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended:
JUNE 30, 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 June 30, 2001, there were 138.89 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 JUNE 30, 2001
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet as of June 30,
2001 and December 31, 2000 (Unaudited).......................................2
Condensed Consolidated Statement of Operations and
Accumulated Deficit for the Three and Six Months Ended
June 30, 2001 and 2000 (Unaudited)...........................................3
Condensed Consolidated Statement of Cash Flows for the Six
Months Ended June 30, 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 - 14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings...........................................................15
ITEM 6. Exhibits and Reports on Form 8-K............................................15
SIGNATURE..............................................................................16
-----------------------------------
This Quarterly Report on Form 10-Q is for the three months ended June 30,
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 JUNE 30, 2001
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------
(Unaudited)
(Dollars in millions, except share data)
June 30, December 31,
2001 2000
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................................... $14.7 $44.2
Investments..................................................................... 123.2 52.6
Cash held by an affiliate....................................................... 358.1 74.2
Accounts receivable, less allowance for doubtful accounts of $46.7 and $39.9.... 235.7 241.7
Due from affiliates............................................................. 150.4 0.6
Other current assets............................................................ 92.6 48.0
--------- ---------
Total current assets........................................................ 974.7 461.3
--------- ---------
INVESTMENTS........................................................................ 181.4 590.9
--------- ---------
NOTES RECEIVABLE FROM AFFILIATES................................................... 373.7 99.3
--------- ---------
PROPERTY AND EQUIPMENT............................................................. 6,991.6 5,720.5
Accumulated depreciation........................................................ (1,486.1) (1,322.6)
--------- ---------
Property and equipment, net..................................................... 5,505.5 4,397.9
--------- ---------
DEFERRED CHARGES................................................................... 26,394.8 23,789.8
Accumulated amortization........................................................ (4,401.0) (3,535.2)
--------- ---------
Deferred charges, net........................................................... 21,993.8 20,254.6
--------- ---------
$29,029.1 $25,804.0
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses........................................... $857.7 $798.8
Accrued interest................................................................ 115.1 74.1
Current portion of long-term debt............................................... 203.4 3.3
--------- ---------
Total current liabilities................................................... 1,176.2 876.2
--------- ---------
LONG-TERM DEBT, less current portion............................................... 7,840.1 6,711.0
--------- ---------
NOTES PAYABLE TO AFFILIATES........................................................ 238.7 860.1
--------- ---------
DEFERRED INCOME TAXES, due to affiliate, net....................................... 5,608.0 5,016.4
--------- ---------
OTHER LONG-TERM LIABILITIES........................................................ 598.3 283.1
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY
Common stock, $1 par value - authorized 1,000 shares; issued 138.89 shares......
Additional capital.............................................................. 16,411.4 15,272.8
Accumulated deficit............................................................. (2,890.9) (3,044.1)
Accumulated other comprehensive income (loss)................................... 47.3 (171.5)
--------- ---------
Total stockholders' equity.................................................. 13,567.8 12,057.2
--------- ---------
$29,029.1 $25,804.0
========= =========
See notes to condensed consolidated financial statements.
2
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
----------------------------------------------------------------------
(Unaudited)
(Dollars in millions)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---------- ---------- ---------- ----------
SERVICE REVENUES............................................... $1,241.7 $1,011.4 $2,367.9 $1,977.3
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Operating................................................... 450.6 440.2 866.3 857.2
Selling, general and administrative......................... 246.6 224.2 473.9 449.6
Depreciation and amortization............................... 723.8 566.8 1,390.5 1,062.1
---------- ---------- ---------- ----------
1,421.0 1,231.2 2,730.7 2,368.9
---------- ---------- ---------- ----------
OPERATING LOSS................................................. (179.3) (219.8) (362.8) (391.6)
OTHER INCOME (EXPENSE)
Interest expense............................................ (128.7) (118.9) (261.5) (243.0)
Interest expense on notes payable to affiliates, net........ (4.5) (3.7) (21.9) (2.8)
Investment income (expense)................................. 16.7 0.1 (62.3) 35.6
Equity in net losses of affiliates.......................... (1.5) (0.8) (4.3) (0.8)
Other income (expense)...................................... (0.6) (2.1) 1,197.4 (2.4)
---------- ---------- ---------- ----------
(118.6) (125.4) 847.4 (213.4)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES,
EXTRAORDINARY ITEMS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE................................. (297.9) (345.2) 484.6 (605.0)
INCOME TAX BENEFIT (EXPENSE)................................... 85.1 101.8 (270.1) 167.2
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS
AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGE...................................................... (212.8) (243.4) 214.5 (437.8)
EXTRAORDINARY ITEMS............................................ (4.2) (5.1)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE......................... (61.3)
---------- ---------- ---------- ----------
NET INCOME (LOSS).............................................. (212.8) (247.6) 153.2 (442.9)
ACCUMULATED DEFICIT
Beginning of period......................................... (2,678.1) (3,345.4) (3,044.1) (3,150.1)
---------- ---------- ---------- ----------
End of period............................................... ($2,890.9) ($3,593.0) ($2,890.9) ($3,593.0)
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
3
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------
(Unaudited)
(Dollars in millions)
Six Months Ended June 30,
2001 2000
--------- ---------
OPERATING ACTIVITIES
Net income (loss)................................................................ $153.2 ($442.9)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.................................................. 1,390.5 1,062.1
Extraordinary items............................................................ 5.1
Non-cash interest expense...................................................... 2.4 1.1
Deferred expenses charged by an affiliate...................................... 95.9
Equity in net losses of affiliates............................................. 4.3 0.8
Gains on investments and other income, net..................................... (1,124.4) (27.2)
Cumulative effect of accounting change......................................... 61.3
Deferred income tax expense (benefit), due to affiliate........................ 257.1 (183.4)
Other.......................................................................... (25.6) (3.3)
--------- ---------
718.8 508.2
Changes in working capital..................................................... 81.7 (5.5)
--------- ---------
Net cash provided by operating activities................................ 800.5 502.7
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings......................................................... 4,388.1 75.1
Retirements and repayments of debt............................................... (3,092.1) (562.0)
Proceeds from notes payable to affiliates........................................ 515.1
Repayment of notes payable to affiliates......................................... (646.0)
Capital contributions from Parent................................................ 331.0
Net transactions with affiliates................................................. (171.6) 181.8
Deferred financing costs......................................................... (19.3)
--------- ---------
Net cash provided by financing activities................................ 974.2 25.9
--------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired............................................... (546.5) (83.8)
Capital expenditures............................................................. (945.4) (483.3)
(Increase) decrease in cash held by an affiliate................................. (283.9) 34.0
Purchases of investments......................................................... (126.4) (0.4)
Proceeds from sales of investments............................................... 156.6 76.1
Additions to deferred charges.................................................... (58.6) (95.8)
--------- ---------
Net cash used in investing activities.................................... (1,804.2) (553.2)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS............................................... (29.5) (24.6)
CASH AND CASH EQUIVALENTS, beginning of period...................................... 44.2 61.0
--------- ---------
CASH AND CASH EQUIVALENTS, end of period............................................ $14.7 $36.4
========= =========
See notes to condensed consolidated financial statements.
4
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
Comcast Cable Communications, Inc. (the "Company"), a wholly-owned
subsidiary of Comcast Corporation ("Comcast"), has prepared these unaudited
condensed consolidated financial statements based upon Securities and
Exchange Commission rules that permit reduced disclosure for interim
periods.
These financial statements include all adjustments that are necessary for a
fair presentation of the Company's results of operations and financial
condition for the interim periods shown including normal recurring accruals
and other items. The results of operations for the interim periods
presented are not necessarily indicative of results for the full year.
For a more complete discussion of the Company's accounting policies and
certain other information, refer to the financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31,
2000.
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
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"), 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 financial statements include
the accounts of Garden State Cable since the date of the Lenfest
acquisition.
2. ADOPTION OF NEW ACCOUNTING STANDARD
SFAS No. 133, As Amended
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended. 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.
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.
5
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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)
The Company's total comprehensive income (loss) for the interim periods was
as follows (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
--------- ---------- --------- ----------
Net income (loss).................................... ($212.8) ($247.6) $153.2 ($442.9)
Unrealized gains (losses) on marketable securities... 49.3 (35.9) 218.8 (70.7)
--------- ---------- --------- ----------
Comprehensive income (loss).......................... ($163.5) ($283.5) $372.0 ($513.6)
========= ========== ========= ==========
4. ACQUISITIONS
Adelphia Cable Systems Exchange
On January 1, 2001, the Company and Comcast completed their cable systems
exchange with Adelphia Communications Corporation ("Adelphia"). The Company
received cable systems serving approximately 445,000 subscribers from
Adelphia and Adelphia received certain of the Company's cable systems
serving approximately 441,000 subscribers. 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.
AT&T Cable Systems Acquisition
On April 30, 2001, the Company and Comcast acquired cable systems serving
approximately 585,000 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 all of the shares held by the Company. The
market value of the AT&T shares was approximately $1.423 billion, based on
the price of the AT&T common stock on the closing date of the transaction.
Under the terms of the agreement between the Company, 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. Upon closing of the transaction, Comcast contributed its
interests in the acquired systems to the Company. The transaction is
expected to qualify as tax free to the Company, to Comcast and to AT&T.
Baltimore, Maryland System Acquisition
On June 30, 2001, the Company acquired the cable system serving
approximately 112,000 subscribers in Baltimore, Maryland from AT&T for
$518.7 million in cash. The purchase price is subject to adjustment.
The Company accounted for the acquisitions under the purchase method of
accounting. As such, the Company's results include the operating results of
the acquired businesses from the dates of acquisition. The Company's cable
systems exchange with Adelphia, the AT&T cable systems acquisition and the
subsequent contribution by Comcast of its interests in the acquired systems
to the Company had no significant impact on the Company's statement of cash
flows during 2001 due to their noncash nature. The allocations of the
purchase price for the 2001 acquisitions are preliminary pending completion
of final appraisals (see Note 9).
6
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Unaudited Pro Forma Information
The following unaudited pro forma information has been presented as if the
acquisitions and cable systems exchanges made by the Company in 2001 and
2000 each occurred on January 1, 2000. For a discussion of the Company's
2000 acquisitions and cable systems exchange, refer to the financial
statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2000.This information is based on historical
results of operations and has been adjusted for acquisition costs. This
information is not necessarily indicative of what the results would have
been had the Company operated the entities acquired since January 1, 2000.
(Amounts in millions)
Six Months Ended June 30,
2001 2000
--------- ----------
Service revenues.................................. $2,511.3 $2,293.1
Loss before extraordinary items and cumulative
effect of accounting change................... $212.3 ($667.7)
Net loss.......................................... $151.0 ($672.8)
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 gains (losses) on available for sale investments as
of June 30, 2001 and December 31, 2000 of $72.8 million and ($263.9)
million, respectively, have been reported in the Company's balance sheet as
a component of accumulated other comprehensive income (loss), net of
related deferred income taxes of ($25.5) million and $92.4 million,
respectively.
Derivatives
The Company uses derivative financial instruments to manage its exposure to
fluctuations in interest rates and security prices. The Company has
designated these derivative instruments as fair value hedges. The Company
also invests in businesses, to some degree, through the purchase of equity
call option or call warrant agreements.
Investment Income (Expense)
Investment income (expense) for the interim periods includes the following
(in millions):
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
--------- --------- -------- ---------
Interest and dividend income....................... $4.8 $2.4 $11.9 $6.0
Gains (losses) on sales and exchanges
of investments.................................... 20.7 (2.3) 29.2 29.6
Investment impairment losses....................... (88.9)
Mark to market adjustments on derivatives.......... (8.8) (14.5)
------- ------- -------- --------
Investment income (expense)............. $16.7 $0.1 ($62.3) $35.6
======= ======= ======== ========
The investment impairment losses for the six months ended June 30, 2001
relate principally to other than temporary declines in the Company's
investments in AT&T, which was exchanged on April 30, 2001 (see Note 4) and
Motorola, Inc.
7
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
6. LONG-TERM DEBT
Senior Notes Offerings
The Company sold an aggregate of $3.0 billion of public debt during the six
months ended June 30, 2001 consisting of the following (dollars in
millions):
Issue Date Amount Rate Maturity
---------- ------- ---- --------
January 2001 $500.0 6.375% 2006
January 2001 1,000.0 6.75% 2011
May/June 2001 750.0 6.875% 2009
May/June 2001 750.0 7.125% 2013
----------
Total $3,000.0
----------
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, revolving credit facility and notes payable to affiliates, and to
fund its acquisition of the Baltimore, Maryland cable system (see Notes 4
and 7).
Revolving Credit Facility
In July 2001, the Company entered into a new $2.25 billion 364-day
revolving credit facility and terminated its existing $2.25 billion 364-day
revolving credit facility, maturing in August 2001. This facility supports
the Company's commercial paper program and its terms are principally the
same as the facility it replaced.
Extraordinary Items
Extraordinary items during the 2000 interim periods consist of unamortized
debt issue costs and debt extinguishment costs, net of related tax
benefits, expensed principally in connection with the redemption and
retirement of certain indebtedness.
Interest Rates
As of June 30, 2001 and December 31, 2000, the Company's effective weighted
average interest rate on its long-term debt outstanding was 7.06% and
7.85%, respectively.
Lines and Letters of Credit
As of June 30, 2001, the Company had unused lines of credit of $3.683
billion under its revolving credit facility.
As of June 30, 2001, the Company and certain of its subsidiaries had unused
irrevocable standby letters of credit totaling $59.2 million to cover
potential fundings associated with several projects.
7. NOTES RECEIVABLE FROM AFFILIATES AND NOTES PAYABLE TO AFFILIATES
As of June 30, 2001 and December 31, 2000, notes receivable from affiliates
consist of $367.5 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 7.94% and 10.05% as of June 30, 2001 and
December 31, 2000, respectively) and are due between 2010 and 2027.
Interest receivable relating to such notes of $6.2 million is included in
notes receivable from affiliates as of June 30, 2001.
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 systems. As of June 30, 2001, notes
receivable from affiliates includes $240.0 million due from Comcast related
to these agreements.
8
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
As of June 30, 2001 and December 31, 2000, notes payable to affiliates
consist of $235.6 million and $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 8.83% and 8.05% as of June 30, 2001, and December
31, 2000, respectively) 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 June 30, 2001.
On May 1, 2001, Comcast contributed notes receivable from affiliates
totaling $493.6 million to the Company in a non-cash financing activity.
The notes were subsequently used to repay notes payable to affiliates.
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. These amounts are included in
service revenues in the Company's statement of operations and accumulated
deficit.
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. These charges are included in selling, general
and administrative expenses in the Company's 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. These charges are included in operating expenses
in the Company's 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 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.
Effective August 1, 2001, the Company purchases programming from suppliers
in which Comcast holds an equity interest. These charges are included in
operating expenses in the Company's statement of operations and accumulated
deficit.
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. These charges are included in selling, general and
administrative expenses in the Company's statement of operations and
accumulated deficit.
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. These amounts have been classified
as cash held by an affiliate in the Company's balance sheet.
9
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
The Company's related party transactions for the interim periods were as
follows (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
--------- ---------- --------- ----------
QVC service revenue.................................. $4.2 $3.4 $8.4 $7.2
Comcast management fees.............................. $61.0 $115.2
Programming charges with affiliates.................. $31.5 $288.9 $56.4 $570.3
Comcast cost-sharing charges......................... $30.9 $41.4 $60.6 $75.5
CFAC investment income............................... $4.6 $0.6 $8.7 $2.5
9. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The fair values of assets and liabilities acquired by the Company through
noncash transactions during 2001 (see Note 4) are as follows (in millions):
Current assets.............................. $22.2
Property, plant & equipment................. 681.3
Deferred charges............................ 2,537.1
Current liabilities......................... (19.1)
-----------
Net assets acquired................. $3,221.5
===========
The Company made cash payments for interest and income taxes during the
interim periods as follows (in millions):
Three Months Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
-------- -------- -------- --------
Long-term debt interest......................................... $162.2 $183.9 $218.1 $258.0
Notes payable to affiliates interest............................ $15.4 $29.7
Income taxes.................................................... $5.3 $4.3 $5.7 $4.3
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 JUNE 30, 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 financial information for the interim periods is as follows
(dollars in millions, "NM" denotes percentage is not meaningful):
Three Months Ended
June 30, Increase / (Decrease)
2001 2000 $ %
--------- --------- --------- --------
Video........................................................... $1,046.8 $879.1 $167.7 19.1%
Cable modem..................................................... 64.9 26.5 38.4 144.9
Advertising sales............................................... 85.2 71.3 13.9 19.5
Other........................................................... 44.8 34.5 10.3 29.9
--------- --------- --------- --------
Service revenues............................................. 1,241.7 1,011.4 230.3 22.8
Operating, selling, general and administrative expenses......... 697.2 664.4 32.8 4.9
--------- --------- --------- --------
Operating income before depreciation and amortization (1)....... 544.5 347.0 197.5 56.9
Depreciation and amortization................................... 723.8 566.8 157.0 27.7
--------- --------- --------- --------
Operating loss.................................................. (179.3) (219.8) (40.5) (18.4)
--------- --------- --------- --------
Interest expense................................................ (128.7) (118.9) 9.8 8.2
Interest expense on notes payable to affiliates, net............ (4.5) (3.7) 0.8 21.6
Investment income............................................... 16.7 0.1 16.6 NM
Equity in net losses of affiliates.............................. (1.5) (0.8) 0.7 87.5
Other expense................................................... (0.6) (2.1) (1.5) (71.4)
Income tax benefit.............................................. 85.1 101.8 (16.7) (16.4)
--------- --------- --------- --------
Loss before extraordinary items and cumulative
effect of accounting change.................................. ($212.8) ($243.4) ($30.6) (12.6%)
--------- --------- --------- --------
11
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
Six Months Ended
June 30, Increase / (Decrease)
2001 2000 $ %
--------- --------- --------- --------
Video........................................................... $2,019.2 $1,735.1 $284.1 16.4%
Cable modem..................................................... 119.2 47.0 72.2 153.6
Advertising sales............................................... 150.9 129.2 21.7 16.8
Other........................................................... 78.6 66.0 12.6 19.1
--------- --------- --------- --------
Service revenues............................................. 2,367.9 1,977.3 390.6 19.8
Operating, selling, general and administrative expenses......... 1,340.2 1,306.8 33.4 2.6
--------- --------- --------- --------
Operating income before depreciation and amortization (1)....... 1,027.7 670.5 357.2 53.3
Depreciation and amortization................................... 1,390.5 1,062.1 328.4 30.9
--------- --------- --------- --------
Operating loss.................................................. (362.8) (391.6) (28.8) -7.4
--------- --------- --------- --------
Interest expense................................................ (261.5) (243.0) 18.5 7.6
Interest expense on notes payable to affiliates, net............ (21.9) (2.8) 19.1 NM
Investment income (expense)..................................... (62.3) 35.6 97.9 NM
Equity in net losses of affiliates.............................. (4.3) (0.8) 3.5 NM
Other income (expense).......................................... 1,197.4 (2.4) 1,199.8 NM
Income tax benefit (expense).................................... (270.1) 167.2 (437.3) NM
--------- --------- --------- --------
Income (loss) before extraordinary items and
cumulative effect of accounting change....................... $214.5 ($437.8) $652.3 NM
========= ========= ========= ========
- ------------
<FN>
(1) Operating income before depreciation and amortization is commonly referred
to in the cable 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
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 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. The Reorganization
was accounted for at Comcast's historical costs in a manner similar to a pooling
of interests. Accordingly, our 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") 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
financial statements include the accounts of Garden State Cable from the date of
Comcast's acquisition of Lenfest.
Refer to Note 4 to our financial statements included in Item 1 for a
discussion of our 2001 acquisitions.
The effects of our recent acquisitions, the Reorganization 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 and deferred charges and the
corresponding
12
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
increases in depreciation expense and amortization expense for the interim
periods from 2000 to 2001 are primarily due to the effects of our acquisitions,
our cable system exchanges, as well as our increased levels of capital
expenditures.
Service Revenues
Video revenue consists of our basic, expanded basic, premium, pay-per-view
and digital subscriptions. Of the $167.7 million and $284.1 million increases in
video revenues for the interim periods from 2000 to 2001, $107.8 million and
$171.4 million are attributable to the effects of our acquisitions and exchanges
of cable systems and $59.9 million and $112.7 million relate to changes in rates
and subscriber growth in our historical operations, driven principally by growth
in digital subscriptions. During the three and six months ended June 30, 2001 we
added approximately 278,000 and 473,000 digital subscriptions, respectively.
The increases in cable modem service revenues are primarily due to the
addition of approximately 134,000 and 276,000 cable modem subscribers during the
three and six months ended June 30, 2001.
The increases in advertising sales revenue are attributable to the effects
of new advertising contracts, market-wide fiber interconnects and the continued
leveraging of our existing fiber networks.
Other revenue includes installation revenues, guide revenues, commissions
from electronic retailing and other product offerings. The increases are
primarily attributable to growth in our historical operations.
Operating, Selling, General and Administrative Expenses
Refer to Note 8 to our financial statements included in Item 1 for a
discussion of our related party transactions.
The increases in operating, selling, general and administrative expenses
are primarily due to the effects of increases in the costs of cable programming,
cable modem subscriber growth, and, to a lesser extent, increases in labor costs
and other volume related expenses in our historical operations.
Our cost of programming increases as a result of changes in rates,
subscriber growth, additional channel offerings and our acquisitions of cable
systems. 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.
Such increases were substantially offset by the effects of the assignment
by Comcast to us in August 2000 of its intercompany management and programming
agreements with our subsidiaries.
Interest Expense
The increases in interest expense for the interim periods from 2000 to 2001
are primarily due to the increase in our net borrowings.
Interest Expense on Notes Payable to Affiliates, Net
The increases in interest expense on notes payable to affiliates, net for
the interim periods from 2000 to 2001 are due to increases in notes payable to
affiliates outstanding as compared to the prior year periods.
Investment Income (Expense)
During the three and six months ended June 30, 2001 and 2000, we recognized
pre-tax gains (losses) of $20.7 million, ($2.3) million, $29.2 million and $29.6
million, respectively, on sales and exchanges of certain of our investments.
During the six months ended June 30, 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 losses relate principally to our
investments in Motorola, Inc. and AT&T (refer to Note 4 to our financial
statements included in Item 1 for a discussion of our investments).
Other Income (Expense)
On January 1, 2001, in connection with our cable systems exchange with
Adelphia pursuant to which we received cable systems serving approximately
445,000 subscribers from Adelphia in exchange for certain of our cable systems
serving approximately 441,000 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 Benefit (Expense)
The changes in income tax benefit (expense) for the interim periods are
primarily the result of the effects of
13
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
changes in our income (loss) before income taxes, extraordinary items and
cumulative effect of accounting change.
Cumulative Effect of Accounting Change
Upon adoption of Statement of Financial Accounting Standards ("SFAS") 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 six months ended June 30, 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.
Capital Expenditures
We have accelerated our cable system rebuild program and have increased
deployment of cable modems and digital converters to our customers. As a result,
we currently expect to invest $1.75 billion in capital expenditures in 2001, up
from our previous estimate of $1.45 billion.
We believe that our operations are not materially affected by inflation.
Expected Impact of Adoption of SFAS No.'s 141 and 142
The Financial Accounting Standards Board issued SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets" in June
2001. These statements address how intangible assets that are acquired
individually, with a group of other assets or in connection with a business
combination should be accounted for in financial statements upon and subsequent
to their acquisition. The new statements require that all business combinations
initiated after June 30, 2001 be accounted for using the purchase method and
establish specific criteria for the recognition of intangible assets separately
from goodwill.
We adopted SFAS No. 141 on July 1, 2001, as required by the new statement.
We do not expect the adoption of SFAS No. 141 to have a material impact on our
financial position or results of operations.
We will adopt SFAS No. 142 on January 1, 2002, as required by the new
statement. Upon adoption of SFAS No. 142, we will no longer amortize goodwill
and other indefinite lived intangible assets. We will be required to test our
goodwill and intangible assets that are deemed to have an indefinite life for
impairment at least annually. Other than in those periods in which we may report
an asset impairment, we expect that the adoption of SFAS No. 142 will result in
increased income as a result of reduced amortization expense. We are currently
evaluating the impact adoption of SFAS No. 142 will have on our financial
position and results of operations.
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 during 2002, 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
financial statements will include the results of Greater Philadelphia since the
date of Comcast's acquisition. Upon closing of the Greater Philadelphia Merger,
the Company will hold all of Comcast's consolidated cable systems.
14
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 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:
None.
15
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 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: August 13, 2001
16