UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended:
SEPTEMBER 30, 1999
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.)
1201 Market Street, Wilmington, DE 19801
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (302) 594-8700
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes _X_ No ___
--------------------------
As of September 30, 1999, there were 1,000 shares of Common Stock outstanding.
The Registrant meets the conditions set forth in General Instructions H(1)(a)
and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
Page
Number
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Condensed Consolidated Balance Sheet as of
September 30, 1999 and December 31, 1998 (Unaudited)......2
Condensed Consolidated Statement of Operations and
Accumulated Deficit for the Nine and Three Months Ended
September 30, 1999 and 1998 (Unaudited)...................3
Condensed Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998 (Unaudited).4
Notes to Condensed Consolidated
Financial Statements (Unaudited).......................5 - 9
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations..................10 - 13
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings.........................................14
ITEM 6 Exhibits and Reports on Form 8-K..........................14
SIGNATURES..........................................................15
-----------------------------------
This Quarterly Report on Form 10-Q is for the three months ended September
30, 1999. This Quarterly Report modifies and supersedes documents filed prior to
this Quarterly Report. The SEC allows us to "incorporate by reference"
information that we file with them, which means that we can disclose important
information to you by referring you directly to those documents. Information
incorporated by reference is considered to be part of this Quarterly Report. In
addition, information we file with the SEC in the future will automatically
update and supersede information contained in this Quarterly Report. In this
Quarterly Report, "Comcast Cable," "we," "us" and "our" refer to Comcast Cable
Communications, Inc. and its subsidiaries.
You should carefully review the information contained in this Quarterly
Report and in other reports or documents that we file from time to time with the
SEC. In this Quarterly Report, we state our beliefs of future events and of our
future financial performance. In some cases, you can identify those so-called
"forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
Factors Affecting Future Operations
The cable communications industry may be affected by, among other things:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o franchise related matters,
o market conditions that may adversely affect the availability of debt
and equity financing for working capital, capital expenditures or
other purposes; and
o general economic conditions.
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in millions, except share data)
September 30, December 31,
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ........................................... $21.9 $34.5
Investments ......................................................... 21.1 13.4
Cash held by an affiliate ........................................... 144.7 57.1
Accounts receivable, less allowance for doubtful
accounts of $27.9 and $19.4 ...................................... 114.0 90.9
Inventories ......................................................... 64.6 34.6
Other current assets ................................................ 24.5 14.9
---------- ----------
Total current assets ........................................... 390.8 245.4
---------- ----------
INVESTMENTS ............................................................ 35.9 4.9
---------- ----------
PROPERTY AND EQUIPMENT ................................................. 4,110.6 3,276.5
Accumulated depreciation ............................................ (1,415.5) (1,180.4)
---------- ----------
Property and equipment, net ......................................... 2,695.1 2,096.1
---------- ----------
DEFERRED CHARGES ....................................................... 8,175.0 5,871.5
Accumulated amortization ............................................ (2,138.4) (1,768.5)
---------- ----------
Deferred charges, net ............................................... 6,036.6 4,103.0
---------- ----------
$9,158.4 $6,449.4
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses ............................... $377.4 $324.0
Accrued interest .................................................... 109.5 35.4
Deferred income taxes ............................................... 3.4 4.6
Current portion of long-term debt ................................... 47.3 0.1
Due to affiliates ................................................... 171.2 166.6
---------- ----------
Total current liabilities ...................................... 708.8 530.7
---------- ----------
LONG-TERM DEBT, less current portion ................................... 5,060.9 3,462.1
---------- ----------
MINORITY INTEREST AND OTHER ............................................ 157.0 181.8
---------- ----------
NOTES PAYABLE TO AFFILIATES ............................................ 134.9 134.6
---------- ----------
DUE TO AFFILIATE ....................................................... 631.6 524.8
---------- ----------
DEFERRED INCOME TAXES, due to affiliate ................................ 1,699.8 1,442.4
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock, $1 par value - authorized and issued, 1,000 shares
Additional capital .................................................. 3,831.7 3,066.2
Accumulated deficit ................................................. (3,067.4) (2,896.4)
Unrealized gains on marketable securities ........................... 1.1 3.2
---------- ----------
Total stockholder's equity ..................................... 765.4 173.0
---------- ----------
$9,158.4 $6,449.4
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in millions)
Nine Months Ended Three Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SERVICE INCOME ........................................ $2,115.9 $1,681.2 $762.3 $571.7
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Operating .......................................... 918.7 728.9 322.8 242.4
Selling, general and administrative ................ 488.8 381.7 177.2 129.2
Depreciation and amortization ...................... 718.9 495.1 264.2 171.5
---------- ---------- ---------- ----------
2,126.4 1,605.7 764.2 543.1
---------- ---------- ---------- ----------
OPERATING (LOSS) INCOME ............................... (10.5) 75.5 (1.9) 28.6
OTHER EXPENSE (INCOME)
Interest expense ................................... 254.7 163.0 95.7 55.1
Interest expense on notes payable to affiliates .... 5.2 42.0 1.6 14.7
Investment expense (income) and other, net ......... 2.0 (13.3) (4.4) (9.4)
---------- ---------- ---------- ----------
261.9 191.7 92.9 60.4
---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAX (BENEFIT) EXPENSE
AND MINORITY INTEREST .............................. (272.4) (116.2) (94.8) (31.8)
INCOME TAX (BENEFIT) EXPENSE .......................... (18.8) (27.6) 11.0 (6.9)
---------- ---------- ---------- ----------
LOSS BEFORE MINORITY INTEREST ......................... (253.6) (88.6) (105.8) (24.9)
MINORITY INTEREST INCOME .............................. (82.6) (12.9) (24.9) (3.4)
---------- ---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY ITEMS ....................... (171.0) (75.7) (80.9) (21.5)
EXTRAORDINARY ITEMS ................................... (0.1) (0.1)
---------- ---------- ---------- ----------
NET LOSS .............................................. (171.0) (75.8) (80.9) (21.6)
ACCUMULATED DEFICIT
Beginning of period ................................ (2,896.4) (2,799.1) (2,986.5) (2,853.3)
---------- ---------- ---------- ----------
End of period ...................................... ($3,067.4) ($2,874.9) ($3,067.4) ($2,874.9)
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in millions)
Nine Months Ended September 30,
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ......................................................... ($171.0) ($75.8)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization ................................. 718.9 495.1
Non-cash interest expense ..................................... 0.6 0.3
Non-cash interest expense on notes payable to affiliates ...... 5.0 42.0
Deferred expenses charged by an affiliate ..................... 106.8 95.0
Gain on sales of investments .................................. (0.5) (7.9)
Extraordinary items ........................................... 0.1
Minority interest income ...................................... (82.6) (12.9)
Deferred income tax benefit, due to affiliate ................. (25.2) (32.1)
Other ......................................................... (4.2) (0.8)
-------- --------
547.8 503.0
Changes in working capital accounts ........................... (7.7) 58.7
-------- --------
Net cash provided by operating activities .............. 540.1 561.7
-------- --------
FINANCING ACTIVITIES
Proceeds from borrowings ......................................... 146.5 827.0
Repayments of long-term debt ..................................... (1.0) (735.9)
Proceeds from notes payable to affiliates ........................ 40.3 92.4
Repayment of notes payable to affiliates ......................... (45.0) (20.0)
Net transactions with affiliates ................................. 4.6 4.0
Deferred financing costs and other ............................... 8.1 (0.7)
-------- --------
Net cash provided by financing activities .............. 153.5 166.8
-------- --------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired ............................... (41.8) (219.4)
Capital expenditures ............................................. (471.4) (488.2)
Sale of short-term investments ................................... 0.1
(Increase) decrease in cash held by an affiliate ................. (87.6) 27.8
Additions to deferred charges and other .......................... (105.4) (36.3)
-------- --------
Net cash used in investing activities .................. (706.2) (716.0)
-------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS .................... (12.6) 12.5
CASH AND CASH EQUIVALENTS, beginning of period ...................... 34.5 40.7
-------- --------
CASH AND CASH EQUIVALENTS, end of period ............................ $21.9 $53.2
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The condensed consolidated balance sheet as of December 31, 1998 has been
condensed from the audited consolidated balance sheet as of that date. The
condensed consolidated balance sheet as of September 30, 1999, the
condensed consolidated statement of operations and accumulated deficit for
the nine and three months ended September 30, 1999 and 1998 and the
condensed consolidated statement of cash flows for the nine months ended
September 30, 1999 and 1998 have been prepared by Comcast Cable
Communications, Inc. (the "Company"), a wholly owned subsidiary of Comcast
Corporation ("Comcast"), and have not been audited by the Company's
independent auditors. In the opinion of management, all adjustments
necessary to present fairly the financial position, results of operations
and cash flows as of September 30, 1999 and for all periods presented have
been made.
Certain information and note disclosures normally included in the
Company's annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Company's December 31, 1998 Annual Report on Form 10-K filed with the
Securities and Exchange Commission (the "SEC"). The results of operations
for the periods ended September 30, 1999 are not necessarily indicative of
operating results for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This statement
establishes the accounting and reporting standards for derivatives and
hedging activity. Upon the adoption of SFAS No. 133, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In July 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - an
amendment of FASB Statement No. 133" deferring the effective date for
implementation of SFAS No. 133 to fiscal years beginning after June 15,
2000. The Company is currently evaluating the impact the adoption of SFAS
No. 133 will have on its financial position and results of operations.
Comprehensive Loss
Total comprehensive loss for the nine and three months ended September 30,
1999 and 1998 was $173.1 million, $75.5 million, $83.2 million and $21.3
million, respectively. Total comprehensive loss includes net loss and
unrealized gains (losses) on marketable securities for the periods
presented.
Reclassifications
Certain reclassifications have been made to the prior year condensed
consolidated financial statements to conform to those classifications used
in 1999.
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Adelphia Agreement
In May 1999, the Company and Jones Intercable, Inc. ("Jones Intercable" -
see "Acquisition of a Controlling Interest in Jones Intercable, Inc."
below) entered into an agreement (the "Adelphia Agreement") to exchange
certain cable systems with Adelphia Communications ("Adelphia"). Under the
terms of the Adelphia Agreement, the Company and Jones Intercable, in the
aggregate, will receive approximately 464,000 cable subscribers from
Adelphia. In exchange, Adelphia will receive current systems owned by the
Company and Jones Intercable serving, in the aggregate, approximately
440,000 subscribers. All of the systems involved in the transactions will
be valued based upon independent appraisals with any difference in
relative value to be funded with cash or additional cable systems. The
system exchanges are subject to customary closing and regulatory approvals
and are expected to close by mid-2000.
5
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
AT&T Agreement
In May 1999, Comcast and AT&T Corp. ("AT&T") entered into an agreement
(the "AT&T Agreement") pursuant to which Comcast and AT&T agreed to
exchange various cable systems, including certain of the Company's cable
systems (the "AT&T System Exchanges"). Under the terms of the AT&T
Agreement, Comcast will pay AT&T approximately $3.4 billion (subject to
adjustment based on the actual number of net subscribers acquired and the
per subscriber price of certain subscribers) for the approximately 750,000
net subscribers to be acquired as a result of the AT&T System Exchanges.
Comcast will pay for the net subscribers acquired in connection with the
AT&T System Exchanges with shares of AT&T common stock currently owned or
subsequently acquired by Comcast and other securities or assets which
would permit the AT&T System Exchanges to be tax-free to the extent
possible. The value of any currently owned AT&T common stock to be
exchanged will be $54.41 per share, based upon the average trading price
during the 20-day trading period beginning June 3, 1999.
Under the terms of the AT&T Agreement, Comcast also has an option to
acquire from AT&T, following approximately three years, additional cable
systems with a total of between 1.0 million and 1.4 million subscribers
for approximately $4.8 billion to $6.7 billion (subject to reduction for
any long-term debt and other liabilities of the acquired cable systems).
Comcast will pay for these cable systems with shares of Comcast's Class A
Special Common Stock (valued on the same basis as described in the prior
paragraph) and other securities or assets which would permit the
acquisition to be tax-free (or if such result can not be obtained, with
cash).
Under the terms of the AT&T Agreement, Comcast has also agreed to offer
AT&T-branded residential wireline telephony in the Company's cable system
markets, provided AT&T has concluded separate residential telephony
agreements with at least two other non-AT&T affiliated multi-system cable
operators. AT&T has agreed to grant Comcast the most favorable terms AT&T
has reached with any of those or other multi-system cable operators.
The majority of the AT&T System Exchanges and the exercise of Comcast's
option to acquire the additional cable systems are contingent upon the
completion of AT&T's acquisition of MediaOne Group, Inc., which is
expected to close in 2000, subject to receipt of necessary regulatory and
other approvals. There can be no assurance, however, that such acquisition
will be consummated.
Acquisition of a Controlling Interest in Jones Intercable, Inc.
On April 7, 1999, Comcast completed the acquisition of a controlling
interest in Jones Intercable, for aggregate consideration of $706.3
million in cash. Also on that date, Comcast contributed its shares in
Jones Intercable to the Company. In June 1999, Comcast purchased an
additional 1.0 million shares of Jones Intercable Class A Common Stock for
$50.0 million through a private transaction and contributed such shares to
the Company. As of September 30, 1999, the Company owns approximately 13.8
million shares of Jones Intercable Class A Common Stock and approximately
2.9 million shares of Jones Intercable Common Stock, representing
approximately 39.6% of the economic and 48.3% of the voting interest in
Jones Intercable. In addition, the Control Shares represent shares having
the right to elect approximately 75% of the Board of Directors of Jones
Intercable. Jones Intercable is a public company, which owns cable
operations serving approximately 1.0 million customers. The acquisition
was accounted for under the purchase method of accounting. As such, the
operating results of Jones Intercable have been included in the
accompanying condensed consolidated statement of operations and
accumulated deficit from the acquisition date. The allocation of the
purchase price to the assets and liabilities of Jones Intercable is
preliminary pending a final appraisal. The contributions of Comcast's
interest in Jones Intercable to the Company had no significant impact on
the Company's condensed consolidated statement of cash flows due to their
noncash nature.
In August 1999, Comcast announced its intention to commence an offer to
exchange 1.4 shares of its Class A Special Common Stock for each share of
Class A Common Stock or Common Stock of Jones Intercable for up to 79% of
the combined number of shares of Jones Intercable Class A Common Stock and
Common Stock outstanding (subject to certain terms and conditions to be
contained in the offer documents). The offer would commence upon
registration of Comcast's Class A Special Common Stock to be offered in
the exchange offer with the SEC pursuant
6
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
to an effective registration statement. Comcast intends to contribute the
shares of Jones Intercable Class A Common Stock and Jones Intercable
Common Stock received in the exchange offer to the Company.
Unaudited Pro Forma Information
The following unaudited pro forma information for the nine months ended
September 30, 1999 and 1998 has been presented as if the Jones Intercable
contribution occurred on January 1, 1998. This information is based on
historical results of operations, adjusted for acquisition costs, and, in
the opinion of management, is not necessarily indicative of what the
results would have been had the Company operated Jones Intercable since
January 1, 1998 (dollars in millions).
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1999 1998
----------------- -----------------
<S> <C> <C>
Revenues............................................ $2,242.2 $2,039.2
Net loss............................................ (212.8) (187.6)
</TABLE>
AT&T Acquisition of Teleport
In July 1998, AT&T completed its merger with Teleport Communications
Group, Inc. ("Teleport"). Upon closing of the merger, the Company received
173,532 shares of AT&T common stock in exchange (the "Exchange") for the
184,022 shares of Teleport Class B Common Stock held by the Company. As a
result of the Exchange, the Company recognized a pre-tax gain of $7.9
million during the nine and three months ended September 30, 1998,
representing the difference between the fair value of the AT&T stock
received and the Company's basis in Teleport. Such gain is included in
investment expense (income) and other, net in the Company's condensed
consolidated statement of operations and accumulated deficit.
4. LONG-TERM DEBT
Interest Rates
As of September 30, 1999 and December 31, 1998, the Company's effective
weighted average interest rate on its long-term debt outstanding was 7.43%
and 7.48%, respectively.
Lines of Credit
As of September 30, 1999, certain subsidiaries of the Company had unused
lines of credit of $924.2 million, $324.2 million of which is restricted
by the covenants of the related debt agreements and to subsidiary general
purposes and dividend declaration.
5. NOTES PAYABLE TO AFFILIATES
As of September 30, 1999 and December 31, 1998, notes payable to
affiliates include $126.0 million and $130.7 million principal amount of
notes payable to Comcast and certain of its wholly owned subsidiaries. The
notes payable bear interest at rates ranging from 7.25% to 9.25% as of
September 30, 1999 (weighted average interest rate of 7.73% as of
September 30, 1999 and December 31, 1998) and are due in 2002. Accrued
interest relating to such notes of $8.9 million and $3.9 million is
included in notes payable to affiliates as of September 30, 1999 and
December 31, 1998, respectively.
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 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 nine and three
months ended
7
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
September 30, 1999 and 1998, the Company's service income includes $7.2
million, $7.0 million, $2.4 million and $2.5 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 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 $118.4 million, $96.4 million, $43.0 million and $32.5 million during
the nine and three months ended September 30, 1999 and 1998, respectively.
These management fees are included in selling, general and administrative
expenses in the Company's condensed consolidated statement of operations
and accumulated deficit. 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.
Management fees deferred during the nine months ended September 30, 1999
and 1998 were $4.3 million and $4.1 million, respectively. Deferred
management fees were $146.7 million and $142.4 million as of September 30,
1999 and December 31, 1998, 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 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 condensed consolidated statement of operations and
accumulated deficit. The Company purchases certain other services,
including insurance and employee benefits, from Comcast under cost-sharing
arrangements on terms that reflect Comcast's actual cost. The Company
reimburses Comcast for certain other costs (primarily salaries) under
cost-reimbursement arrangements. Under all of these arrangements, the
Company incurred total expenses of $720.0 million, $571.2 million, $252.5
million and $190.8 million, including $612.8 million, $482.5 million,
$211.6 million and $161.7 million of Programming Charges, during the nine
and three months ended September 30, 1999 and 1998, respectively. The
Programming Charges include $59.7 million, $43.2 million, $18.5 million
and $13.7 million during the nine and three months ended September 30,
1999 and 1998, 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 during the nine months
ended September 30, 1999 and 1998 were $102.5 million and $90.9 million,
respectively. Deferred Programming Charges were $484.9 million and $382.4
million as of September 30, 1999 and December 31, 1998, respectively.
Current due to affiliates in the Company's condensed 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
8
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
and agent, which invests and disburses such funds at the direction of the
Company. As of September 30, 1999 and December 31, 1998, $144.7 million
and $57.1 million, respectively, of the Company's cash was held by CFAC.
These amounts have been classified as cash held by an affiliate in the
Company's condensed consolidated balance sheet. During the nine and three
months ended September 30, 1999 and 1998, the Company recognized
investment income of $1.2 million, $2.7 million, $0.4 million and $0.5
million, respectively, on cash held by CFAC.
7. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest on its long-term debt of
$180.0 million, $119.3 million, $41.5 million and $14.9 million during the
nine and three months ended September 30, 1999 and 1998, respectively. The
Company made cash payments for interest on the notes payable to affiliates
of $0.2 million during the nine months September 30, 1999.
The Company made cash payments for state income taxes of $4.8 million,
$4.4 million, $1.4 million and $0.3 million during the nine and three
months ended September 30, 1999 and 1998, respectively.
8. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position, results of operations or liquidity of the
Company.
9
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information for this item is omitted pursuant to Securities and Exchange
Commission General Instruction H to Form 10-Q, except as noted below.
Results of Operations
Our summarized consolidated financial information for the nine and three
months ended September 30, 1999 and 1998 is as follows (dollars in millions,
"NM" denotes percentage is not meaningful):
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Increase / (Decrease)
1999 1998 $ %
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Service income..................................................... $2,115.9 $1,681.2 $434.7 25.9%
Operating, selling, general and administrative expenses............ 1,407.5 1,110.6 296.9 26.7
---------- ----------
Operating income before depreciation and
amortization (1)................................................ 708.4 570.6 137.8 24.2
Depreciation and amortization...................................... 718.9 495.1 223.8 45.2
---------- ----------
Operating (loss) income............................................ (10.5) 75.5 (86.0) NM
---------- ----------
Interest expense................................................... 254.7 163.0 91.7 56.3
Interest expense on notes payable to affiliates.................... 5.2 42.0 (36.8) (87.6)
Investment expense (income) and other, net......................... 2.0 (13.3) 15.3 NM
Income tax benefit................................................. (18.8) (27.6) (8.8) (31.9)
Minority interest income........................................... (82.6) (12.9) 69.7 NM
Extraordinary items................................................ (0.1) 0.1 NM
---------- ----------
Net loss........................................................... ($171.0) ($75.8) $95.2 NM
========== ==========
Three Months Ended
September 30, Increase / (Decrease)
1999 1998 $ %
---------- ---------- ---------- -----------
Service income..................................................... $762.3 $571.7 $190.6 33.3%
Operating, selling, general and administrative expenses............ 500.0 371.6 128.4 34.6
---------- ----------
Operating income before depreciation and
amortization (1)................................................ 262.3 200.1 62.2 31.1
Depreciation and amortization...................................... 264.2 171.5 92.7 54.1
---------- ----------
Operating (loss) income............................................ (1.9) 28.6 (30.5) NM
---------- ----------
Interest expense................................................... 95.7 55.1 40.6 73.7
Interest expense on notes payable to affiliates.................... 1.6 14.7 (13.1) (89.1)
Investment income and other, net................................... (4.4) (9.4) (5.0) (53.2)
Income tax expense (benefit)....................................... 11.0 (6.9) 17.9 NM
Minority interest income........................................... (24.9) (3.4) 21.5 NM
Extraordinary items................................................ (0.1) 0.1 NM
---------- ----------
Net loss........................................................... ($80.9) ($21.6) $59.3 NM
========== ==========
<FN>
- ------------
(1) Operating income before depreciation and amortization is commonly referred
to in the cable communications business as "operating cash flow."
Operating cash flow is a measure of a company's ability to generate cash
to service its obligations, including debt service obligations, and to
finance capital and other expenditures. In part due to the capital
intensive nature of the cable communications business and the resulting
significant level of non-cash depreciation and amortization expense,
operating cash flow is frequently used as one of the bases for comparing
businesses in the cable communications industry, although our measure of
operating cash flow may not be comparable to similarly titled measures of
other companies. Operating cash flow is the primary basis used by our
management to measure the operating performance of our business. Operating
cash flow does not purport to
10
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
represent net income or net cash provided by operating activities, as
those terms are defined under generally accepted accounting principles,
and should not be considered as an alternative to such measurements as an
indicator of our performance.
</FN>
</TABLE>
Service Income
Of the respective $434.7 million and $190.6 million increases in service
income for the nine and three month periods from 1998 to 1999, $284.1 million
and $137.8 million are attributable to the effects of Comcast's contribution of
Jones Intercable to us in April 1999 (see Note 3 to our condensed consolidated
financial statements included in Item 1) and the effects of our acquisitions of
cable communications systems, $18.1 million and $5.6 million are attributable to
subscriber growth, $68.6 million and $21.5 million relate to changes in rates,
$16.2 million and $5.6 million attributable to growth in cable advertising sales
and $47.7 million and $20.1 million relate to other product offerings (e.g.,
digital cable, high speed data services, etc.).
Operating, Selling, General and Administrative Expenses
See Note 6 to our condensed consolidated financial statements included in
Item 1.
Of the respective $296.9 million and $128.4 million increases in
operating, selling, general and administrative expenses for the nine and three
month periods from 1998 to 1999, $204.6 million and $92.5 million are
attributable to the effects of Comcast's contribution of Jones Intercable to us
in April 1999 and the effects of our acquisitions of cable communications
systems, $39.4 million and $10.9 million are attributable to increases in the
costs of cable programming as a result of changes in rates, subscriber growth
and additional channel offerings, $3.6 million and $1.4 million are attributable
to growth in advertising sales and $49.3 million and $23.6 million result from
increases in the cost of labor, other volume related expenses and costs
associated with new product offerings. It is anticipated that the cost of cable
programming will increase in the future as cable programming rates increase and
additional sources of cable programming become available.
Depreciation and Amortization Expense
The respective $223.8 million and $92.7 million increases in depreciation
and amortization expense for the nine and three month periods from 1998 to 1999
are primarily attributable to the effects of Comcast's contribution of Jones
Intercable to us, the effects of our acquisitions of cable communications
systems and the effects of our capital expenditures. Depreciation and
amortization expense for the nine months ended September 30, 1999 includes the
effects of final purchase price adjustments relating to certain cable
communications systems which we acquired in 1998.
Interest Expense
The respective $91.7 million and $40.6 million increases in interest
expense for the nine and three month periods from 1998 to 1999 are primarily due
to the effects of Comcast's contribution of Jones Intercable to us and to the
issuance of our $800.0 million aggregate principal amount 6.20% senior notes due
2008 in November 1998. We anticipate that, for the foreseeable future, interest
expense will be a significant cost to us and will have a significant adverse
effect on our ability to realize net earnings. We believe we will continue to be
able to meet our obligations through our ability both to generate operating
income before depreciation and amortization and to obtain external financing.
Interest Rate Risk
During the nine months ended September 30, 1999, we have entered into
interest rate exchange agreements ("Swaps") with an aggregate notional amount of
$300.0 million and in connection with Comcast's contribution of Jones Intercable
to us, we acquired Swaps with an aggregate notional amount of $400.0 million.
Swaps with an aggregate notional amount of $150.0 million either were terminated
or expired from January 1, 1999 through September 30, 1999. As of September 30,
1999, we have Swaps with an aggregate notional amount of $600.0 million having
an average pay rate of 6.87% and an average receive rate of 5.85%.
Interest Expense on Notes Payable to Affiliates
The respective $36.8 million and $13.1 million decreases in interest
expense on notes payable to affiliates for the nine and three month periods from
1998 to 1999 are primarily attributable to decreases in the average balance of
notes outstanding.
Investment Expense (Income) and Other, Net
In July 1998, AT&T completed its merger with Teleport Communications
Group, Inc. ("Teleport"). Upon closing of the merger, we received 173,532 shares
of AT&T common stock in exchange (the "Exchange") for
11
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
the 184,022 shares of Teleport Class B Common Stock held by us. As a result of
the Exchange, we recognized a pre-tax gain of $7.9 million during the nine and
three months ended September 30, 1998, representing the difference between the
fair value of the AT&T stock received and our basis in Teleport. Such gain is
included in investment expense (income) and other, net in our condensed
consolidated statement of operations and accumulated deficit.
Income Tax (Benefit) Expense
The respective $8.8 million and $17.9 million decreases in income tax
benefit for the nine and three month periods from 1998 to 1999 are primarily the
result of the effects of increases in our loss before income tax benefit and
minority interest.
Minority Interest Income
The respective $69.7 million and $21.5 million increases in minority
interest income for the nine and three month periods from 1998 to 1999 are
primarily due to the effects of Comcast's contribution of Jones Intercable to us
and to increases in the net loss of our majority owned subsidiary, Comcast MHCP
Holdings, L.L.C. in 1999 as compared to the 1998 periods.
For the nine and three months ended September 30, 1999 and 1998, our
earnings before extraordinary items, income tax (benefit) expense and fixed
charges (interest expense and interest expense on notes payable to affiliates)
were $70.1 million, $101.7 million, $27.4 million and $41.4 million,
respectively. Such earnings were not adequate to cover our fixed charges of
$259.9 million, $205.0 million, $97.3 million and $69.8 million for the nine and
three months ended September 30, 1999 and 1998, respectively. Our fixed charges
include non-cash interest expense of $5.6 million, $42.3 million, $1.9 million
and $14.8 million for the nine and three months ended September 30, 1999 and
1998, respectively. The inadequacy of our earnings to cover fixed charges is
primarily due to the substantial non-cash charges for depreciation and
amortization expense.
We believe that our losses and the inadequacy of our earnings to cover
fixed charges will not significantly affect the performance of our normal
business activities because of our existing cash, cash equivalents, investments
and cash held by an affiliate, our ability to generate operating income before
depreciation and amortization and our ability to obtain external financing.
We believe that our operations are not materially affected by inflation.
--------------------
Year 2000 Readiness Disclosure
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 our
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. We are in the process of evaluating and addressing the impact of the
Year 2000 Issue on our operations to ensure that our information technology and
business systems recognize calendar Year 2000. We are utilizing both internal
and external resources in implementing our Year 2000 program, which consists of
the following phases:
Assessment Phase. Structured evaluation, including a detailed inventory
outlining the impact that the Year 2000 Issue may have on current operations.
Detailed Planning Phase. Establishment of priorities, development of
specific action steps and allocation of resources to address the issues
identified in the Assessment Phase.
Conversion Phase. Implementation of the necessary system modifications as
outlined in the Detailed Planning Phase.
Testing Phase. Verification that the modifications implemented in the
Conversion Phase will be successful in resolving the Year 2000 Issue so that all
inventory items will function properly, both individually and on an integrated
basis.
Implementation Phase. Final roll-out of fully tested components into an
operational unit.
Based on an inventory conducted in 1997, we identified computer systems
that required modification or replacement so that they will properly utilize
dates beyond December 31, 1999. Many of our critical systems were new and were
already Year 2000 compliant as a result of the recent rebuild of many of our
cable communications systems. In addition, we have communicated with our
significant software suppliers and service bureaus to determine their plans for
remediating the Year 2000 Issue in their software which we use or rely upon.
12
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
As of October 31, 1999, we are in the final stages of our Year 2000
program. We believe that all key systems are Year 2000 compliant. Other systems
that required remediation are substantially complete. Further, contingency plans
have been created for our key systems and operations. Additional business
continuity preparations are being implemented to create post-Year 2000 response
teams with a centralized command center to further mitigate Year 2000 risk.
Through September 30, 1999, we have incurred approximately $7.0 million in
connection with our Year 2000 remediation program. We estimate that we will
incur between approximately $1.0 million to $3.0 million of additional expense
through December 1999 in connection with our Year 2000 remediation program. Our
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 we rely will be
converted on a timely basis, or that a failure to convert by another company
would not have a material adverse effect on us.
Our management will continue to periodically report the progress of our
Year 2000 remediation program to the Audit Committee of Comcast's Board of
Directors.
The costs of the project and the date on which we plan to complete the
Year 2000 modifications and replacements are based on our 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
may cause such material differences include, but are not limited to, the
availability and cost of personnel with appropriate necessary skills and the
ability to locate and correct all relevant computer code and similar
uncertainties.
We believe 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 adverse impact on
our operations.
13
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
We are subject to legal proceedings and claims which arise in the ordinary
course of our business. In the opinion of our management, the amount of
ultimate liability with respect to these actions will not materially
affect our financial position, results of operations or liquidity .
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
(i) We filed a Current Report on Form 8-K under Item 5 on August
11, 1999 relating to our announcement that Comcast Corporation
plans to commence an offer to exchange 1.4 shares of its Class
A Special Common Stock for each share of Class A Common Stock
or Common Stock of Jones Intercable, Inc. for up to 79% of the
combined number of shares of Jones Intercable, Inc. Class A
Common Stock and Common Stock outstanding.
14
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMCAST CABLE COMMUNICATIONS, INC.
----------------------------------------
/S/ LAWRENCE S. SMITH
----------------------------------------
Lawrence S. Smith
Principal Accounting Officer
/S/ JOSEPH J. EUTENEUER
----------------------------------------
Joseph J. Euteneuer
Vice President (Authorized Officer)
Date: November 15, 1999
15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001040573
<NAME> COMCAST CABLE COMMUNICATIONS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 22
<SECURITIES> 145
<RECEIVABLES> 114
<ALLOWANCES> (28)
<INVENTORY> 65
<CURRENT-ASSETS> 391<F1>
<PP&E> 4,111
<DEPRECIATION> (1,416)
<TOTAL-ASSETS> 9,158
<CURRENT-LIABILITIES> 709
<BONDS> 5,061
0
0
<COMMON> 0
<OTHER-SE> 765
<TOTAL-LIABILITY-AND-EQUITY> 9,158
<SALES> 2,116
<TOTAL-REVENUES> 2,116
<CGS> 0
<TOTAL-COSTS> (2,126)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (255)
<INCOME-PRETAX> (272)<F2>
<INCOME-TAX> (19)
<INCOME-CONTINUING> (171)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (171)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>
Current assets includes investments available for sale of $21.
<F2>
Loss before income tax benefit and other items excludes the effect of
minority interests, net of tax, of $83.
</FN>
</TABLE>
