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FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 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 Identification No.)
incorporation or organization)
1500 Market Street, Philadelphia, PA 19102-2148
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K.
[Not applicable]
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As of December 31, 2001, there were 138.89 shares of Common Stock outstanding.
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The Registrant meets the conditions set forth in General Instructions I(1)(a)
and (b) of Form 10-K and is therefore filing this form with the reduced
disclosure format.
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DOCUMENTS INCORPORATED BY REFERENCE
NONE
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COMCAST CABLE COMMUNICATIONS, INC.
2001 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business.................................................................................................1
Item 2 Properties..............................................................................................13
Item 3 Legal Proceedings.......................................................................................14
Item 4 Submission of Matters to a Vote of Security Holders.....................................................14
PART II
Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters...............................15
Item 6 Selected Financial Data.................................................................................15
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations...................16
Item 8 Financial Statements and Supplementary Data.............................................................25
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................47
PART III
Item 10 Directors and Executive Officers of the Registrant......................................................47
Item 11 Executive Compensation..................................................................................47
Item 12 Security Ownership of Certain Beneficial Owners and Management..........................................47
Item 13 Certain Relationships and Related Transactions..........................................................47
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.........................................48
SIGNATURES.......................................................................................................50
This Annual Report on Form 10-K is for the year ended December 31, 2001.
This Annual Report modifies and supersedes documents filed prior to this Annual
Report. The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you directly to those documents. Information incorporated by reference
is considered to be part of this Annual Report. In addition, information that we
file with the SEC in the future will automatically update and supersede
information contained in this Annual Report. In this Annual Report, "Comcast
Cable," "we," "us" and "our" refer to Comcast Cable Communications, Inc. and its
subsidiaries.
You should carefully review the information contained in this Annual
Report, and should particularly consider any risk factors that we set forth in
this Annual Report and in other reports or documents that we file from time to
time with the SEC. In this Annual Report, we state our beliefs of future events
and of our future financial performance. In some cases, you can identify those
so-called "forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
Factors Affecting Future Operations
Our businesses may be affected by, among other things:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o industry consolidation and mergers,
o franchise related matters,
o market conditions that may adversely affect the availability of debt
and equity financing for working capital, capital expenditures or
other purposes,
o demand for the programming content we distribute, and
o general economic conditions.
PART I
ITEM 1 BUSINESS
We are principally engaged in developing, managing and operating broadband
communications networks. We are currently the third largest cable operator in
the United States and have deployed digital cable applications and high-speed
Internet service to the substantial majority of our cable communications systems
to expand the products available on our broadband communications networks.
We are a wholly owned subsidiary of Comcast Corporation ("Comcast"). Our
consolidated cable operations served approximately 8.4 million subscribers and
passed approximately 13.7 million homes in the United States as of December 31,
2001.
We are a Delaware corporation that was organized in 1981. We have our
principal executive offices at 1500 Market Street, Philadelphia, Pennsylvania
19102-2148. Our telephone number is (215) 665-1700. We also have a world wide
web site at http://www.comcast.com. The information posted on our web site is
not incorporated into this Annual Report.
GENERAL DEVELOPMENTS OF OUR BUSINESS
We entered into a number of significant transactions in 2001 which have
closed or are expected to close in 2002. We have summarized these transactions
below and have more fully described them in Note 4 to our consolidated financial
statements in Item 8 of this Annual Report.
Philadelphia Area I Merger
Comcast intends to merge, subject to receipt of necessary regulatory and
other approvals, its subsidiary, Comcast Cablevision of Philadelphia Area I,
Inc. ("Greater Philadelphia"), a cable communications company serving
approximately 86,000 subscribers in Philadelphia, Pennsylvania, with and into
us. Upon completion of the merger, which is expected to close during 2002, the
operating results of Greater Philadelphia will be included in our consolidated
financial statements from the June 1999 date of Comcast's acquisition of Greater
Philadelphia.
Adelphia Cable Systems Exchange
On January 1, 2001, we and Comcast completed our cable systems exchange
with Adelphia Communications Corporation. We received cable systems serving
approximately 445,000 subscribers from Adelphia and Adelphia received certain of
our cable systems serving approximately 441,000 subscribers. We recorded to
other income a pre-tax gain of $1.199 billion, representing the difference
between the estimated fair value of $1.799 billion as of the closing date of the
transaction and our cost basis in the systems exchanged.
AT&T Cable Systems Acquisition
On April 30, 2001, we 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 Comcast and
us, including all of the shares held by us. 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. The transaction is expected to qualify as
tax free to us, to Comcast and to AT&T.
Baltimore, Maryland System Acquisition
On June 30, 2001, we acquired the cable system serving approximately
112,000 subscribers in Baltimore City, Maryland from AT&T for $518.7 million in
cash.
At Home Services
On September 28, 2001, At Home Corporation, our provider of high-speed
Internet services, filed for protection under Chapter 11 of the U.S. Bankruptcy
Code. On December 3, 2001, At Home agreed to continue to provide high-speed
Internet services to our subscribers through February 28, 2002. In December
2001, we began to transfer our high-speed Internet subscribers from the At Home
network to our new Comcast-owned and managed network. We completed this
transition in February 2002.
DESCRIPTION OF OUR BUSINESS
Technology and Capital Improvements
Our cable communications networks receive signals by means of:
o special antennae,
o microwave relay systems,
o earth stations, and
o coaxial and fiber optic cables.
Products and Services
We offer a variety of services over our cable communications networks,
including traditional analog video, digital cable and high-speed Internet
service. Available service offerings depend on the bandwidth capacity of the
cable communications system. Bandwidth, expressed in megahertz (MHz), is a
measure of information-carrying capacity. It is the range of usable frequencies
that can be carried by a cable communications system. The greater the bandwidth,
the greater the capacity of the system. As of December 31, 2001, approximately
82% of our cable subscribers were served by a system with a capacity of at least
750-MHz and approximately 95% of our cable subscribers were served by a system
with a capacity of at least 550-MHz.
Digital compression technology enables us to substantially increase the
number of channels our cable communications systems can carry, thereby providing
a significant number of additional programming choices to our subscribers.
Digital compression technology converts up to twelve analog signals into a
digital format and compresses such signals into the bandwidth normally occupied
by one analog signal. At the home, a set-top video terminal converts the digital
signal into analog signals that can be viewed on a television set.
We have deployed fiber optic cable and have upgraded the technical quality
of the substantial majority of our cable communications networks. As a result,
the reliability and capacity of our systems have increased, aiding in the
delivery of additional video programming and other services such as enhanced
digital video, high- speed Internet service and, in some areas, telephony.
Franchises
Cable communications systems are constructed and operated under
non-exclusive franchises granted by state or local governmental authorities for
varying lengths of time and are subject to federal, state and local legislation
and regulation. Our franchises establish our contractual rights and obligations
for constructing and operating a cable communications system in our franchise
areas and typically provide for periodic payment of fees to franchising
authorities of up to 5% of "revenues" (as defined by each franchise agreement).
We normally pass those fees on to subscribers. In many cases, we need the
consent of the franchising authority to transfer our franchises.
Although franchises historically have been renewed, renewals may include
less favorable terms and conditions than the existing franchise. Under law,
franchises should continue to be renewed for companies that have provided
adequate service and have complied with existing franchise terms and applicable
law. We have never had a franchise revoked or otherwise been denied the right to
provide service in a municipality. The franchising authority may choose to award
additional franchises to competing companies at any time. As of December 31,
2001, we served approximately 1,900 franchise areas in the United States.
Traditional Analog Video Services
We receive the majority of our revenues from subscription services.
Subscribers typically pay us on a monthly basis and generally may discontinue
services at any time. Monthly subscription rates and related charges vary
according to the type of service selected and the type of equipment used by
subscribers.
We offer a full range of traditional analog video services. We tailor both
our basic channel line-up and our additional channel offerings to each system
according to demographics, programming preferences, competition, price
sensitivity and local regulation. Our analog service offerings include the
following programming:
o basic programming,
o expanded basic programming,
o premium services, and
o pay-per-view programming.
Our basic cable service typically consists of between 10-20 channels of
programming. This service generally consists of programming provided by national
television networks, local broadcast television stations, locally-originated
programming, including governmental and public access, and limited
satellite-delivered programming.
Our expanded basic cable service, which may vary in size depending on the
system's channel capacity, generally includes a group of satellite-delivered or
non-
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broadcast channels in addition to the basic channel line-up.
Subscribers can also subscribe to our premium services either individually
or in packages of several channels. Our premium services generally offer,
without commercial interruption, feature motion pictures, live and taped
sporting events, concerts and other special features. The charge for premium
services depends upon the type and level of service selected by the subscriber.
Our pay-per-view service permits our subscribers to order, for a separate
fee, individual feature motion pictures and special event programs, such as
professional boxing, professional wrestling and concerts on an unedited,
commercial-free basis.
Advanced Service Offerings
The high bandwidth capacity of our cable communications networks enables us
to deliver substantially more channels and/or advanced products and services to
our subscribers. A variety of technologies and the rapid growth of the Internet
have presented us with opportunities to provide new or expanded products and
services to our subscribers and to expand our sources of revenue. As a result,
we now offer for the benefit of both our residential and commercial subscribers:
o digital cable television services in substantially all of our systems,
and
o high-speed Internet service installed in personal computers in
approximately 75% of our systems.
We have and will continue to upgrade our cable communications systems so
that we are able to provide these and other new services such as video on
demand, commonly known as VOD, interactive television and cable telephony to our
subscribers.
Digital Cable Services
Subscribers to our digital cable service may receive:
o an interactive program guide,
o multiple channels of digital music,
o additional expanded basic programming,
o additional premium services,
o "multiplexes" of premium channels to which a subscriber also
subscribes, which are varied as to time of broadcast or programming
content theme, and
o additional pay-per-view programming, such as more pay-per-view options
and/or frequent showings of the most popular films to provide near
video-on-demand.
Subscribers typically pay us on a monthly basis for digital cable services
and generally may discontinue services at any time. Monthly rates vary generally
according to the level of service and the number of digital converters selected
by the subscriber.
High-Speed Internet Service
Prior to March 2002, we marketed At Home's high- speed Internet services as
Comcast@Home in areas served by our cable communications systems. Subsequent to
that time, our high-speed Internet subscribers are on our network. Residential
subscribers can connect their personal computers via cable modems to a
high-speed national network provided and managed by us to access online
information, including the Internet, at faster speeds than that of conventional
modems. We also provide businesses with Internet connectivity solutions and
networked business applications.
Other Revenue Sources
We also generate revenues from advertising sales, installation services,
commissions from electronic retailing and other services. We generate revenues
from the sale of advertising time to local, regional and national advertisers on
non-broadcast channels we carry over our cable communications systems.
Sales and Marketing
Our sales efforts are primarily directed toward generating incremental
revenues in our franchise areas and increasing the number of subscribers we
serve. We sell our products and services through:
o telemarketing,
o direct mail advertising,
o door-to-door selling,
o cable television advertising,
o local media advertising, and
o retail outlets.
Programming
We generally acquire a license for the programming we sell to our
subscribers by paying a monthly fee to the licensor on a per subscriber per
channel basis. Our programming costs are increased by:
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o increases in the number of subscribers,
o expansion of the number of channels provided to subscribers, and
o increases in contract rates from programming suppliers.
We attempt to secure long-term programming contracts with volume discounts
and/or marketing support and incentives from programming suppliers. Our
programming contracts are generally for a fixed period of time and are subject
to negotiated renewal. We have experienced increases in our cost of programming
and we anticipate that future contract renewals will result in programming costs
that are higher than our costs today, particularly for sports programming.
We utilize interactive programming guides to provide our subscribers with
current programming information, as well as advertising and other content.
Customer Service
We manage most of our cable communications systems in geographic clusters.
Clustering improves our ability to sell advertising, enhances our ability to
efficiently introduce and market new products, and allows us to more efficiently
and effectively provide customer service and support. As part of our clustering
strategy, we have consolidated our local customer service operations into large
regional call centers. These regional call centers have technologically advanced
telephone systems that provide 24-hour per day, 7-day per week call answering
capability, telemarketing and other services.
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Our Cable Communications Systems
The table below summarizes certain subscriber information for our cable
communications systems as of December 31 (homes, subscribers and subscriptions
in thousands):
2001(9) 2000(9) 1999(9) 1998 1997
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Cable
Homes Passed (1)........................ 13,749 12,503 9,358 7,382 7,138
Subscribers (2)......................... 8,385 7,522 5,642 4,511 4,366
Penetration (3)......................... 61.0% 60.2% 60.3% 61.1% 61.2%
Digital Cable
"Digital Ready" Subscribers (4)......... 8,289 7,173 4,559 1,570
Subscriptions (5)....................... 2,299 1,339 515 78
Penetration (6)......................... 27.7% 18.7% 11.3% 5.0%
High-Speed Internet
"Modem Ready" Homes Passed (7).......... 10,241 6,360 3,259 1,804 866
Subscribers............................. 942 400 142 51 10
"Modem Ready" Penetration (8)........... 9.2% 6.3% 4.4% 2.8% 1.2%
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<FN>
(1) A home is "passed" if we can connect it to our distribution system without
further extending the transmission lines.
(2) A dwelling with one or more television sets connected to a system counts as
one cable subscriber.
(3) Cable penetration means the number of cable subscribers as a percentage of
cable homes passed.
(4) A subscriber is "digital ready" if the subscriber is in a market where we
have launched our digital cable service.
(5) Each digital converter box counts as one digital cable subscription.
(6) Digital cable penetration means the number of digital cable subscriptions
as a percentage of "digital ready" subscribers. Certain subscribers may
have multiple digital cable subscriptions.
(7) A home passed is "modem ready" if we can connect it to our Internet service
connection system without further upgrading the transmission lines.
(8) "Modem ready" penetration means the number of high-speed Internet
subscribers as a percentage of "modem ready" homes passed.
(9) In April 1999, Comcast acquired and contributed to us its controlling
interest in Jones Intercable, Inc. In January 2000, Comcast acquired
Lenfest Communications, Inc. and in August 2000 the successor to Lenfest
was merged with and into us. In August 2000, we acquired Prime
Communications LLC. In 2000, we began consolidating Comcast Cablevision of
Garden State, L.P. as a result of Comcast's contribution of its 50%
interest in Garden State Cable to us in December 2000. On December 31, 2000
and January 1, 2001, we and Comcast completed our cable systems exchanges
with AT&T Corp. and Adelphia Communications, respectively. The subscriber
information as of December 31, 2000 excludes the effects of our exchange
with AT&T. In April and June 2001, we acquired cable systems serving an
aggregate of approximately 697,000 subscribers from AT&T.
</FN>
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Competition
Our cable communications systems compete with a number of different sources
which provide news, information and entertainment programming to consumers,
including:
o local television broadcast stations that provide off-air programming
which can be received using a roof-top antenna and television set,
o program distributors that transmit satellite signals containing video
programming, data and other information to receiving dishes of varying
sizes located on the subscriber's premises,
o satellite master antenna television systems, commonly known as SMATV,
which generally serve condominiums, apartment and office complexes and
residential developments,
o other operators who build and operate communications systems in the
same communities that we serve,
o interactive online computer services,
o newspapers, magazines and book stores,
o movie theaters,
o live concerts and sporting events, and
o home video products.
In order to compete effectively, we strive to provide, at a reasonable
price to subscribers:
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o new products and services,
o superior technical performance,
o superior customer service, and
o a greater variety of video programming.
Federal law allows local telephone companies to provide, directly to
subscribers, a wide variety of services that are competitive with our cable
communications services, including video and Internet services within and
outside their telephone service areas.
Telephone companies and other businesses construct and operate
communications facilities that provide access to the Internet and distribute
interactive computer-based services, data and other non-video services to homes
and businesses. We are unable to predict the likelihood of success of competing
video or cable service ventures by telephone companies or other businesses. Nor
can we predict the impact these competitive ventures might have on our business
and operations.
We operate our cable communications systems pursuant to a non-exclusive
franchise that is issued by the community's governing body such as a city
council, a county board of supervisors or a state regulatory agency. Federal law
prohibits franchising authorities from unreasonably denying requests for
additional franchises, and it permits franchising authorities to operate cable
systems. Companies that traditionally have not provided cable services and that
have substantial financial resources (such as public utilities that own certain
of the poles to which our cables are attached) may also obtain cable franchises
and may provide competing communications services.
Certain facilities-based competitors offer cable and other communications
services in various areas where we hold franchises. We anticipate that
facilities-based competitors will develop in other franchise areas that we
serve.
In recent years, Congress has enacted legislation and the Federal
Communications Commission, commonly known as the FCC, has adopted regulatory
policies intended to provide a favorable operating environment for existing
competitors and for potential new competitors to our cable communications
systems. These competitors include open video systems, commonly known as OVS,
and direct broadcast satellite service, commonly known as DBS, among others.
According to recent government and industry reports, conventional, medium and
high-power satellites currently provide programming to over 17 million
individual households, condominiums, apartment and office complexes in the
United States. DBS providers with high-power satellites typically offer to their
subscribers more than 300 channels of programming, including programming
services substantially similar to those provided by our cable communications
systems.
DBS service can be received throughout the continental United States
through the installation of a small roof top or side-mounted antenna. DBS
systems use video compression technology to increase channel capacity and
digital technology to improve the quality and quantity of the signals
transmitted to their subscribers. Our digital cable service is competitive with
the programming, channel capacity and the digital quality of signals delivered
to subscribers by DBS systems.
Two major companies, DirecTV and Echostar, are currently offering
nationwide high-power DBS services. On October 29, 2001, the Board of Directors
of General Motors agreed to sell its Hughes Electronics subsidiary, the parent
of DirecTV, to Echostar. Upon closing of the transaction, which is subject to
shareholder and regulatory approvals, the combined company would serve more than
16 million subscribers, which constitutes approximately 94% of satellite
television subscribers nationwide according to a recent FCC report.
Federal legislation establishes, among other things, a permanent compulsory
copyright license that permits satellite carriers to retransmit local broadcast
television signals to subscribers who reside in the local television station's
market. These companies are transmitting local broadcast signals in most markets
which we serve. As a result, satellite carriers are competitive to cable
communications system operators like us because they offer programming which
closely resembles what we offer. These companies and others are also developing
ways to bring advanced communications services to their customers. They are
currently offering satellite-delivered high-speed Internet services with a
telephone return path and are beginning to provide true two-way interactivity.
We are unable to predict the effects these competitive developments might have
on our business and operations.
Our cable communications systems also compete for subscribers with SMATV
systems. SMATV system operators typically are not subject to regulation like
local franchised cable communications system operators. SMATV systems offer
subscribers both improved reception of local television stations and many of the
same satellite-delivered programming services offered by franchised cable
communications systems. In addition, some SMATV operators are developing and/or
offering packages of telephony, data and video services to private residential
and commercial developments. SMATV system operators often enter into exclusive
service agreements with building owners or homeowners' associations, although
some states have enacted laws to provide cable communications systems access to
these
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complexes. Courts have reviewed challenges to these laws and have reached
varying results.
Most of our cable communications systems are currently offering high-speed
Internet services to subscribers. These systems compete with a number of other
companies, many of whom have substantial resources, such as:
o existing Internet service providers, commonly known as ISPs,
o local telephone companies, and
o long distance telephone companies.
Various companies, including telephone companies and ISPs, have asked
local, state and federal governments to mandate that cable communications
systems operators provide capacity on their broadband infrastructure so that
these companies and others may deliver high-speed Internet and interactive
television services to customers over cable facilities. In February 2002, we
announced an agreement with a national ISP which will provide our subscribers in
two major markets with access to the ISP's service, with the potential to
roll-out this offering to other of our cable communications systems with the
concurrence of both parties.
The deployment of Digital Subscriber Line technology, known as DSL, allows
Internet access to subscribers at data transmission speeds equal to or greater
than that of modems over conventional telephone lines. Numerous companies,
including telephone companies, have introduced DSL service and certain telephone
companies are seeking to provide high-speed broadband services without regard to
present service boundaries and other regulatory restrictions. Congress is
currently considering legislation that, if enacted into law, will eliminate or
reduce significantly many of the regulatory restrictions on the offering of
high-speed broadband services by local telephone companies. We are unable to
predict the outcome of any legislative initiatives, the likelihood of success of
competing online services offered by our competitors or what impact these
competitive ventures may have on our business and operations.
We expect advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment to occur in the
future. We refer you to the discussion below for a detailed discussion of
legislative and regulatory factors. Other new technologies and services may
develop and may compete with services that our cable communications systems
offer. Consequently, we are unable to predict the effect that ongoing or future
developments might have on our business and operations.
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LEGISLATION AND REGULATION
The Communications Act of 1934, as amended, establishes a national policy
to regulate the development and operation of cable communications systems. The
Communications Act allocates responsibility for enforcing federal policies among
the FCC, state and local governmental authorities. The courts, especially the
federal courts, play an important oversight role as these statutory and
regulatory provisions are interpreted and enforced by the various federal, state
and local governmental units.
We expect that court actions and regulatory proceedings will continue to
refine the rights and obligations of various parties, including the government,
under the Communications Act. The results of these judicial and administrative
proceedings may materially affect our business operations. In the following
paragraphs, we summarize the principal federal laws and regulations materially
affecting the growth and operation of the cable communications industry. We also
provide a brief description of certain state and local laws applicable to our
businesses.
The Communications Act and FCC Regulations
The Communications Act and the regulations and policies of the FCC affect
significant aspects of our cable system operations, including:
o subscriber rates,
o the content of programming we offer our subscribers, as well as the
way we sell our program packages to subscribers and other video
program distributors,
o the use of our cable systems by franchising authorities, the public
and other unrelated third parties,
o our franchise agreements with governmental authorities,
o cable system ownership limitations and prohibitions, and
o our use of utility poles and conduit.
- 7 -
Subscriber Rates
The Communications Act and the FCC's regulations and policies limit the
ability of cable systems to raise rates for basic services and equipment in
communities that are not subject to effective competition, as defined by federal
law. Where there is no effective competition, federal law gives franchising
authorities the power to regulate the monthly rates charged by the operator for:
o the lowest level of programming service, typically called basic
service, which generally includes local broadcast channels and public
access or governmental channels required by the operator's franchise,
and
o the installation, sale and lease of equipment used by subscribers to
receive basic service, such as converter boxes and remote control
units.
The FCC has detailed rate regulations, guidelines and rate forms that we
and the franchising authority must use in connection with the regulation of our
basic service and equipment rates. If the franchising authority concludes that
our rates are not in accordance with the FCC's rate regulations, it may require
us to reduce our rates and to refund overcharges to subscribers, with interest.
We may appeal adverse rate decisions to the FCC.
The Communications Act and the FCC's regulations also:
o prohibit regulation of rates charged by cable operators for
programming offered on a per channel or per program basis, and for
multi- channel groups of non-basic programming,
o require operators to charge uniform rates throughout each franchise
area that is not subject to effective competition,
o prohibit regulation of non-predatory bulk discount rates offered by
operators to subscribers in commercial and residential developments,
o permit regulated equipment rates to be computed by aggregating costs
of broad categories of equipment at the franchise, system, regional or
company level, and
o prohibit regulation of rates by local franchising authorities for
other services provided over a cable system, such as high-speed
Internet services.
Content Requirements
The Communications Act and the FCC's regulations contain broadcast signal
carriage requirements that allow certain local commercial television broadcast
stations:
o to elect once every three years to require a cable communications
system to carry the station, subject to certain exceptions, or
o to negotiate with us on the terms by which we may carry the station on
our cable communications system, commonly called retransmission
consent.
The Communications Act and the FCC's regulations require a cable operator
to devote up to one-third of its activated channel capacity for the mandatory
carriage of local commercial television stations. The Communications Act and the
FCC's regulations also give local non-commercial television stations mandatory
carriage rights; however, such stations are not given the option to negotiate
retransmission consent for the carriage of their signals by cable systems.
Additionally, cable systems must obtain retransmission consent for:
o all "distant" commercial television stations (except for commercial
satellite-delivered independent "superstations"),
o commercial radio stations, and
o certain low-power television stations.
FCC regulations require us to carry the signals of local digital-only
broadcast stations (both commercial and non-commercial) and the digital signals
of those local broadcast stations that return their analog spectrum to the
government and convert to a digital broadcast format. The FCC's rules give the
digital-only broadcast stations the discretion to elect whether the operator
will carry the station's signal in a digital or converted analog format, and
they also permit broadcasters with both analog and digital signals to tie the
carriage of their digital signals with the carriage of their analog signals as a
retransmission consent condition. The FCC continues to consider further
modifications to its digital broadcast signal carriage requirements. We are
unable to predict the impact any new carriage requirements might have on the
operations of our cable systems.
The Communications Act requires our cable systems to permit subscribers to
purchase video programming on a per channel or a per program basis without the
necessity of subscribing to any tier of service, other than the basic cable
service tier. However, we are not required to comply with this requirement until
October 2002 for any of our cable systems that do not have addressable
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converter boxes or that have other substantial technological limitations.
Although a limited number of our systems do not have the technological
capability to offer programming in the manner required by the statute, and thus
currently are exempt from complying with this requirement, we anticipate that
all of our systems will be in compliance with this requirement by the statutory
deadline.
The Communications Act and the FCC's regulations:
o preclude any satellite video programmer affiliated with a cable
company, or with a common carrier, providing video programming
directly to its subscribers, from favoring an affiliated company over
competitors, and
o limit the ability of such programmers to offer exclusive programming
arrangements to their affiliates.
The FCC has concluded that the program access rules do not apply to certain
terrestrially-delivered programming, such as Comcast SportsNet, Comcast's 24-
hour regional sports programming network which is available to approximately 2.9
million subscribers in the Philadelphia region. The FCC decision is currently
under appeal. The FCC also is considering whether to retain the current
prohibition, which is scheduled to expire in October 2002, on exclusive
programming distribution contracts between cable operators and affiliated
program distributors.
The Communications Act contains restrictions on the transmission by cable
operators of obscene programming. The Communications Act requires the cable
operator, upon the request of the subscriber, to scramble or otherwise fully
block any channel that is not included in the programming package purchased by
the subscriber. Additionally, cable operators are required by the Communications
Act and the FCC's regulations to provide by sale or lease a lockbox or other
device that permits the subscriber to block the viewing of specific channels in
the subscriber's home during periods selected by the subscriber.
The FCC actively regulates other aspects of our programming, involving such
areas as:
o our use of syndicated and network programs and local sports broadcast
programming,
o advertising in children's programming,
o political advertising,
o origination cablecasting,
o sponsorship identification, and
o closed captioning of video programming.
The FCC has also initiated a proceeding to evaluate its jurisdiction and
regulatory authority concerning the distribution over cable communications
systems of interactive television services, including advanced instant messaging
and interactive menu services.
Use of Our Cable Systems by The Government and Unrelated Third Parties
The Communications Act allows franchising authorities and unrelated third
parties to have access to our cable systems' channel capacity. For example, it:
o permits franchising authorities to require cable operators to set
aside channels for public, educational and governmental access
programming, and
o requires a cable system with 36 or more activated channels to
designate a significant portion of its channel capacity for commercial
leased access by third parties to provide programming that may compete
with services offered by the cable operator.
The FCC regulates various aspects of third party commercial use of channel
capacity on our cable systems, including the rates and certain terms and
conditions of the commercial use.
Various companies, including telephone companies and ISPs, have asked
local, state and federal governments to mandate that cable operators provide
capacity on their broadband infrastructure so that these companies and others
may deliver high-speed Internet and interactive television services directly to
subscribers over cable facilities. Some cable operators, including us, have
successfully challenged efforts by local franchising authorities to impose
unilaterally so-called "open access" requirements. Although the court decisions
dealing with this issue generally have concluded that the local franchising
authority cannot regulate Internet access over cable systems, the legal
rationale for these decisions has varied.
In connection with its review of the AOL-Time Warner merger in early 2001,
the FCC and the Federal Trade Commission imposed certain access, technical
performance and other requirements relating to the merged company's high-speed
Internet, Interactive Television, and advanced Instant Messaging services. The
FCC and the U.S. Department of Justice (DOJ) are currently reviewing Comcast's
proposed merger with AT&T Broadband, but we do not believe the factual
circumstances involved in Comcast's merger with AT&T
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Broadband warrant the imposition of comparable restrictions on us or on the
combined company.
In a decision adopted in March 2002 addressing the regulatory
classification of high-speed Internet services, the FCC concluded that Internet
services delivered over cable operators' communications systems are interstate
"information services," and it confirmed that cable operators like us, who are
offering high-speed Internet services, are not subject to common carrier
requirements to offer on a stand-alone basis to third parties the transport
functions underlying the information services we offer to our subscribers. The
FCC also recently initiated separate rulemaking proceedings to assess the
appropriate regulatory frameworks, including the role of local regulatory
authorities, governing broadband access to the Internet through cable operators'
and telephone companies' communications networks, respectively. In the telephone
broadband proceeding, the FCC has proposed to classify broadband Internet
services delivered by telephone companies over their own wireline facilities as
interstate "information services." The outcome of these FCC rulemaking
proceedings may affect significantly our regulatory obligations, including
whether we will be required to pay local governmental franchise fees and/or
federal and state universal service fees on our cable Internet revenues. The
March 2002 decision of the FCC has been appealed to the courts.
Some cable operators, including us, have entered into contracts that allow
independent ISPs to provide their Internet services over the cable operators'
communications network. We expect such contractual arrangements to become more
common in the future as cable operators' networks evolve and as competitive
alternatives to cable broadband networks continue to grow, thereby limiting the
need, if any, for government action mandating access by ISPs to our
communications networks. We cannot predict the ultimate outcome of the FCC's
rulemaking proceedings, the appeal of the FCC decision, the governmental review
of Comcast's proposed merger with AT&T Broadband, or the impact of any new
regulatory requirements on our operations.
Franchise Matters
Although franchising matters are normally regulated at the local level
through a franchise agreement and/or a local ordinance, the Communications Act
provides oversight and guidelines to govern our relationship with local
franchising authorities. For example, the Communications Act:
o affirms the right of franchising authorities (state or local,
depending on the practice in individual states) to award one or more
franchises within their jurisdictions,
o generally prohibits us from operating in communities without a
franchise,
o encourages competition with our existing cable systems by:
o allowing municipalities to operate cable systems without
franchises, and
o preventing franchising authorities from granting exclusive
franchises or from unreasonably refusing to award additional
franchises covering an existing cable system's service area,
o permits local authorities, when granting or renewing our franchises,
to establish requirements for certain cable-related facilities and
equipment, but prohibits franchising authorities from establishing
requirements for specific video programming or information services
other than in broad categories,
o permits us to obtain modification of our franchise requirements from
the franchise authority or by judicial action if warranted by changed
circumstances,
o generally prohibits franchising authorities from:
o imposing requirements during the initial cable franchising
process or during franchise renewal that require, prohibit or
restrict us from providing telecommunications services,
o imposing franchise fees on revenues we derive from providing
telecommunications services over our cable systems, or
o restricting our use of any type of subscriber equipment or
transmission technology, and
o limits our payment of franchise fees to the local franchising
authority to 5% of our gross revenues derived from providing cable
services over our cable system.
The Communications Act contains procedures designed to protect us against
arbitrary denials of the renewal of our franchises, although a franchising
authority under various conditions can deny us a franchise renewal. Moreover,
even if our franchise is renewed, the franchising authority may seek our
agreement to new or additional requirements such as significant upgrades in
facilities and services or increased franchise fees as a condition of renewal.
Similarly, if a franchising authority's consent is required for the purchase or
sale of a cable system or franchise, the franchising authority may seek
additional franchise requirements on us in connection with a request for such
consent. Historically, cable operators providing satisfactory services to their
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subscribers and complying with the terms of their franchises have typically
obtained franchise renewals. We believe that we have generally met the terms of
our franchise agreements and have provided quality levels of service. We have
never had a franchise revoked or otherwise been denied the right to provide
service in a municipality. We anticipate that our future franchise renewal
prospects generally will be favorable.
Various courts have considered whether franchising authorities have the
legal right to limit the number of franchises awarded within a community and to
impose certain substantive franchise requirements (e.g. access channels,
universal service and other technical requirements). These decisions have been
inconsistent and, until the United States Supreme Court rules definitively on
the scope of cable operators' constitutional and statutory protections, the
legality of the franchising process generally and of various specific franchise
requirements is likely to be in a state of flux.
Ownership Limitations
The Communications Act generally prohibits us from owning or operating a
SMATV or wireless cable system in any area where we provide franchised cable
service. We may, however, acquire and operate SMATV systems in our franchised
service areas if the programming and other services provided to SMATV
subscribers are offered according to the terms and conditions of our franchise
agreement.
The Communications Act also authorizes the FCC to impose nationwide limits
on the number of subscribers under the control of a cable operator and on the
number of channels that can be occupied on a cable system by video programmers
in which the cable operator has an attributable ownership interest. The FCC
adopted cable ownership regulations and established:
o subscriber ownership information reporting requirements, and
o attribution rules that identify when the ownership or management by us
or third parties of other communications businesses, including cable
systems, television broadcast stations and local telephone companies,
may be imputed to us for purposes of determining our compliance with
the FCC's ownership restrictions.
The federal courts have rejected constitutional challenges to the statutory
ownership limitations; however, a federal appellate court concluded that the
FCC's 30% nationwide cable subscriber ownership limit and its 40% cap on the
number of affiliated programming channels an operator may carry on its system
were unconstitutional and that certain of its ownership attribution rules were
not justified properly. The FCC recently initiated a rulemaking proceeding to
determine new horizontal and vertical cable ownership limitations and to
evaluate its attribution standards. We are unable to predict the outcome of this
administrative proceeding or the impact any ownership restrictions might have on
our business and operations.
The Communications Act eliminated the statutory prohibition on the common
ownership, operation or control of a cable system and a television broadcast
station in the same market. The FCC eliminated its regulations which precluded
the cross-ownership of a national broadcasting network and a cable system, and a
federal appellate court recently ordered the FCC to repeal its regulations
prohibiting the common ownership of other broadcasting interests and cable
systems in the same geographical areas.
The 1996 amendments to the Communications Act made far-reaching changes in
the relationship between local telephone companies and cable companies. These
amendments:
o eliminated federal legal barriers to competition in the local
telephone and cable communications businesses, including allowing
local telephone companies to offer video services in their local
telephone service areas,
o preempted state and local laws and regulations which impose barriers
to telecommunications competition,
o set basic standards for relationships between telecommunications
providers, and
o generally limited acquisitions and prohibited certain joint ventures
between local telephone companies and cable operators in the same
market.
Local telephone companies may provide service as traditional cable
operators with local franchises or they may opt to provide their programming
over unfranchised "open video systems," subject to certain conditions,
including, but not limited to, setting aside a portion of their channel capacity
for use by unaffiliated program distributors on a non-discriminatory basis. A
federal appellate court overturned various parts of the FCC's open video rules,
including the FCC's preemption of local franchising requirements for open video
operators. The FCC has modified its open video rules to comply with the federal
court's decision. We are unable to predict the impact these rule modifications
may have on our business and operations.
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Pole Attachment Regulation
The Communications Act requires that utilities provide cable systems and
telecommunications carriers with nondiscriminatory access to any pole, conduit
or right-of-way controlled by the utility. The Communications Act also requires
the FCC to regulate the rates, terms and conditions imposed by public utilities
for cable systems' use of utility pole and conduit space unless state
authorities demonstrate to the FCC that they adequately regulate pole attachment
rates, as is the case in certain states in which we operate. In the absence of
state regulation, the FCC administers pole attachment rates on a formula basis.
The FCC's original rate formula governs the maximum rate certain utilities may
charge for attachments to their poles and conduit by cable operators providing
only cable services. The FCC also adopted a second rate formula that became
effective in February 2001 and governs the maximum rate certain utilities may
charge for attachments to their poles and conduit by companies providing
telecommunications services, including cable operators. Any resulting increase
in attachment rates due to the FCC's new rate formula will be phased in over a
five-year period in equal annual increments, beginning in February 2001.
The U.S. Supreme Court recently upheld the FCC's jurisdiction to regulate
the rates, terms and conditions of cable operators' pole attachments that are
simultaneously used to provide high-speed Internet access and cable services,
and a federal appellate court is currently evaluating whether the FCC's rate
formulas, as applied in a specific case, provide "just compensation" under the
Federal Constitution. We have joined in several pending complaints filed at the
FCC by various state cable associations challenging certain utilities' rate
increases and the unilateral imposition of new contract terms. The utilities in
these cases have challenged, among other things, the constitutionality of the
FCC's pole attachment rate formulas. We are unable to predict the outcome of the
legal challenge to the FCC's regulations or the ultimate impact any revised FCC
rate formula, any new pole attachment rate regulations or any modification of
the FCC's regulatory authority might have on our business and operations.
Other Regulatory Requirements of the Communications Act and the FCC
The Communications Act also includes provisions, among others, regulating:
o customer service,
o subscriber privacy,
o marketing practices,
o equal employment opportunity, and
o technical standards and equipment compatibility.
The FCC actively regulates other parts of our cable operations and has
adopted regulations implementing its authority under the Communications Act.
The FCC may enforce its regulations through the imposition of substantial
fines, the issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in connection with cable
operations. The FCC has ongoing rulemaking proceedings that may change its
existing rules or lead to new regulations. We are unable to predict the impact
that any further FCC rule changes may have on our business and operations.
Copyright
Our cable communications systems provide our subscribers with local and
distant television and radio broadcast signals which are protected by the
copyright laws. We generally do not obtain a license to use this programming
directly from the owners of the programming; instead we comply with an
alternative federal copyright licensing process. In exchange for filing certain
reports and contributing a percentage of our revenues to a federal copyright
royalty pool, we obtain blanket permission to retransmit copyrighted material.
The U.S. Copyright Office recommended that Congress make major revisions to
both the cable television and satellite compulsory licenses. Congress modified
the satellite compulsory license in a manner that permits DBS providers to
become more competitive with cable operators like us. The possible
simplification, modification or elimination of the cable communications
compulsory copyright license is the subject of continuing legislative review.
The elimination or substantial modification of the cable compulsory license
could adversely affect our ability to obtain suitable programming and could
substantially increase the cost of programming that remains available for
distribution to our subscribers. We are unable to predict the outcome of this
legislative activity.
Our cable communications systems often utilize music in the programs we
provide to subscribers including local advertising, local origination
programming and pay-per-view events. The right to use this music is controlled
by music performing rights organizations who negotiate on behalf of their
members for license fees covering each performance. The cable industry and one
of these organizations previously agreed upon a standard licensing agreement
covering the performance of music
- 12 -
contained in programs originated by cable operators and in pay-per-view events.
Cable industry representatives recently negotiated standard license agreements
with the two remaining sizable music performing rights organizations covering
cable operators' locally originated programming, including advertising inserted
by the operator in programming produced by other parties. We expect that these
organizations will now seek to execute these standard agreements with most cable
operators, including us. Although each of these agreements requires payment of
music license fees for earlier time periods, we do not believe that the amount
of license fees paid to such organizations will be significant to our financial
condition, results of operations or liquidity.
State and Local Regulation
Our cable systems use local streets and rights-of-way. Consequently, we
must comply with state and local regulation which is typically imposed through
the franchising process. The terms and conditions of our franchises vary
materially from jurisdiction to jurisdiction. Franchises generally contain
provisions governing:
o cable service rates,
o franchise fees,
o franchise term,
o system construction and maintenance
obligations,
o system channel capacity,
o design and technical performance,
o customer service standards,
o franchise renewal,
o sale or transfer of the franchise,
o service territory of the franchisee,
o indemnification of the franchising authority,
o use and occupancy of public streets, and
o types of cable services provided.
A number of states subject cable systems to the jurisdiction of state
governmental agencies. Those states in which we operate that have enacted such
state level regulation are Connecticut, New Jersey and Delaware. State and local
franchising jurisdiction is not unlimited, however; it must be exercised
consistently with federal law. The Communications Act immunizes franchising
authorities from monetary damage awards arising from the regulation of cable
systems or decisions made on franchise grants, renewals, transfers and
amendments.
The summary of certain federal and state regulatory requirements in the
preceding pages does not describe all present and proposed federal, state and
local regulations and legislation affecting the cable industry. Other existing
federal regulations, copyright licensing, and, in many jurisdictions, state and
local franchise requirements, are currently the subject of judicial proceedings,
legislative hearings and administrative proposals which could change, in varying
degrees, the manner in which cable systems operate. We are unable to predict the
outcome of these proceedings or their impact upon our cable operations at this
time.
EMPLOYEES
As of December 31, 2001, we had approximately 20,000 employees. We believe
that our relationships with our employees are good.
ITEM 2 PROPERTIES
A central receiving apparatus, distribution cables, servers, analog and
digital converters, cable modems, customer service call centers and local
business offices are the principal physical assets of a cable communications
system. We own or lease the receiving and distribution equipment of each system
and own or lease parcels of real property for the receiving sites, customer
service call centers and local business offices. In order to keep pace with
technological advances, we are maintaining, periodically upgrading and
rebuilding the physical components of our cable communications systems.
We believe that substantially all of our physical assets are in good
operating condition.
- 13 -
ITEM 3 LEGAL PROCEEDINGS
We are subject to legal proceedings and claims which arise in the ordinary
course of our business. In the opinion of our management, the amount of ultimate
liability with respect to such actions is not expected to materially affect our
financial condition, results of operations or liquidity.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information for this Item is omitted pursuant to SEC General Instruction I
to Form 10-K.
- 14 -
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Common Stock
Absence of Trading Market
Our common stock is not publicly traded. Therefore, there is no established
public trading market for the common stock, and none is expected to develop in
the foreseeable future.
Holders
All of our shares of common stock, $1.00 par value, are owned directly by
Comcast Corporation.
Dividends
None.
ITEM 6 SELECTED FINANCIAL DATA
Information for this item is omitted pursuant to SEC General Instruction I to
Form 10-K.
- 15 -
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information for this item is omitted pursuant to SEC General Instruction I
to Form 10-K, except as noted below.
We are a wholly owned subsidiary of Comcast Corporation ("Comcast").
In August 2000, two wholly owned subsidiaries of Comcast, Comcast LCI
Holdings, Inc. ("LCI Holdings") and Comcast JOIN Holdings, Inc. ("JOIN
Holdings") were merged into us (the "Reorganization"). Jones Intercable, Inc.
("Jones Intercable"), the predecessor to JOIN Holdings, owned cable systems and
was acquired by Comcast in April 1999 and March 2000. Lenfest Communications,
Inc. ("Lenfest"), the predecessor to LCI Holdings, owned cable systems and was
acquired by Comcast in January 2000. The Reorganization was accounted for at
Comcast's historical cost in a manner similar to a pooling of interests.
Accordingly, our 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 was 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 Notes 2 and 4 to our financial statements included in Item 8 for a
discussion of our acquisitions and cable systems exchanges.
Most Significant and Subjective Estimates
The following discussion and analysis of our financial condition and
results of operations is based upon our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires us
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to doubtful accounts, investments and derivative financial
instruments, long-lived assets, non-monetary transactions, and contingencies. We
base our estimates on historical experience and on various other assumptions
that we believe are reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
We believe the following represent the most significant and subjective
estimates used in the preparation of our consolidated financial statements.
We maintain allowances for doubtful accounts for estimated losses resulting
from our customers' failure to make required payments. If the future payments by
our customers were to differ from our estimates, we may need to increase or
decrease our allowances for doubtful accounts, which could affect our reported
income.
We hold minority interests in companies generally having operations or
technology in areas within our strategic focus, some of which are publicly
traded and may have highly volatile share prices. We also hold investments in
private companies that have no active market by which fair values can be easily
assessed. We record an investment impairment charge when we believe an
investment has experienced a decline in value that is other than temporary.
Future adverse changes in market conditions or poor operating results of
underlying investments could result in losses or an inability to recover the
carrying value of the investments that may not be reflected in an investment's
current carrying value, thereby possibly requiring an impairment charge in the
future.
We use derivative financial instruments to manage exposures to interest
rates and equity prices. We record all our derivative financial instruments on
our balance sheet at their estimated fair values. Other than for the effective
portion of our derivative instruments that we designate as cash flow hedges, all
changes in the fair value of our derivative financial instruments are recorded
each period in current earnings. The estimated fair values of our derivative
financial instruments are determined through the use of various valuation models
that incorporate certain market assumptions such as volatility, dividend yield
and interest rates. The estimated fair values assigned could change
significantly as a result of changes in the underlying assumptions.
We periodically examine those instruments that we
- 16 -
have entered into to hedge exposure to interest rate and equity price risks to
ensure that the instruments are matched with underlying assets and liabilities,
reduce our risks relating to interest rates and equity prices and, through
market value and sensitivity analysis, maintain a high correlation to the risk
inherent in the hedged item. For those instruments that do not meet the above
criteria, variations in their fair value are marked-to-market on a current basis
in our statement of operations. Although we periodically monitor hedge
effectiveness, market conditions could cause our hedges to become ineffective,
thereby reducing our ability to manage our risks and requiring additional
amounts to be recorded through our statement of operations. We manage the credit
risks associated with our derivative financial instruments through the
evaluation and monitoring of the creditworthiness of the counterparties.
Although we may be exposed to losses in the event of nonperformance by the
counterparties, we do not expect such losses, if any, to be significant.
We periodically evaluate the recoverability of our long-lived assets,
including property and equipment and intangible assets, whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. Our evaluations include analyses based on the cash flows generated
by the underlying assets, profitability information, including estimated future
operating results, trends or other determinants of fair value. If the value of
an asset determined by these evaluations is less than its carrying amount, a
loss is recognized for the difference between the fair value and the carrying
value of the asset. Future adverse changes in market conditions or poor
operating results of the related business may indicate an inability to recover
the carrying value of the assets, thereby possibly requiring an impairment
charge in the future.
Periodically, we enter into non-monetary transactions such as exchanges of
cable systems and exchanges of investments which require us to make estimates of
the fair values of the assets involved in order to record these transactions in
our financial statements. Fair values assigned affect operating results in the
period of the exchange and possibly in future periods. In the case of a cable
systems exchange, the gain or loss on the systems sold and the future
depreciation and amortization expense on the assets acquired are affected by the
fair values assigned to the transaction.
Refer to Note 2 to our financial statements included in Item 8 for a
discussion of our accounting policies with respect to these and other items.
Liquidity and Capital Resources
Financing
Refer to Note 6 to our financial statements included in Item 8 for a
discussion of our financing activities.
The $1.848 billion increase in our long-term debt, including current
portion, results principally from the effects of our net borrowings.
As of December 31, 2001 and 2000, our long-term debt, including current
portion, was $8.563 billion and $6.714 billion, respectively. Excluding the
effects of interest rate risk management instruments, 14.6% and 36.5% of our
long-term debt, including current portion, as of December 31, 2001 and 2000,
respectively, was at variable rates.
In December 2000, Comcast contributed to us $196.7 million principal amount
of our 10 1/2% senior subordinated notes due 2006 which were held by Comcast. As
such, amounts outstanding as of December 31, 2000 have been treated as
effectively retired.
In addition to our outstanding long term debt, we had an aggregate of
$860.1 million of notes payable to Comcast and Comcast's subsidiaries as of
December 31, 2000.
In 2001, we sold an aggregate of $3.0 billion of public debt. We used
substantially all of the net proceeds from the offerings to repay a portion of
the amounts outstanding under our commercial paper, revolving credit facility
and notes payable to affiliates, and to fund our acquisitions (see Note 6 to our
financial statements included in Item 8).
Comcast Agreement and Plan of Merger with AT&T Broadband
On December 19, 2001, Comcast entered into an Agreement and Plan of Merger
with AT&T Corp. ("AT&T") pursuant to which Comcast agreed to a transaction which
will result in the combination of Comcast and a holding company of AT&T's
broadband business ("AT&T Broadband") that AT&T will spin off to its
shareholders immediately prior to the combination. As of December 31, 2001, AT&T
Broadband served approximately 13.6 million subscribers. The transaction is
subject to customary closing conditions and shareholder, regulatory and other
approvals and is expected to close by the end of 2002.
Excluding AT&T Broadband's exchangeable notes, which are mandatorily
redeemable at AT&T Broadband's
- 17 -
option into shares of certain publicly traded companies held by AT&T Broadband,
Comcast currently estimates that an aggregate of approximately $20 billion of
assumed and refinanced indebtedness will be required upon completion of the AT&T
Broadband transaction. At the completion of the transaction, Comcast anticipates
that the combined company will assume approximately $7 to $8 billion of debt and
will require financing of $11 billion to $14 billion. The financing, while not a
condition for the closing, is expected to include:
o approximately $9 billion to $10 billion to retire the intercompany
debt balance which AT&T Broadband is expected to owe AT&T,
o approximately $1 billion to $2 billion to refinance certain AT&T
Broadband debt that may be put for redemption by investors or that
will mature on or soon after the closing date for the transaction, and
o approximately $1 billion to $2 billion to provide appropriate cash
reserves to fund the operations and capital expenditures of AT&T
Broadband after completion of the transaction.
Comcast is in the process of attempting to secure an aggregate of $12.5
billion in new indebtedness in order to achieve these funding requirements. If
Comcast obtains this financing, we will provide guarantees to and receive
guarantees from the combined company, as well as certain subsidiaries of AT&T
Broadband.
Comcast may also use other available sources of financing to fund these
requirements, including:
o its existing cash, cash equivalents and short-term investments, which
totaled $2.973 billion as of December 31, 2001,
o amounts available under Comcast's subsidiaries' lines of credit, which
totaled $3.460 billion as of December 31, 2001 (including $3.198
billion of amounts available under our lines of credit), and
o through the sales of Comcast's and AT&T Broadband's investments,
including AT&T Broadband's investment in Time Warner Entertainment.
Subsequent to closing of the AT&T Broadband transaction, Comcast will have
a substantially higher amount of debt, interest expense and capital expenditures
at the combined company. If the credit rating agencies determine that the
combined company is less creditworthy, on a combined basis, than that of Comcast
on an historical basis, it is possible that our cost of and access to capital
could be negatively affected. We currently hold investment grade ratings for our
various debt securities. If our debt securities are downgraded as a result of
our assumption of debt by Comcast in the AT&T Broadband transaction, access to
the commercial paper market would likely become limited and the costs of
borrowing under alternative sources would likely increase.
Interest Rate Risk Management
We are exposed to the market risk of adverse changes in interest rates. We
maintain a mix of fixed and variable rate debt and enter into various derivative
transactions pursuant to our policies to manage the volatility relating to these
exposures. We monitor our interest rate risk exposures using techniques
including market value and sensitivity analyses. We do not hold or issue any
derivative financial instruments for trading purposes and are not a party to
leveraged instruments. We manage the credit risks associated with our derivative
financial instruments through the evaluation and monitoring of the
creditworthiness of the counterparties. Although we may be exposed to losses in
the event of nonperformance by the counterparties, we do not expect such losses,
if any, to be significant.
We use interest rate exchange agreements ("Swaps") to exchange, at
specified intervals, the difference between fixed and variable interest amounts
calculated by reference to an agreed-upon notional principal amount. We use
interest rate cap agreements ("Caps") to lock in a maximum interest rate should
variable rates rise, but enable us to otherwise pay lower market rates. We use
interest rate collar agreements ("Collars") to limit our exposure to and
benefits from interest rate fluctuations on variable rate debt to within a
certain range of rates.
The table set forth below summarizes the fair values and contract terms of
financial instruments subject to interest rate risk maintained by us as of
December 31, 2001 (dollars in millions):
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Expected Maturity Date
-----------------------------------------------------------------------------
Fair
Value at
2002 2003 2004 2005 2006 Thereafter Total 12/31/01
--------- --------- --------- --------- --------- ----------- --------- ----------
Debt
Fixed Rate.................... $203.1 $3.1 $321.2 $697.9 $644.9 $5,445.0 $7,315.2 $7,629.1
Average Interest Rate...... 9.6% 9.6% 7.6% 8.4% 7.0% 7.4% 7.6%
Variable Rate................. $1,247.3 $1,247.3 $1,247.3
Average Interest Rate...... 5.2% 5.2%
Interest Rate Instruments
Fixed to Variable Swaps(1).... $300.0 $300.0 $350.0 $950.0 $46.8
Average Pay Rate........... 5.5% 5.9% 6.8% 6.1%
Average Receive Rate....... 8.1% 6.4% 7.9% 7.5%
<FN>
(1) During January and February 2002, we settled all $950.0 million notional
amount of our Fixed to Variable Swaps and received proceeds of $56.8
million.
</FN>
---------------------------
The notional amounts of interest rate instruments, as presented in the
table above are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts. We
estimate interest rates on variable debt using the average implied forward
London Interbank Offer Rate ("LIBOR") rates for the year of maturity based on
the yield curve in effect at December 31, 2001, plus the borrowing margin in
effect for each credit facility at December 31, 2001. We estimate average
receive rates on the Variable to Fixed Swaps using the average implied forward
LIBOR rates for the year of maturity based on the yield curve in effect at
December 31, 2001. While Swaps, Caps and Collars represent an integral part of
our interest rate risk management program, their incremental effect on interest
expense for the years ended December 31, 2001, 2000 and 1999 was not
significant.
Accumulated Other Comprehensive Income
The change in accumulated other comprehensive income from December 31, 2000
to December 31, 2001 is principally related to unrealized gains on our
investments classified as available for sale, and reclassification adjustments
related to the effects of adoption of SFAS No. 133. The change in accumulated
other comprehensive income from December 31, 1999 to December 31, 2000 is
principally related to unrealized losses on our investments classified as
available for sale held throughout the year.
Contractual Cash Obligations and Commitments
In January 2002, the Securities and Exchange Commission ("SEC") issued
Financial Reporting Release No. 61, "Commission Statement about Management's
Discussion and Analysis of Financial Condition and Results of Operations" ("FRR
No. 61"). While FRR No. 61 does not create new or modify existing requirements,
it does set forth certain views of the SEC regarding disclosure that should be
considered by registrants. Among other things, FRR No. 61 encourages registrants
to provide disclosure in one place, within Management's Discussion and Analysis
of Financial Condition and Results of Operations, of the on and off balance
sheet arrangements that may affect liquidity and capital resources. As there is
no prescribed format for this disclosure, we have segregated our arrangements
that may affect liquidity and capital resources between those contractual cash
obligations that are recorded in our financial statements and those commitments
that are disclosed in the notes to our financial statements in accordance with
accounting principles generally accepted in the United States. Future rulemaking
by the SEC could result in the form and content of this disclosure being
different from the information that we have presented below. The following
tables summarize our obligations and commitments as of December 31, 2001, and
the effect such obligations and commitments are expected to have on our
liquidity and cash flow in future periods.
- 19 -
Payments Due by Period
-------------------------------------------------
Less than 1 - 3 4 - 5 After 5
Total 1 year years years years
---------- ---------- ---------- ---------- ----------
(in millions)
Contractual Cash Obligations
Long-term debt (1).............................. $8,562.5 $203.1 $324.3 $2,590.1 $5,445.0
Other long-term obligations (2)................. 35.8 8.3 17.7 6.7 3.1
---------- ---------- ---------- ---------- ----------
Total contractual cash obligations......... $8,598.3 $211.4 $342.0 $2,596.8 $5,448.1
========== ========== ========== ========== ==========
Commitments
Operating leases (3)............................ $150.9 $37.2 $45.2 $24.3 $44.2
========== ========== ========== ========== ==========
- ------------
<FN>
(1) The table presents maturities of long-term debt outstanding, including
capital lease obligations, as of December 31, 2001. Refer to Note 6 to our
financial statements included in Item 8 for a description of our long-term
debt.
(2) Other long-term obligations consist principally of the Company's
post-retirement and post-employment benefit obligations.
(3) Operating leases include the Company's minimum annual rental commitments
for office space and equipment under noncancellable operating leases.
</FN>
Results of Operations
The effects of our recent acquisitions, 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 intangible assets
and the corresponding increases in depreciation expense and amortization expense
from 2000 to 2001 are primarily due to the effects of our acquisitions, our
cable systems exchanges, and our increased levels of capital expenditures.
Refer to Notes 4 and 10 to our financial statements included in Item 8 for
a discussion of our acquisitions and cable systems exchanges, and of the effect
of these transactions on our balance sheet.
We adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets," on January 1, 2002, as required by the
new statement. We refer you to page 23 for a discussion of the expected impact
the adoption of the new statement will have on our consolidated financial
condition and results of operations.
- 20 -
Our summarized consolidated financial information for the years ended
December 31, 2001 and 2000 is as follows (dollars in millions, "NM" denotes
percentage is not meaningful):
Year Ended
December 31, Increase / (Decrease)
2001 2000 $ %
--------- --------- --------- --------
Video..................................................... $4,227.3 $3,606.0 $621.3 17.2%
High-speed Internet....................................... 293.1 114.4 178.7 156.2
Advertising sales......................................... 323.1 288.6 34.5 12.0
Other..................................................... 159.3 132.9 26.4 19.9
--------- --------- --------- --------
Service Revenues....................................... 5,002.8 4,141.9 860.9 20.8
Operating, selling, general and administrative expenses... 2,976.2 2,517.9 458.3 18.2
Depreciation.............................................. 955.8 732.8 223.0 30.4
Amortization.............................................. 2,031.6 1,649.9 381.7 23.1
--------- --------- --------- --------
Operating loss............................................ (960.8) (758.7) 202.1 26.6
--------- --------- --------- --------
Interest expense.......................................... (546.1) (515.7) 30.4 5.9
Interest expense on affiliate notes, net.................. (10.6) (9.1) 1.5 16.5
Investment expense........................................ (69.6) (1.5) 68.1 NM
Equity in net losses of affiliates........................ (7.5) (9.3) (1.8) (19.4)
Other income.............................................. 1,197.1 1,707.3 (510.2) (29.9)
Income tax (expense) benefit.............................. 36.6 (299.9) (336.5) NM
--------- --------- --------- --------
Income (loss) before extraordinary items and
cumulative effect of accounting change................. ($360.9) $113.1 ($474.0) NM
========= ========= ========= =========
Operating income before depreciation and
amortization (1)....................................... $2,026.6 $1,624.0 $402.6 24.8%
========= ========= ========= =========
- ------------
<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 accounting principles
generally accepted in the United States, and should not be considered as an
alternative to such measurements as an indicator of our performance.
</FN>
Service Revenues
Video revenue consists of our basic, expanded basic, premium, pay-per-view,
equipment and digital subscriptions. Of the $621.3 million increase in video
revenues from 2000 to 2001, $339.2 million is attributable to the effects of our
acquisitions and exchanges of cable systems and $282.1 million relates to
changes in rates and subscriber growth in our historical operations, driven
principally by growth in digital subscriptions, and to a lesser extent, to the
effects of a higher-priced digital service offering made in the second half of
2000. During 2001, through acquisitions and normal operations, we added
approximately 960,000 digital subscriptions.
The increase in high-speed Internet revenue from 2000 to 2001 is primarily
due to the addition of high- speed Internet subscribers. During 2001, through
acquisitions and normal operations, we added approximately 542,000 high-speed
Internet subscribers (see below).
The increase in advertising sales revenue from 2000 to 2001 is attributable
to the effects of new advertising contracts, market-wide fiber interconnects and
the continued leveraging of our existing fiber networks, helping to offset an
otherwise weak advertising environment.
Other revenue includes installation revenues, guide revenues, commissions
from electronic retailing,
- 21 -
telephony revenues, and revenue from other product offerings. The increase from
2000 to 2001 is primarily attributable to the effects of our acquisitions.
Operating, Selling, General and Administrative Expenses
Refer to Note 8 to our financial statements included in Item 8 for a
discussion of our related party transactions.
On September 28, 2001, At Home Corporation ("At Home"), our provider of
high-speed Internet services, filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. In October 2001, we amended our agreement with At Home to
continue service to our existing and new subscribers during October and November
2001. We agreed to be charged a higher rate than we had incurred under our
previous agreement. On December 3, 2001, we reached a definitive agreement,
approved by the Bankruptcy Court, with At Home pursuant to which At Home agreed
to continue to provide high-speed Internet services to our existing and new
subscribers through February 28, 2002. In December 2001, we began to transfer
our high-speed Internet subscribers from the At Home network to our new
Comcast-owned and managed network. We completed this transition in February
2002. Operating expenses in our consolidated statement of operations for the
year ended December 31, 2001 include $139.5 million of net incremental expenses
incurred in the fourth quarter of 2001 in the continuation of service to and
transition of our high-speed Internet subscribers from At Home's network to our
network.
The remaining increase from 2000 to 2001 in operating, selling, general and
administrative expenses is primarily due to the effects of our acquisitions and
exchanges of cable systems, as well as to the effects of increases in the costs
of cable programming, high-speed Internet 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 and
exchanges 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 $30.4 million increase from 2000 to 2001 is primarily due to the
increase in our net borrowings. We anticipate that, for the foreseeable future,
interest expense will be a significant cost to us. We believe we will continue
to be able to meet our obligations through our ability both to generate
operating income before depreciation and amortization and to obtain external
financing.
Investment Expense
Investment expense includes the following (in millions):
Year Ended December 31,
2001 2000
------------ ------------
Interest and dividend income........................................... $18.4 $12.0
Gains on sales and exchanges of investments, net....................... 29.3 29.3
Investment impairment losses........................................... (89.5) (42.8)
Mark to market adjustments on derivatives.............................. (27.8)
------------ ------------
Investment expense................................................ ($69.6) ($1.5)
============ ============
Other Income
On January 1, 2001, we and Comcast completed our cable systems exchange
with Adelphia Communications Corporation ("Adelphia"). 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 of $1.799 billion as of the closing date of the transaction
and our cost basis in the systems exchanged.
On December 31, 2000, we completed our cable
- 22 -
systems exchange with AT&T. We received cable systems serving approximately
770,000 subscribers from AT&T in exchange for certain of our cable systems
serving approximately 700,000 subscribers. We recorded a pre-tax gain of $1.711
billion, representing the difference between the estimated fair value of $2.840
billion 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 is primarily the result of the
effects of our income (loss) before income taxes, extraordinary items and
cumulative effect of accounting change, and non-deductible goodwill
amortization.
Cumulative Effect of Accounting Change
Upon adoption of SFAS No. 133, we recognized as a loss a cumulative effect
of accounting change, net of related income taxes, of $61.3 million during the
year ended December 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 of $33.0 million.
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 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
June 1999 date of Comcast's acquisition.
Expected Impact of Adoption of SFAS No. 142
The Financial Accounting Standards Board ("FASB") issued SFAS No. 142,
"Goodwill and Other Intangible Assets," in June 2001. This statement addresses
how intangible assets that are acquired individually or with a group of other
assets other than in connection with a business combination, should be accounted
for in financial statements upon their acquisition. The new statement also
addresses how goodwill and other intangible assets should be accounted for after
they have been initially recognized in the financial statements.
We adopted SFAS No. 142 on January 1, 2002, as required by the new
statement. Upon adoption, we will no longer amortize goodwill and other
indefinite lived intangible assets, which consist primarily of our cable
franchise operating rights. We will be required to test our goodwill and
intangible assets that are determined to have an indefinite life for impairment
at least annually. Other than in the period of adoption or in those periods in
which we may record an asset impairment, we expect that the adoption of SFAS No.
142 will result in increased income as a result of reduced amortization expense.
The Emerging Issues Task Force ("EITF") of the FASB is expected to provide
further guidance on certain implementation issues related to the adoption of
SFAS No. 142 as it relates to identifiable intangible assets other than
goodwill. Subject to further guidance to be provided, based upon our
interpretation of SFAS No. 142, we may record a charge as a cumulative effect of
accounting change, net of related deferred income taxes, in an amount not
expected to exceed $1.5 billion upon adoption of SFAS No. 142 on January 1,
2002.
Based on our preliminary evaluation, the estimated effect of adoption of
SFAS No. 142 would have been to decrease amortization expense by approximately
$1.9 billion and to increase deferred income tax expense by approximately $600
million for the year ended December 31, 2001.
Expected Impact of Adoption of EITF 01-14
In November 2001, the FASB staff announced EITF Topic D-103, "Income
Statement Characterization of Reimbursements Received for 'Out-of-Pocket'
Expenses Incurred," which has subsequently been recharacterized as EITF Issue
No. 01-14 ("EITF 01-14"). EITF 01-14 requires that reimbursements received for
out-of-pocket expenses incurred be characterized as revenue in the statement of
operations.
Under the terms of our franchise agreements, we are required to pay up to
5% of our gross revenues derived from providing cable services to the local
franchising authority. We normally pass these fees through to our cable
subscribers. We currently classify cable franchise fees collected from our cable
subscribers as a reduction of the related franchise fee expense included within
selling, general and administrative expenses in our statement of operations.
- 23 -
EITF 01-14, by analogy, applies to franchise fees. Upon adoption of EITF
01-14 on January 1, 2002, we will reclassify franchise fees collected from cable
subscribers from a reduction of selling, general and administrative expenses to
a component of service revenues in our statement of operations. The change in
classification will have no impact on our reported operating income (loss) or
financial condition. Refer to Note 3 to our financial statements included in
Item 8 for the effect of adoption of EITF 01-14 on our results of operations.
- 24 -
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Comcast Cable Communications, Inc.
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheet of Comcast Cable
Communications, Inc. (a wholly owned subsidiary of Comcast Corporation) and
subsidiaries (the "Company") as of December 31, 2001 and 2000, and the related
consolidated statements of operations, stockholder's equity and cash flows for
each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the consolidated financial statements of Jones
Intercable, Inc. ("Jones") (a consolidated subsidiary) for the year ended
December 31, 1999, which statements reflect total revenues constituting 14% of
consolidated revenues for that year. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Jones, is based solely on the report of such
other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Comcast Cable Communications, Inc. and subsidiaries as of
December 31, 2001 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Notes 2 and 3 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended, effective
January 1, 2001.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 5, 2002
- 25 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
CONSOLIDATED BALANCE SHEET
(Dollars in millions, except share data)
December 31,
2001 2000
--------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................... $45.1 $44.2
Investments.................................................................. 100.6 52.6
Cash held by an affiliate.................................................... 74.2
Accounts receivable, less allowance for doubtful accounts of $58.2 and $39.9. 267.3 241.7
Due from affiliates.......................................................... 173.1 0.6
Other current assets......................................................... 75.1 48.0
--------- --------
Total current assets..................................................... 661.2 461.3
--------- --------
INVESTMENTS..................................................................... 178.4 590.9
--------- --------
NOTES RECEIVABLE FROM AFFILIATES................................................ 580.6 99.3
--------- --------
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $2,326.9 and $1,610.1 6,049.0 4,733.6
--------- --------
INTANGIBLE ASSETS
Goodwill..................................................................... 5,329.4 5,248.6
Cable franchise operating rights............................................. 19,892.2 17,283.5
Other intangible assets...................................................... 682.8 544.3
--------- --------
25,904.4 23,076.4
Accumulated amortization..................................................... (5,028.6) (3,223.2)
--------- --------
20,875.8 19,853.2
--------- --------
OTHER NONCURRENT ASSETS, net.................................................... 105.0 65.7
--------- --------
$28,450.0 $25,804.0
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable............................................................. $336.1 $412.0
Accrued expenses and other current liabilities............................... 531.5 386.8
Accrued interest............................................................. 104.8 74.1
Current portion of long-term debt............................................ 203.1 3.3
--------- --------
Total current liabilities................................................ 1,175.5 876.2
--------- --------
LONG-TERM DEBT, less current portion............................................ 8,359.4 6,711.0
--------- --------
NOTES PAYABLE TO AFFILIATES..................................................... 860.1
--------- --------
DEFERRED INCOME TAXES, due to affiliate, net.................................... 5,400.4 5,016.4
--------- --------
OTHER NONCURRENT LIABILITIES.................................................... 534.5 283.1
--------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDER'S EQUITY
Common stock, $1 par value - authorized 1,000 shares; issued, 138.89 shares
Additional capital........................................................... 16,411.4 15,272.8
Accumulated deficit.......................................................... (3,466.3) (3,044.1)
Accumulated other comprehensive income (loss)................................ 35.1 (171.5)
--------- --------
Total stockholder's equity............................................... 12,980.2 12,057.2
--------- --------
$28,450.0 $25,804.0
========= =========
See notes to consolidated financial statements.
- 26 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions)
Year Ended December 31,
2001 2000 1999
--------- --------- --------
SERVICE REVENUES.................................................. $5,002.8 $4,141.9 $2,906.5
--------- --------- --------
COSTS AND EXPENSES
Operating (excluding depreciation)............................. 1,966.0 1,636.8 1,242.4
Selling, general and administrative............................ 1,010.2 881.1 685.3
Depreciation................................................... 955.8 732.8 490.7
Amortization................................................... 2,031.6 1,649.9 527.0
--------- --------- --------
5,963.6 4,900.6 2,945.4
--------- --------- --------
OPERATING LOSS.................................................... (960.8) (758.7) (38.9)
OTHER INCOME (EXPENSE)
Interest expense............................................... (546.1) (515.7) (352.9)
Interest expense on affiliate notes, net....................... (10.6) (9.1) (10.0)
Investment income (expense).................................... (69.6) (1.5) 6.8
Equity in net losses of affiliates............................. (7.5) (9.3) (2.4)
Other income (expense)......................................... 1,197.1 1,707.3 (4.2)
--------- --------- --------
563.3 1,171.7 (362.7)
--------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST,
EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE.............................................. (397.5) 413.0 (401.6)
INCOME TAX (EXPENSE) BENEFIT...................................... 36.6 (299.9) 46.2
--------- --------- --------
INCOME (LOSS) BEFORE MINORITY INTEREST, EXTRAORDINARY
ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE............... (360.9) 113.1 (355.4)
MINORITY INTEREST................................................. 107.9
--------- --------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE.................................... (360.9) 113.1 (247.5)
EXTRAORDINARY ITEMS............................................... (7.1) (6.2)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE............................ (61.3)
--------- --------- --------
NET INCOME (LOSS)................................................. ($422.2) $106.0 ($253.7)
========= ========= ========
See notes to consolidated financial statements.
- 27 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
Year Ended December 31,
2001 2000 1999
--------- --------- --------
OPERATING ACTIVITIES
Net income (loss).............................................. ($422.2) $106.0 ($253.7)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation................................................. 955.8 732.8 490.7
Amortization................................................. 2,031.6 1,649.9 527.0
Non-cash interest expense.................................... 5.0 3.2 0.9
Non-cash interest expense on notes payable to affiliates..... 5.0
Deferred expenses charged by an affiliate.................... 95.9 139.4
Equity in net losses of affiliates........................... 7.5 9.3 2.4
Gains on sales of investments and other income, net.......... (1,110.6) (1,697.1) (0.9)
Minority interest............................................ (107.9)
Extraordinary items.......................................... 7.1 6.2
Cumulative effect of accounting change....................... 61.3
Deferred income tax expense (benefit), due to affiliate...... (43.7) 288.4 (71.2)
Other........................................................ (35.8) (0.1) (4.4)
--------- --------- --------
1,448.9 1,195.4 733.5
Changes in working capital, net of effects of
acquisitions and divestitures
Increase in accounts receivable, net....................... (27.1) (87.3) (2.4)
(Increase) decrease in other current assets................ (18.4) (2.1) 13.9
Increase in accounts payable,
accrued expenses and other current liabilities........... 37.7 184.1 36.9
--------- --------- --------
(7.8) 94.7 48.4
--------- --------- --------
Net cash provided by operating activities.................. 1,441.1 1,290.1 781.9
--------- --------- --------
FINANCING ACTIVITIES
Proceeds from borrowings....................................... 5,514.5 4,252.6 176.6
Repayments of long-term debt................................... (3,725.1) (4,628.5) (201.6)
Proceeds from notes payable to affiliates...................... 912.3 986.2 40.3
Repayment of notes payable to affiliates....................... (1,278.8) (126.1) (40.3)
Increase in notes receivable from affiliates................... (241.3) (63.8)
Capital contributions from parent.............................. 418.7 960.1
Net transactions with affiliates............................... (151.3) 53.2 (6.4)
Deferred financing costs and other............................. (21.2) (34.6) 8.1
--------- --------- --------
Net cash provided by financing activities.................. 1,009.1 857.7 936.8
--------- --------- --------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired............................. (594.6) (164.7) (41.8)
(Purchases of) proceeds from sales of short-term investments... 0.1 (0.1) (0.1)
Investments in affiliates...................................... (126.4) (576.3) (750.0)
Proceeds from sales of investments............................. 156.6 76.4 5.9
Capital expenditures........................................... (1,843.1) (1,248.0) (731.8)
(Increase) decrease in cash held by an affiliate............... 74.2 (40.2) 23.1
Additions to intangible assets and other....................... (116.1) (211.7) (197.5)
--------- --------- --------
Net cash used in investing activities...................... (2,449.3) (2,164.6) (1,692.2)
--------- --------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 0.9 (16.8) 26.5
CASH AND CASH EQUIVALENTS, beginning of year...................... 44.2 61.0 34.5
--------- --------- --------
CASH AND CASH EQUIVALENTS, end of year............................ $45.1 $44.2 $61.0
========= ========= ========
See notes to consolidated financial statements.
- 28 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(Dollars in millions)
Accumulated
Other
Common Additional Accumulated Comprehensive
Stock Capital Deficit Income (Loss) Total
---------- ---------- ----------- ------------- ---------
BALANCE, JANUARY 1, 1999....................... $ $3,066.2 ($2,896.4) $3.2 $173.0
Comprehensive loss:
Net loss.................................... (253.7)
Unrealized gains on marketable securities,
net of deferred taxes of $13.4............ 24.9
Reclassification adjustments for gains
included in net loss, net of deferred
income taxes of $0.2...................... (0.6)
Total comprehensive loss.................... (229.4)
Capital contributions from parent........... 1,865.2 1,865.2
---------- ---------- ----------- ------------- ---------
BALANCE, DECEMBER 31, 1999..................... 4,931.4 (3,150.1) 27.5 1,808.8
Comprehensive loss:
Net income.................................. 106.0
Unrealized losses on marketable securities,
net of deferred taxes of $123.4........... (229.3)
Reclassification adjustments for losses
included in net income, net of deferred
income taxes of $16.3..................... 30.3
Total comprehensive loss.................... (93.0)
Capital contributions from parent........... 10,341.4 10,341.4
---------- ---------- ----------- ------------- ---------
BALANCE, DECEMBER 31, 2000..................... 15,272.8 (3,044.1) (171.5) 12,057.2
Comprehensive loss:
Net loss.................................... (422.2)
Unrealized gains on marketable securities,
net of deferred taxes of $57.1............ 106.2
Reclassification adjustments for losses
included in net loss, net of deferred
income taxes of $54.1..................... 100.4
Total comprehensive loss.................... (215.6)
Capital contributions from parent........... 1,138.6 1,138.6
---------- ---------- ----------- ------------- ---------
BALANCE, DECEMBER 31, 2001..................... $ $16,411.4 ($3,466.3) $35.1 $12,980.2
========== ========== =========== ============= =========
See notes to consolidated financial statements.
- 29 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
1. BUSINESS
Comcast Cable Communications, Inc., a Delaware corporation, and
subsidiaries (the "Company") is a wholly owned subsidiary of Comcast
Corporation ("Comcast"). The Company and its subsidiaries are engaged in
the development, management and operation of broadband communications
networks in the United States. The Company's consolidated cable operations
served approximately 8.4 million subscribers and passed approximately 13.7
million homes as of December 31, 2001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER ITEMS
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all entities that the Company directly or indirectly controls. All
significant intercompany accounts and transactions among consolidated
entities have been eliminated.
Reorganization
In August 2000, two wholly owned subsidiaries of Comcast, Comcast LCI
Holdings, Inc. ("LCI Holdings") and Comcast JOIN Holdings, Inc. ("JOIN
Holdings") were merged into the Company (the "Reorganization"). Lenfest
Communications, Inc. ("Lenfest"), the predecessor to LCI Holdings, owned
cable systems and was acquired by Comcast in January 2000. Jones
Intercable, Inc. ("Jones Intercable"), the predecessor to JOIN Holdings,
owned cable systems and was acquired by Comcast in April 1999 and March
2000. The Reorganization was accounted for at Comcast's historical cost in
a manner similar to a pooling of interests. Accordingly, the accompanying
consolidated financial statements include the accounts of the merged
subsidiaries since the dates of their acquisition by Comcast (see Note 4).
The Reorganization had no significant impact on the Company's consolidated
statement of cash flows during the year ended December 31, 2000 due to its
noncash nature (see Note 10).
Management's Use of Estimates
The Company prepares its financial statements in conformity with accounting
principles generally accepted in the United States which require management
to make estimates and assumptions that affect the reported amounts and
disclosures. Actual results could differ from those estimates. Estimates
are used when accounting for certain items such as allowances for doubtful
accounts, investments and derivative financial instruments, depreciation
and amortization, asset impairment, non-monetary transactions and
contingencies.
Fair Values
The Company has determined the estimated fair value amounts presented in
these consolidated financial statements using available market information
and appropriate methodologies. However, considerable judgment is required
in interpreting market data to develop the estimates of fair value. The
estimates presented in these consolidated financial statements are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts. The Company based these fair value estimates on pertinent
information available to management as of December 31, 2001 and 2000. The
Company has not comprehensively updated these fair value estimates for
purposes of these consolidated financial statements since such dates.
A reasonable estimate of fair value of the notes receivable from
affiliates, the notes payable to affiliates and the amounts due from/to
affiliates in the Company's consolidated balance sheet is not practicable
to obtain because of the related party nature of these items and the lack
of quoted market prices.
Cash Equivalents and Cash Held by an Affiliate
Cash equivalents consist principally of certificates of deposit with
maturities of three months or less when purchased. The carrying amounts of
the Company's cash equivalents approximate their fair values.
- 30 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
Cash held by an affiliate as of December 31, 2000 consisted of cash held by
a subsidiary of Comcast under a cash management program (see Note 8).
Investments
Investments consist principally of equity securities.
Investments in entities in which the Company has the ability to exercise
significant influence over the operating and financial policies of the
investee are accounted for under the equity method. Equity method
investments are recorded at original cost and adjusted periodically to
recognize the Company's proportionate share of the investees' net income or
losses after the date of investment, additional contributions made and
dividends received. The differences between the Company's recorded
investments and its proportionate interests in the book value of the
investees' net assets are being amortized to equity in net income or loss,
primarily over a period of 20 years, which is consistent with the estimated
lives of the underlying assets.
Unrestricted publicly traded investments are classified as available for
sale securities and recorded at their fair value. Unrealized gains or
losses resulting from changes in fair value between measurement dates for
available for sale securities are recorded as a component of other
comprehensive income (loss).
Restricted publicly traded investments and investments in privately held
companies are stated at cost, adjusted for any known diminution in value
(see Note 5).
Property and Equipment
The Company records property and equipment at cost. Depreciation is
provided by the straight-line method over estimated useful lives as
follows:
Buildings and improvements ................. 5-40 years
Operating facilities........................ 2-12 years
Other equipment............................. 4-12 years
The Company capitalizes improvements that extend asset lives and expenses
other repairs and maintenance charges as incurred. The cost and related
accumulated depreciation applicable to assets sold or retired are removed
from the accounts and the gain or loss on disposition is recognized as a
component of depreciation expense.
In connection with the rebuild and upgrade of cable systems, the Company
depreciates the remaining net book value of the assets over the estimated
rebuild or upgrade period.
The Company capitalizes the costs associated with the construction of cable
transmission and distribution facilities and new cable service
installations. Costs include all direct labor and materials, as well as
certain indirect costs.
Intangible Assets
Goodwill is the excess of the acquisition cost of an acquired entity over
the fair value of the identifiable net assets acquired. The Company
amortizes goodwill principally over estimated useful lives of 20 years.
Cable franchise operating rights represent the value attributed to
agreements with local authorities that allow access to homes in cable
service areas acquired in connection with a business combination. The
Company capitalizes these contractual rights and amortizes them over the
term of the related franchise agreements. Costs incurred by the Company in
negotiating and renewing franchise agreements are included in other
intangible assets and are amortized on a straight-line basis over the term
of the franchise renewal period, generally 10 to 15 years.
- 31 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
Other intangible assets consist principally of cable system franchise
renewal costs, contractual operating rights, license acquisition costs,
computer software and non-competition agreements. The Company capitalizes
these costs and amortizes them on a straight-line basis over the term of
the related agreements or estimated useful life.
See Note 3 for a discussion of the expected impact of adoption of Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations"
("SFAS No. 141") and SFAS No. 142, "Goodwill and Other Intangible Assets"
("SFAS No. 142").
Valuation of Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets, including property and equipment and intangible assets, whenever
events or changes in circumstances indicate that the carrying amount may
not be recoverable. Such evaluations include analyses based on the cash
flows generated by the underlying assets, profitability information,
including estimated future operating results, trends or other determinants
of fair value. If the total of the expected future undiscounted cash flows
is less than the carrying amount of the asset, a loss is recognized for the
difference between the fair value and the carrying value of the asset.
Unless presented separately, the loss is included as a component of either
depreciation expense or amortization expense, as appropriate.
Revenue Recognition
The Company recognizes video and high-speed Internet revenues as service is
provided. The Company manages credit risk by disconnecting services to
customers who are delinquent. The Company recognizes advertising sales
revenue at estimated realizable values when the advertising is aired.
Revenues derived from other sources are recognized when services are
provided.
See Note 3 for a discussion of the expected impact of adoption of Emerging
Issues Task Force ("EITF") 01-14, "Income Statement Characterization of
Reimbursements Received for 'Out-of-Pocket' Expenses Incurred" ("EITF
01-14").
Postretirement and Postemployment Benefits
The Company charges to operations the estimated costs of retiree benefits
and benefits for former or inactive employees, after employment but before
retirement, during the years the employees provide services.
Investment Income (Expense)
Investment income (expense) includes interest income, dividend income and
gains, net of losses, on the sales and exchanges of marketable securities
and long-term investments. The Company recognizes gross realized gains and
losses using the specific identification method. Investment income also
includes mark to market adjustments on derivatives and hedged items, and
impairment losses resulting from adjustments to the net realizable value of
certain of the Company's investments (see Note 5).
Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities and expected benefits of utilizing net
operating loss carryforwards. The impact on deferred taxes of changes in
tax rates and laws, if any, applied to the years during which temporary
differences are expected to be settled, are reflected in the consolidated
financial statements in the period of enactment (see Note 9).
Derivative Financial Instruments
The Company uses derivative financial instruments for a number of purposes.
The Company manages its exposure to fluctuations in interest rates by
entering into interest rate exchange agreements ("Swaps"), interest rate
cap agreements ("Caps") and interest rate collar agreements ("Collars").
The Company makes investments in businesses, to some degree, through the
purchase of equity call option or warrant agreements ("Equity Warrants").
- 32 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
Prior to the adoption on January 1, 2001, of SFAS No. 133, "Accounting for
Derivatives and Hedging Activities," as amended ("SFAS No. 133"), Swaps,
Caps and Collars were matched with either fixed or variable rate debt and
periodic cash payments were accrued on a settlement basis as an adjustment
to interest expense. Any premiums associated with these instruments were
amortized over their term and realized gains or losses as a result of the
termination of the instruments were deferred and amortized over the
remaining term of the underlying debt. Unrealized gains and losses as a
result of these instruments were recognized when the underlying hedged item
was extinguished or otherwise terminated. Equity Warrants were marked to
market on a current basis with the result included in accumulated other
comprehensive income (loss) in the Company's consolidated balance sheet.
On January 1, 2001, the Company adopted SFAS No. 133. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and
hedging activities. SFAS No. 133 requires that all derivative instruments,
whether designated in hedging relationships or not, be recorded on the
balance sheet at their fair values.
For derivative instruments designated and effective as fair value hedges,
such as the Company's Fixed to Variable Swaps, changes in the fair value of
the derivative instrument are substantially offset in the consolidated
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 is recognized in
current earnings each period. Changes in the fair value of derivative
instruments that are not designated as a hedge are recorded each period in
current earnings.
When a fair value hedge is terminated, sold, exercised or has expired, the
adjustment in the carrying amount of the fair value hedged item is deferred
and recognized into earnings when the hedged item is recognized in
earnings. When a hedged item is extinguished or sold, the adjustment in the
carrying amount of the hedged item is recognized in earnings. When hedged
variable rate debt is extinguished, the previously deferred effective
portion of the hedge is written off similar to debt extinguishment costs.
Subsequent to the adoption of SFAS No. 133, Equity Warrants are marked to
market on a current basis with the result included in investment income
(expense) in the Company's consolidated statement of operations.
The Company periodically examines those instruments that have been entered
into by the Company to hedge exposure to interest rate risk to ensure that
the instruments are matched with underlying assets or liabilities, reduce
the Company's risks relating to interest rates and, through market value
and sensitivity analysis, maintain a high correlation to the risk inherent
in the hedged item. For those instruments that do not meet the above
criteria, variations in their fair value are marked-to-market on a current
basis in the Company's consolidated statement of operations.
The Company does not hold or issue any derivative financial instruments for
trading purposes and is not a party to leveraged instruments (see Note 6).
The Company manages the credit risks associated with its derivative
financial instruments through the evaluation and monitoring of the
creditworthiness of the counterparties. Although the Company may be exposed
to losses in the event of nonperformance by the counterparties, the Company
does not expect such losses, if any, to be significant.
See Note 3 for a discussion of the impact of adoption of SFAS No. 133.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 2001.
- 33 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
3. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, as Amended
On January 1, 2001, the Company adopted 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.
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 income, 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 of $33.0 million.
The decrease in other comprehensive loss consisted principally of the
reclassification of the losses noted above.
SFAS No's. 141 and 142
The Financial Accounting Standards Board ("FASB") issued SFAS No. 141 and
SFAS No. 142 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.
The Company adopted SFAS No. 141 on July 1, 2001, as required by the new
statement. The adoption of SFAS No. 141 did not have a material impact on
the Company's financial condition or results of operations.
The Company adopted SFAS No. 142 on January 1, 2002, as required by the new
statement. Upon adoption, the Company will no longer amortize goodwill and
other indefinite lived intangible assets, which consist primarily of cable
franchise operating rights. The Company will be required to test its
goodwill and intangible assets that are determined to have an indefinite
life for impairment at least annually. Other than in the period of adoption
or in those periods in which the Company may record an asset impairment,
the Company expects that the adoption of SFAS No. 142 will result in
increased income as a result of reduced amortization expense.
The EITF of the FASB is expected to provide further guidance on certain
implementation issues related to the adoption of SFAS No. 142 as it relates
to identifiable intangible assets other than goodwill. Subject to further
guidance to be provided, based upon the Company's interpretation of SFAS
No. 142, the Company may record a charge as a cumulative effect of
accounting change, net of related deferred income taxes, in an amount not
expected to exceed $1.5 billion upon adoption of SFAS No. 142 on January 1,
2002.
Based on the Company's preliminary evaluation, the estimated effect of
adoption of SFAS No. 142 would have been to decrease amortization expense
by approximately $1.9 billion and to increase deferred income tax expense
by approximately $600 million for the year ended December 31, 2001.
SFAS No. 143
The FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," in June 2001. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS No. 143
is effective for fiscal years beginning after June 15, 2002. While the
Company is currently evaluating the impact the adoption of SFAS No. 143
will have on its financial condition and results of operations, it does not
expect such impact to be material.
- 34 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
SFAS No. 144
The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," in August 2001. SFAS No. 144, which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of, supercedes SFAS No. 121 and is
effective for fiscal years beginning after December 15, 2001. While the
Company is currently evaluating the impact the adoption of SFAS No. 144
will have on its financial condition and results of operations, it does not
expect such impact to be material.
EITF 01-14
In November 2001, the FASB announced EITF Topic D-103, "Income Statement
Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses
Incurred," which has subsequently been recharacterized as EITF 01-14. EITF
01-14 requires that reimbursements received for out-of-pocket expenses
incurred be characterized as revenue in the statement of operations.
Under the terms of its franchise agreements, the Company is required to pay
up to 5% of its gross revenues derived from providing cable services to the
local franchising authority. The Company normally passes these fees through
to its cable subscribers. The Company currently classifies cable franchise
fees collected from its cable subscribers as a reduction of the related
franchise fee expense included within selling, general and administrative
expenses in its consolidated statement of operations.
EITF 01-14, by analogy, applies to franchise fees. Upon adoption of EITF
01-14 on January 1, 2002, the Company will reclassify franchise fees
collected from cable subscribers from a reduction of selling, general and
administrative expenses to a component of service revenues in its
consolidated statement of operations. The change in classification will
have no impact on the Company's reported operating loss or financial
condition. The effect of the reclassification of cable franchise fees is to
increase the amounts reported in the Company's consolidated statement of
operations as follows (in millions):
Year Ended December 31,
2001 2000 1999
-------- -------- --------
Service revenues....................................................... $189.4 $149.9 $103.4
Selling, general and administrative expense............................ $189.4 $149.9 $103.4
4. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
At Home Services
On September 28, 2001, At Home Corporation ("At Home"), the Company's
provider of high-speed Internet services, filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. In October 2001, the Company
amended its agreement with At Home to continue service to the Company's
existing and new subscribers during October and November 2001. The Company
agreed to be charged a higher rate than it had incurred under its previous
agreement. On December 3, 2001, the Company, Comcast and At Home reached a
definitive agreement, approved by the Bankruptcy Court, pursuant to which
the Company paid $160 million to At Home and At Home agreed to continue to
provide high-speed Internet services to existing and new subscribers
through February 28, 2002. In December 2001, the Company began to transfer
its high-speed Internet subscribers from the At Home network to the
Company's new Company-owned and managed network. The Company completed this
transition in February 2002.
In the fourth quarter of 2001, the Company recognized $139.5 million of net
incremental expenses incurred in the continuation of service to and
transition of the Company's high-speed Internet subscribers from At Home's
network to the Company's own network. This charge is included in operating
expenses in the Company's consolidated statement of operations.
- 35 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
Baltimore, Maryland System Acquisition
On June 30, 2001, the Company acquired the cable system serving
approximately 112,000 subscribers in Baltimore City, Maryland from AT&T
Corp. ("AT&T") for $518.7 million in cash. The purchase price is subject to
adjustment.
AT&T Cable Systems Acquisition
On April 30, 2001, the Company and Comcast acquired cable systems serving
approximately 585,000 subscribers from 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. Upon closing
of the transaction, Comcast contributed its interest in the acquired
systems to the Company. The transaction is expected to qualify as tax free
to both the Company, to Comcast and to AT&T.
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 of $1.799 billion as of the closing date
of the transaction and the Company's cost basis in the systems exchanged.
AT&T Cable Systems Exchange
On December 31, 2000, the Company and Comcast completed their cable systems
exchange with AT&T. The Company received cable communications systems
serving approximately 770,000 subscribers from AT&T and AT&T received
certain of the Company's cable systems serving approximately 700,000
subscribers. The Company recorded to other income a pre-tax gain of $1.711
billion, representing the difference between the estimated fair value of
$2.840 billion as of the closing date of the transaction and the Company's
cost basis in the systems exchanged.
Acquisition of Prime Communications LLC
In December 1998, Comcast agreed to invest in Prime Communications LLC
("Prime"), a cable communications company serving approximately 406,000
subscribers. Pursuant to the terms of this agreement, in December 1998
Comcast acquired from Prime a $50.0 million 12.75% subordinated note due
2008 issued by Prime. In July 1999, Comcast made a loan to Prime in the
form of a $733.5 million 6% ten year note, convertible into 90% of the
equity of Prime. Comcast made an additional $70.0 million in loans to Prime
(on the same terms as the original loan). In August 2000, Comcast made a
capital contribution of the note, plus accrued interest of $51.7 million on
the note and the loans to the Company (the "Prime Contribution").
Immediately thereafter, the Company converted the note, plus accrued
interest on the note and the loans to equity and the owners of Prime sold
their remaining 10% equity interest in Prime to the Company for $87.7
million. As a result, the Company owns 100% of Prime and assumed management
control of Prime's operations (the "Prime Acquisition"). The Prime
Acquisition was funded with proceeds from a capital contribution from
Comcast. The Company assumed and immediately repaid $532.0 million of
Prime's debt with proceeds from borrowings under existing credit
facilities.
Acquisition of Jones Intercable, Inc.
In April 1999, Comcast acquired a controlling interest in Jones Intercable,
a cable communications company serving approximately 1.1 million
subscribers for aggregate consideration of $706.3 million in cash. Also on
that date, Comcast contributed its shares in Jones Intercable to the
Company. In June 1999, Comcast purchased an additional 1.0 million shares
of Jones Intercable Class A Common Stock for $50.0 million in cash in a
private transaction and contributed such shares to the Company.
- 36 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
In March 2000, the Jones Intercable shareholders approved a merger
agreement pursuant to which the Jones Intercable shareholders, including
the Company, received 1.4 shares of Comcast's Class A Special Common Stock
in exchange for each share of Jones Intercable Class A Common Stock and
Common Stock (the "Jones Merger"), and Jones Intercable was merged with and
into JOIN Holdings, with JOIN Holdings as the successor to Jones
Intercable. In connection with the closing of the merger, the Company
exchanged its 39.6% interest in Jones Intercable for approximately 23.3
million shares of Comcast Class A Special Common Stock.
In May 2000, the Company sold its interest in its wholly owned subsidiary
which held the Comcast Class A Special Common Stock to a wholly owned
subsidiary of Comcast in consideration for amounts due to affiliates
totaling $758.1 million related to management fees and programming charges
(see Note 8). The Company did not record any gain or loss on the
transaction as it was between subsidiaries under the common control of
Comcast. In August 2000, JOIN Holdings was merged into the Company (see
Note 2).
Acquisition of CalPERS' Interest in Jointly Owned Cable Properties
In February 2000, the Company acquired the California Public Employees
Retirement System's ("CalPERS") 45% interest in Comcast MHCP Holdings,
L.L.C. ("Comcast MHCP"), formerly a 55% owned consolidated subsidiary of
the Company which serves subscribers in Michigan, New Jersey and Florida.
As a result, the Company owns 100% of Comcast MHCP. The consideration was
$750.0 million in cash and was funded with the proceeds from a capital
contribution that the Company received from Comcast (see Note 8).
Acquisition of Lenfest Communications, Inc.
In January 2000, Comcast acquired Lenfest, a cable communications company
serving approximately 1.1 million subscribers primarily in the Philadelphia
area from AT&T and the other Lenfest stockholders for approximately 120.1
million shares of Comcast's Class A Special Common Stock, with a value of
$6.014 billion (the "Lenfest Acquisition"). In connection with the Lenfest
Acquisition, Comcast assumed approximately $1.326 billion of debt.
Immediately upon closing of the Lenfest Acquisition, Lenfest was merged
with and into LCI Holdings with LCI Holdings as the successor to Lenfest.
In August 2000, LCI Holdings was merged into the Company (see Note 2).
Consolidation of Comcast Cablevision of Garden State, L.P.
Comcast Cablevision of Garden State, L.P. ("Garden State Cable") (formerly
Garden State Cablevision L.P.), a cable communications company serving
approximately 216,000 subscribers in New Jersey, is a partnership which was
owned 50% by Lenfest and 50% by Comcast. In December 2000, Comcast
contributed its 50% interest in Garden State Cable to the Company. As a
result of the Lenfest Acquisition and Comcast's contribution of its 50%
interest in Garden State Cable, the Company owns 100% of Garden State
Cable. The contribution of Comcast's 50% interest in Garden State Cable was
accounted for at Comcast's historical cost in a manner similar to a pooling
of interests. Accordingly, the accompanying consolidated financial
statements include the accounts of Garden State Cable since the date of the
Lenfest Acquisition.
The acquisitions completed by the Company during the three years in the
period ended December 31, 2001 were accounted for 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. During the fourth
quarter of 2001, the Company recorded the final purchase price allocation
related to the Company's cable systems exchange with AT&T. The allocation
of the purchase price for the other 2001 acquisitions and the cable systems
exchange with Adelphia made by the Company is preliminary pending
completion of final appraisals. The Company's cable systems exchanges with
Adelphia and AT&T, the contribution by Comcast of Garden State Cable and
certain of the Company's acquisitions had no significant impact on the
Company's consolidated statement of cash flows due to their noncash nature
(see Note 10).
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 each
occurred on January 1, 2000, the acquisitions and cable systems
- 37 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
exchanges made by the Company in 2000 each occurred on January 1, 1999, and
the acquisitions made by the Company in 1999 each occurred on January 1,
1998. This information is based on historical results of operations,
adjusted for acquisition costs, and, in the opinion of management, is not
necessarily indicative of what the results would have been had the Company
operated the entities acquired since such dates.
(In millions)
Year Ended December 31,
2001 2000 1999
---------- ---------- ----------
Service revenues.................................................. $5,152.1 $4,699.8 $3,950.6
Loss before extraordinary items and cumulative
effect of accounting changes................................. ($376.0) ($166.9) ($1,106.8)
Net loss.......................................................... ($437.3) ($174.0) ($1,113.0)
5. INVESTMENTS
Fair Value Method
The Company holds unrestricted equity investments in certain publicly
traded companies, which it accounts for as available for sale. The
unrealized pre-tax gains (losses) on these investments as of December 31,
2001 and 2000 of $54.0 million and ($263.9) million, respectively, have
been reported in the Company's consolidated balance sheet as a component of
other comprehensive income (loss), net of related deferred income taxes of
($18.9) million and $92.4 million, respectively.
The cost, fair value and gross unrealized gains and losses related to the
Company's available for sale securities are as follows:
December 31,
2001 2000
----------- -----------
(Dollars in millions)
Cost............................................................. $37.3 $751.7
Gross unrealized gains........................................... 54.0
Gross unrealized losses.......................................... ($263.9)
----------- -----------
Fair value....................................................... $91.3 $487.8
=========== ===========
Investment Income (Expense)
Investment income (expense) includes the following (in millions):
Year Ended December 31,
2001 2000 1999
--------- --------- ---------
Interest and dividend income........................................... $18.4 $12.0 $6.0
Gains on sales and exchanges of investments, net....................... 29.3 29.3 0.8
Investment impairment losses........................................... (89.5) (42.8)
Mark to market adjustments on derivatives.............................. (27.8)
--------- --------- ---------
Investment income (expense)....................................... ($69.6) ($1.5) $6.8
========= ========== =========
- 38 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
The investment impairment loss for the year ended December 31, 2001 relates
principally to an other than temporary decline in the Company's investment
in AT&T, which was exchanged on April 30, 2001 (see Note 4 - AT&T Cable
Systems Acquisition), and Motorola, Inc.
Equity Method
The Company records its proportionate interests in the net income (loss) of
certain of its equity method investees in arrears. The Company's recorded
investments exceed its proportionate interests in the book value of the
investees' net assets by $147.3 million as of December 31, 2001 (related to
the Company's investment in Susquehanna Cable). Such excess is being
amortized to equity in net income or loss, over a period of twenty years,
which is consistent with the estimated lives of the underlying assets. The
original cost of investments accounted for under the equity method totaled
$194.1 million and $157.1 million as of December 31, 2001 and 2000,
respectively. Upon adoption of SFAS No. 142, the Company will no longer
amortize this excess but rather will continue to test such excess for
impairment in accordance with Accounting Principles Board Opinion No. 18,
"The Equity Method of Accounting for Investments in Common Stock."
The Company does not have any additional significant contractual
commitments with respect to any of its investments. However, to the extent
the Company does not fund its investees' capital calls, it exposes itself
to dilution of its ownership interests.
Cost Method Investments
It is not practicable to estimate the fair value of the Company's
investments in privately held companies, accounted for under the cost
method, due to lack of quoted market prices.
6. LONG-TERM DEBT
December 31,
2001 2000
-------- ---------
(In millions)
Commercial paper........................................................... $397.3 $1,323.5
Notes payable to banks, due 2005........................................... 850.0 1,125.0
9-5/8% Senior notes, due 2002.............................................. 200.0 200.0
8-1/8% Senior notes, due 2004.............................................. 320.4 299.9
8-3/8% Senior notes, due 2005.............................................. 697.0 696.3
6-3/8% Senior notes, due 2006.............................................. 511.3
8-3/8% Senior notes, due 2007.............................................. 597.5 597.2
8-7/8% Senior notes, due 2007.............................................. 249.1 249.0
6.20% Senior notes, due 2008............................................... 798.4 798.2
7-5/8% Senior notes, due 2008.............................................. 206.1 197.1
7-5/8% Senior notes, due 2008.............................................. 147.7 147.4
6-7/8% Senior notes, due 2009.............................................. 751.5
6-3/4% Senior notes, due 2011.............................................. 993.1
7-1/8% Senior notes, due 2013.............................................. 748.4
8-7/8% Senior notes, due 2017.............................................. 545.9 545.8
8-1/2% Senior notes, due 2027.............................................. 249.6 249.6
10-1/2% Senior subordinated debentures, due 2006........................... 133.0 123.8
8-1/4% Senior subordinated debentures, due 2008............................ 154.3 149.1
Other, including capital lease obligations................................. 11.9 12.4
-------- ---------
8,562.5 6,714.3
Less current portion....................................................... 203.1 3.3
-------- ---------
$8,359.4 $6,711.0
======== =========
- 39 -
Maturities of long-term debt outstanding as of December 31, 2001 for the
four years after 2002 are as follows (in millions):
2003.............................................. $3.1
2004.............................................. 321.2
2005.............................................. 1,945.2
2006.............................................. 644.9
In addition to the Company's outstanding long-term debt as presented in the
table above, the Company had an aggregate of $860.1 million of notes
payable to Comcast and Comcast's subsidiaries as of December 31, 2000 (see
Note 7).
Contribution of 10 1/2% Senior Subordinated Notes Due 2006
In December 2000, Comcast contributed to the Company $196.7 million
principal amount of the Company's 10 1/2% senior subordinated notes due
2006 which were held by Comcast. As such, amounts outstanding as of
December 31, 2000 have been treated as effectively retired.
Commercial Paper
The Company's senior bank credit facility consists of a $2.25 billion,
five-year revolving credit facility and a $2.25 billion, 364-day revolving
credit facility (together, the "Comcast Cable Revolver"). The 364-day
revolving credit facility supports the Company's commercial paper program.
Amounts outstanding under the commercial paper program are classified as
long-term in the Company's consolidated balance sheet as of December 31,
2001 and 2000 as the Company has both the ability and the intent to
refinance these obligations, if necessary, on a long-term basis with
amounts available under the Comcast Cable Revolver.
Senior Notes
During 2001, the Company sold an aggregate of $3.0 billion of public debt.
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 City, Maryland cable system (see
Notes 4 and 7).
Interest on all of the Company's Senior Notes is payable semiannually. The
6 3/8% Senior Notes and the 6.20% Senior Notes are redeemable only upon
maturity in January 2006 and November 2008, respectively. The 8 1/2% Senior
Notes are redeemable, in whole or in part, at the option of the Company at
any time after May 1, 2009, and the remaining Senior Notes are redeemable,
in whole or in part, at the option of the Company at any time. In each
case, the Senior Notes are redeemable at a price equal to the greater of
(i) 100% of their principal amount, plus accrued interest thereon to the
date of redemption, or (ii) the sum of the present values of the remaining
scheduled payments of principal and interest thereon discounted to the date
of redemption on a semiannual basis at the Adjusted Treasury Rate (as
defined), plus accrued interest on the Senior Notes to the date of
redemption. Each holder of the 8 1/2% Senior Notes may require the Company
to repurchase all or a portion of the 8 1/2% Senior Notes owned by such
holder on May 1, 2009 at a purchase price equal to 100% of the principal
amount thereof.
The Senior Notes are unsecured and unsubordinated obligations of the
Company and rank pari passu with all other unsecured and unsubordinated
indebtedness and other obligations of the Company. The Senior Notes are
effectively subordinated to all liabilities of the Company's subsidiaries,
including trade payables.
The indenture for the Senior Notes, among other things, contains
restrictions (with certain exceptions) on the ability of the Company and
certain of the Company's subsidiaries (as defined) to create liens or enter
into sale and leaseback transactions, and enter into mergers,
consolidations, or sales of all or substantially all of their assets.
- 40 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
Extraordinary Items
Extraordinary items for the years ended December 31, 2000 and 1999, consist
of unamortized debt issue costs and debt extinguishment costs, net of
related tax benefits, expensed principally in connection with the
redemptions and refinancings of certain indebtedness.
Interest Rates
Bank debt interest rates vary based upon one or more of the following rates
at the option of the Company:
Prime rate
Federal Funds rate plus 0.5%; and
LIBOR plus 0.19% to 0.8%
As of December 31, 2001 and 2000, the Company's effective weighted average
interest rate on its variable rate debt outstanding was 2.60% and 7.32%,
respectively.
Interest Rate Risk Management
The Company is exposed to the market risk of adverse changes in interest
rates. To manage the volatility relating to these exposures, the Company's
policy is to maintain a mix of fixed and variable rate debt and to enter
into various interest rate derivative transactions as described below.
Using Swaps, the Company agrees to exchange, at specified intervals, the
difference between fixed and variable interest amounts calculated by
reference to an agreed-upon notional principal amount. Caps are used to
lock in a maximum interest rate should variable rates rise, but enable the
Company to otherwise pay lower market rates. Collars limit the Company's
exposure to and benefits from interest rate fluctuations on variable rate
debt to within a certain range of rates.
All derivative transactions must comply with a Comcast board-approved
derivatives policy. In addition to prohibiting the use of derivatives for
trading purposes or that increase risk, this policy requires quarterly
monitoring of the portfolio, including portfolio valuation, measuring
counterparty exposure and performing sensitivity analyses.
The following table summarizes the terms of the Company's existing Swaps as
of December 31, 2001 and 2000 (dollars in millions):
Notional Average Estimated
Amount Maturities Interest Rate Fair Value
As of December 31, 2001
-----------------------
Fixed to Variable Swaps......................... $950.0 2004-2008 7.5% $46.8
As of December 31, 2000
-----------------------
Fixed to Variable Swaps......................... $450.0 2004-2008 7.7% $3.2
The notional amounts of interest rate instruments, as presented in the
above table, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts.
While Swaps, Caps and Collars represent an integral part of the Company's
interest rate risk management program, their incremental effect on interest
expense for the years ended December 31, 2001, 2000 and 1999 was not
significant.
During January and February 2002, the Company settled all $950.0 million
notional amount of its Fixed to Variable Swaps and received proceeds of
$56.8 million.
- 41 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
Estimated Fair Value
The Company's long-term debt had estimated fair values of $8.876 billion
and $6.872 billion as of December 31, 2001 and 2000, respectively. The
estimated fair value of the Company's publicly traded debt is based on the
quoted market prices for that debt. Interest rates that are currently
available to the Company for issuance of debt with similar terms and
remaining maturities are used to estimate fair value for debt issues for
which quoted market prices are not available.
Debt Covenants
The Comcast Cable Revolver contains restrictive covenants which, for
example, limit the Company's ability to enter into arrangements for the
acquisition or disposition of property and equipment, investments, mergers
and the incurrence of additional debt. The Comcast Cable Revolver also
contains financial covenants which require that certain ratios and cash
flow levels be maintained. The Company and its subsidiaries were in
compliance with all financial covenants for all periods presented.
Lines and Letters of Credit
As of December 31, 2001, certain subsidiaries of the Company had unused
lines of credit of $3.198 billion under their respective credit facilities.
As of December 31, 2001 the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totaling $52.8 million to
cover potential fundings under various agreements.
7. NOTES RECEIVABLE FROM AFFILIATES AND NOTES PAYABLE TO AFFILIATES
As of December 31, 2001 and 2000, notes receivable from affiliates consist
of $557.8 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 5.75% to 8.76% (weighted
average interest rate of 7.11% and 10.05% as of December 31, 2001 and 2000,
respectively) and are due between 2010 and 2027. Interest receivable
relating to such notes of $22.8 million is included in notes receivable
from affiliates as of December 31, 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 also 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 December 31,
2001, notes receivable from affiliates includes $240.0 million principal
amount of notes receivable due from Comcast related to these agreements.
As of December 31, 2000, notes payable to affiliates consisted of $860.1
million principal amount of notes payable to Comcast and certain of its
wholly owned subsidiaries. The notes payable bore interest at rates ranging
from 7.75% to 8.96% (weighted average interest rate of 8.05%) and were due
between 2009 and 2027.
On May 1, 2001, Comcast contributed subsidiaries with notes receivable from
affiliates totaling $493.6 million to the Company in a non-cash financing
activity (see Note 10). 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
- 42 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
of merchandise sold to QVC customers located in the Company's service area.
These amounts are included in service revenues in the Company's
consolidated statement of operations.
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 consolidated statement of
operations.
Through July 31, 2000, on behalf of the Company, Comcast secured long-term
programming contracts that generally provided for payment based on either a
monthly fee per subscriber per channel or a percentage of certain
subscriber revenues. Comcast charged each of the Company's subsidiaries for
programming on a basis which generally approximated the amount 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 consolidated statement of operations.
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, 2000, the Company purchases programming from suppliers
in which Comcast holds an equity interest. These charges are included in
operating expenses in the Company's consolidated statement of operations.
The Company purchases certain other services, including insurance and
employee benefits, from Comcast under cost-sharing arrangements on terms
that reflect Comcast's actual cost. The Company reimburses Comcast for
certain other costs (primarily salaries) under cost reimbursement
agreements. These charges are included in selling, general and
administrative expenses in the Company's consolidated statement of
operations.
Effective August 1, 2001, Comcast contributed its wholly owned subsidiary,
Comcast Financial Agency Corporation ("CFAC"), to the Company. 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 were classified as cash held by an
affiliate in the Company's consolidated balance sheet as of December 31,
2000. As of December 31, 2001, amounts held by CFAC are included in cash
and cash equivalents in the Company's consolidated balance sheet.
The Company's related party transactions were as follows (in millions):
Year Ended December 31,
2001 2000 1999
--------- --------- ---------
QVC service revenue.................................. $18.1 $14.7 $10.4
Comcast management fees.............................. 145.5 161.8
Programming charges with affiliates.................. 137.6 835.6 822.5
Comcast cost-sharing charges......................... 143.1 138.9 104.9
CFAC investment income............................... 8.7 7.2 2.7
- 43 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
9. INCOME TAXES
The Company and its 80% or more owned subsidiaries join with Comcast in
filing a consolidated federal income tax return. Comcast allocates income
tax expense or benefit to the Company as if the Company was filing a
separate federal income tax return. Tax benefits from both losses and tax
credits are made available to the Company as it is able to realize such
benefits on a separate return basis. The Company pays Comcast for income
taxes an amount equal to the amount of tax it would pay if it filed a
separate tax return.
Income tax expense (benefit) consists of the following components (in
millions):
Year Ended December 31,
2001 2000 1999
-------- --------- ---------
Current expense
Federal....................................................... $ $ ($18.9)
State......................................................... (7.1) (11.5) (6.1)
-------- --------- ---------
(7.1) (11.5) (25.0)
-------- --------- ---------
Deferred (expense) benefit
Federal....................................................... 58.1 (206.6) 66.8
State......................................................... (14.4) (81.8) 4.4
-------- --------- ---------
43.7 (288.4) 71.2
-------- --------- ---------
Income tax (expense) benefit.................................. $36.6 ($299.9) $46.2
======== ========= =========
The Company's income tax expense (benefit) differs from the statutory
amount because of the effect of the following items (in millions):
Year Ended December 31,
2001 2000 1999
--------- --------- ---------
Federal tax at statutory rate................................... $139.1 ($144.6) $140.6
Non-deductible depreciation and amortization.................... (84.5) (82.2) (25.5)
State income taxes, net of federal benefit...................... (14.0) (60.6) (1.0)
Increase to valuation allowance................................. (14.1) (75.3)
Other........................................................... (4.0) 1.6 7.4
--------- --------- ---------
Income tax (expense) benefit.................................... $36.6 ($299.9) $46.2
========= ========= =========
The Company's net deferred tax liability consists of the following
components (in millions):
December 31,
2001 2000
----------- -----------
Deferred tax assets, net operating loss carryforwards................. $507.6 $436.7
Deferred tax liabilities, principally differences between book
and tax basis of property and equipment and intangible assets.... 5,908.0 5,453.1
----------- -----------
Net deferred tax liability............................................ $5,400.4 $5,016.4
=========== ===========
The Company recorded $349.5 million of deferred income tax liabilities in
2001 in connection with acquisitions principally related to basis
differences in property and equipment and intangible assets. As of December
31, 2001,
- 44 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
the Company has available net operating loss carryforwards of approximately
$1.3 billion on a separate return basis, which expire primarily in periods
through 2021.
10. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The following table summarizes the fair values of the assets and
liabilities acquired by the Company through noncash transactions (see Notes
4 and 6) (in millions):
Year Ended
December 31,
2001 2000
------------ ------------
Current assets...................... $22.2 $216.2
Investments......................... 897.3 369.1
Property, plant and equipment....... 681.3 1,295.8
Intangible assets................... 2,614.0 15,399.4
Current liabilities................. (19.1) (255.3)
Long-term debt...................... (2,146.5)
Notes payable to affiliates......... 493.6
Deferred income taxes and other..... (330.6) (3,245.6)
------------ ------------
Net assets acquired............ $4,358.7 $11,633.1
============ ============
The following table summarizes the Company's cash payments for interest and
income taxes (in millions):
Year Ended December 31,
2001 2000 1999
------- -------- --------
Long-term debt interest..................... $510.4 $501.0 $324.8
Notes payable to affiliates interest........ $39.3 $16.2 $8.9
Income taxes................................ $7.4 $6.1 $7.4
During 2000, the Company (i) redeemed certain shares of its common stock
for nominal consideration, and then (ii) in consideration for the Prime
Contribution and the Reorganization, issued certain shares of its common
stock to Comcast and to a wholly-owned subsidiary of Comcast, resulting in
a net redemption of 861.11 shares.
During the year ended December 31, 1999, the Company eliminated the
outstanding balance of notes payable to affiliates of $139.6 million
through a non-cash capital contribution from Comcast.
- 45 -
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
- ---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Concluded)
11. COMMITMENTS AND CONTINGENCIES
Commitments
Minimum annual rental commitments for office space and equipment under
noncancelable operating leases are as follows (in millions):
2002.................................... $37.2
2003.................................... 25.8
2004.................................... 19.4
2005.................................... 13.7
2006.................................... 10.6
Thereafter.............................. 44.2
Pole rentals have been excluded from the above schedule as they are
generally cancelable after an initial period by either party upon notice.
The following table summarizes the Company's rental expense charged to
operations (in millions):
Year Ended December 31,
2001 2000 1999
-------- -------- --------
Rental expense......................... $60.8 $44.6 $33.7
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 condition, results of operations or
liquidity of the Company.
- 46 -
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information called for by Item 10, Directors and Executive Officers of the
Registrant, Item 11, Executive Compensation, Item 12, Security Ownership of
Certain Beneficial Owners and Management, and Item 13, Certain Relationships and
Related Transactions, is omitted pursuant to SEC General Instruction I of Form
10-K.
- 47 -
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements of ours are included
in Part II, Item 8:
Independent Auditors' Report..................................25
Consolidated Balance Sheet--December 31, 2001 and 2000........26
Consolidated Statement of Operations--Years
Ended December 31, 2001, 2000 and 1999......................27
Consolidated Statement of Cash Flows--Years
Ended December 31, 2001, 2000 and 1999......................28
Consolidated Statement of Stockholder's Equity --
Years Ended December 31, 2001, 2000 and 1999................29
Notes to Consolidated Financial Statements....................30
(b) (i) The following financial statement schedule required to be filed by
Items 8 and 14(d) of Form 10-K is included in Part IV:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable,
not required or the required information is included in the
consolidated financial statements or notes thereto.
(c) Reports on Form 8-K:
None.
(d) Exhibits required to be filed by Item 601 of Regulation S-K:
3.1 Certificate of Incorporation filed on April 2, 1981
(incorporated by reference to Exhibit 3.1(a) to our
Registration Statement on Form S-4, as amended, filed
on September 22, 1997).
3.2 By-laws (incorporated by reference to Exhibit 3.2 to
our Registration Statement on Form S-4, as amended,
filed on September 22, 1997).
4.1(a) Indenture dated as of May 1, 1997 by and between
Comcast Cable Communications, Inc. and The Bank of
New York (as successor in interest to Bank of
Montreal Trust Company), as Trustee (incorporated by
reference to Exhibit 4.1(a) to our Registration
Statement on Form S-4, as amended, filed on September
22, 1997).
4.1(b) Form of Notes relating to our 8 1/8% Senior Notes due
2004, 8 3/8% Senior Notes due 2007, 6.20% Senior
Notes due 2008, 6.375% Senior Notes due 2006, 6.75%
Senior Notes due 2011, 8 7/8% Senior Notes due 2017,
8 1/2% Senior Notes due 2027, 6.875% Senior Notes due
2009 and 7.125% Senior Notes due 2013 (incorporated
by reference to Exhibit 4.1(b) to our Registration
Statement on Form S-4, as amended, filed on September
22, 1997).
10.1 Management Agreement, dated as of April 24, 1997,
between Comcast Cable Communications, Inc. and
Comcast Corporation (incorporated by reference to
Exhibit 10.11 to our Registration Statement on Form
S-4, as amended, filed on September 22, 1997).
10.2 Promissory Note, dated as of July 2, 1997, between
Comcast Cable Communications, Inc. and Comcast
Corporation (incorporated by reference to Exhibit
10.13 to our Registration Statement on Form S-4, as
amended, filed on September 22, 1997).
10.3 Agreement and Plan of Merger, dated as of November
16, 1999, by and among Comcast Corporation, Comcast
LCI Holdings, Inc., a wholly owned subsidiary of
Comcast, Lenfest Communications, Inc. ("Lenfest") and
Lenfest's stockholders as named therein.
(incorporated by reference to Exhibit 10.1 to the
Comcast Corporation Current Report on Form 8-K filed
on December 13, 1999).
- 48 -
10.4 Agreement and Plan of Merger among Jones Intercable,
Inc., Comcast Corporation and Comcast JOIN Holdings,
Inc., dated as of December 22, 1999 (incorporated by
reference to Exhibit 2.1 to the Comcast Corporation
Registration Statement on Form S-4 filed on January
10, 2000).
10.5 Agreement and Plan of Merger, dated as of July 28,
2000, by and among Comcast Cable Communications,
Inc., Comcast LCI Holdings, Inc., formerly a wholly
owned subsidiary of Comcast Corporation and Comcast
JOIN Holdings, Inc., formerly a wholly owned
subsidiary of Comcast Corporation (incorporated by
reference to Exhibit 10.1 to our Current Report on
Form 8-K filed on September 27, 2000).
10.6 Asset Exchange Agreement, dated as of August 11,
2000, among AT&T Corp. and Comcast Corporation
(incorporated by reference to Exhibit 10.1 to the
Comcast Corporation Quarterly Report on Form 10-Q for
the Quarter Ended September 30, 2000).
10.7 Agreement and Plan of Reorganization, dated as of
August 11, 2000, among Comcast Corporation, Comcast
Cable Communications, Inc., Comcast CCCI II, LLC,
Comcast Teleport, Inc., Comcast Heritage, Inc.,
Comcast Communications Properties, Inc., and AT&T
Corp. (incorporated by reference to Exhibit 10.2 to
the Comcast Corporation Quarterly Report on Form 10-Q
for the Quarter Ended September 30, 2000).
10.8 Five-Year Revolving Credit Agreement, dated as of
August 24, 2000, among Comcast Cable Communications,
Inc. and the Financial Institutions Party Hereto,
Banc of America Securities LLC and Chase Securities
Inc., as Joint Lead Arrangers and Joint Book
Managers, BNY Capital Markets, Inc. and Salomon Smith
Barney Inc., as Co-Arrangers, Bank of America, N.A.,
as Administrative Agent, Swing Line Lender and Letter
of Credit Issuing Lender, Chase Securities Inc., as
Syndication Agent and Citibank, N.A. and The Bank of
New York, as Co- Documentation Agents (incorporated
by reference to Exhibit 10.4 to our Quarterly Report
on Form 10-Q for the Quarter Ended September 30,
2000).
10.9 364-Day Revolving Credit Agreement, dated as of July
17, 2001, among Comcast Cable Communications, Inc.
and the Financial Institutions Party Hereto, Banc of
America Securities LLC and Chase Securities Inc., as
Joint Lead Arrangers and Joint Book Managers, BNY
Capital Markets, Inc. and Salomon Smith Barney Inc.,
as Co-Arrangers, Bank of America, N.A., as
Administrative Agent, Chase Securities Inc., as
Syndication Agent and Citibank, N.A. and The Bank of
New York, as Co-Documentation Agents. (incorporated
by reference to Exhibit 10.22 to the Comcast
Corporation Annual Report on Form 10-K for the Year
Ended December 31, 2001).
10.10 Asset Exchange Closing Agreement dated as of January
1, 2001 among Comcast Corporation, the Comcast
Parties, Adelphia Communications Corporation and the
Adelphia Parties (incorporated by reference to
Exhibit 10.24 to the Comcast Corporation Annual
Report on Form 10-K for the year ended December 31,
2000).
12.1 Statement re: Computation of Ratio of Earnings to
Fixed Charges.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consents of Arthur Andersen LLP.
99.1 Report of Independent Public Accountants to Jones
Intercable, Inc. for the year ended December 31,
1999.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in Philadelphia,
Pennsylvania on March 29, 2002.
Comcast Cable Communications, Inc.
By: /s/ Brian L. Roberts
------------------------------
Brian L. Roberts
Vice Chairman and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Ralph J. Roberts Chairman; Director March 29, 2002
- -----------------------------------
Ralph J. Roberts
/s/ Brian L. Roberts Vice Chairman; Director (Principal March 29, 2002
- ----------------------------------- Executive Officer)
Brian L. Roberts
/s/ Lawrence S. Smith Executive Vice President; Director March 29, 2002
- -----------------------------------
Lawrence S. Smith
/s/ Stanley L. Wang Executive Vice President, Secretary; March 29, 2002
- ----------------------------------- Director
Stanley L. Wang
/s/ John R. Alchin Executive Vice President, Treasurer March 29, 2002
- ----------------------------------- (Principal Financial Officer)
John R. Alchin
/s/ Lawrence J. Salva Senior Vice President March 29, 2002
- ----------------------------------- (Principal Accounting Officer)
Lawrence J. Salva
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INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Comcast Cable Communications, Inc.
Philadelphia, Pennsylvania
Our audits of the financial statements referred to in our report dated February
5, 2002 (which report expresses an unqualified opinion and includes an
explanatory paragraph related to the adoption of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, effective January 1, 2001) appearing in the Annual
Report on Form 10-K of Comcast Cable Communications, Inc. (the "Company") for
the year ended December 31, 2001 also included the financial statement schedule
of the Company, listed in Item 14(b)(i). This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 5, 2002
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COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
---------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------
(In millions)
Additions
Balance at Charged to Deductions Balance
Beginning Effect of Costs and from at End
of Year Acquisitions Expenses Reserves(A) of Year
------- ------------ -------- ----------- -------
Allowance for Doubtful Accounts
- -------------------------------
2001 $39.9 $5.1 $52.5 $39.3 $58.2
2000 31.2 10.7 33.7 35.7 39.9
1999 19.4 3.1 23.6 14.9 31.2
(A) Uncollectible accounts written off.
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