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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, 1997
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.)
1105 N. Market Street, Wilmington, Delaware 19801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (302) 427-8991
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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 January 30, 1998, there were 1,000 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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<PAGE>
COMCAST CABLE COMMUNICATIONS, INC.
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business...........................................................1
Item 2 Properties........................................................11
Item 3 Legal Proceedings.................................................11
Item 4 Submission of Matters to a Vote of Security Holders...............11
PART II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters...................................12
Item 6 Selected Financial Data...........................................12
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations.................13
Item 8 Financial Statements and Supplementary Data.......................17
Item 9 Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure............34
PART III
Item 10 Directors and Executive Officers of the Registrant................34
Item 11 Executive Compensation............................................34
Item 12 Security Ownership of Certain Beneficial
Owners and Management.........................................34
Item 13 Certain Relationships and Related Transactions....................34
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K...................................................35
SIGNATURES..................................................................37
This Annual Report on Form 10-K for the year ended December 31, 1997, at the
time of filing with the Securities and Exchange Commission, modifies and
supersedes all prior documents filed pursuant to Sections 13, 14 and 15(d) of
the Securities Exchange Act of 1934 for purposes of any offers or sales of any
securities after the date of such filing pursuant to any Registration Statement
or Prospectus filed pursuant to the Securities Act of 1933 which incorporates by
reference this Annual Report.
This Annual Report on Form 10-K contains forward looking statements made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned that such forward looking statements
involve risks and uncertainties which could significantly affect expected
results in the future from those expressed in any such forward looking
statements made by, or on behalf of the Company. Certain factors that could
cause actual results to differ materially include, without limitation, the
effects of legislative and regulatory changes; the potential for increased
competition; technological changes; the need to generate substantial growth in
the subscriber base by successfully launching, marketing and providing services
in identified markets; pricing pressures which could affect demand for the
Company's services; the Company's ability to expand its distribution; changes in
labor, programming, equipment and capital costs; the Company's continued ability
to create or acquire programming and products that customers will find
attractive; future acquisitions, strategic partnerships and divestitures;
general business and economic conditions; and other risks detailed from time to
time in the Company's periodic reports filed with the Securities and Exchange
Commission.
<PAGE>
PART I
ITEM 1 BUSINESS
Comcast Cable Communications, Inc., a wholly owned subsidiary of Comcast
Corporation ("Comcast"), and subsidiaries (the "Company") is engaged in the
development, management and operation of hybrid fiber-coaxial broadband cable
networks. The Company's systems served approximately 4.4 million subscribers and
passed more than 7.1 million homes as of December 31, 1997. The Company is a
Delaware corporation organized in 1981 and has its principal executive offices
at 1105 North Market Street, Wilmington, Delaware, 19801, (302) 427-8991.
GENERAL DEVELOPMENTS OF BUSINESS
Senior Notes Offering
In May 1997, the Company sold $1.7 billion principal amount of senior debt with
interest rates ranging from 8 1/8% to 8 7/8% and maturity dates from 2004 to
2027. The Company used the net proceeds from the offering to repay existing
borrowings by its subsidiaries (see Note 4 to the Company's consolidated
financial statements).
DESCRIPTION OF THE COMPANY'S BUSINESS
Technology and Capital Improvements
The Company's broadband networks, which receive signals by means of special
antennae, microwave relay systems, earth stations and fiber optic cable lines,
distribute a variety of video, telecommunications and data services to consumers
and businesses.
The Company is continuing to upgrade most of its cable systems, deploying fiber
optic cable and upgrading the technical quality of its broadband network. The
result is an increase in channel capacity and system reliability, facilitating
the delivery of additional video programming and other services such as enhanced
video, high-speed Internet access and telephony. The Company's cable
communications systems have bandwidth capacities ranging from 300-MHz to 860-
MHz, which permits carriage of 37 to 112 analog channels. As of December 31,
1997, approximately 85% of the Company's broadband network had at least a
62-channel capacity. During 1997, the Company began field testing its digital
converter cable service in Southern California. Digital compression will enable
the Company to increase the channel capacity of its cable communications systems
to more than 100 channels, as well as to improve picture quality. The Company
has entered into agreements with suppliers of digital converters for delivery
commencing in 1998.
In October 1997, the Company entered into a "social contract" with the Federal
Communications Commission ("FCC") (see "Legislation and Regulation"). Pursuant
to this agreement, the Company has committed that by March 31, 1999, 80% of the
Company's cable subscribers will be served by a system with a capacity of at
least 550-MHz and at least 60% of the Company's cable subscribers will be served
by a system with a capacity of at least 750-MHz. In addition, the Company has
agreed to provide free cable service connections, modems and modem service to
schools and to 250 public libraries in communities where the Company
commercially deploys cable modem service to residential customers.
Franchises
Cable communications systems are constructed and operated under non-exclusive
franchises granted by state or local governmental authorities. Franchises
typically contain many conditions, such as time limitations on commencement or
completion of construction; conditions of service, including number of channels,
types of programming and provision of free services to schools and other public
institutions; and the maintenance of insurance and indemnity bonds. Cable
franchises are subject to the Cable Communications Policy Act of 1984 (the "1984
Cable Act"), the Cable Television Consumer Protection and Competition Act of
1992 (the "1992 Cable Act," and together with the 1984 Cable Act, the "Cable
Acts") and the Telecommunications Act of 1996 (the "1996 Telecom Act"), as well
as FCC, state and local regulations (see "Legislation and Regulation").
The Company's franchises typically provide for periodic payment of fees to
franchising authorities of up to 5% of "revenues" (as defined by each franchise
agreement), which fees may generally be passed on to subscribers. Franchises are
generally non-transferable without the consent of the governmental authority.
Many of the Company's franchises were granted for an initial term of 15 years.
Although franchises historically have been renewed and, under the Cable Acts,
should continue to be renewed for companies that have provided adequate service
and have complied generally withfranchise terms, renewals may include less
favorable terms and conditions. Furthermore, the governmental authority may
choose to award additional franchises to competing companies at any time. In
addition, under the 1996 Telecom
<PAGE>
Act, certain providers of programming services may be exempt from local
franchising requirements (see "Competition" and "Legislation and Regulation").
Revenue Sources
The Company's cable communications systems offer varying levels of service for a
monthly fee. These fees may be for a grouping (i.e. "package") of channels (i.e.
"product tier"), equipment rentals, modem services and for other products and
services. Packages of channels may consist of television signals of all national
television networks; local and distant independent, specialty and educational
television stations; satellite-delivered non-broadcast channels; locally
originated programs; educational programs; audio programming; electronic
retailing and public service announcements. The Company also offers and may
receive an additional monthly fee for one or more premium services ("Pay
Cable"), such as Home Box Office(R), Cinemax(R), Showtime(R), The Movie
Channel(TM) and Encore(R), which generally offer, without commercial
interruption, feature motion pictures, live and taped sporting events, concerts
and other special features. The charge for Pay Cable services varies with the
type and level of service selected by the subscriber. Monthly service and
equipment rates and related charges vary in accordance with the type of service
selected by the subscriber. Subscribers typically pay on a monthly basis and
generally may discontinue services at any time (see "Legislation and
Regulation").
In addition to recurring monthly subscription fees, the Company also generates
revenues from advertising sales, pay-per- view services, installation services,
commissions from electronic retailing (see Note 6 to the Company's consolidated
financial statements) and other services. The Company derives revenues from the
sale of advertising time to local, regional and national advertisers on networks
such as ESPN, MTV and USA. Pay-per-view services permit a subscriber to order,
for a separate fee, individual feature motion pictures and special event
programs.
In December 1996, the Company began marketing At Home Corporation's ("@Home")
high-speed cable modem services in areas served by certain of its cable systems.
The @Home service allows residential subscribers to connect their personal
computers via cable modems to a new high-speed national network developed and
managed by @Home. This service enables subscribers to receive access to online
information, including the Internet, at faster speeds than that of conventional
or Integrated Service Digital Network ("ISDN") modems. For businesses, the
Company, through @Home, provides a platform for Internet, intranet and extranet
connectivity solutions and networked business applications. @Home and the
Company aggregate content, sell advertising to businesses and provide services
to @Home subscribers. As of December 31, 1997, the Comcast @Home service was
available to be marketed to over 865,000 homes in six markets and had more than
9,700 customers.
The Company's sales efforts are primarily directed toward increasing penetration
and incremental revenues in its franchise areas. The Company sells its cable
communications services through telemarketing, direct mail advertising,
promotional campaigns, door-to-door selling, local media and newspaper
advertising.
Programming
The Company generally pays either a monthly fee per subscriber per channel or a
percentage of certain revenues for programming purchased from Comcast.
Programming costs increase in the ordinary course of the Company's business as a
result of increases in the number of subscribers, expansion of the number of
channels provided to customers and contractual rate increases from programming
suppliers. On behalf of the Company, Comcast seeks and secures long-term
programming contracts with suppliers, some of which provide volume discount
pricing structures and/or offer marketing support and incentives to the Company.
The Company's programming contracts are generally for a fixed period of time and
are subject to negotiated renewal. The Company anticipates that future contract
renewals will result in programming costs exceeding current levels, particularly
for sports programming.
Comcast charges each of the Company's subsidiaries for programming on a basis
which generally approximates the amount that each such subsidiary would be
charged if it purchased such programming directly from the supplier, subject to
limitations imposed by debt facilities for certain subsidiaries, and did not
benefit from the purchasing power of Comcast's consolidated operations.
Management Contracts
Comcast, through management agreements, manages the operations of the Company's
subsidiaries. The management agreements generally provide that Comcast will
supervise the management and operations of the cable systems (including
expansions or rebuilding of the Company's cable systems), and arrange for and
supervise (but not necessarily perform
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<PAGE>
itself) certain administrative functions. As compensation for such services, the
agreements provide for Comcast to charge management fees of up to 6% of gross
revenues.
Customer Service
The Company is currently consolidating the majority of its local customer
service call centers into large regional operations, consistent with its focus
on clustering operations. These regional call centers have technologically
advanced telephone systems that provide the capability for 24-hour per day call
answering, telemarketing and other services. These centers will allow the
Company to better serve its customer base, as well as to cross-market new
products and services to subscribers. As of December 31, 1997, eight of these
call centers were in operation, serving approximately 2.1 million subscribers.
The Company intends to expand the number of call centers in operation to 10 in
1998, bringing the total number of subscribers served by a call center to
approximately 2.6 million by December 31, 1998. Customer service is provided to
subscribers in the remaining cable systems primarily through local system-based
representatives.
Company's Systems
The table below sets forth a summary of Homes Passed, Cable Subscribers and
Cable Penetration information for the Company's cable communications systems as
of December 31 (homes and subscribers in thousands):
<TABLE>
<CAPTION>
1997 1996 (4) 1995 1994 (5) 1993
<S> <C> <C> <C> <C> <C>
Homes Passed (1) 7,138 6,975 5,570 5,491 4,211
Cable Subscribers (2) 4,366 4,280 3,407 3,307 2,648
Cable Penetration (3) 61.2% 61.4% 61.2% 60.2% 62.9%
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<FN>
(1) A home is deemed "passed" if it can be connected to the distribution system
without further extension of the transmission lines.
(2) A dwelling with one or more television sets connected to a system is
counted as one Cable Subscriber.
(3) Cable Subscribers as a percentage of Homes Passed.
(4) In November 1996, the Company acquired the cable television operations of
The E.W. Scripps Company.
(5) In December 1994, the Company acquired the US cable television operations
of Maclean Hunter Limited.
</FN>
</TABLE>
System Clusters
The Company manages the majority of its systems in geographic clusters to
increase operating efficiencies. Clustering permits an increased emphasis upon
more uniform, efficient and cost effective delivery of customer service and
support. The following table is a summary of Homes Passed, Cable Subscribers and
Cable Penetration for the Company's ten largest regional cable television
clusters as of December 31, 1997 (homes and subscribers in thousands):
Geographic Cluster Homes Cable Cable
Passed Subscribers Penetration
New Jersey 940.0 596.6 63.5%
Florida 912.9 553.0 60.6%
Michigan 964.9 492.3 51.0%
Baltimore Area 661.7 453.2 68.5%
Philadelphia Area 499.7 302.9 60.6%
Southern California 508.6 271.9 53.5%
Tennessee 426.7 262.1 61.4%
Sacramento 458.2 236.1 51.5%
Indianapolis 365.8 227.7 62.2%
Alabama 315.8 210.5 66.7%
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6,054.3 3,606.3 59.6%
Other Systems 1,083.8 759.9 70.1%
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Total 7,138.1 4,366.2 61.2%
======= =======
Competition
Cable communications systems face competition from alternative methods of
receiving and distributing television signals and from other sources of news,
information and entertainment such as off-air television broadcast programming,
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<PAGE>
newspapers, movie theaters, live sporting events, interactive online computer
services and home video products, including videotape cassette recorders. The
extent to which a cable communications system is competitive depends, in part,
upon the cable system's ability to provide, at a reasonable price to consumers,
a greater variety of programming and other communications services than are
available off-air or through other alternative delivery sources and upon
superior technical performance and customer service.
The 1996 Telecom Act makes it easier for local exchange carriers ("LECs") and
others to provide to subscribers a wide variety of video services competitive
with services provided by cable systems. Various LECs are currently providing
video services within and outside their telephone service areas through a
variety of distribution methods, including the deployment of broadband cable
networks and the use of wireless transmission facilities. LECs in various states
have either announced plans, obtained local franchise authorizations or are
currently competing with certain of the Company's cable communications systems.
An affiliate of Ameritech Corporation ("Ameritech") has obtained approximately
13 cable franchises in its telephone service areas that are currently served by
the Company and competes directly with the Company to provide video and other
broadband services to subscribers. LECs and other companies also provide
facilities for the transmission and distribution to homes and businesses of
interactive computer-based services, including the Internet, as well as data and
other non-video services. Cable systems could be placed at a competitive
disadvantage if the delivery of video and interactive online computer services
by LECs becomes widespread since LECs are not required, under certain
circumstances, to obtain local franchises to deliver such video services or to
comply with the variety of obligations imposed upon cable systems under such
franchises. Issues of cross-subsidization by LECs of video, data and telephony
services also pose strategic disadvantages for cable operators seeking to
compete with LECs which provide such services. The Company cannot predict the
likelihood of success of such video or broadband service ventures by LECs or the
impact on the Company of such competitive ventures (see "Legislation and
Regulation").
Cable communications systems operate pursuant to franchises granted on a
non-exclusive basis. The 1992 Cable Act prohibits franchising authorities from
unreasonably denying requests for additional franchises and permits franchising
authorities to operate cable systems. Well-financed businesses from outside the
cable industry (such as public utilities that own certain of the poles to which
cable is attached) may become competitors for franchises or providers of
competing services (see "Legislation and Regulation").
Congress has enacted legislation and the FCC has adopted regulatory policies
providing a more favorable operating environment for new and existing
technologies that provide, or have the potential to provide, substantial
competition to cable systems. These technologies include, among others, Direct
Broadcast Satellite ("DBS") service whereby signals are transmitted by satellite
to receiving facilities located on customer premises. Programming is currently
available to individual households, condominiums, apartment and office complexes
through conventional, medium and high-power satellites. DBS providers can offer
more than 100 channels to their subscribers. Several major companies are
offering or are currently developing nationwide high-power DBS services,
including DirecTV, EchoStar Communications Corporation and American Sky
Broadcasting LLC ("ASkyB"). Additionally, Primestar Partners, L.P.
("Primestar"), a DBS provider in which Comcast holds a 10.4% general and limited
partnership interest, offers video programming from a medium-power DBS satellite
system. DBS systems use video compression technology to increase the channel
capacity of their systems to provide movies, broadcast stations and other
program services comparable to those of cable systems. Digital satellite service
("DSS") offered by DBS systems currently has certain advantages over cable
systems with respect to programming capacity and digital quality, as well as
certain current disadvantages that include high up-front customer equipment and
installation costs and a lack of local programming and service. The FCC and
Congress are presently considering proposals to enhance the ability of DBS
providers to gain access to additional programming and to authorize DBS carriers
to transmit local signals to local markets.
The availability of reasonably-priced home satellite dish earth stations
("HSDs") also enables individual households to receive many of the
satellite-delivered program services formerly available only to cable
subscribers. Furthermore, the 1992 Cable Act contains provisions, which the FCC
has implemented with regulations, to enhance the ability of cable competitors to
purchase and make available to HSD owners certain satellite-delivered cable
programming at competitive costs. The 1996 Telecom Act and FCC regulations
implementing that law preempt certain local restrictions on the use of HSDs and
roof-top antennae to receive satellite programming and over-the-air broadcasting
services (see "Legislation and Regulation").
Cable operators face additional competition from private satellite master
antenna television ("SMATV") systems that serve condominiums, apartment and
office complexes and private residential developments. The 1996 Telecom Act
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<PAGE>
broadens the definition of SMATV systems not subject to regulation as a
franchised cable communications service. SMATV systems offer both improved
reception of local television stations and many of the same satellite-delivered
programming services offered by franchised cable communications systems. SMATV
operators often enter into exclusive agreements with building owners or
homeowners' associations, although some states have enacted laws to provide
franchised cable systems access to such private complexes. The 1984 Cable Act
also gives a franchised cable operator the right to use existing compatible
easements within its franchise area under certain circumstances. These laws have
been challenged in the courts with varying results. In addition, some companies
are developing and/or offering packages of telephony, data and video services to
private residential and commercial developments. The ability of the Company to
compete for subscribers in residential and commercial developments served by
SMATV operators is uncertain. The Company is developing competitive packages of
services (video, data and telephony) to offer to such developments.
Cable communications systems also compete with wireless program distribution
services such as multichannel, multipoint distribution services ("MMDS") which
use low-power microwave frequencies to transmit video programming over-the-air
to subscribers. There are MMDS operators which are authorized to provide or are
providing broadcast and satellite programming to subscribers in areas served by
the Company's cable systems. Additionally, the FCC adopted regulations
allocating frequencies in the 28-GHz band for a new multichannel wireless video
service called Local Multipoint Distribution Service ("LMDS") that is similar to
MMDS. The FCC initiated spectrum auctions for LMDS licenses in February 1998.
The Company is unable to predict whether wireless video services will have a
material impact on its operations.
Competition in the online services area is significant. Recently, a number of
large corporations in the telecommunications and technology industries,
including the Regional Bell Operating Companies ("RBOCs"), GTE Corporation,
Microsoft Corporation, Compaq Computer Corporation and Intel Corporation,
announced the formation of a working group to accelerate the deployment of
Asymmetric Digital Subscriber Line ("ADSL") technology. It is anticipated that
ADSL technology will allow Internet access at peak data transmission speeds
equal to or greater than that of modems over conventional telephone lines.
Several RBOCs have recently requested the FCC to fully deregulate
packet-switched networks to allow it to provide high-speed broadband services,
including online services, without regard to present Local Access Transport Area
("LATA") boundaries and other regulatory restrictions. Competitors in the online
services area include existing Internet service providers, LECs, long distance
carriers and others, many of whom have more substantial resources than the
Company. The Company cannot predict the likelihood of success of the online
services offered by the Company's competitors or the impact on the Company of
such competitive ventures.
Other new technologies may become competitive with services that cable
communications systems can offer. The FCC has authorized television broadcast
stations to transmit textual and graphic information useful both to consumers
and businesses. The FCC also permits commercial and non-commercial FM stations
to use their subcarrier frequencies to provide non-broadcast services including
data transmissions. The FCC established an over-the-air Interactive Video and
Data Service that will permit two-way interaction with commercial and
educational programming along with informational and data services. Personal
communications services ("PCS") license holders, including cable operators, are
able to provide competitive voice and data services.
Advances in communications technology as well as changes in the marketplace and
the regulatory and legislative environment are constantly occurring. Thus, it is
not possible to predict the effect that ongoing or future developments might
have on the cable communications industry or on the operations of the Company.
LEGISLATION AND REGULATION
The Cable Acts and the 1996 Telecom Act amended the Communications Act of 1934
(as amended, the "Communications Act") and established a national policy to
guide the development and regulation of cable systems. The 1996 Telecom Act is
the most comprehensive reform of the nation's telecommunications laws since the
Communications Act. Although the long-term goal of the 1996 Telecom Act is to
promote competition and decrease regulation of various communications
industries, in the short-term the law delegates to the FCC (and in some cases to
the states) broad new rulemaking authority. Principal responsibility for
implementing the policies of the Cable Acts and the 1996 Telecom Act is
allocated between the FCC and state or local franchising authorities. The FCC
and state regulatory agencies are required to conduct numerous rulemaking and
regulatory proceedings to implement the 1996 Telecom Act, and such proceedings
may materially affect the cable communications industry. The following is a
summary of federal laws and
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<PAGE>
regulations materially affecting the growth and operation of the cable
communications industry and a description of certain state and local laws.
Rate Regulation
The 1992 Cable Act authorized rate regulation for cable communications services
and equipment in communities that are not subject to "effective competition," as
defined by federal law. Most cable communications systems are now subject to
rate regulation for basic cable service and equipment by local officials under
the oversight of the FCC, which has prescribed detailed criteria for such rate
regulation. The 1992 Cable Act also requires the FCC to resolve complaints about
rates for cable programming service tiers ("CPSTs") (other than programming
offered on a per channel or per program basis, which programming is not subject
to rate regulation) and to reduce any such rates found to be unreasonable. The
1996 Telecom Act eliminates the right of individuals to file CPST rate
complaints with the FCC and requires the FCC to issue a final order within 90
days after receipt of CPST rate complaints filed by any franchising authority.
The 1992 Cable Act limits the ability of cable television systems to raise rates
for basic and certain cable programming services (collectively, the "Regulated
Services").
FCC regulations govern rates that may be charged to subscribers for Regulated
Services. The FCC uses a benchmark methodology as the principal method of
regulating rates for Regulated Services. Cable operators are also permitted to
justify rates using a cost-of-service methodology, which contains a rebuttable
presumption of an industry-wide 11.25% after tax rate of return on an operator's
allowable rate base. Franchising authorities are empowered to regulate the rates
charged for monthly basic service, for additional outlets and for the
installation, lease and sale of equipment used by subscribers to receive the
basic cable service tier, such as converter boxes and remote control units. The
FCC's rules require franchising authorities to regulate these rates on the basis
of actual cost plus a reasonable profit, as defined by the FCC. Cable operators
required to reduce rates may also be required to refund overcharges with
interest. In July 1994, the Company reduced rates for Regulated Services in the
majority of its cable systems to comply with the FCC's regulations. The FCC has
also adopted comprehensive and restrictive regulations allowing operators to
modify their regulated rates on a quarterly or annual basis using various
methodologies that account for changes in the number of regulated channels,
inflation and increases in certain external costs, such as franchise and other
governmental fees, copyright and retransmission consent fees, taxes, programming
fees and franchise-related obligations. The Company cannot predict whether the
FCC will modify these "going forward" regulations in the future.
The 1996 Telecom Act provides for rate deregulation of CPSTs by March 1999,
although legislation has been proposed to extend the regulatory period.
Deregulation will occur sooner for systems in markets where comparable video
programming services, other than DBS, are offered by local telephone companies,
or their affiliates, or by third parties using the local telephone company's
facilities, or where "effective competition" is established under the 1992 Cable
Act. The 1996 Telecom Act also modifies the uniform rate provision of the 1992
Cable Act by prohibiting regulation of nonpredatory bulk discount rates offered
to subscribers in commercial and residential developments and permits regulated
equipment rates to be computed by aggregating costs of broad categories of
equipment at the franchise, system, regional or company level.
In December 1995, the FCC adopted an order approving a negotiated settlement of
CPST rate complaints pending against the Company which provided $6.6 million in
refunds, plus interest, given in the form of bill credits during 1996, to 1.3
million of the Company's cable subscribers. The FCC and the Company recently
negotiated a "social contract" in which the Company committed to complete
certain system upgrades and improvements by March 1999 in return for which it
may move a limited number of currently regulated programming services in certain
cable systems to a single migrated product tier on each system that may become
an unregulated new product tier after December 1997 (see "Description of the
Company's Businesses - Technology and Capital Improvements"). The Company is
also currently in negotiations to settle pending proceedings involving the
Company's basic service rates in certain of its systems. While the Company
cannot predict the outcome of this action, the Company believes that the
ultimate resolution of this proceeding will not have a material adverse impact
on the Company's financial position, results of operations or liquidity.
"Anti-Buy Through" Provisions
The 1992 Cable Act requires cable systems to permit subscribers to purchase
video programming offered by the operator 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, unless the system's lack of addressable converter
boxes or other technological limitations do not permit it to do so. The
statutory exemption for cable systems that do not have the technological
capability to offer programming in the manner required by the statute is
available until a system obtains such capability, but not later than December
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<PAGE>
2002. The FCC may waive such time periods, if deemed necessary. Many of the
Company's systems do not have the technological capability to offer programming
in the manner required by the statute and thus are currently exempt from
complying with the requirement.
Must Carry/Retransmission Consent
The 1992 Cable Act contains broadcast signal carriage requirements that allow
local commercial television broadcast stations to elect once every three years
to require a cable system to carry the station, subject to certain exceptions,
or to negotiate for "retransmission consent" to carry the station. A cable
system generally is required to devote up to one-third of its activated channel
capacity for the carriage of local commercial television stations pursuant to
the requirements of the 1992 Cable Act. Local non-commercial television stations
are also given 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 are required to obtain
retransmission consent for all "distant" commercial television stations (except
for commercial satellite-delivered independent "superstations" such as WGN),
commercial radio stations and certain low-power television stations carried by
such systems. In March 1997, the United States ("US") Supreme Court upheld the
constitutional validity of the 1992 Cable Act's mandatory signal carriage
requirements. The FCC will conduct a rulemaking in the future to consider the
requirements, if any, for mandatory carriage of digital television signals. The
Company cannot predict the ultimate outcome of such a rulemaking or the impact
of new carriage requirements on the Company or its business.
Designated Channels
The Communications Act permits franchising authorities to require cable
operators to set aside certain channels for public, educational and governmental
access programming. The 1984 Cable Act also requires a cable system with 36 or
more channels to designate a 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 has adopted rules regulating:
(i) the maximum reasonable rate a cable operator may charge for commercial use
of the designated channel capacity; (ii) the terms and conditions for commercial
use of such channels; and (iii) the procedures for the expedited resolution of
disputes concerning rates or commercial use of the designated channel capacity.
Franchise Procedures
The 1984 Cable Act 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 and prohibits non-grandfathered cable systems from
operating without a franchise in such jurisdictions. The 1992 Cable Act
encourages competition with existing cable systems by (i) allowing
municipalities to operate their own cable systems without franchises; (ii)
preventing franchising authorities from granting exclusive franchises or from
unreasonably refusing to award additional franchises covering an existing cable
system's service area; and (iii) prohibiting (with limited exceptions) the
common ownership of cable systems and co-located MMDS or SMATV systems. The FCC
has relaxed its restrictions on ownership of SMATV systems to permit a cable
operator to acquire SMATV systems in the operator's existing franchise area so
long as the programming services provided through the SMATV system are offered
according to the terms and conditions of the cable operator's local franchise
agreement. The 1996 Telecom Act provides that the cable/SMATV and cable/MMDS
cross-ownership rules do not apply in any franchise area where the operator
faces "effective competition" as defined by federal law.
The Cable Acts also provide that in granting or renewing franchises, local
authorities may establish requirements for cable-related facilities and
equipment, but not for video programming or information services other than in
broad categories. The Cable Acts limit the payment of franchise fees to 5% of
revenues derived from cable operations and permit the cable operator to obtain
modification of franchise requirements by the franchise authority or judicial
action if warranted by changed circumstances. The Company's franchises typically
provide for periodic payment of fees to franchising authorities of up to 5% of
"revenues" (as defined by each franchise agreement), which fees may be passed on
to subscribers. Recently, a federal appellate court held that a cable operator's
gross revenue includes all revenue received from subscribers, without deduction,
and overturned an FCC order which had held that a cable operator's gross revenue
does not include money collected from subscribers that is allocated to pay local
franchise fees. The Company cannot predict the ultimate resolution of these
matters. The 1996 Telecom Act generally prohibits franchising authorities from
(i) imposing requirements in the cable franchising process that require,
prohibit or restrict the provision of telecommunications services by an
operator, (ii) imposing franchise fees on revenues derived by the operator from
providing telecommunications services over its cable system, or (iii)
restricting an operator's use of any type of subscriber equipment or
transmission technology.
- 7 -
<PAGE>
The 1984 Cable Act contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. The 1992 Cable Act made
several changes to the renewal process which could make it easier for a
franchising authority to deny renewal. Moreover, even if the franchise is
renewed, the franchising authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchising
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for such consent.
Historically, franchises have been renewed for cable operators that have
provided satisfactory services and have complied with the terms of their
franchises. The Company believes that it has generally met the terms of its
franchises and has provided quality levels of service. The Company anticipates
that its 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 US Supreme Court rules definitively on the scope of
cable operators' First Amendment 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
Pursuant to the 1992 Cable Act, the FCC adopted rules prescribing national
subscriber limits and limits on the number of channels that can be occupied on a
cable system by a video programmer in which the operator has an attributable
interest. The effectiveness of these FCC horizontal ownership limits has been
stayed because a federal district court found the statutory limitation to be
unconstitutional. An appeal of that decision has been consolidated with appeals
challenging the FCC's regulatory ownership restrictions and is pending. The 1996
Telecom Act eliminates the statutory prohibition on the common ownership,
operation or control of a cable system and a television broadcast station in the
same service area and directs the FCC to review its broadcast-cable ownership
restrictions. Pursuant to the mandate of the 1996 Telecom Act, the FCC
eliminated its regulatory restriction on cross-ownership of cable systems and
national broadcasting networks and has initiated a formal inquiry to review its
broadcast-cable cross-ownership restriction.
LEC Ownership of Cable Systems
The 1996 Telecom Act made far-reaching changes in the regulation of LECs that
provide cable services. The 1996 Telecom Act eliminated federal legal barriers
to competition in the local telephone and cable communications businesses,
preempted legal barriers to competition that previously existed in state and
local laws and regulations, and set basic standards for relationships between
telecommunications providers. The 1996 Telecom Act eliminated the statutory
telephone company/cable television cross-ownership prohibition, thereby allowing
LECs to offer video services in their telephone service areas. LECs 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. The 1996 Telecom Act generally limits acquisitions and
prohibits certain joint ventures between LECs and cable operators in the same
market. The FCC adopted regulations implementing the 1996 Telecom Act
requirement that LECs open their telephone networks to competition by providing
competitors interconnection, access to unbundled network elements and retail
services at wholesale rates. Numerous parties appealed these regulations. The
U.S. Court of Appeals for the Eighth Circuit, where the appeals were
consolidated, recently vacated key portions of the FCC's regulations, including
the FCC's pricing and nondiscrimination rules. In January 1998, the U.S. Supreme
Court agreed to review the Eighth Circuit's decision. The Company cannot predict
the outcome of this litigation or the FCC rulemakings, and the ultimate impact
of any final FCC regulations on the Company or its businesses cannot be
determined at this time.
Pole Attachment
The Communications Act requires the FCC to regulate the rates, terms and
conditions imposed by public utilities for cable systems' use of utility pole
and conduit space unless state authorities can demonstrate that they adequately
regulate pole attachment rates, as is the case in certain states in which the
Company operates. In the absence of state regulation, the FCC administers pole
attachment rates on a formula basis. In some cases, utility companies have
increased pole attachment fees for cable systems that have installed fiber optic
cables and that are using such cables for the distribution of non-video
services. The FCC has concluded that, in the absence of state regulation, it has
jurisdiction to determine whether utility companies have justified their demand
for additional rental fees and that the Communications Act does not permit
disparate rates based on the type of service provided over the equipment
attached to the utility's pole. The
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<PAGE>
FCC's existing pole attachment rate formula, which may be modified by a pending
rulemaking, governs charges for utilities for attachments by cable operators
providing only cable services. The 1996 Telecom Act and the FCC's implementing
regulations modify the current pole attachment provisions of the Communications
Act by immediately permitting certain providers of telecommunications services
to rely upon the protections of the current law and by requiring that utilities
provide cable systems and telecommunications carriers with nondiscriminatory
access to any pole, conduit or right-of-way controlled by the utility. The FCC
recently adopted new regulations to govern the charges for pole attachments used
by companies providing telecommunications services, including cable operators.
These new pole attachment rate regulations will become effective in February
2001. Any resulting increase in attachment rates will be phased in equal annual
increments over a period of five years beginning in February 2001. The ultimate
impact of any revised FCC rate formula or of any new pole attachment rate
regulations on the Company or its businesses cannot be determined at this time.
Other Statutory Provisions
The 1992 Cable Act, the 1996 Telecom Act and FCC regulations 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 requires such programmers to sell
their programming to other multichannel video distributors. These provisions
limit the ability of program suppliers affiliated with cable companies or with
common carriers providing satellite-delivered video programming directly to
their subscribers to offer exclusive programming arrangements to their
affiliates. In December 1997, the FCC initiated a rulemaking to address a number
of possible changes to its program access rules. Among the issues on which the
FCC has sought comment is whether the FCC has jurisdiction to extend its program
access rules to terrestrially-delivered programming, such as Comcast SportsNet
(a 24-hour regional sports programming network in which Comcast holds a 46.4%
equity interest), and if it does have such jurisdiction, whether it should
expand the rules in this fashion. This rulemaking is pending at the FCC and the
Company cannot predict the ultimate outcome of this proceeding.
The 1992 Cable Act requires cable operators to block fully both the video and
audio portion of sexually explicit or indecent programming on channels that are
primarily dedicated to sexually oriented programming or alternatively to carry
such programming only at "safe harbor" time periods currently defined by the FCC
as the hours between 10 p.m. to 6 a.m. The Communications Act also includes
provisions, among others, concerning horizontal and vertical ownership of cable
systems, customer service, subscriber privacy, marketing practices, equal
employment opportunity, obscene or indecent programming, regulation of technical
standards and equipment compatibility.
Other FCC Regulations
The FCC recently revised its cable inside wiring rules to provide a more
specific procedure for the disposition of internal cable wiring that belongs to
an incumbent cable operator that is forced to terminate its cable services in a
multiple dwelling unit ("MDU") building by the building owner. The FCC is also
considering additional rules relating to MDU inside wiring that, if adopted, may
disadvantage incumbent cable operators. The FCC has various rulemaking
proceedings pending that will implement the 1996 Telecom Act; it also has
adopted regulations implementing various provisions of the 1992 Cable Act and
the 1996 Telecom Act that are the subject of petitions requesting
reconsideration of various aspects of its rulemaking proceedings. There are
other FCC regulations covering such areas as equal employment opportunity,
syndicated program exclusivity, network program non-duplication, closed
captioning of video programming, registration of cable systems, maintenance of
various records and public inspection files, microwave frequency usage,
origination cablecasting and sponsorship identification, antenna structure
notification, marking and lighting, carriage of local sports broadcast
programming, application of rules governing political broadcasts, limitations on
advertising contained in non-broadcast children's programming, consumer
protection and customer service, indecent programming, programmer access to
cable systems, programming agreements, technical standards, consumer electronics
equipment compatibility and DBS implementation. The FCC has the authority to
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.
Other bills and administrative proposals pertaining to cable communications have
previously been introduced in Congress or considered by other governmental
bodies over the past several years. It is probable that further attempts will be
made by Congress and other governmental bodies relating to the regulation of
communications services.
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<PAGE>
Copyright
Cable communications systems are subject to federal copyright licensing covering
carriage of television and radio broadcast signals. In exchange for filing
certain reports and contributing a percentage of their revenues to a federal
copyright royalty pool, cable operators can obtain blanket permission to
retransmit copyrighted material on broadcast signals. The nature and amount of
future payments for broadcast signal carriage cannot be predicted at this time.
In a report to Congress, the Copyright Office recommended that Congress make
major revisions to both the cable television and satellite compulsory licenses
to make them as simple as possible to administer, to provide copyright owners
with full compensation for the use of their works, and to treat every
multichannel video delivery system the same, except to the extent that
technological differences or differences in the regulatory burdens placed upon
the delivery system justify different copyright treatment. The possible
simplification, modification or elimination of the compulsory copyright license
is the subject of continuing legislative review. The elimination or substantial
modification of the cable compulsory license could adversely affect the
Company's ability to obtain suitable programming and could substantially
increase the cost of programming that remains available for distribution to the
Company's subscribers. The Company cannot predict the outcome of this
legislative activity.
Cable operators distribute programming and advertising that use music controlled
by the two principal major music performing rights organizations, the
Association of Songwriters, Composers, Artists and Producers ("ASCAP") and
Broadcast Music, Inc. ("BMI"). In October 1989, the special rate court of the US
District Court for the Southern District of New York imposed interim rates on
the cable industry's use of ASCAP-controlled music. The same federal district
court established a special rate court for BMI. BMI and cable industry
representatives concluded negotiations for a standard licensing agreement
covering the performance of BMI music contained in advertising and other
information inserted by operators into cable programming and on certain local
access and origination channels carried on cable systems. The Company's
settlement with BMI did not have a significant impact on the Company's financial
position, results of operations or liquidity. ASCAP and cable industry
representatives have met to discuss the development of a standard licensing
agreement covering ASCAP-controlled music in local origination and access
channels and pay-per- view programming. Although the Company cannot predict the
ultimate outcome of these industry negotiations or the amount of any license
fees it may be required to pay for past and future use of ASCAP-controlled
music, it does not believe such license fees will be significant to the
Company's financial position, results of operations or liquidity.
State and Local Regulation
Because a cable communications system uses local streets and rights-of-way,
cable systems are subject to state and local regulation, typically imposed
through the franchising process. Cable communications systems generally are
operated pursuant to non-exclusive franchises, permits or licenses granted by a
municipality or other state or local government entity. Franchises generally are
granted for fixed terms and in many cases are terminable if the franchisee fails
to comply with material provisions. The terms and conditions of franchises vary
materially from jurisdiction to jurisdiction. Each franchise generally contains
provisions governing cable service rates, franchise fees, franchise term, system
construction and maintenance obligations, system channel capacity, design and
technical performance, customer service standards, franchise renewal, sale or
transfer of the franchise, territory of the franchisee, indemnification of the
franchising authority, use and occupancy of public streets and types of cable
services provided. A number of states subject cable communications systems to
the jurisdiction of centralized state governmental agencies, some of which
impose regulation of a character similar to that of a public utility. Attempts
in other states to regulate cable communications systems are continuing and can
be expected to increase. To date, those states in which the Company operates
that have enacted such state level regulation are Connecticut, New Jersey and
Delaware. State and local franchising jurisdiction is not unlimited, however,
and must be exercised consistently with federal law. The 1992 Cable Act
immunizes franchising authorities from monetary damage awards arising from
regulation of cable communications systems or decisions made on franchise
grants, renewals, transfers and amendments.
The foregoing does not purport to 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 communications systems
operate. Neither the outcome of these proceedings nor their impact upon the
cable communications industry or the Company can be predicted at this time.
- 10 -
<PAGE>
EMPLOYEES
As of December 31, 1997, the Company had approximately 8,200 employees. The
Company believes that its relationships with its employees are good.
ITEM 2 PROPERTIES
The principal physical assets of a cable communications system consist of a
central receiving apparatus, distribution cables, converters, regional customer
service call centers and local business offices. The Company owns or leases the
receiving and distribution equipment for each system and owns or leases parcels
of real property for the receiving sites, regional customer service call centers
and local business offices. The physical components of cable communications
systems require maintenance and periodic upgrading and rebuilding to keep pace
with technological advances.
The Company's management believes that substantially all of its physical assets
are in good operating condition.
ITEM 3 LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position, results of operations or liquidity of the Company.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information for this Item is omitted pursuant to Securities and Exchange
Commission ("SEC") General Instruction I to Form 10-K.
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<PAGE>
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Common Stock
Absence of Trading Market
The common stock of the Company 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.
Holder
All of the shares of common stock of the Company, $1.00 par value, are owned by
Comcast.
Dividends
None.
ITEM 6 SELECTED FINANCIAL DATA
Information for this item is omitted pursuant to SEC General Instruction I to
Form 10-K.
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<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information for this item is omitted pursuant to Securities and Exchange
Commission ("SEC") General Instruction I to Form 10-K, except as noted below.
Results of Operations
Comcast Cable Communications, Inc. (the "Company"), a wholly owned subsidiary of
Comcast Corporation ("Comcast"), is a holding company that conducts all of its
operations through its subsidiaries. The Company has experienced significant
growth in recent years through both strategic acquisitions and growth in its
existing business. The effects of the Company's recent acquisitions, as well as
increased levels of capital expenditures, were to increase significantly the
Company's revenues and expenses, resulting in substantial increases in its
operating income before depreciation and amortization. As a result of the
increases in depreciation and amortization expense and interest expense, it is
expected that the Company will continue to recognize significant losses for the
foreseeable future.
Summarized consolidated financial information for the Company for the years
ended December 31, 1997 and 1996 is as follows (dollars in millions, "NM"
denotes percentage is not meaningful):
<TABLE>
<CAPTION>
Year Ended
December 31, Increase / (Decrease)
1997 1996 $ %
<S> <C> <C> <C> <C>
Service income ........................................ $2,073.0 $1,641.0 $432.0 26.3%
Operating, selling, general and administrative expenses 1,363.6 1,034.4 329.2 31.8
-------- -------- ------
Operating income before depreciation and
amortization (1) ................................... 709.4 606.6 102.8 16.9
Depreciation and amortization ......................... 626.1 420.3 205.8 49.0
-------- -------- ------
Operating income ...................................... 83.3 186.3 (103.0) (55.3)
-------- -------- ------
Interest expense ...................................... 227.9 228.4 (0.5) (0.2)
Interest expense on notes payable to affiliates ....... 37.3 32.1 5.2 16.2
Investment income ..................................... (5.1) (25.9) (20.8) (80.3)
Other ................................................. (0.1) 0.5 (0.6) NM
Income tax benefit .................................... (43.6) (4.5) 39.1 NM
Minority interest ..................................... (21.0) (21.7) (0.7) (3.2)
Extraordinary items ................................... (16.7) 16.7 NM
-------- -------- ------
Net loss .............................................. ($128.8) ($22.6) $106.2 NM
======== ======== ======
- ---------------
<FN>
(1) Operating income before depreciation and amortization is commonly referred
to in the cable communications business as "operating cash flow." Operating
cash flow is a measure of a company's ability to generate cash to service
its obligations, including debt service obligations, and to finance capital
and other expenditures. In part due to the capital intensive nature of the
cable communications business and the resulting significant level of
non-cash depreciation and amortization expense, operating cash flow is
frequently used as one of the bases for comparing businesses in the cable
communications industry, although the Company's measure of operating cash
flow may not be comparable to similarly titled measures of other companies.
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 the Company's
performance.
</FN>
</TABLE>
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<PAGE>
In November 1996, Comcast acquired the cable television operations ("Scripps
Cable") of the E.W. Scripps Company and contributed Scripps Cable to the Company
(the "Scripps Contribution") at Comcast's historical cost. As a result of the
Scripps Contribution, the Company commenced consolidating the financial results
of Scripps Cable effective November 1, 1996. The increases in service income and
operating, selling, general and administrative expenses from 1996 to 1997 are
primarily attributable to the Scripps Contribution. The following table presents
actual financial information for the year ended December 31, 1997 and pro forma
financial information for the year ended December 31, 1996 as if the Scripps
Contribution occurred on January 1, 1996. Pro forma financial information is
presented herein for purposes of analysis and may not reflect what actual
operating results would have been had the Company owned Scripps Cable since
January 1, 1996 (dollars in millions):
<TABLE>
<CAPTION>
Year Ended
December 31, Increase
Pro Forma
1997 1996 $ %
<S> <C> <C> <C> <C>
Service income ............................ $2,073.0 $1,893.8 $179.2 9.5%
Operating, selling, general and
administrative expenses .............. 1,363.6 1,237.0 126.6 10.2
-------- -------- ------
Operating income before depreciation
and amortization (a) ................. $709.4 $656.8 $52.6 8.0%
======== ======== ======
<FN>
(a) See footnote (1) on page 13.
</FN>
</TABLE>
Of the $179.2 million increase in service income from 1996 to 1997 on a pro
forma basis as if the Scripps Contribution occurred on January 1, 1996, $38.1
million is attributable to subscriber growth, $122.8 million relates to changes
in rates, $11.0 million is attributable to growth in cable advertising sales and
$7.3 million relates to other product offerings.
Of the $126.6 million increase in operating, selling, general and administrative
expenses from 1996 to 1997 on a pro forma basis as if the Scripps Contribution
occurred on January 1, 1996, $34.7 million is attributable to an increase in the
costs of cable programming as a result of subscriber growth, additional channel
offerings and changes in rates, $19.2 million is attributable to an increase in
costs associated with customer service, $7.7 million is attributable to growth
in cable advertising sales and $65.0 million results from an increase in the
costs of labor, other volume related expenses and costs associated with new
product offerings. It is anticipated that the Company's cost of cable
programming will increase in the future as cable programming rates increase and
additional sources of cable programming become available.
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 incentive payments based on the number of subscribers
receiving the QVC channel. In addition, the Company receives an allocated
portion, based upon market share, of a percentage of net sales of merchandise
sold to QVC customers located in the Company's service area. For the years ended
December 31, 1997 and 1996, the Company's service income includes $10.2 million
and $8.3 million, respectively, relating to QVC.
Comcast, through management agreements, manages the operations of the Company's
subsidiaries, including rebuilds and upgrades. The management agreements
generally provide that Comcast will supervise the management and operations of
the cable systems and arrange for and supervise (but not necessarily perform
itself) certain administrative functions. As compensation for such services, the
agreements provide for Comcast to charge management fees of up to 6% of gross
revenues. Comcast charged the Company's subsidiaries management fees of $119.3
million and $93.2 million during the years ended December 31, 1997 and 1996,
respectively. These management fees are included in selling, general and
administrative expenses in the Company's consolidated statement of operations.
On behalf of the Company, Comcast seeks and secures long-term programming
contracts that generally provide for payment based on either a monthly fee per
subscriber per channel or a percentage of certain subscriber revenues. Comcast
charges each of the Company's subsidiaries for programming on a basis which
generally approximates the amount that each such subsidiary would be charged if
it purchased such programming directly from the supplier, subject to limitations
imposed by debt facilities for certain subsidiaries, and did not benefit from
the purchasing power of Comcast's consolidated operations. Amounts charged to
the Company by Comcast for programming (the "Programming Charges")
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<PAGE>
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 expenses (primarily salaries) under cost-reimbursement arrangements. Under
all of these arrangements, the Company incurred total expenses of $673.3 million
and $505.0 million, including $560.3 million and $417.0 million of Programming
Charges, during the years ended December 31, 1997 and 1996, respectively. The
Programming Charges include $46.7 million and $26.2 million during the years
ended December 31, 1997 and 1996, respectively, relating to programming
purchased by the Company, through Comcast, from suppliers in which Comcast holds
an equity interest.
The $205.8 million increase in depreciation and amortization expense from 1996
to 1997 is primarily attributable to the effects of the Scripps Contribution and
the effects of capital expenditures. Depreciation and amortization expense for
the year ended December 31, 1997 includes the effects of the final purchase
price allocation relating to the Scripps Contribution.
Interest expense did not change significantly from 1996 to 1997. The Company
anticipates that, for the foreseeable future, interest expense will be a
significant cost to the Company and will have a significant adverse effect on
the Company's ability to realize net earnings. The Company believes it will
continue to be able to meet its obligations through its ability both to generate
operating income before depreciation and amortization and to obtain external
financing.
The $20.8 million decrease in investment income from 1996 to 1997 is principally
due to the gain recognized upon the exchange of the shares of Turner
Broadcasting System, Inc. ("TBS") held by the Company for Time Warner, Inc
("Time Warner") common stock in 1996 as a result of the merger of Time Warner
and TBS in October 1996.
The $39.1 million increase in income tax benefit for the period from 1996 to
1997 is primarily attributable to the increase in the Company's loss before
income tax benefit, minority interest and extraordinary items.
Extraordinary items for the year ended December 31, 1997 of $16.7 million
consist of unamortized debt acquisition costs and debt extinguishment costs of
$27.1 million, net of the related tax benefit of $10.4 million, expensed in
connection with the refinancing, redemption and optional repayment of certain
subsidiary indebtedness principally with the proceeds from the offering of the
Company's $1.7 billion aggregate principal amount senior notes.
For the years ended December 31, 1997 and 1996, the Company's earnings before
extraordinary items, income tax benefit and fixed charges (interest expense and
interest expense on notes payable to affiliates) were $109.5 million and $233.4
million, respectively. Such earnings were not adequate to cover the Company's
fixed charges of $265.2 million and $260.5 million for the years ended December
31, 1997 and 1996, respectively. The Company's fixed charges include non-cash
interest expense of $2.6 million and $8.2 million for the years ended December
31, 1997 and 1996, respectively. The inadequacy of these earnings to cover fixed
charges is primarily due to the substantial non-cash charges for depreciation
and amortization expense.
The Company believes that its losses and inadequacy of earnings to cover fixed
charges will not significantly affect the performance of its normal business
activities because of its existing cash, cash equivalents, short-term
investments and cash held by an affiliate, its ability to generate operating
income before depreciation and amortization and its ability to obtain external
financing.
The Company believes that its operations are not materially affected by
inflation.
--------------------------
Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Certain of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000 (the "Year 2000 Issue"). If this
situation occurs, the potential exists for computer system failure or
miscalculations by computer programs, which could cause disruption of
operations.
- 15 -
<PAGE>
Based on an inventory conducted in 1997, the Company has identified computer
systems that will require modification or replacement so that they will properly
utilize dates beyond December 31, 1999. The Company presently believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue can be mitigated. However, if such modifications and conversions are
not made, or are not completed within an adequate time frame, the Year 2000
Issue could have a material impact on the operations of the Company.
The Company has initiated communications with all of its significant software
suppliers and service bureaus to determine their plans for remediating the Year
2000 Issue in their software which the Company uses or relies upon. The
Company's estimate to complete the remediation plan includes the estimated time
associated with mitigating the Year 2000 Issue for third party software.
However, there can be no guarantee that the systems of other companies on which
the Company relies will be converted on a timely basis, or that a failure to
convert by another company would not have material adverse effect on the
Company.
The Company continues to use both internal and external resources to reprogram
or replace software for Year 2000 modifications. Management of the Company will
also continue to periodically report the progress of its Year 2000 remediation
plan to the Audit Committee of Comcast's Board of Directors. The Company plans
to complete the Year 2000 mitigation in 1999. The costs directly attributable to
the Year 2000 Issue are not expected to have a material effect on the Company's
results of operations.
The costs of the project and the date on which the Company plans to complete the
Year 2000 modifications and replacements are based on management's best
estimates, which were derived using assumptions of future events including the
continued availability of resources and the reliability of third party
modification plans. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those plans.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel with appropriate necessary
skills, the ability to locate and correct all relevant computer code and similar
uncertainties.
- 16 -
<PAGE>
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Comcast Cable Communications, Inc.
Wilmington, Delaware
We have audited the accompanying consolidated balance sheet of Comcast Cable
Communications, Inc. (a wholly owned subsidiary of Comcast Corporation) and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholder's equity (deficiency) and of cash flows
for each of the three years in the period ended December 31, 1997. 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 conducted our audits in accordance with generally accepted auditing
standards. 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 provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Comcast Cable Communications, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, on April 24,
1997, Comcast Corporation completed a restructuring of the legal organization of
certain of its subsidiaries. The Company's consolidated financial statements
have been presented giving effect to the reorganization for all periods
presented in a manner similar to a pooling of interests.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 27, 1998
- 17 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions, except share data)
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................... $40.7 $38.4
Short-term investments....................................................... 0.4 21.5
Cash held by an affiliate.................................................... 56.6 53.5
Accounts receivable, less allowance for doubtful
accounts of $16.7 and $12.0................................................ 72.8 70.4
Inventories.................................................................. 31.3 28.1
Other current assets......................................................... 18.0 19.8
-------- --------
Total current assets..................................................... 219.8 231.7
-------- --------
PROPERTY AND EQUIPMENT.......................................................... 2,667.3 2,401.6
Accumulated depreciation..................................................... (1,021.2) (856.1)
-------- --------
Property and equipment, net.................................................. 1,646.1 1,545.5
-------- --------
DEFERRED CHARGES
Franchise acquisition costs.................................................. 3,818.0 3,812.9
Excess of cost over net assets acquired and other............................ 1,914.3 1,775.0
-------- --------
5,732.3 5,587.9
Accumulated amortization..................................................... (1,540.4) (1,151.8)
-------- --------
Deferred charges, net........................................................ 4,191.9 4,436.1
-------- --------
$6,057.8 $6,213.3
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses........................................ $239.9 $230.7
Accrued interest............................................................. 26.6 25.5
Current portion of long-term debt............................................ 52.8 115.7
Current portion of notes payable to affiliates............................... 2.6
Due to affiliates............................................................ 170.2 152.3
-------- --------
Total current liabilities................................................ 489.5 526.8
-------- --------
LONG-TERM DEBT, less current portion............................................ 2,554.9 3,068.3
-------- --------
MINORITY INTEREST AND OTHER..................................................... 208.5 246.3
-------- --------
NOTES PAYABLE TO AFFILIATES, less current portion............................... 650.6 404.5
-------- --------
DUE TO AFFILIATE................................................................ 398.8 291.8
-------- --------
DEFERRED INCOME TAXES, due to affiliate......................................... 1,488.4 1,580.3
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock, $1 par value - authorized and issued, 1,000 shares.............
Additional capital........................................................... 3,066.2 3,050.6
Accumulated deficit.......................................................... (2,799.1) (2,124.0)
Unrealized loss on marketable securities..................................... (1.4)
Notes receivable from affiliate.............................................. (829.9)
-------- --------
Total stockholder's equity............................................... 267.1 95.3
-------- --------
$6,057.8 $6,213.3
======== ========
</TABLE>
See notes to consolidated financial statements.
- 18 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
SERVICE INCOME................................................ $2,073.0 $1,641.0 $1,454.9
-------- -------- --------
COSTS AND EXPENSES
Operating.................................................. 884.1 667.8 598.8
Selling, general and administrative........................ 479.5 366.6 313.7
Depreciation and amortization.............................. 626.1 420.3 376.2
-------- -------- --------
1,989.7 1,454.7 1,288.7
-------- -------- --------
OPERATING INCOME.............................................. 83.3 186.3 166.2
OTHER (INCOME) EXPENSE
Interest expense........................................... 227.9 228.4 245.6
Interest expense on notes payable to affiliates............ 37.3 32.1 28.2
Investment income.......................................... (5.1) (25.9) (9.2)
Other...................................................... (0.1) 0.5 0.2
-------- -------- --------
260.0 235.1 264.8
-------- -------- --------
LOSS BEFORE INCOME TAX BENEFIT, MINORITY
INTEREST AND EXTRAORDINARY ITEMS........................... (176.7) (48.8) (98.6)
INCOME TAX BENEFIT............................................ (43.6) (4.5) (24.9)
-------- -------- --------
LOSS BEFORE MINORITY INTEREST AND
EXTRAORDINARY ITEMS........................................ (133.1) (44.3) (73.7)
MINORITY INTEREST............................................. (21.0) (21.7) (24.8)
-------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEMS............................... (112.1) (22.6) (48.9)
EXTRAORDINARY ITEMS........................................... (16.7) (2.4)
-------- -------- --------
NET LOSS...................................................... ($128.8) ($22.6) ($51.3)
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
- 19 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss......................................................... ($128.8) ($22.6) ($51.3)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization.................................. 626.1 420.3 376.2
Non-cash interest expense...................................... 1.4 2.0 1.9
Non-cash interest expense on notes payable to affiliates....... 1.2 6.2 5.9
Deferred expenses charged by an affiliate...................... 107.0 66.6 103.3
Payment of deferred expenses charged by an affiliate........... (115.8)
Loss (gain) on sale of investments............................. 1.6 (19.8)
Minority interest.............................................. (21.0) (21.7) (24.8)
Extraordinary items............................................ 16.7 2.4
Deferred income tax benefit, due to affiliate.................. (49.7) (44.6) (49.4)
-------- ------ ------
554.5 386.4 248.4
Increase in accounts receivable, net........................... (2.4) (5.8) (12.0)
Increase in inventories........................................ (3.2) (2.6) (5.6)
Decrease (increase) in other current assets.................... 1.8 (3.5) (0.5)
Increase (decrease) in accounts payable and accrued expenses... 10.1 (2.2) (53.0)
Increase (decrease) in accrued interest........................ 1.1 12.6 (7.6)
(Decrease) increase in other non-current liabilities........... (12.4) 15.1 6.5
-------- ------ ------
Net cash provided by operating activities.................... 549.5 400.0 176.2
-------- ------ ------
FINANCING ACTIVITIES
Proceeds from borrowings......................................... 1,805.8 448.0 720.0
Repayments of long-term debt..................................... (2,395.1) (284.5) (665.6)
Proceeds from notes payable to affiliates........................ 690.6 59.7 50.9
Repayment of notes payable to affiliates......................... (140.8) (1.4) (7.0)
Capital contributions............................................ 0.3 1.4
Net transactions with affiliates................................. 17.9 92.5 10.9
Deferred financing costs and other............................... (15.8) (3.0) (4.1)
-------- ------ ------
Net cash (used in) provided by financing activities............ (37.4) 311.6 106.5
-------- ------ ------
INVESTING ACTIVITIES
Acquisitions..................................................... (7.1) (5.0) (11.3)
Sale of short-term investments................................... 21.6
Capital expenditures............................................. (497.8) (298.2) (238.5)
Increase in cash held by an affiliate............................ (3.1) (26.6) (26.9)
Increase in notes receivable from affiliates..................... (340.0) (52.2)
Additions to deferred charges and other.......................... (23.4) (15.0) (14.7)
-------- ------ ------
Net cash used in investing activities........................ (509.8) (684.8) (343.6)
-------- ------ ------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................................... 2.3 26.8 (60.9)
CASH AND CASH EQUIVALENTS, beginning of year........................ 38.4 11.6 72.5
-------- ------ ------
CASH AND CASH EQUIVALENTS, end of year.............................. $40.7 $38.4 $11.6
======== ====== ======
</TABLE>
See notes to consolidated financial statements.
- 20 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIENCY)
(Dollars in millions)
<TABLE>
<CAPTION>
Unrealized Notes
Loss on Receivable
Common Additional Accumulated Marketable from
Stock Capital Deficit Securities Affiliate Total
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995............................... $ $1,431.3 ($2,050.1) $5.4 ($344.7) ($958.1)
Net loss............................................ (51.3) (51.3)
Capital contributions............................... 6.3 6.3
Unrealized gain on marketable securities, net of
deferred taxes of $2.3............................ 4.3 4.3
Interest income on notes receivable from affiliates. 40.1 (40.1)
Income taxes on interest income on notes
receivable from affiliates........................ (14.0) (14.0)
Increase in notes receivable from affiliates, net (52.2) (52.2)
------ -------- --------- ---- ------- -------
BALANCE, DECEMBER 31, 1995............................. 1,463.7 (2,101.4) 9.7 (437.0) (1,065.0)
Net loss............................................ (22.6) (22.6)
Capital contributions............................... 1,552.5 1,552.5
Unrealized loss on marketable securities, net of
deferred taxes of ($6.0).......................... (11.1) (11.1)
Interest income on notes receivable from affiliate.. 52.9 (52.9)
Income taxes on interest income on notes receivable
from affiliate.................................... (18.5) (18.5)
Increase in notes receivable from affiliate......... (340.0) (340.0)
------ -------- --------- ---- ------- -------
BALANCE, DECEMBER 31, 1996............................. 3,050.6 (2,124.0) (1.4) (829.9) 95.3
Net loss............................................ (128.8) (128.8)
Change in unrealized loss on marketable securities,
net of deferred taxes of $0.7..................... 1.4 1.4
Interest income on notes receivable from affiliate.. 23.9 (23.9)
Income taxes on interest income on notes receivable
from affiliate.................................... (8.3) (8.3)
Exchange of outstanding notes payable to and
notes receivable from affiliates.................. 307.5 307.5
Elimination of outstanding notes receivable from
affiliate through a non-cash dividend to Comcast.. (546.3) 546.3
------ -------- --------- ---- ------- -------
BALANCE, DECEMBER 31, 1997............................. $ $3,066.2 ($2,799.1) $ $ $267.1
====== ======== ========= ==== ======= =======
</TABLE>
See notes to consolidated financial statements.
- 21 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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 hybrid-fiber coaxial broadband
cable networks. The Company's systems served approximately 4.4 million
subscribers and passed more than 7.1 million homes as of December 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly owned or controlled subsidiaries. All significant
intercompany accounts and transactions among consolidated entities have
been eliminated.
Reorganization
On April 24, 1997, Comcast completed a restructuring of the legal
organization of certain of its subsidiaries (the "Reorganization"). The
Reorganization involved Comcast's contribution to the Company of ownership
interests in certain of its consolidated subsidiaries, all of which were
under Comcast's direct or indirect control (the "Contributed
Subsidiaries"). The Reorganization has been accounted for in a manner
similar to a pooling of interests. Accordingly, the Company's consolidated
financial statements include the accounts of the Contributed Subsidiaries
for all periods presented.
In addition, certain expenses directly related to the Company's operations
which were historically paid by Comcast on behalf of the Company have been
reflected in the Company's consolidated statement of operations for all
periods presented.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Values
The estimated fair value amounts presented in these notes to consolidated
financial statements have been determined by the Company using available
market information and appropriate methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates
of fair value. The estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts. Such fair value estimates are based on pertinent information
available to management as of December 31, 1997 and 1996, and have not been
comprehensively revalued for purposes of these consolidated financial
statements since such dates.
A reasonable estimate of fair value of the amounts due to/from 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, Short-term Investments and Cash Held by an Affiliate
Cash equivalents principally consist of repurchase agreements with
maturities of three months or less when purchased. Short-term investments
consist of certificates of deposit with maturities of greater than three
months when purchased. The carrying amounts of the Company's cash
equivalents and short-term investments, classified as available for sale
securities, approximate their fair values.
- 22 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
As of December 31, 1996, short-term investments also include the Company's
investment in Time Warner, Inc. ("Time Warner") Common Stock (the "Time
Warner Stock"). The Company received 552,014 shares of Time Warner Stock in
exchange (the "Exchange") for all of the shares of the Turner Broadcasting
System, Inc. ("TBS") Stock (the "TBS Stock") held by the Company as a
result of the merger of Time Warner and TBS in October 1996. As a result of
the Exchange, the Company recognized a pre-tax gain of $19.8 million in the
fourth quarter of 1996, representing the difference between the Company's
historical cost basis in the TBS Stock and the new basis for the Company's
investment in Time Warner Stock of $22.8 million, which was based on the
closing price of the Time Warner Stock on the merger date of $41.375 per
share. As of December 31, 1996, the shares of Time Warner Stock held by the
Company were recorded at their fair value of $20.7 million and were
included in short-term investments in the Company's consolidated balance
sheet. The unrealized loss on this investment of $2.1 million was reported
in the Company's December 31, 1996 consolidated balance sheet as a decrease
in stockholder's equity, net of deferred income tax benefit of $0.7
million. In January 1997, the Company sold its entire interest in Time
Warner for $21.2 million. In connection with this sale, the Company
recognized a pre-tax loss of $1.6 million, which is included in investment
income in the Company's consolidated statement of operations for the year
ended December 31, 1997.
Cash held by an affiliate consists of cash held by a subsidiary of Comcast
under a cash management program (see Note 6).
Inventories
Inventories, which include materials and supplies, are stated at average
cost which is less than market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over estimated useful lives as follows:
Buildings and improvements ........................ 15-40 years
Operating facilities............................... 5-20 years
Other equipment.................................... 2-10 years
Improvements that extend asset lives are capitalized; other repairs and
maintenance charges are expensed as incurred. The cost and related
accumulated depreciation applicable to assets sold or retired are removed
from the accounts and the gain or loss on disposition is recognized as a
component of depreciation expense.
In connection with the rebuild and upgrade of cable systems, the Company
depreciates the remaining net book value of the assets over the estimated
rebuild or upgrade period. Under this policy, the Company recorded
additional depreciation expense of $32.4 million, $20.3 million and $14.2
million during the years ended December 31, 1997, 1996 and 1995,
respectively.
Deferred Charges
Franchise acquisition costs are amortized on a straight-line basis over
their legal or estimated useful lives of 12 to 40 years. The excess of cost
over the fair value of net assets acquired is being amortized on a
straight-line basis over estimated useful lives of 20 to 40 years. Debt
acquisition costs are being amortized on a straight-line basis over the
term of the related debt.
Valuation of Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets, including property and equipment and deferred charges, using
objective methodologies. Such methodologies include evaluations based on
the cash flows generated by the underlying assets or other determinants of
fair value.
- 23 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
Notes Receivable from Affiliate
The notes receivable from affiliate (the "Notes Receivable") are due from
Comcast and are presented in the Company's consolidated balance sheet as a
component of stockholder's equity due to their related party nature (see
Note 5). The Notes Receivable are increased by interest due under the terms
of the notes and any additional amounts loaned to Comcast and are reduced
by any cash payments of interest or principal. Interest due under the terms
of the Notes Receivable, net of any related income taxes, has been recorded
as an increase in additional capital.
Revenue Recognition
Service income is recognized as service is provided. Credit risk is managed
by disconnecting services to customers who are delinquent.
Postretirement and Postemployment Benefits
The estimated costs of retiree benefits and benefits for former or inactive
employees, after employment but before retirement, are accrued and recorded
as a charge to operations during the years the employees provide services.
The Company's retiree benefit obligation is unfunded and all benefits are
provided and paid by Comcast. Accordingly, the Company's liability for
these costs is included in due to affiliates.
A wholly owned subsidiary of the Company has agreements with certain former
key executives that provide for supplemental retirement benefits. The
actuarial present value of benefits payable under these agreements has been
accrued.
Investment Income
Investment income includes interest income and gains, net of losses, on the
sale or exchange of long-term investments. Gross realized gains and losses
are recognized using the specific identification method.
Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities and expected benefits of utilizing net
operating loss carryforwards. The impact on deferred taxes of changes in
tax rates and laws, if any, applied to the years during which temporary
differences are expected to be settled, are reflected in the consolidated
financial statements in the period of enactment.
Derivative Financial Instruments
The Company uses derivative financial instruments, including interest rate
exchange agreements ("Swaps"), interest rate cap agreements ("Caps") and
interest rate collar agreements ("Collars"), to manage its exposure to
fluctuations in interest rates. Swaps, Caps and Collars are matched with
either fixed or variable rate debt and periodic cash payments are accrued
on a settlement basis as an adjustment to interest expense. Any premiums
associated with these instruments are amortized over their term and
realized gains or losses as a result of the termination of the instruments
are deferred and amortized over the remaining term of the underlying debt.
Unrealized gains and losses as a result of these instruments are recognized
when the underlying hedged item is extinguished or otherwise terminated.
Those instruments that have been entered into by the Company to hedge
exposure to interest rate risk are periodically examined by the Company to
ensure that the instruments are marked with underlying liabilities, reduce
the Company's risks relating to interest rates, and, through market value
and sensitivity analysis, maintain a high correlation to the interest
expense of the hedged item. For those instruments that do not meet the
above criteria, variations in their fair value are marked-to-market on a
current basis in the Company's consolidated statement of operations.
The Company does not hold or issue any derivative financial instruments for
trading purposes and is not a party to leveraged instruments (see Note 4).
The credit risks associated with the Company's derivative financial
instruments are controlled through the evaluation and monitoring of the
creditworthiness of the counterparties. Although the
- 24 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
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.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 1997.
3. ACQUISITION
Scripps Cable
In November 1996, Comcast acquired the cable television operations
("Scripps Cable") of The E.W. Scripps Company ("E.W. Scripps") in exchange
for 93.048 million shares of Comcast's Class A Special Common Stock valued
at $1.552 billion (the "Scripps Acquisition"). Comcast accounted for the
Scripps Acquisition under the purchase method. Following the Scripps
Acquisition, Comcast contributed Scripps Cable to the Company (the "Scripps
Contribution") at Comcast's historical cost. The Scripps Contribution was
recorded as an increase in additional capital and Scripps Cable was
consolidated with the Company effective November 1, 1996. As the Scripps
Contribution was a non-cash transaction, it had no significant impact on
the Company's consolidated statement of cash flows.
During the second quarter of 1997, the Company recorded the final purchase
price allocation relating to the Scripps Contribution. The terms of the
Scripps Acquisition provide for, among other things, the indemnification of
the Company by E.W. Scripps for certain liabilities, including tax
liabilities, relating to Scripps Cable prior to the acquisition date.
Unaudited Pro Forma Information
The following unaudited pro forma information for the years ended December
31, 1996 and 1995 has been presented as if the Scripps Contribution had
occurred on January 1, 1995. This unaudited pro forma 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 Scripps Cable since
January 1, 1995 (dollars in millions).
Year Ended
December 31,
1996 1995
Service income .................... $1,893.8 $1,734.4
Loss before extraordinary items.... (118.3) (145.7)
Net loss .......................... (118.3) (148.1)
- 25 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
1997 1996
(Dollars in millions)
<S> <C> <C>
Notes payable to banks and insurance companies,
due in installments through 2003....................................... $915.7 $3,054.1
8 1/8% Senior notes, due 2004.............................................. 299.7
8 3/8% Senior notes, due 2007.............................................. 596.3
8 7/8% Senior notes, due 2017.............................................. 545.5
8 1/2% Senior notes, due 2027.............................................. 249.6
10% Subordinated Debentures, due 2003,
net of unamortized discount of $12.7................................... 126.6
Other debt, due in installments principally through 2007................... 0.9 3.3
-------- --------
2,607.7 3,184.0
Less current portion....................................................... 52.8 115.7
-------- --------
$2,554.9 $3,068.3
======== ========
</TABLE>
Maturities of long-term debt outstanding as of December 31, 1997 for the
four years after 1998 are as follows (dollars in millions):
1999................................................. $108.1
2000................................................. 120.1
2001................................................. 235.1
2002................................................. 250.1
In addition to the Company's outstanding long-term debt as presented in the
table above, the Company had an aggregate of $650.6 million and $407.1
million of notes payable to Comcast and Comcast's subsidiaries as of
December 31, 1997 and 1996, respectively (see Note 5).
Senior Notes Offering
In May 1997, the Company completed the sale of $1.7 billion principal
amount of notes (the "Senior Notes") through a private offering with
registration rights. The Senior Notes were issued in four tranches: $300.0
million principal amount of 8 1/8% Notes due 2004 (the "Seven-Year Notes"),
$600.0 million principal amount of 8 3/8% Notes due 2007 (the "Ten-Year
Notes"), $550.0 million principal amount of 8 7/8% Notes due 2017 (the
"Twenty-Year Notes") and $250.0 million principal amount of 8 1/2% Notes
due 2027 (the "Thirty-Year Notes"). The Company used substantially all of
the net proceeds from the offering of the Senior Notes to repay certain of
its subsidiaries' notes payable to banks with the balance used for
subsidiary general purposes. Collectively, the offering of the Senior Notes
and the repayment of the aforementioned notes payable with the net proceeds
from the offering of the Senior Notes are referred to herein as the
"Refinancing."
Interest on the Senior Notes is payable semiannually on May 1 and November
1 of each year, commencing November 1, 1997. The Seven-Year Notes, the
Ten-Year Notes and the Twenty-Year Notes are redeemable, in whole or in
part, at the option of the Company at any time and the Thirty-Year Notes
are redeemable, in whole or in part, at the option of the Company at any
time after May 1, 2009, in each case at a redemption 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 Thirty-Year Notes may require
the Company to repurchase all or a portion of the Thirty-Year Notes owned
by such holder on May 1, 2009 at a purchase price equal to 100% of the
principal amount thereof.
- 26 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
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
its Restricted Subsidiaries (as defined) to: (i) make dividend payments or
other restricted payments; (ii) create liens or enter into sale and
leaseback transactions; and (iii) enter into mergers, consolidations, or
sales of all or substantially all of their assets.
In October 1997, the Company completed an exchange of 100% of the Senior
Notes for new notes (having the terms described above) registered under the
Securities Act of 1933, as amended.
Debt Repayments
In June 1997, the Company redeemed all of its outstanding 10% Subordinated
Debentures, due 2003 (the "10% Debentures"). An aggregate principal amount
of $139.3 million of the 10% Debentures was redeemed at a redemption price
of 100% of the principal amount thereof, together with accrued interest
thereon. As of the redemption date, the 10% Debentures had an accreted
value of $127.7 million. The Company redeemed the 10% Debentures with the
proceeds from the issuance of a $141.0 million note payable to a subsidiary
of Comcast which bears interest at a rate of 8.50%, payable quarterly, and
is due in 2002 (see Note 5).
In July 1997, the Company made an optional debt repayment of $435.0 million
with the proceeds from the issuance of a $437.3 million note payable to a
subsidiary of Comcast which bears interest at a rate of 7.25%, payable
quarterly, and is due in 2002 (see Note 5).
Extraordinary Items
In connection with the Refinancing, the redemption of the 10% Debentures
and the optional repayment of certain indebtedness, the Company expensed
unamortized debt acquisition costs and incurred debt extinguishment costs
of $27.1 million, resulting in extraordinary losses, net of tax, of $16.7
million during the year ended December 31, 1997.
During the year ended December 31, 1995, the Company incurred debt
extinguishment costs totaling $3.6 million in connection with the
refinancing of certain indebtedness of a subsidiary, resulting in an
extraordinary loss, net of tax, of $2.4 million.
Debt Assumption
During 1996, a wholly owned subsidiary of Comcast assumed a $27.0 million
note payable to a bank and $0.6 million of accrued interest thereon. In
return, the Company became liable under a $27.6 million note payable to the
subsidiary of Comcast. In connection with the Refinancing, Comcast Cable
Funding Inc., a wholly owned subsidiary of the Company, assumed the note.
Interest Rates
Fixed interest rates on notes payable to banks and insurance companies
range from 8.6% to 10.57%. Bank debt interest rates vary based upon one or
more of the following rates at the option of the Company:
Base Rate (higher of federal funds rate plus 0.5% or prime rate) to
Base Rate plus 0.75%;
London Interbank Offered Rate ("LIBOR") plus 0.375% to LIBOR plus 1.75%
As of December 31, 1997 and 1996, the Company's effective weighted average
interest rate on its outstanding variable rate notes payable to banks was
6.97% and 6.58%, respectively.
- 27 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
Interest Rate Risk Management
The Company is exposed to market risk including changes in interest rates.
To manage the volatility relating to these exposures, the Company enters
into various derivative transactions pursuant to the Company's policies in
areas such as counterparty exposure and hedging practices. Positions are
monitored using techniques including market value and sensitivity analyses.
The use of interest rate risk management instruments, such as Swaps, Caps
and Collars, is required under the terms of certain of the Company's
outstanding debt agreements. The Company's policy is to manage interest
costs using a mix of fixed and variable rate debt. 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.
The following table summarizes the terms of the Company's existing Swaps,
Caps and Collars as of December 31, 1997 and 1996 (dollars in millions):
<TABLE>
<CAPTION>
Notional Average Estimated
Amount Maturities Interest Rate Fair Value
As of December 31, 1997
<S> <C> <C> <C> <C>
Variable to Fixed Swaps......................... $100.0 1998-1999 5.67% $0.1
Caps............................................ 150.0 1998 6.67%
Collar.......................................... 50.0 1998 7.00%/4.90%
As of December 31, 1996
Variable to Fixed Swaps......................... $530.0 1997-1999 6.14% ($1.2)
Caps............................................ 250.0 1997 8.55%
Collars......................................... 400.0 1997-1998 7.09%/5.04% 0.2
</TABLE>
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, 1997, 1996 and 1995 was not
significant.
Estimated Fair Value
The Company's long-term debt had estimated fair values of $2.862 billion
and $3.215 billion as of December 31, 1997 and 1996, respectively. The
estimated fair value of the Company's publicly traded debt is based on the
quoted market price for that debt. Interest rates that are currently
available to the Company for issuance of debt with similar terms and
remaining maturities are used to estimate fair value for debt issues for
which quoted market prices are not available.
Debt Covenants
Certain of the Company's subsidiaries' loan agreements contain restrictive
covenants which, among other things, 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.
Certain of these agreements require that certain ratios and cash flow
levels be maintained and contain certain restrictions on dividend payments,
payment of management fees and advances of funds to affiliated entities and
the Company. The Company and its subsidiaries were in compliance with such
restrictive covenants for all periods presented. In addition, the stock of
certain subsidiary companies is pledged as collateral for the notes payable
to banks and insurance companies.
- 28 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
As of December 31, 1997, a portion of the Company's cash, cash equivalents,
short-term investments and cash held by an affiliate is restricted to use
by subsidiaries of the Company under contractual arrangements, including
subsidiary credit agreements.
Restricted net assets of the Company's subsidiaries were approximately $2.8
billion as of December 31, 1997. The restricted net assets of subsidiaries
exceeds the Company's consolidated net assets as certain of the Company's
subsidiaries have a stockholder's deficiency.
Lines and Letters of Credit
As of January 30, 1998, certain subsidiaries of the Company had unused
lines of credit of $670.0 million. The availability and use of these unused
lines of credit is restricted by the covenants of the related debt
agreements and to subsidiary general purposes and dividend declaration. The
Company continually evaluates its debt structure with the intention of
reducing its debt service requirements when desirable.
As of January 30, 1998, the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totaling $105.9 million to
cover potential fundings associated with several projects.
5. NOTES PAYABLE TO AND NOTES RECEIVABLE FROM AFFILIATES
During the year ended December 31, 1997, the Company (i) repaid $140.8
million of its notes payable to affiliates (the "Notes Payable") with the
proceeds from drawdowns under subsidiaries' existing credit facilities
($55.0 million) and existing cash held by an affiliate ($85.8 million),
(ii) completed the exchange of affiliate notes payable and notes
receivable, and the accrued interest thereon, between the Company, Comcast
and certain of their subsidiaries resulting in a reduction in the Company's
Notes Payable of $307.5 million, with a corresponding reduction in the
Company's notes receivable from affiliate (the "Notes Receivable"), and
(iii) eliminated the remaining Notes Receivable, and the accrued interest
thereon (aggregating $546.3 million), through a non-cash dividend to
Comcast. During the years ended December 31, 1996 and 1995, the Company
repaid $1.4 million and $7.0 million principal amount of Notes Payable,
respectively.
As of December 31, 1997 and 1996, Notes Payable include $650.6 million and
$383.4 million principal amount of Notes Payable to Comcast and certain of
its wholly owned subsidiaries. During the year ended December 31, 1997, the
Company borrowed $690.6 million from Comcast and certain of its wholly
owned subsidiaries, the proceeds of which were used primarily to redeem the
10% Debentures and make the optional debt repayment described in Note 4.
Such borrowings also included a $72.3 million note payable to a subsidiary
of Comcast which bears interest at a rate of 8.50%, payable quarterly, and
is due 2007. During the years ended December 31, 1996 and 1995, the Company
borrowed $87.3 million and $50.9 million, respectively, from Comcast and
certain wholly owned subsidiaries of Comcast. The 1996 borrowings include
$27.6 million associated with the debt assumption described in Note 4. The
remaining borrowings in 1996 and the 1995 borrowings were used by the
Company for debt service requirements and general purposes.
The Notes Payable bear interest at rates ranging from 7.25% to 8.50% as of
December 31, 1997 (weighted average interest rate of 7.66% and 9.31% as of
December 31, 1997 and 1996, respectively). As of December 31, 1996, accrued
interest relating to such Notes Payable of $23.7 million was added to
principal.
6. 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 incentive payments based on the number of
subscribers receiving the QVC channel. In addition, the Company receives an
allocated portion, based upon market share, of a percentage of net sales of
merchandise sold to QVC customers located in the Company's service area.
For the years ended December
- 29 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
31, 1997, 1996 and 1995, the Company's service income includes $10.2
million, $8.3 million and $7.9 million, respectively, relating to QVC.
Comcast, through management agreements, manages the operations of the
Company's subsidiaries, including rebuilds and upgrades. The management
agreements generally provide that Comcast will supervise the management and
operations of the cable systems and arrange for and supervise (but not
necessarily perform itself) certain administrative functions. As
compensation for such services, the agreements provide for Comcast to
charge management fees of up to 6% of gross revenues. Comcast charged the
Company's subsidiaries management fees of $119.3 million, $93.2 million and
$83.5 million in 1997, 1996 and 1995, respectively. These management fees
are included in selling, general and administrative expenses in the
Company's consolidated statement of operations. Comcast has agreed to
permit certain subsidiaries of the Company to defer payment of a portion of
these expenses with the deferred portion being treated as a subordinated
long-term liability due to affiliate which will not be paid until the
subsidiaries' existing long-term debt is retired. In addition, payment of
certain of these expenses has been deferred until the California Public
Employees' Retirement System ("CalPERS") no longer has an interest in
Comcast MHCP Holdings, LLC (the "LLC"), a majority owned subsidiary of the
Company (see Note 9). Management fees deferred in 1997, 1996 and 1995 were
$4.7 million, $4.3 million and $45.2 million, respectively. In 1995, a
subsidiary of the Company repaid $14.9 million of previously deferred
management fees. Deferred management fees were $136.9 million and $132.2
million as of December 31, 1997 and 1996, respectively.
On behalf of the Company, Comcast seeks and secures long-term programming
contracts that generally provide for payment based on either a monthly fee
per subscriber per channel or a percentage of certain subscriber revenues.
Comcast charges each of the Company's subsidiaries for programming on a
basis which generally approximates the amount that each such subsidiary
would be charged if it purchased such programming directly from the
supplier, subject to limitations imposed by debt facilities for certain
subsidiaries, and did not benefit from the purchasing power of Comcast's
consolidated operations. Amounts charged to the Company by Comcast for
programming (the "Programming Charges") are included in operating expenses
in the Company's consolidated statement of operations. The Company
purchases certain other services, including insurance and employee
benefits, from Comcast under cost-sharing arrangements on terms that
reflect Comcast's actual cost. The Company reimburses Comcast for certain
other costs (primarily salaries) under cost-reimbursement arrangements.
Under all of these arrangements, the Company incurred total expenses of
$673.3 million, $505.0 million and $439.4 million, including $560.3
million, $417.0 million and $368.3 million of Programming Charges, in 1997,
1996 and 1995, respectively. The Programming Charges include $46.7 million,
$26.2 million and $21.7 million in 1997, 1996 and 1995, respectively,
relating to programming purchased by the Company, through Comcast, from
suppliers in which Comcast holds an equity interest.
Comcast has agreed to permit certain of the Company's subsidiaries to defer
payment of a portion of the Programming Charges with the deferred portion
being treated as a subordinated long-term liability due to affiliate which
will not be payable until the subsidiaries' existing long-term debt is
retired. In addition, payment of certain of the Programming Charges has
been deferred until CalPERS no longer has an interest in the LLC.
Programming Charges deferred in 1997, 1996 and 1995 were $102.3 million,
$62.3 million and $58.1 million, respectively. In 1995, subsidiaries of the
Company repaid $89.2 million of previously deferred Programming Charges.
Deferred Programming Charges were $261.9 million and $159.6 million as of
December 31, 1997 and 1996, respectively.
Current due to affiliates in the Company's consolidated balance sheet
primarily consists of amounts due to Comcast and its affiliates under the
cost-sharing arrangements described above and amounts payable to Comcast
and its affiliates as reimbursement for payments made, in the ordinary
course of business, by such affiliates on behalf of the Company.
The Company has entered into a custodial account arrangement with Comcast
Financial Agency Corporation ("CFAC"), a wholly owned subsidiary of
Comcast, under which CFAC provides cash management services to the Company.
Under this arrangement, the Company's cash receipts are deposited with and
held by CFAC, as custodian
- 30 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
and agent, which invests and disburses such funds at the direction of the
Company. As of December 31, 1997 and 1996, $56.6 million and $53.5 million,
respectively, of the Company's cash was held by CFAC. These amounts have
been classified as cash held by an affiliate in the Company's consolidated
balance sheet. During the years ended December 31, 1997, 1996 and 1995, the
Company recognized investment income of $3.9 million, $4.1 million, and
$0.5 million, respectively, on cash held by CFAC.
7. INCOME TAXES
The Company and its 80% or more owned subsidiaries (the "Cable Consolidated
Group") 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. Comcast
Communications Properties, Inc. ("CCP"), an indirect majority owned
subsidiary of the Company, files a separate consolidated 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.
The LLC is treated as a partnership for income tax purposes. As such, any
taxable income or loss attributable to the LLC, excluding any income or
loss from its subsidiaries, flows through to the Company and CalPERS based
on their respective ownership percentages.
Income tax benefit consists of the following components (dollars in
millions):
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Current expense
Federal.............................................. $ $32.8 $19.7
State................................................ 6.1 7.3 4.8
------ ----- ------
6.1 40.1 24.5
------ ----- ------
Deferred (benefit) expense
Federal.............................................. (48.2) (48.3) (49.9)
State................................................ (1.5) 3.7 0.5
------ ----- ------
(49.7) (44.6) (49.4)
------ ----- ------
Income tax benefit................................... ($43.6) ($4.5) ($24.9)
====== ===== ======
</TABLE>
The effective income tax benefit of the Company differs from the statutory
amount because of the effect of the following items (dollars in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Federal tax at statutory rate........................ ($61.8) ($17.1) ($34.5)
Non-deductible depreciation and amortization......... 21.5 12.5 11.1
State income taxes, net of federal benefit........... 3.1 7.2 3.4
Interest income, taxable to CalPERS.................. (6.7) (5.9) (5.3)
Other................................................ 0.3 (1.2) 0.4
------ ----- ------
Income tax benefit................................... ($43.6) ($4.5) ($24.9)
====== ===== ======
</TABLE>
- 31 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
Deferred income tax benefit resulted from the following differences between
financial and income tax reporting (dollars in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Depreciation and amortization........................ ($87.5) ($54.9) ($50.4)
Accrued expenses not currently deductible............ (1.0)
Deductible costs accrued in prior years.............. 2.8 6.5 2.2
Change in temporary differences associated
with sale or exchange of securities.............. (6.9) 6.9
Change in net operating loss carryforwards........... 44.6 (4.4) (2.7)
Change in valuation allowance and other.............. (2.7) 2.3 1.5
------ ----- ------
Deferred income tax benefit.......................... ($49.7) ($44.6) ($49.4)
====== ===== ======
</TABLE>
Significant components of the Company's net deferred tax liability are as
follows (dollars in millions):
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................................... $132.9 $176.9
Less valuation allowance............................................... (97.5) (97.5)
-------- --------
35.4 79.4
Deferred tax liabilities, principally differences between book
and tax basis of property and equipment and deferred charges........... 1,523.8 1,659.7
-------- --------
Net deferred tax liability............................................. $1,488.4 $1,580.3
======== ========
</TABLE>
The Company's valuation allowance against deferred tax assets includes
approximately $60.0 million for which any subsequent tax benefit recognized
will be allocated to reduce goodwill and other noncurrent intangible
assets. For income tax reporting purposes, the Cable Consolidated Group and
CCP have net operating loss carryforwards for which deferred tax assets
have been recorded of approximately $75 million and $25 million,
respectively, which would expire on a separate return basis through 2011.
8. STATEMENT OF CASH FLOWS-SUPPLEMENTAL INFORMATION
The Company made cash payments for interest on its long-term debt of $225.4
million, $214.4 million and $251.3 million in 1997, 1996 and 1995,
respectively. The Company made cash payments for interest on the Notes
Payable of $36.1 million, $25.9 million and $22.3 million in 1997, 1996 and
1995, respectively.
The Company made cash payments to Comcast for federal income taxes of $32.9
million, $19.9 million and $5.1 million in 1997, 1996 and 1995,
respectively. The Company made cash payments to the respective state taxing
authorities for state income taxes of $7.0 million, $6.6 million and $7.1
million in 1997, 1996 and 1995, respectively.
9. COMMITMENTS AND CONTINGENCIES
Commitments
At any time after December 18, 2001, CalPERS may elect to liquidate its
interest in the LLC, a 55% owned indirect subsidiary of the Company (which
holds the United States cable television operations formerly known as
Maclean Hunter Limited) in which CalPERS owns the remaining 45% interest,
at a price based upon the fair value of CalPERS' interest in the LLC,
adjusted, under certain circumstances, for certain performance criteria
relating to the fair value of the LLC or to Comcast's common stock. Except
in certain limited circumstances, Comcast, at its option,
- 32 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Concluded)
may satisfy this liquidity arrangement by purchasing CalPERS' interest for
cash, by issuing its common stock (subject to certain limitations) or by
selling the LLC.
In December 1996, an indirect majority owned subsidiary of the Company
entered into an operating lease agreement granting certain rights of use of
certain non-cable assets to the counterparty for a period of five years,
subject to certain conditions. Pursuant to this agreement, the Company
received an advance payment of $17.0 million, representing the total
minimum lease payments to be received over the lease term. The Company has
recorded this amount in other long-term liabilities in its consolidated
balance sheet and is amortizing such amount to service income over the
lease term on a straight-line basis.
Minimum annual rental commitments for office space and equipment under
noncancelable operating leases are as follows (dollars in millions):
1998........................................... $8.7
1999........................................... 6.6
2000........................................... 5.9
2001........................................... 5.5
2002........................................... 4.6
Thereafter..................................... 15.2
Pole rentals have been excluded from the above schedule as they are
generally cancelable after an initial period by either party upon notice.
Rental expense (including pole rentals) of $22.6 million, $19.7 million and
$17.8 million has been charged to operations in 1997, 1996 and 1995,
respectively.
Contingencies
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position, results of operations or liquidity of the
Company.
In December 1995, the Federal Communications Commission ("FCC") adopted an
order approving a negotiated settlement of rate complaints pending against
the Company for cable programming service tiers ("CPSTs") which provided
$6.6 million in refunds, plus interest, given in the form of bill credits
during 1996, to 1.3 million of the Company's cable subscribers. The FCC and
the Company recently negotiated a "social contract" in which the Company
has committed to complete certain system upgrades and improvements by March
1999 in return for which it may move a limited number of currently
regulated programming services in certain cable systems to a single
migrated product tier on each system that may become an unregulated new
product tier after December 1997. The Company is also currently in
negotiations to settle pending proceedings involving the Company's basic
service rates in certain of its systems. While the Company cannot predict
the outcome of this action, the Company believes that the ultimate
resolution of this proceeding will not have a material adverse impact on
the Company's financial position, results of operations or liquidity.
- 33 -
<PAGE>
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 Securities and Exchange Commission
General Instruction I of Form 10-K.
- 34 -
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements of the Company are
included in Part II, Item 8:
Independent Auditors' Report.......................................17
Consolidated Balance Sheet--December 31, 1997 and 1996.............18
Consolidated Statement of Operations--Years
Ended December 31, 1997, 1996 and 1995............................19
Consolidated Statement of Cash Flows--Years
Ended December 31, 1997, 1996 and 1995............................20
Consolidated Statement of Stockholder's Equity
(Deficiency) Years Ended December 31, 1997, 1996 and 1995.........21
Notes to Consolidated Financial Statements.........................22
(b)(i) The following financial statement schedules required to be filed by
Items 8 and 14(d) of Form 10-K are included in Part IV:
Schedule I - Condensed Financial Information of Registrant
Unconsolidated (Parent Only)
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, not
required or the required information is included in the consolidated
financial statements or notes thereto.
(c) Reports on Form 8-K
(i) Comcast Cable Communications, Inc. filed a Current Report on Form
8-K under Item 1 on October 27, 1997 relating to the change in
control of the Registrant.
(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 the Company's
Registration Statement S-4, as amended, filed on September
22, 1997).
3.2 By-laws (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement S-4, as amended, filed on
September 22, 1997).
4.1(a) Indenture dated as of May 1, 1997 by and between the Company
and Bank of Montreal Trust Company (incorporated by reference
to Exhibit 4.1(a) to the Company's Registration Statement S-
4, as amended, filed on September 22, 1997).
4.1(b) Form of Notes relating to the Company's 8 1/8% Senior Notes
due 2004, 8 3/8% Senior Notes due 2007, 8 7/8% Senior Notes
due 2017 and 8 1/2% Senior Notes due 2027 (incorporated by
reference to Exhibit 4.1(b) to the Company's Registration
Statement S-4, as amended, filed on September 22, 1997).
10.1 Tax Sharing Agreement, dated as of December 2, 1992, among
Storer Communications, Inc., TKR Cable I, Inc., TKR Cable II,
Inc., TKR Cable III, Inc., Tele-Communications, Inc., Comcast
Corporation and each of the Departing Subsidiaries that are
signatories thereto (incorporated by reference to Exhibit 4
to Comcast Corporation's Current Report on Form 8-K filed on
December 17, 1992, as amended by Form 8 filed January 8,
1993).
10.2 Tax Sharing Agreement, dated December 2, 1992, between
Comcast Corporation and Comcast Storer, Inc. (incorporated by
reference to Exhibit 9 to Comcast Corporation's Current
Report on Form 8-K filed on December 17, 1992, as amended by
Form 8 filed January 8, 1993).
10.3 Comcast MHCP Holdings, L.L.C. Amended and Restated Limited
Liability Company Agreement, dated as of December 18, 1994,
among the Company, The California Public Employees'
Retirement System and, for certain limited purposes, Comcast
Corporation (incorporated by reference to Exhibit 10.1 to
Comcast Corporation's Current Report on Form 8-K filed on
January 6, 1995).
- 35 -
<PAGE>
10.4 Credit Agreement, dated as of December 22, 1994, among
Comcast MH Holdings, Inc., the banks listed therein, The
Chase Manhattan Bank (National Association), NationsBank of
Texas, N.A. and the Toronto-Dominion Bank, as Arranging
Agents, The Bank of New York, The Bank of Nova Scotia,
Canadian Imperial Bank of Commerce and Morgan Guaranty Trust
Company of New York, as Managing Agents and NationsBank of
Texas, N.A., as Administrative Agent (incorporated by
reference to Exhibit 10.2 to Comcast Corporation's Current
Report on Form 8-K filed on January 6, 1995).
10.5 Pledge Agreement, dated as of December 22, 1994, between
Comcast MH Holdings, Inc. and NationsBank of Texas, N.A., as
the secured party (incorporated by reference to Exhibit 10.3
to Comcast Corporation's Current Report on Form 8-K filed on
January 6, 1995).
10.6 Pledge Agreement dated as of December 22, 1994, between
Comcast Communications Properties, Inc. and NationsBank of
Texas, N.A., as the Secured Party (incorporated by reference
to Exhibit 10.4 to Comcast Corporation's Current Report on
Form 8-K filed on January 6, 1995).
10.7 Affiliate Subordination Agreement (as the same may be
amended, modified, supplemented, waived, extended or restated
from time to time, this "Agreement"), dated as of December
22, 1994, among Comcast Corporation, Comcast MH Holdings,
Inc. (the "Borrower"), any affiliate of the Borrower that
shall have become a party thereto and NationsBank of Texas,
N.A., as Administrative Agent under the Credit Agreement
dated as of December 22, 1994, among the Borrower, the Banks
listed therein, The Chase Manhattan Bank (National
Association), NationsBank of Texas, N.A. and The
Toronto-Dominion Bank, as Arranging Agents. The Bank of New
York, The Bank of Nova Scotia, Canadian Imperial Bank of
Commerce and Morgan Guaranty Trust Company of New York, as
Managing Agents, and the Administrative Agent (incorporated
by reference to Exhibit 10.5 to Comcast Corporation's Current
Report on Form 8-K filed on January 6, 1995).
10.8 Registration Rights and Price Protection Agreement, dated as
of December 22, 1994, by and between Comcast Corporation and
The California Public Employees' Retirement System
(incorporated by reference to Exhibit 10.8 to Comcast
Corporation's Current Report on Form 8-K filed on January 6,
1995).
10.9 Management Agreement, dated as of April 24, 1997, between
Comcast Cable Communications, Inc. and Comcast Corporation
(incorporated by reference to Exhibit 10.11 to the Company's
Registration Statement S-4, as amended, filed on September
22, 1997).
10.10 Promissory Note, dated as of June 30, 1997, between Comcast
Cable Communications, Inc. and Comcast Corporation
(incorporated by reference to Exhibit 10.12 to the Company's
Registration Statement S-4, as amended, filed on September
22, 1997).
10.11 Promissory Note, dated as of July 2, 1997, between Comcast
Cable Communications, Inc. and Comcast Corporation
(incorporated by reference to Exhibit 10.13 to the Company's
Registration Statement S-4, as amended, filed on September
22, 1997).
10.12 Credit Agreement, dated as of November 15, 1996, among
Comcast SCH Holdings, Inc., the banks listed therein,
Nationsbank of Texas, N.A., as Documentation Agent, The Chase
Manhattan Bank, as Syndication Agent, The Bank of New York,
The Chase Manhattan Bank and Nationsbank of Texas, N.A., as
Managing Agents, and The Bank of New York, as Administrative
Agent (incorporated by reference to Exhibit 10.35 to Comcast
Corporation's Form 10-K filed on March 3, 1998).
12.1 Statement re: Computation of Ratio of Earnings to Fixed
Charges.
27.1 Financial Data Schedule.
- 36 -
<PAGE>
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 25, 1998.
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
- ---------------------
Ralph J. Roberts Chairman; Director March 25, 1998
/s/ Julian A. Brodsky
- ---------------------
Julian A. Brodsky Vice Chairman; Director March 25, 1998
/s/ Brian L. Roberts
- ---------------------
Brian L. Roberts Vice Chairman; Director (Principal March 25, 1998
Executive Officer)
/s/ Lawrence S. Smith
- ---------------------
Lawrence S. Smith Executive Vice President March 25, 1998
(Principal Accounting Officer)
/s/ John R. Alchin
- ---------------------
John R. Alchin Senior Vice President, Treasurer March 25, 1998
(Principal Financial Officer)
/s/ Stanley L. Wang
- ---------------------
Stanley L. Wang Senior Vice President, Secretary; March 25, 1998
Director
- 37 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Comcast Cable Communications, Inc.
Wilmington, Delaware
We have audited the consolidated financial statements of Comcast Cable
Communications, Inc. (a wholly owned subsidiary of Comcast Corporation) and its
subsidiaries as of December 31, 1997 and 1996, and for each of the three years
in the period ended December 31, 1997, and have issued our report thereon dated
February 27, 1998; such report is included elsewhere in this Form 10-K. Our
audits also included the financial statement schedules of Comcast Cable
Communications, Inc. and its subsidiaries, listed in Item 14. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
February 27, 1998
- 38 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
CONDENSED BALANCE SHEET
(Dollars in millions, except share data)
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS
Other current assets......................................................... $0.2 $2.7
-------- ------
Total current assets..................................................... 0.2 2.7
-------- ------
Investments in and amounts due to/from subsidiaries eliminated
upon consolidation, net...................................................... 307.5 265.4
Notes receivable from affiliate................................................. 1,783.5
Deferred income taxes........................................................... 7.5
Deferred charges, net........................................................... 17.1
-------- ------
$2,108.3 $275.6
======== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accrued interest and other................................................... $24.1 $1.4
-------- ------
Total current liabilities................................................ 24.1 1.4
-------- ------
Long-term debt............................................................... 1,691.1
-------- ------
Notes payable to affiliates.................................................. 72.3 178.9
-------- ------
Taxes payable, due to affiliates............................................. 51.9
-------- ------
Other long-term liabilities ................................................. 1.8
-------- ------
Stockholder's equity
Common stock, $1 par value - authorized and issued, 1,000 shares.............
Additional capital........................................................... 3,066.2 3,050.6
Accumulated deficit.......................................................... (2,799.1) (2,124.0)
Unrealized loss on marketable securities held by a subsidiary................ (1.4)
Notes receivable from affiliate held by subsidiaries......................... (829.9)
-------- ------
Total stockholder's equity............................................... 267.1 95.3
-------- ------
$2,108.3 $275.6
======== ======
</TABLE>
- 39 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
CONDENSED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(In millions)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
AMORTIZATION.................................................. $1.0 $ $
--------- --------- ---------
OPERATING LOSS................................................ 1.0
OTHER (INCOME) EXPENSE
Interest (income) expense on affiliate notes, net.......... (93.3) 16.4 14.1
Interest expense (income), net............................. 96.5 (0.6) (1.1)
Equity in net losses of affiliates......................... 117.9 5.1 36.3
--------- --------- ---------
121.1 20.9 49.3
LOSS BEFORE INCOME TAX EXPENSE................................ (122.1) (20.9) (49.3)
INCOME TAX EXPENSE............................................ 6.7 1.7 2.0
--------- --------- ---------
NET LOSS...................................................... (128.8) (22.6) (51.3)
ACCUMULATED DEFICIT
Beginning of year.......................................... (2,124.0) (2,101.4) (2,050.1)
Elimination of outstanding notes receivable from
affiliate through a non-cash dividend to Comcast......... (546.3)
--------- --------- ---------
End of year................................................ ($2,799.1) ($2,124.0) ($2,101.4)
========= ========= =========
</TABLE>
- 40 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
CONDENSED STATEMENT OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................... ($128.8) ($22.6) ($51.3)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Amortization............................................. 1.0
Equity in net losses of affiliates....................... 117.9 5.1 36.3
Deferred income tax (benefit) expense ................... (1.5) (4.3) 0.2
-------- ---- -----
(11.4) (21.8) (14.8)
Decrease (increase) in other current assets.............. 4.6 2.0 (1.6)
Increase in accrued interest and other................... 22.7 0.2
Increase in taxes payable, due to affiliates ............ 51.9
Increase in other long-term liabilities ................. 1.8
-------- ---- -----
Net cash provided by (used in) operating activities.... 69.6 (19.6) (16.4)
-------- ---- -----
FINANCING ACTIVITIES
Proceeds from borrowings................................... 1,691.1
Proceeds from notes payable to affiliate................... 72.3 48.2
Repayment of notes payable to affiliates................... (45.0)
Deferred financing costs................................... (18.1) 0.3 1.4
-------- ---- -----
Net cash provided by financing activities................ 1,700.3 0.3 49.6
-------- ---- -----
INVESTING ACTIVITIES
Net transactions with affiliates........................... (1,769.9) 14.8 (41.3)
-------- ---- -----
Net cash (used in) provided by investing activities...... (1,769.9) 14.8 (41.3)
-------- ---- -----
DECREASE IN CASH AND CASH EQUIVALENTS......................... (4.5) (8.1)
CASH AND CASH EQUIVALENTS, beginning of year.................. 4.5 12.6
-------- ---- -----
CASH AND CASH EQUIVALENTS, end of year........................ $ $ $4.5
======== ==== =====
</TABLE>
- 41 -
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(In millions)
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
1997..................................... $12.0 $ $18.4 $13.7 $16.7
1996..................................... 10.7 1.4 15.7 15.8 12.0
1995..................................... 8.4 23.3 21.0 10.7
</TABLE>
(A) Uncollectible accounts written off.
- 42 -
Exhibit 12.1
COMCAST CABLE COMMUNICATIONS, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(dollars in millions)
<TABLE>
<CAPTION>
Years Ended December 31,
1996
Pro
1997 Forma(1) Actual 1995
<S> <C> <C> <C> <C>
Earnings (loss) before fixed charges (2):
Loss before extraordinary items ($112.1) ($118.3) ($22.6) ($48.9)
Income tax benefit (43.6) (50.2) (4.5) (24.9)
Fixed charges 265.2 260.5 260.5 273.8
------ ------ ------ ------
$109.5 $92.0 $233.4 $200.0
====== ====== ====== ======
Fixed charges (2):
Interest expense $227.9 $228.4 $228.4 $245.6
Interest expense on notes payable
to affiliates 37.3 32.1 32.1 28.2
------ ------ ------ ------
$265.2 $260.5 $260.5 $273.8
====== ====== ====== ======
Ratio of earnings to fixed charges (3) -- -- -- --
<FN>
_______________________
(1) Pro forma ratio of earnings to fixed charges information is presented as if
the Scripps Acquisition (as defined herein) occurred on January 1, 1996.
(2) For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of loss before extraordinary items, income tax benefit,
and fixed charges. Fixed charges consist of interest expense and interest
expense on notes payable to affiliates.
(2) For the years ended December 31, 1997, 1996 and 1995, earnings, as defined
above, were inadequate to cover fixed charges by $155.7 million, $27.1
million and $73.8 million, respectively. On a pro forma basis, for the year
ended December 31, 1996, earnings, as defined above, were inadequate to
cover fixed charges by $168.5 million.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001040573
<NAME> COMCAST CABLE COMMUNICATIONS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 41
<SECURITIES> 57
<RECEIVABLES> 90
<ALLOWANCES> (17)
<INVENTORY> 31
<CURRENT-ASSETS> 220
<PP&E> 2,667
<DEPRECIATION> (1,021)
<TOTAL-ASSETS> 6,058
<CURRENT-LIABILITIES> 490
<BONDS> 2,555
0
0
<COMMON> 0
<OTHER-SE> 267
<TOTAL-LIABILITY-AND-EQUITY> 6,058
<SALES> 2,073
<TOTAL-REVENUES> 2,073
<CGS> 0
<TOTAL-COSTS> (1,990)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (265)
<INCOME-PRETAX> (177)<F1>
<INCOME-TAX> 44
<INCOME-CONTINUING> (112)
<DISCONTINUED> 0
<EXTRAORDINARY> (17)
<CHANGES> 0
<NET-INCOME> (129)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> Loss before income tax benefit and other items excludes the effect of
minority interests, net of tax, of $21.
</FN>
</TABLE>
