UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended:
MARCH 31, 2002
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ________ to ________.
Commission File Number 333-30745
COMCAST CABLE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2175755
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Market Street, Philadelphia, PA 19102-2148
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes X No __
--------------------------
As of March 31, 2002, there were 138.89 shares of Common Stock outstanding.
The Registrant meets the conditions set forth in General Instructions H(1)(a)
and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2002
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet as of March 31,
2002 and December 31, 2001 (Unaudited).......................................2
Condensed Consolidated Statement of Operations and
Accumulated Deficit for the Three Months Ended
March 31, 2002 and 2001 (Unaudited)..........................................3
Condensed Consolidated Statement of Cash Flows for the Three
Months Ended March 31, 2002 and 2001 (Unaudited).............................4
Notes to Condensed Consolidated Financial Statements (Unaudited)........5 - 10
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................11 - 14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings...........................................................15
ITEM 6. Exhibits and Reports on Form 8-K............................................15
SIGNATURE..............................................................................16
-----------------------------------
This Quarterly Report on Form 10-Q is for the three months ended March 31,
2002. This Quarterly Report modifies and supersedes documents filed prior to
this Quarterly Report. The SEC allows us to "incorporate by reference"
information that we file with them, which means that we can disclose important
information to you by referring you directly to those documents. Information
incorporated by reference is considered to be part of this Quarterly Report. In
addition, information that we file with the SEC in the future will automatically
update and supersede information contained in this Quarterly Report. In this
Quarterly Report, "Comcast Cable," the "Company," "we," "us" and "our" refer to
Comcast Cable Communications, Inc. and its subsidiaries.
You should carefully review the information contained in this Quarterly
Report and in other reports or documents that we file from time to time with the
SEC. In this Quarterly Report, we state our beliefs of future events and of our
future financial performance. In some cases, you can identify those so-called
"forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
Factors Affecting Future Operations
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; and
o general economic conditions.
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2002
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in millions, except share data)
March 31, December 31,
2002 2001
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............................................... $155.1 $45.1
Investments ............................................................. 88.9 100.6
Accounts receivable, less allowance for doubtful accounts
of $58.5 and $58.2 ................................................... 249.2 267.3
Due from affiliates ..................................................... 180.1 173.1
Other current assets .................................................... 94.4 75.1
---------- ---------
Total current assets .................................. 767.7 661.2
---------- ---------
INVESTMENTS ...................................................................... 174.8 178.4
NOTES RECEIVABLE FROM AFFILIATES ................................................. 720.4 580.6
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $2,538.7 and $2,318.2 . 6,120.6 6,045.2
GOODWILL ......................................................................... 4,478.8 4,478.8
CABLE FRANCHISE OPERATING RIGHTS ................................................. 16,256.2 16,251.3
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $130.7 and $122.0 .... 146.3 149.5
OTHER NONCURRENT ASSETS, net ..................................................... 63.3 105.0
---------- ---------
$28,728.1 $28,450.0
========== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable ........................................................ $336.5 $336.1
Accrued expenses and other current liabilities .......................... 491.5 531.5
Accrued interest ........................................................ 178.7 104.8
Current portion of long-term debt ....................................... 3.1 203.1
---------- ---------
Total current liabilities ............................. 1,009.8 1,175.5
---------- ---------
LONG-TERM DEBT, less current portion ............................................. 8,693.8 8,359.4
---------- ---------
DEFERRED INCOME TAXES, due to affiliate, net ..................................... 5,452.1 5,400.4
---------- ---------
OTHER NONCURRENT LIABILITIES ..................................................... 499.3 534.5
---------- ---------
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 16,411.4
Accumulated deficit ..................................................... (3,365.8) (3,466.3)
Accumulated other comprehensive income .................................. 27.5 35.1
---------- ---------
Total stockholder's equity ............................ 13,073.1 12,980.2
---------- ---------
$28,728.1 $28,450.0
========== =========
See notes to condensed consolidated financial statements.
2
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2002
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
(Dollars in millions)
Three Months Ended March 31,
2002 2001
---------- ----------
SERVICE REVENUES................................................................ $1,429.6 $1,168.7
---------- ----------
COSTS AND EXPENSES
Operating (excluding depreciation)........................................... 511.9 415.7
Selling, general and administrative.......................................... 331.8 269.8
Depreciation................................................................. 274.3 212.5
Amortization................................................................. 11.6 454.2
---------- ----------
1,129.6 1,352.2
---------- ----------
OPERATING INCOME (LOSS)......................................................... 300.0 (183.5)
OTHER INCOME (EXPENSE)
Interest expense............................................................. (145.4) (132.8)
Interest income (expense) on affiliate notes, net............................ 10.6 (17.4)
Investment expense........................................................... (3.7) (79.0)
Equity in net income (losses) of affiliates.................................. 0.6 (2.8)
Other income (expense)....................................................... (5.0) 1,198.0
---------- ----------
(142.9) 966.0
---------- ----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE.................................................. 157.1 782.5
INCOME TAX EXPENSE.............................................................. (56.6) (355.2)
---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE............................................................ 100.5 427.3
CUMULATIVE EFFECT OF ACCOUNTING CHANGE.......................................... (61.3)
---------- ----------
NET INCOME...................................................................... 100.5 366.0
ACCUMULATED DEFICIT
Beginning of period.......................................................... (3,466.3) (3,044.1)
---------- ----------
End of period................................................................ ($3,365.8) ($2,678.1)
========== ==========
See notes to condensed consolidated financial statements.
3
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2002
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in millions)
Three Months Ended March 31,
2002 2001
--------- ---------
OPERATING ACTIVITIES
Net income....................................................................... $100.5 $366.0
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation................................................................... 274.3 212.5
Amortization................................................................... 11.6 454.2
Non-cash interest expense...................................................... 1.4 1.2
Non-cash interest (income) expense on affiliate notes.......................... (10.4) 3.1
Equity in net (income) losses of affiliates.................................... (0.6) 2.8
Losses (gains) on investments and other (income) expense, net.................. 9.9 (1,112.5)
Cumulative effect of accounting change......................................... 61.3
Deferred income tax expense, due to affiliate.................................. 54.6 345.0
Other.......................................................................... (35.2) (13.0)
--------- ---------
406.1 320.6
Changes in working capital, net of effects of acquisitions
Decrease in accounts receivable, net......................................... 18.1 29.5
Increase in other current assets............................................. (19.3) (35.3)
Decrease in accounts payable, accrued expenses and other
current liabilities........................................................ 29.1 68.3
--------- ---------
27.9 62.5
Net cash provided by operating activities................................ 434.0 383.1
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings......................................................... 515.4 2,445.5
Retirements and repayments of long-term debt..................................... (388.4) (2,159.5)
Proceeds from settlement of interest rate exchange agreements.................... 56.8
Proceeds from notes payable to affiliates........................................ 359.2
Repayment of notes payable to affiliates......................................... (199.0)
Increase in notes receivable from affiliates..................................... (131.2)
Net transactions with affiliates................................................. (5.2) (99.1)
--------- ---------
Net cash provided by financing activities................................ 47.4 347.1
--------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired............................................... (12.1) (27.8)
Capital expenditures............................................................. (357.4) (436.8)
Increase in cash held by an affiliate............................................ (264.4)
Purchases of short-term investments.............................................. (0.8)
Purchases of investments......................................................... (126.4)
Proceeds from sales of investments............................................... 4.0 130.1
Additions to intangible and other noncurrent assets.............................. (5.9) (26.6)
--------- ---------
Net cash used in investing activities.................................... (371.4) (752.7)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................... 110.0 (22.5)
CASH AND CASH EQUIVALENTS, beginning of period...................................... 45.1 44.2
--------- ---------
CASH AND CASH EQUIVALENTS, end of period............................................ $155.1 $21.7
========= =========
See notes to condensed consolidated financial statements.
4
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
Comcast Cable Communications, Inc. (the "Company"), a wholly-owned
subsidiary of Comcast Corporation ("Comcast"), has prepared these unaudited
condensed consolidated financial statements based upon Securities and
Exchange Commission rules that permit reduced disclosure for interim
periods.
These financial statements include all adjustments that are necessary for a
fair presentation of the Company's results of operations and financial
condition for the interim periods shown including normal recurring accruals
and other items. The results of operations for the interim periods
presented are not necessarily indicative of results for the full year.
For a more complete discussion of the Company's accounting policies and
certain other information, refer to the financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31,
2001.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to those classifications used in 2002 (see Note 2).
2. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, as Amended
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivatives and Hedging
Activities," as amended. SFAS No. 133 establishes accounting and reporting
standards for derivatives and hedging activities. SFAS No. 133 requires
that all derivative instruments be reported on the balance sheet at their
fair values. 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. The loss consisted of $94.3 million principally related
to the reclassification of losses previously recognized as a component of
accumulated other comprehensive income on the Company's equity derivative
instruments, net of related deferred income taxes of $33.0 million.
SFAS No. 142
The Financial Accounting Standards Board ("FASB") issued SFAS No. 142,
"Goodwill and Other Intangible Assets" in June 2001. SFAS No. 142 addresses
how intangible assets that are acquired individually or with a group of
other assets should be accounted for in financial statements upon and
subsequent to their acquisition.
The Company adopted SFAS No. 142 on January 1, 2002, as required by the new
statement. Upon adoption, the Company no longer amortizes goodwill and
other indefinite lived intangible assets, which consist 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. The provisions of SFAS No. 142 require the
completion of an initial transitional impairment assessment, with any
impairments identified treated as a cumulative effect of a change in
accounting principle. The Company has completed this assessment and
determined that no cumulative effect results from adopting this change in
accounting principle (see Note 6).
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. The Company
does not expect the adoption of SFAS No. 143 will have a material impact on
its financial condition or results of operations.
SFAS No. 144
The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," in August
5
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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. The Company adopted SFAS No. 144 on
January 1, 2002. The adoption of SFAS No. 144 had no impact on the
Company's financial condition or results of operations.
EITF 01-14
In November 2001, the FASB staff announced Emerging Issues Task Force
("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 previously classified 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 statement of operations.
EITF 01-14, by analogy, applies to franchise fees. Upon adoption of EITF
01-14 on January 1, 2002, the Company reclassified franchise fees collected
from cable subscribers from a reduction of selling, general and
administrative expenses to a component of service revenues for all periods
presented in its statement of operations. The change in classification had
no impact on the Company's reported operating income (loss) or financial
condition.
3. COMPREHENSIVE INCOME
The Company's total comprehensive income for the interim periods was as
follows (in millions):
Three Months Ended
March 31,
2002 2001
--------- ----------
Net income........................................... $100.5 $366.0
Unrealized gains (losses) on marketable securities... (7.4) 55.9
Reclassification adjustments for (gains) losses
included in net income............................. (0.2) 113.6
--------- ----------
Comprehensive income................................. $92.9 $535.5
========= ==========
4. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Unaudited Pro Forma Information
The following unaudited pro forma information has been presented as if the
acquisitions made by the Company in 2001 each occurred on January 1, 2001.
For a discussion of the Company's 2001 acquisitions, refer to the financial
statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001.This information is based on historical
results of operations and has been adjusted for acquisition costs. This
information is not necessarily indicative of what the results would have
been had the Company operated the entities acquired since January 1, 2001
(in millions).
Three Months Ended
March 31, 2001
-----------------------
Service revenues.............................................. $1,271.4
Income before cumulative effect of accounting change.......... $427.5
Net income.................................................... $366.2
6
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Other Income (Expense)
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 (expense) 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 (see Note 10).
5. INVESTMENTS
Fair Value Method
The Company holds unrestricted equity investments in certain publicly
traded companies which it accounts for as available for sale securities.
The unrealized pre-tax gains on available for sale investments as of March
31, 2002 and December 31, 2001 of $45.7 million and $54.0 million,
respectively, have been reported in the Company's balance sheet as a
component of accumulated other comprehensive income, net of related
deferred income taxes of $16.0 million and $18.9 million, respectively.
The cost, fair value and gross unrealized gains and losses related to the
Company's available for sale securities are as follows (in millions):
March 31, December 31,
2002 2001
---------- ---------
Cost................................................................. $37.3 $37.3
Gross unrealized gains............................................... 45.8 54.0
Gross unrealized losses.............................................. (0.1)
---------- ---------
Fair value........................................................... $83.0 $91.3
========== =========
Derivatives
The Company uses derivative financial instruments to manage its exposure to
fluctuations in interest rates. The Company has designated these derivative
instruments as fair value hedges. The Company also invests in businesses,
to some degree, through the purchase of equity call option or call warrant
agreements.
The unrealized pre-tax losses on cash flow hedges as of March 31, 2002 of
$3.4 million have been reported in the Company's balance sheet as a
component of accumulated other comprehensive income, net of related
deferred income taxes of $1.2 million.
Investment Expense
Investment expense for the interim periods includes the following (in
millions):
Three Months Ended
March 31,
2002 2001
---------- ---------
Interest and dividend income.......................................... $1.2 $7.1
(Losses) gains on sales and exchanges of investments.................. (0.4) 8.5
Investment impairment losses.......................................... (3.0) (88.9)
Mark to market adjustments on derivatives............................. (1.5) (5.7)
---------- ---------
Investment expense............................................... ($3.7) ($79.0)
========== =========
7
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The investment impairment loss for the three months ended March 31, 2001
relates principally to other than temporary declines in the Company's
investments in AT&T Corp. and Motorola Inc.
6. GOODWILL AND INTANGIBLE ASSETS
As of March 31, 2002, the weighted average amortization period for the
Company's intangible assets subject to amortization is 5.5 years and
estimated related amortization expense for each of the five years ended
December 31 is as follows (in millions):
2002............................ $35.5
2003............................ $30.5
2004............................ $26.1
2005............................ $23.2
2006............................ $17.4
The following pro forma financial information for the three months ended
March 31, 2001 is presented as if SFAS No. 142 was adopted as of January 1,
2001 (in millions):
Net income, as reported.................................................... $366.0
Amortization of goodwill.............................................. 57.5
Amortization of equity method goodwill................................ 1.9
Amortization of cable franchise operating rights...................... 250.4
----------
Net income, as adjusted.................................................... $675.8
==========
Income before cumulative effect of
accounting change, as adjusted........................................ $737.1
==========
7. LONG-TERM DEBT
Commercial Paper
The Company's senior bank credit facility consists of a $2.25 billion,
five-year revolving credit facility and a $1.925 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 balance sheet as of March 31, 2002 and December
31, 2001 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.
Interest Rates
As of March 31, 2002 and December 31, 2001, the Company's effective
weighted average interest rate on its long- term debt outstanding was 6.55%
and 6.41%, respectively.
Interest Rate Risk Management
During the three months ended March 31, 2002, the Company settled all of
its outstanding fixed to variable interest rate exchange agreements
totaling $950.0 million aggregate notional amount and received proceeds of
$56.8 million. This amount is being recognized as an adjustment to interest
expense over the term of the related debt.
Lines and Letters of Credit
As of March 31, 2002, the Company had unused lines of credit of $2.875
billion under its revolving credit facility.
As of March 31, 2002, the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totaling $49.0 million to
cover potential fundings under various agreements.
8
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
8. NOTES RECEIVABLE FROM AFFILIATES
As of March 31, 2002 and December 31, 2001, notes receivable from
affiliates consist of $703.7 million and $557.8 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 6.73% and 7.11% as of March 31, 2002 and
December 31, 2001, respectively) and are due between 2010 and 2027.
Interest receivable relating to such notes of $16.7 million and $22.8
million is included in notes receivable from affiliates as of March 31,
2002 and December 31, 2001, respectively.
9. RELATED PARTY TRANSACTIONS
Comcast, on behalf of the Company, has an affiliation agreement with QVC,
Inc. ("QVC"), an electronic retailer and a majority owned and controlled
subsidiary of Comcast, to carry its programming. In return for carrying QVC
programming, the Company receives an allocated portion, based upon market
share, of a percentage of net sales of merchandise sold to QVC customers
located in the Company's service area. These amounts are included in
service revenues in the Company's statement of operations and accumulated
deficit.
The Company purchases programming from suppliers in which Comcast holds an
equity interest. These charges are included in operating expenses in the
Company's statement of operations and accumulated deficit.
The Company purchases certain other services, including insurance and
employee benefits, from Comcast under cost-sharing arrangements on terms
that reflect Comcast's actual cost. The Company reimburses Comcast for
certain other costs (primarily salaries) under cost reimbursement
agreements. These charges are included in selling, general and
administrative expenses in the Company's statement of operations and
accumulated deficit.
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.
The Company's related party transactions for the interim periods were as
follows (in millions):
Three Months Ended
March 31,
2002 2001
--------- ----------
QVC service revenue............................... $4.9 $4.2
Programming charges with affiliates............... $44.4 $37.2
Comcast cost-sharing charges...................... $40.1 $36.7
CFAC investment income............................ $4.1
10. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The fair values of the assets and liabilities acquired by the Company
during the three months ended March 31, 2001 are presented as follows (in
millions):
Current assets..................................... $17.0
Property, plant & equipment........................ 360.2
Intangible assets.................................. 1,439.4
Current liabilities................................ (18.1)
-----------
Net assets acquired....................... $1,798.5
===========
9
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
The Company made cash payments for interest and income taxes during the
interim periods as follows (in millions):
Three Months Ended
March 31,
2002 2001
-------- --------
Long-term debt interest......................................... $70.1 $56.1
Notes payable to affiliates interest............................ $14.3
Income taxes.................................................... $0.6 $0.4
11. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to such actions is not expected to
materially affect the financial condition, results of operations or
liquidity of the Company.
10
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2002
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information for this item is omitted pursuant to Securities and Exchange
Commission General Instruction H to Form 10-Q, except as noted below.
Comcast Agreement and Plan of Merger with AT&T Broadband
We are a wholly owned subsidiary of Comcast Corporation ("Comcast").
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 March 31, 2002, AT&T
Broadband served approximately 13.4 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 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 up to $14
billion, although the amount of debt assumed may be higher, offset by an equal
reduction in the amount of required financing. 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.
On May 3, 2002, AT&T Broadband and the combined company entered into
definitive credit agreements with a syndicate of lenders for an aggregate of
$12.825 billion of new indebtedness in order to achieve these financing
requirements. This financing requires subsidiary guarantees, including our
guarantees to and 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 $2.631 billion as of March 31, 2002,
o amounts available under Comcast's subsidiaries' lines of credit, which
totaled $2.830 billion as of May 9, 2002 (including $2.564 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.
11
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2002
Results of Operations
Our summarized financial information for the interim periods is as follows
(dollars in millions, "NM" denotes percentage is not meaningful):
Three Months Ended
March 31, Increase / (Decrease)
2002 2001 $ %
--------- -------- --------- --------
Video.................................................. $1,136.1 $972.4 $163.7 16.8%
High-speed Internet.................................... 118.8 54.3 64.5 118.8
Advertising sales...................................... 80.6 65.7 14.9 22.7
Other.................................................. 43.7 33.8 9.9 29.3
Franchise fees......................................... 50.4 42.5 7.9 18.6
--------- -------- --------- --------
Service revenues.................................... 1,429.6 1,168.7 260.9 22.3
Operating, selling, general and administrative
expenses............................................ 843.7 685.5 158.2 23.1
Depreciation........................................... 274.3 212.5 61.8 29.1
Amortization........................................... 11.6 454.2 (442.6) (97.4)
--------- -------- --------- --------
Operating income (loss)................................ 300.0 (183.5) 483.5 NM
--------- -------- --------- --------
Interest expense....................................... (145.4) (132.8) 12.6 9.5
Interest income (expense) on affiliates notes, net..... 10.6 (17.4) 28.0 NM
Investment expense..................................... (3.7) (79.0) (75.3) (95.3)
Equity in net income (losses) of affiliates............ 0.6 (2.8) 3.4 NM
Other income (expense)................................. (5.0) 1,198.0 (1,203.0) NM
Income tax expense..................................... (56.6) (355.2) (298.6) (84.1)
--------- -------- --------- --------
Income before cumulative effect of accounting change... $100.5 $427.3 ($326.8) (76.5%)
========= ======== ========= ========
Operating income before depreciation and
amortization (1).................................... $585.9 $483.2 $102.7 21.3%
========= ======== ========= ========
- ------------
<FN>
(1) Operating income before depreciation and amortization is commonly referred
to in the cable business as "operating cash flow." Operating cash flow is a
measure of a company's ability to generate cash to service its obligations,
including debt service obligations, and to finance capital and other
expenditures. In part due to the capital intensive nature of the cable
business and the resulting significant level of non-cash depreciation and
amortization expense, operating cash flow is frequently used as one of the
bases for comparing businesses in the cable industry, although our measure
of operating cash flow may not be comparable to similarly titled measures
of other companies. Operating cash flow is the primary basis used by our
management to measure the operating performance of our business. Operating
cash flow does not purport to represent net income or net cash provided by
operating activities, as those terms are defined under generally accepted
accounting principles, and should not be considered as an alternative to
such measurements as an indicator of our performance.
</FN>
Video revenue consists of our basic, expanded basic, premium, pay-per-view,
equipment and digital subscriptions. Of the $163.7 million increase in video
revenues for the interim period from 2001 to 2002, $92.3 million is attributable
to the effects of our acquisitions of cable systems and $71.4 million relates to
increased rates and subscriber growth in our historical operations, driven
principally by growth in digital subscriptions. During the three months ended
March 31, 2002, we added approximately 200,300 digital subscriptions.
The increase in high-speed Internet revenue for the interim period from
2001 to 2002 is primarily due to the addition of approximately 91,900 high-speed
Internet subscribers during the three months ended March 31, 2002, and to the
effects of rate increases.
The increase in advertising sales revenue for the interim period from 2001
to 2002 is primarily attributable to the effects of an additional broadcast week
in the first quarter of 2002 and the continued leveraging of our
12
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2002
market-wide fiber interconnects.
Other revenue includes installation revenues, guide revenues, commissions
from electronic retailing, and revenue from other product offerings. The
increase for the interim period from 2001 to 2002 is primarily attributable to
growth in commissions from electronic retailing, as well as to the effects of
our acquisitions of cable systems.
On January 1, 2002, we adopted Emerging Issues Task Force ("EITF") 01-14,
"Income Statement Characterization of Reimbursements Received for 'Out-
of-Pocket' Expenses Incurred." 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. Upon adoption of EITF 01-14, we reclassified franchise fees
collected from cable subscribers from a reduction of selling, general and
administrative expenses to a component of service revenues for all periods
presented in our statement of operations.
The changes in classification had no impact on our reported operating
income (loss) or financial condition. Refer to Note 2 to our financial
statements included in Item 1 for a discussion of the adoption of EITF 01-14.
The increase in franchise fees collected from our cable subscribers under
the terms of our franchise agreements for the interim period from 2001 to 2002
is attributable to the increases in our revenues upon which the fees apply.
The increase in operating, selling, general and administrative expense is
primarily due to the effects of our acquisitions 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. 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.
Depreciation
The increase in depreciation expense for the interim period from 2001 to
2002 is primarily due to the effects of our recent acquisitions and our capital
expenditures.
Amortization
The decrease in amortization expense for the interim period from 2001 to
2002 is attributable to the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." on January
1, 2002. Refer to Note 6 to our financial statements included in Item 1 for the
pro forma impact of adoption of SFAS No. 142 on amortization expense.
Interest Expense
The increase in interest expense for the interim period from 2001 to 2002
is primarily due to the increase in our net borrowings.
Interest Income (Expense) on Affiliate Notes, Net
The change in interest income (expense) on affiliate notes, net for the
interim period from 2001 to 2002 is due to the repayment of notes payable to
affiliates in the second quarter of 2001 and to the increase in notes receivable
from affiliates as compared to the prior year period.
13
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2002
Investment Expense
Investment expense for the interim periods includes the following (in
millions):
Three Months Ended
March 31,
2002 2001
---------- ---------
Interest and dividend income.......................................... $1.2 $7.1
(Losses) gains on sales and exchanges of investments.................. (0.4) 8.5
Investment impairment losses.......................................... (3.0) (88.9)
Mark to market adjustments on derivatives............................. (1.5) (5.7)
---------- ---------
Investment expense............................................... ($3.7) ($79.0)
========== =========
The investment impairment loss for the three months ended March 31, 2001
relates principally to other than temporary declines in our investments in
AT&T and Motorola, Inc.
Equity in Net Income (Losses) of Affiliates
The change in equity in net income (losses) of affiliates for the interim
period from 2001 to 2002 is primarily attributable to the effects of our
additional investments, as well as the effects of decreases in the net losses of
our equity method investees.
Other Income (Expense)
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 and Adelphia received
certain of our cable systems serving approximately 441,000 subscribers. We
recorded to other income (expense) 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.
Income Tax Expense
The decrease in income tax expense for the interim period from 2001 to 2002
is primarily the result of the effects of changes in our income before income
taxes and cumulative effect of accounting change.
Cumulative Effect of Accounting Change
In connection with the adoption of SFAS No. 142, we completed an initial
transitional impairment assessment of goodwill and other indefinite lived
intangible assets, which consist of our cable franchise operating rights. Based
upon further guidance provided by the EITF, we determined that no cumulative
effect results from adopting this change in accounting principle.
In connection with the adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, we recognized as a loss a
cumulative effect of accounting change, net of related income taxes, of $61.3
million during the three months ended March 31, 2001. The loss consisted of
$94.3 million principally related to the reclassification of losses previously
recognized as a component of accumulated other comprehensive income 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 contribute its subsidiary, Comcast Cablevision of
Philadelphia Area I, Inc. ("Greater Philadelphia"), which serves approximately
87,000 subscribers as of March 31, 2002, to us (the "Greater Philadelphia
Contribution"). The Greater Philadelphia Contribution is expected to close
during 2002, subject to receipt of regulatory approvals.
14
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2002
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to legal proceedings and claims which arise in the ordinary
course of our business. In the opinion of our management, the amount of
ultimate liability with respect to such actions is not expected to
materially affect our financial condition, results of operations or
liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
10.1 First Amendment to Five-Year Revolving Credit Agreement, dated
as of May 7, 2002, among Comcast Cable Communications, Inc.,
AT&T Comcast Corporation and the Financial Institutions Party
Hereto, Banc of America Securities LLC and J.P. Morgan
Securities Inc. (f/k/a 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, J.P. Morgan Securities
Inc. (f/k/a Chase Securities Inc.) as Syndication Agent, and
Citibank, N.A. and The Bank of New York, as Co-Documentation
Agents.
10.2 364-Day Revolving Credit Agreement, dated as of May 7, 2002,
among Comcast Cable Communications, Inc., AT&T Comcast
Corporation and the Financial Institutions Party Hereto, Banc
of America Securities LLC and J.P. Morgan Securities Inc., as
Joint Lead Arrangers and Joint Book Managers, Credit Suisse
First Boston, Barclays Banc PLC and Deutsche Bank Securities
Inc., as Co- Arrangers, Bank of America, N.A., as
Administrative Agent, J.P. Morgan Securities Inc., as
Syndication Agent, and Credit Suisse First Boston, Barclays
Banc PLC and Deutsche Bank Securities Inc., as
Co-Documentation Agents.
10.3 Annex I to Five-Year Revolving Credit Agreement, dated as of
August 24, 2000, Amended and Restated as of the Effective Date
Defined Herein, among Comcast Cable Communications, Inc., AT&T
Comcast Corporation and the Financial Institutions Party
Hereto, Banc of America Securities LLC and J.P. Morgan
Securities Inc. (f/k/a 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, J.P. Morgan Securities
Inc. (f/k/a Chase Securities Inc.) as Syndication Agent, and
Citibank, N.A. and The Bank of New York, as Co-Documentation
Agents.
10.4 Annex I to 364-Day Revolving Credit Agreement, dated as of May
7, 2002, Amended and Restated as of the Effective Date Defined
Herein, among Comcast Cable Communications, Inc., AT&T Comcast
Corporation and the Financial Institutions Party Hereto, Banc
of America Securities LLC and J.P. Morgan Securities Inc., as
Joint Lead Arrangers and Joint Book Managers, Credit Suisse
First Boston, Barclays Banc PLC and Deutsche Bank Securities
Inc., as Co-Arrangers, Bank of America, N.A., as
Administrative Agent, J.P. Morgan Securities Inc., as
Syndication Agent, and Credit Suisse First Boston, Barclays
Banc PLC and Deutsche Bank Securities Inc., as Co-
Documentation Agents.
(b) Reports on Form 8-K:
None.
15
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2002
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMCAST CABLE COMMUNICATIONS, INC.
---------------------------------------
/s/ Lawrence J. Salva
---------------------------------------
Lawrence J. Salva
Senior Vice President
(Principal Accounting Officer)
Date: May 15, 2002
16