UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended:
MARCH 31, 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 March 31, 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 MARCH 31, 1999
TABLE OF CONTENTS
Page
Number
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Condensed Consolidated Balance Sheet as of March 31,
1999 and December 31, 1998 (Unaudited)....................2
Condensed Consolidated Statement of Operations and
Accumulated Deficit for the Three Months Ended
March 31, 1999 and 1998 (Unaudited).......................3
Condensed Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 1999 and 1998 (Unaudited)....4
Notes to Condensed Consolidated
Financial Statements (Unaudited)......................5 - 8
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations..................9 - 11
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings........................................12
ITEM 6 Exhibits and Reports on Form 8-K.........................12
SIGNATURES.........................................................13
-----------------------------------
This Quarterly Report on Form 10-Q is for the three months ended March 31,
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 MARCH 31, 1999
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in millions, except share data)
March 31, December 31,
1999 1998
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................................... $67.6 $34.5
Investments..................................................................... 14.2 13.4
Cash held by an affiliate....................................................... 29.9 57.1
Accounts receivable, less allowance for doubtful
accounts of $21.8 and $19.4................................................... 69.1 90.9
Inventories..................................................................... 37.5 34.6
Other current assets............................................................ 16.8 14.9
-------- --------
Total current assets........................................................ 235.1 245.4
-------- --------
PROPERTY AND EQUIPMENT............................................................. 3,299.4 3,276.5
Accumulated depreciation........................................................ (1,242.9) (1,180.4)
-------- --------
Property and equipment, net..................................................... 2,056.5 2,096.1
-------- --------
DEFERRED CHARGES................................................................... 5,937.9 5,876.4
Accumulated amortization........................................................ (1,860.6) (1,768.5)
-------- --------
Deferred charges, net........................................................... 4,077.3 4,107.9
-------- --------
$6,368.9 $6,449.4
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses........................................... $230.1 $324.0
Accrued interest................................................................ 89.6 35.4
Deferred income taxes........................................................... 4.8 4.6
Current portion of long-term debt............................................... 0.1 0.1
Due to affiliates............................................................... 201.6 166.6
-------- --------
Total current liabilities................................................... 526.2 530.7
-------- --------
LONG-TERM DEBT, less current portion............................................... 3,462.2 3,462.1
-------- --------
MINORITY INTEREST AND OTHER........................................................ 171.5 181.8
-------- --------
NOTES PAYABLE TO AFFILIATES........................................................ 91.3 134.6
-------- --------
DUE TO AFFILIATE................................................................... 563.5 524.8
-------- --------
DEFERRED INCOME TAXES, due to affiliate............................................ 1,420.0 1,442.4
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock, $1 par value - authorized and issued, 1,000 shares................
Additional capital.............................................................. 3,066.2 3,066.2
Accumulated deficit............................................................. (2,935.2) (2,896.4)
Unrealized gains on marketable securities....................................... 3.2 3.2
-------- --------
Total stockholder's equity.................................................. 134.2 173.0
-------- --------
$6,368.9 $6,449.4
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
(Amounts in millions)
Three Months Ended March 31,
1999 1998
--------- ---------
<S> <C> <C>
SERVICE INCOME................................................................ $604.8 $541.2
--------- ---------
COSTS AND EXPENSES
Operating.................................................................. 271.5 242.8
Selling, general and administrative........................................ 138.3 125.9
Depreciation and amortization.............................................. 194.2 161.9
--------- ---------
604.0 530.6
--------- ---------
OPERATING INCOME.............................................................. 0.8 10.6
OTHER (INCOME) EXPENSE
Interest expense........................................................... 65.7 53.5
Interest expense on notes payable to affiliates............................ 1.9 12.9
Investment income and other, net........................................... (0.7) (2.3)
--------- ---------
66.9 64.1
--------- ---------
LOSS BEFORE INCOME TAX BENEFIT AND MINORITY INTEREST.......................... (66.1) (53.5)
INCOME TAX BENEFIT............................................................ (18.5) (14.4)
--------- ---------
LOSS BEFORE MINORITY INTEREST................................................. (47.6) (39.1)
MINORITY INTEREST............................................................. (8.8) (5.2)
--------- ---------
NET LOSS...................................................................... (38.8) (33.9)
ACCUMULATED DEFICIT
Beginning of period........................................................ (2,896.4) (2,799.1)
--------- ---------
End of period.............................................................. ($2,935.2) ($2,833.0)
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in millions)
Three Months Ended March 31,
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss......................................................................... ($38.8) ($33.9)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization.................................................. 194.2 161.9
Non-cash interest expense...................................................... 0.1 0.1
Non-cash interest expense on notes payable to affiliates....................... 1.7 12.9
Deferred expenses charged by an affiliate...................................... 38.7 32.2
Minority interest.............................................................. (8.8) (5.2)
Deferred income tax benefit, due to affiliate.................................. (22.2) (15.9)
Other.......................................................................... (0.2)
--------- ---------
164.9 151.9
Change in working capital accounts............................................. (24.8) 61.4
--------- ---------
Net cash provided by operating activities................................ 140.1 213.3
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings......................................................... 817.0
Repayments of long-term debt..................................................... (683.0)
Repayment of notes payable to affiliates......................................... (45.0)
Net transactions with affiliates................................................. 35.0 (43.7)
Other............................................................................ (0.1) 0.6
--------- ---------
Net cash (used in) provided by financing activities...................... (10.1) 90.9
--------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired............................................... (136.9)
Capital expenditures............................................................. (105.6) (140.3)
Decrease (increase) in cash held by an affiliate................................. 27.2 (17.8)
Additions to deferred charges and other.......................................... (18.5) (12.2)
--------- ---------
Net cash used in investing activities.................................... (96.9) (307.2)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................... 33.1 (3.0)
CASH AND CASH EQUIVALENTS, beginning of period...................................... 34.5 40.7
--------- ---------
CASH AND CASH EQUIVALENTS, end of period............................................ $67.6 $37.7
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 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 March 31, 1999 and the condensed
consolidated statements of operations and accumulated deficit and of cash
flows for the three months ended March 31, 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 (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows
as of March 31, 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 results of operations for the period ended March 31, 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 issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, which establishes
accounting and reporting standards for derivatives and hedging activities,
is effective for fiscal years beginning after June 15, 1999. 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. 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 three months ended March 31, 1999 and 1998
was $38.8 million and $33.9 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
AT&T Agreement
On May 4, 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 "System Exchanges"), to improve each company's geographic
clustering of systems. 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 System Exchanges. Comcast will pay for the net
subscribers acquired in connection with the 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 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 determined based upon the average
trading price during the 20-day trading period beginning June 3, 1999.
5
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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 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 the first quarter of 2000, subject to receipt of necessary shareholder,
regulatory and other approvals. There can be no assurance, however, that
such acquisition will be consummated.
Acquisition of Jones Intercable, Inc.
On April 7, 1999, Comcast completed the acquisition of a controlling
interest in Jones Intercable, Inc. ("Jones Intercable") for aggregate
consideration of $706.3 million in cash. The acquisition was funded with
available cash and cash equivalents. Also on that date, Comcast contributed
its shares in Jones Intercable to the Company. The Company now owns
approximately 12.8 million shares of Jones Intercable Class A Common Stock
and approximately 2.9 million shares of Jones Intercable's Common Stock,
representing approximately 37% of the economic interest and 47% of the
voting interest in Jones Intercable. In addition, the 2.9 million shares of
Common Stock owned by the Company represent approximately 57% of Jones
Intercable's outstanding Common Stock, which is entitled to elect 75% of
the Board of Directors of Jones Intercable. As a result of this
transaction, Jones Intercable is now a consolidated public subsidiary of
the Company, serving approximately 1.0 million customers.
4. LONG-TERM DEBT
Interest Rates
As of March 31, 1999 and December 31, 1998, the Company's effective
weighted average interest rate on its long-term debt outstanding was 7.39%
and 7.48%, respectively.
Lines of Credit
As of March 31, 1999, certain subsidiaries of the Company had unused lines
of credit of $686.6 million, $86.6 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 March 31, 1999 and December 31, 1998, notes payable to affiliates
include $85.7 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 March 31, 1999
(weighted average interest rate of 7.72% and 7.73% as of March 31, 1999 and
December 31, 1998) and are due in 2002. Accrued interest relating to such
notes of $5.6 million and $3.9 million is included in notes payable to
affiliates as of March 31, 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
6
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
of merchandise sold to QVC customers located in the Company's service area.
For the three months ended March 31, 1999 and 1998, the Company's service
income includes $2.6 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 (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 $33.5 million and $31.2 million
during the three months ended March 31, 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 three months ended March 31, 1999 and 1998 were $1.4
million and $1.3 million, respectively. Deferred management fees were
$143.8 million and $142.4 million as of March 31, 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
$221.9 million and $190.5 million, including $189.8 million and $160.9
million of Programming Charges, during the three months ended March 31,
1999 and 1998, respectively. The Programming Charges include $18.7 million
and $14.0 million during the three months ended March 31, 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 three months ended March 31, 1999
and 1998 were $37.3 million and $30.9 million, respectively. Deferred
Programming Charges were $419.7 million and $382.4 million as of March 31,
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
7
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 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 March 31, 1999 and December 31, 1998, $29.9 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 three months ended March
31, 1999 and 1998, the Company recognized investment income of $0.3 million
and $1.5 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 $11.4
million and $9.1 million during the three months ended March 31, 1999 and
1998, respectively. The Company made cash payments for interest on the
notes payable to affiliates of $0.2 million during the three months March
31, 1999.
The Company made cash payments for state income taxes of $0.1 million and
$0.4 million during the three months ended March 31, 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.
The Federal Communications Commission ("FCC") and the Company entered into
a "social contract" in which the Company has committed to complete certain
system upgrades and improvements by March 1999 in return for which it was
able, after December 31, 1997, to move a limited number of previously
regulated programming services in certain cable franchises to an
unregulated new product tier. The Company believes it is in full compliance
with the "social contract" and will file a final report to the FCC on or
before June 30, 1999.
8
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 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 three months
ended March 31, 1999 and 1998 is as follows (dollars in millions, "NM" denotes
percentage is not meaningful):
<TABLE>
<CAPTION>
Three Months Ended
March 31, Increase / (Decrease)
1999 1998 $ %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Service income......................................... $604.8 $541.2 $63.6 11.8%
Operating, selling, general and administrative
expenses............................................ 409.8 368.7 41.1 11.1
-------- --------
Operating income before depreciation and
amortization (1).................................... 195.0 172.5 22.5 13.0
Depreciation and amortization.......................... 194.2 161.9 32.3 20.0
-------- --------
Operating income....................................... 0.8 10.6 (9.8) NM
-------- --------
Interest expense....................................... 65.7 53.5 12.2 22.8
Interest expense on notes payable to affiliates........ 1.9 12.9 (11.0) NM
Investment income and other, net....................... (0.7) (2.3) (1.6) (69.6)
Income tax benefit..................................... (18.5) (14.4) 4.1 28.5
Minority interest...................................... (8.8) (5.2) 3.6 69.2
-------- --------
Net loss............................................... ($38.8) ($33.9) $4.9 14.5%
======== ========
<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 does not purport to represent net income or net cash
provided by operating activities, as those terms are defined under
generally accepted accounting principles, and should not be considered as
an alternative to such measurements as an indicator of our performance.
</FN>
</TABLE>
Of the $63.6 million increase in service income for the three month periods
from 1998 to 1999, $13.4 million is attributable to the effects of the
acquisitions of cable communications systems, $6.7 million is attributable to
subscriber growth, $24.9 million relates to changes in rates, $5.0 million is
attributable to growth in cable advertising sales and $13.6 million relates to
other product offerings (e.g., digital cable, high speed data services, etc.).
Of the $41.1 million increase in operating, selling, general and
administrative expenses for the three month period from 1998 to 1999, $8.9
million is attributable to the effects of the acquisitions of cable
communications systems, $14.7 million is attributable to increases in the costs
of cable programming as a result of changes in rates, subscriber growth and
additional channel offerings, $1.3 million is attributable to growth in
advertising sales and $16.2 million results 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.
Comcast, on our behalf, 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, we
receive an allocated portion, based upon market share, of a percentage of net
sales of merchandise sold to QVC customers located in our
9
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
service area. For the three months ended March 31, 1999 and 1998, our service
income includes $2.6 million and $2.5 million, respectively, relating to QVC.
Comcast, through management agreements, manages the operations of our
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 our subsidiaries management fees of $33.5 million and
$31.2 million during the three months ended March 31, 1999 and 1998,
respectively. These management fees are included in selling, general and
administrative expenses in our condensed consolidated statement of operations
and accumulated deficit.
On our behalf, 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 our 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 us by Comcast for
programming (the "Programming Charges") are included in operating expenses in
our condensed consolidated statement of operations and accumulated deficit. We
purchase certain other services, including insurance and employee benefits, from
Comcast under cost-sharing arrangements on terms that reflect Comcast's actual
cost. We reimburse Comcast for certain other costs (primarily salaries) under
cost-reimbursement arrangements. Under all of these arrangements, we incurred
total expenses of $221.9 million and $190.5 million, including $189.8 million
and $160.9 million of Programming Charges, during the three months ended March
31, 1999 and 1998, respectively. The Programming Charges include $18.7 million
and $14.0 million during the three months ended March 31, 1999 and 1998,
respectively, relating to programming purchased by us, through Comcast, from
suppliers in which Comcast holds an equity interest.
The $32.3 million increase in depreciation and amortization expense for the
three month period from 1998 to 1999 is primarily attributable to the effects of
the acquisitions of cable communications systems and the effects of capital
expenditures. Depreciation and amortization expense for the quarter ended March
31, 1999 includes the effects of final purchase price adjustments relating to
certain cable communications systems which we acquired in 1998.
The $12.2 million increase in interest expense for the three month period
from 1998 to 1999 is primarily attributable to the interest expense on our
$800.0 million aggregate principal amount 6.20% senior notes due 2008 which we
borrowed 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.
The $11.0 million decrease in interest expense on notes payable to
affiliates for the three month period from 1998 to 1999 is primarily
attributable to decreases in the average balance of notes outstanding.
The $4.1 million increase in income tax benefit for the three months period
from 1998 to 1999 is primarily attributable to an increase in our loss before
income tax benefit and minority interest.
The $3.6 million increase in minority interest for the three month period
from 1998 to 1999 is attributable to the effects of an increase in the net loss
of our majority owned subsidiary, Comcast MHCP Holdings, L.L.C.
For the three months ended March 31, 1999 and 1998, our earnings before
income tax benefit and fixed charges (interest expense and interest expense on
notes payable to affiliates) were $10.3 million and $18.1 million, respectively.
Such earnings were not adequate to cover our fixed charges of $67.6 million and
$66.4 million for the three months ended March 31, 1999 and 1998, respectively.
Our fixed charges include non-cash interest expense of $1.8 million and $13.0
million for the three months ended March 31, 1999 and 1998, respectively. The
inadequacy of these 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
10
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
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 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 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:
o Assessment Phase. Structured evaluation, including a detailed
inventory outlining the impact that the Year 2000 Issue may have on
current operations.
o Detailed Planning Phase. Establishment of priorities, development of
specific action steps and allocation of resources to address the
issues identified in the Assessment Phase.
o Conversion Phase. Implementation of the necessary system modifications
as outlined in the Detailed Planning Phase.
o 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.
o Implementation Phase. Final roll-out of fully tested components into
an operational unit.
Based on an inventory conducted in 1997, we have identified computer
systems that will require modification or replacement so that they will properly
utilize dates beyond December 31, 1999. Many of our critical systems are new and
are already Year 2000 compliant as a result of our recent rebuild of many of our
cable communications systems. In addition, we have initiated communications with
all of 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.
As of March 31, 1999, we are in the Testing Phase of our Year 2000
remediation program and have entered the Implementation Phase with respect to
certain of our key systems. Through March 31, 1999, we have incurred
approximately $3.0 million in connection with our Year 2000 remediation program.
We estimate that we will incur between approximately $5 million to $7 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. We plan to complete the Year 2000 mitigation by the third quarter of
1999. Our management has investigated and may consider potential contingency
plans in the event that our Year 2000 remediation program is not completed by
that date.
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.
11
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 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 - none.
12
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
SIGNATURES
Pursuant to the requirements of the Securities and 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: May 14, 1999
13
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