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:
JUNE 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 June 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 JUNE 30, 1999
TABLE OF CONTENTS
Page
Number
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Condensed Consolidated Balance Sheet as of June 30,
1999 and December 31, 1998 (Unaudited).....................2
Condensed Consolidated Statement of Operations and
Accumulated Deficit for the Six and Three Months Ended
June 30, 1999 and 1998 (Unaudited).........................3
Condensed Consolidated Statement of Cash Flows for the
Six Months Ended June 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 June 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 JUNE 30, 1999
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in millions, except share data)
June 30, December 31,
1999 1998
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................................... $90.2 $34.5
Investments..................................................................... 14.9 13.4
Cash held by an affiliate....................................................... 6.5 57.1
Accounts receivable, less allowance for doubtful
accounts of $24.9 and $19.4................................................... 112.0 90.9
Inventories..................................................................... 63.7 34.6
Other current assets............................................................ 36.6 14.9
-------- --------
Total current assets........................................................ 323.9 245.4
-------- --------
INVESTMENTS........................................................................ 45.3 4.9
-------- --------
PROPERTY AND EQUIPMENT............................................................. 3,976.7 3,276.5
Accumulated depreciation........................................................ (1,329.2) (1,180.4)
-------- --------
Property and equipment, net..................................................... 2,647.5 2,096.1
-------- --------
DEFERRED CHARGES................................................................... 8,123.9 5,871.5
Accumulated amortization........................................................ (2,003.2) (1,768.5)
-------- --------
Deferred charges, net........................................................... 6,120.7 4,103.0
-------- --------
$9,137.4 $6,449.4
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses........................................... $353.0 $324.0
Accrued interest................................................................ 55.5 35.4
Deferred income taxes........................................................... 5.1 4.6
Current portion of long-term debt............................................... 2.1 0.1
Due to affiliates............................................................... 226.8 166.6
-------- --------
Total current liabilities................................................... 642.5 530.7
-------- --------
LONG-TERM DEBT, less current portion............................................... 5,085.9 3,462.1
-------- --------
MINORITY INTEREST AND OTHER........................................................ 184.8 181.8
-------- --------
NOTES PAYABLE TO AFFILIATES........................................................ 92.9 134.6
-------- --------
DUE TO AFFILIATE................................................................... 599.6 524.8
-------- --------
DEFERRED INCOME TAXES, due to affiliate............................................ 1,690.9 1,442.4
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock, $1 par value - authorized and issued, 1,000 shares................
Additional capital.............................................................. 3,823.9 3,066.2
Accumulated deficit............................................................. (2,986.5) (2,896.4)
Unrealized gains on marketable securities....................................... 3.4 3.2
-------- --------
Total stockholder's equity.................................................. 840.8 173.0
-------- --------
$9,137.4 $6,449.4
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in millions)
Six Months Ended Three Months Ended
June 30, June 30,
1999 1998 1999 1998
--------- --------- --------- --------
<S> <C> <C> <C> <C>
SERVICE INCOME................................................. $1,353.7 $1,109.5 $748.9 $568.3
--------- --------- --------- --------
COSTS AND EXPENSES
Operating................................................... 596.0 486.5 324.5 243.7
Selling, general and administrative......................... 311.6 252.5 173.3 126.6
Depreciation and amortization............................... 454.7 323.6 260.5 161.7
--------- --------- --------- --------
1,362.3 1,062.6 758.3 532.0
--------- --------- --------- --------
OPERATING (LOSS) INCOME........................................ (8.6) 46.9 (9.4) 36.3
OTHER EXPENSE (INCOME)
Interest expense............................................ 159.0 107.9 93.3 54.4
Interest expense on notes payable to affiliates............. 3.6 27.3 1.7 14.4
Investment income and other, net............................ 6.4 (3.9) 7.1 (1.6)
--------- --------- --------- --------
169.0 131.3 102.1 67.2
--------- --------- --------- --------
LOSS BEFORE INCOME TAX BENEFIT AND MINORITY INTEREST........... (177.6) (84.4) (111.5) (30.9)
INCOME TAX BENEFIT............................................. (29.8) (20.7) (11.3) (6.3)
--------- --------- --------- --------
LOSS BEFORE MINORITY INTEREST.................................. (147.8) (63.7) (100.2) (24.6)
MINORITY INTEREST.............................................. (57.7) (9.5) (48.9) (4.3)
--------- --------- --------- --------
NET LOSS....................................................... (90.1) (54.2) (51.3) (20.3)
ACCUMULATED DEFICIT
Beginning of period......................................... (2,896.4) (2,799.1) (2,935.2) (2,833.0)
--------- --------- --------- --------
End of period............................................... ($2,986.5) ($2,853.3) ($2,986.5) ($2,853.3)
========= ========= ========= ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in millions)
Six Months Ended June 30,
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss......................................................................... ($90.1) ($54.2)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization.................................................. 454.7 323.6
Non-cash interest expense...................................................... 0.4 0.2
Non-cash interest expense on notes payable to affiliates....................... 3.3 27.3
Deferred expenses charged by an affiliate...................................... 74.8 63.8
Minority interest.............................................................. (57.7) (9.5)
Deferred income tax benefit, due to affiliate.................................. (43.7) (23.7)
Other.......................................................................... 2.5 (0.1)
--------- ---------
344.2 327.4
Changes in working capital accounts............................................ (95.2) 1.6
--------- ---------
Net cash provided by operating activities................................ 249.0 329.0
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings......................................................... 125.8 817.0
Repayments of long-term debt..................................................... (712.7)
Proceeds from notes payable to affiliates........................................ 92.3
Repayment of notes payable to affiliates......................................... (45.0)
Net transactions with affiliates................................................. 60.2 (3.1)
Deferred financing costs......................................................... (0.2) (0.7)
--------- ---------
Net cash provided by financing activities................................ 140.8 192.8
--------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired............................................... (2.3) (219.4)
Capital expenditures............................................................. (290.0) (293.7)
Sale of short-term investments................................................... 0.1
Decrease in cash held by an affiliate............................................ 50.6 24.4
Additions to deferred charges and other.......................................... (92.4) (20.9)
--------- ---------
Net cash used in investing activities.................................... (334.1) (509.5)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS............................................... 55.7 12.3
CASH AND CASH EQUIVALENTS, beginning of period...................................... 34.5 40.7
--------- ---------
CASH AND CASH EQUIVALENTS, end of period............................................ $90.2 $53.0
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 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 June 30, 1999, the condensed
consolidated statement of operations and accumulated deficit for the six
and three months ended June 30, 1999 and 1998 and the condensed
consolidated statement of cash flows for the six months ended June 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 June 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 results of operations for the periods ended June 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 six and three months ended June 30, 1999
and 1998 was $89.9 million, $54.2 million, $51.1 million and $20.3 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., a consolidated
subsidiary of Comcast, ("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 JUNE 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 shareholder, 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. On June 29, 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 June 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.
On August 9, 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 Securities and Exchange Commission pursuant to an
effective registration statement. Comcast intends to contribute the shares
6
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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 six months ended June
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, except per common share data).
Six Months Ended
June 30, June 30,
1999 1998
----------- -----------
Revenues................................... $1,480.0 $1,346.4
Net loss................................... (131.8) (116.1)
4. LONG-TERM DEBT
Interest Rates
As of June 30, 1999 and December 31, 1998, the Company's effective weighted
average interest rate on its long-term debt outstanding was 7.26% and
7.48%, respectively.
Lines of Credit
As of June 30, 1999, certain subsidiaries of the Company had unused lines
of credit of $972.1 million, $372.1 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 June 30, 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 June 30, 1999
(weighted average interest rate of 7.72% and 7.73% as of June 30, 1999 and
December 31, 1998, respectively) and are due in 2002. Accrued interest
relating to such notes of $7.2 million and $3.9 million is included in
notes payable to affiliates as of June 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 six and three months ended
June 30, 1999 and 1998, the Company's service income includes $4.7 million,
$4.5 million, $2.1 million and $2.0 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
$75.4 million, $63.9 million, $41.9 million and $32.7 million during the
six and three months ended June 30, 1999 and 1998, respectively. These
management fees are included in selling, general and administrative
expenses in the Company's condensed consolidated statement
7
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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 six months ended June 30, 1999 and 1998
were $2.9 million and $2.7 million, respectively. Deferred management fees
were $145.3 million and $142.4 million as of June 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
$467.5 million, $380.4 million, $245.6 million and $189.9 million,
including $401.2 million, $320.8 million, $211.4 million and $159.9 million
of Programming Charges, during the six and three months ended June 30, 1999
and 1998, respectively. The Programming Charges include $41.2 million,
$29.5 million, $22.5 million and $15.5 million during the six and three
months ended June 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 six months ended June 30, 1999 and
1998 were $71.9 million and $61.1 million, respectively. Deferred
Programming Charges were $454.3 million and $382.4 million as of June 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 and agent, which invests and disburses such
funds at the direction of the Company. As of June 30, 1999 and December 31,
1998, $6.5 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
six and three months ended June 30, 1999 and 1998, the Company recognized
investment income of $0.8 million, $2.2 million, $0.5 million and $0.7
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 $138.5
million, $104.4 million, $127.1 million and $95.3 million during the six
and three months ended June 30, 1999 and 1998, respectively. The
8
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
Company made cash payments for interest on the notes payable to affiliates
of $0.3 million during the six months June 30, 1999.
The Company made cash payments for state income taxes of $3.4 million, $4.1
million, $3.3 million and $3.6 million during the six and three months
ended June 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 JUNE 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 six and three
months ended June 30, 1999 and 1998 is as follows (dollars in millions, "NM"
denotes percentage is not meaningful):
<TABLE>
<CAPTION>
Six Months Ended
June 30, Increase / (Decrease)
1999 1998 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Service income............................................ $1,353.7 $1,109.5 $244.2 22.0%
Operating, selling, general and administrative expenses... 907.6 739.0 168.6 22.8
--------- --------- ---------
Operating income before depreciation and
amortization (1)....................................... 446.1 370.5 75.6 20.4
Depreciation and amortization............................. 454.7 323.6 131.1 40.5
--------- --------- ---------
Operating (loss) income................................... (8.6) 46.9 (55.5) NM
--------- --------- ---------
Interest expense.......................................... 159.0 107.9 51.1 47.4
Interest expense on notes payable to affiliates........... 3.6 27.3 (23.7) (86.8)
Investment income and other, net.......................... 6.4 (3.9) 10.3 NM
Income tax benefit........................................ (29.8) (20.7) 9.1 44.0
Minority interest......................................... (57.7) (9.5) 48.2 NM
--------- --------- ---------
Net loss.................................................. ($90.1) ($54.2) $35.9 66.2%
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
June 30, Increase / (Decrease)
1999 1998 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Service income............................................ $748.9 $568.3 $180.6 31.8%
Operating, selling, general and administrative expenses... 497.8 370.3 127.5 34.4
--------- --------- ---------
Operating income before depreciation and
amortization (1)....................................... 251.1 198.0 53.1 26.8
Depreciation and amortization............................. 260.5 161.7 98.8 61.1
--------- --------- ---------
Operating (loss) income................................... (9.4) 36.3 (45.7) NM
--------- --------- ---------
Interest expense.......................................... 93.3 54.4 38.9 71.5
Interest expense on notes payable to affiliates........... 1.7 14.4 (12.7) (88.2)
Investment income and other, net.......................... 7.1 (1.6) 8.7 NM
Income tax benefit........................................ (11.3) (6.3) 5.0 79.4
Minority interest......................................... (48.9) (4.3) 44.6 NM
--------- --------- ---------
Net loss.................................................. ($51.3) ($20.3) $31.0 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 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>
10
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
Of the respective $244.2 million and $180.6 million increases in service
income for the six and three month periods from 1998 to 1999, $146.3 million and
$132.9 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, $12.5 million and $5.8 million are attributable to
subscriber growth, $47.1 million and $22.2 million relate to changes in rates,
$10.6 million and $5.6 million are attributable to growth in cable advertising
sales and $27.7 million and $14.1 million relate to other product offerings
(e.g., digital cable, high speed data services, etc.).
Of the respective $168.6 million and $127.5 million increases in operating,
selling, general and administrative expenses for the six and three month periods
from 1998 to 1999, $112.1 million and $103.2 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, $28.5 million
and $13.8 million are attributable to increases in the costs of cable
programming as a result of changes in rates, subscriber growth and additional
channel offerings, $2.2 million and $0.9 million are attributable to growth in
advertising sales and $25.8 million and $9.6 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.
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 service area. For the
six and three months ended June 30, 1999 and 1998, our service income includes
$4.7 million, $4.5 million, $2.1 million and $2.0 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 $75.4 million,
$63.9 million, $41.9 million and $32.7 million during the six and three months
ended June 30, 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 $467.5 million, $380.4 million, $245.6 million and 189.9
million, including $401.2 million, $320.8 million, $211.4 million and $159.9
million of Programming Charges, during the six and three months ended June 30,
1999 and 1998, respectively. The Programming Charges include $41.2 million,
$29.5 million, $22.5 million and $15.5 million during the six and three months
ended June 30, 1999 and 1998, respectively, relating to programming purchased by
us, through Comcast, from suppliers in which Comcast holds an equity interest.
The respective $131.1 million and $98.8 million increases in depreciation
and amortization expense for the six 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 six months ended June 30, 1999 includes the effects
of final purchase price adjustments relating to certain cable communications
systems which we acquired in 1998.
11
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
The respective $51.1 million and $38.9 million increases in interest
expense for the six 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
From January 1, 1999 through August 13, 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 August 13, 1999. As of August 13, 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 5.92%.
The respective $23.7 million and $12.7 million decreases in interest
expense on notes payable to affiliates for the six and three month periods from
1998 to 1999 are primarily attributable to decreases in the average balance of
notes outstanding.
The respective $10.3 million and $8.7 million increases in investment
income and other, net for the six and three month periods from 1998 to 1999 are
primarily attributable to Comcast's contribution of Jones Intercable to us.
The respective $9.1 million and $5.0 million increases in income tax
benefit for the six 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.
The respective $48.2 million and $44.6 million increases in minority
interest for the six 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 six and three months ended June 30, 1999 and 1998, our earnings
before income tax benefit and fixed charges (interest expense and interest
expense on notes payable to affiliates) were $42.7 million, $60.3 million, $32.4
million and $42.2 million, respectively. Such earnings were not adequate to
cover our fixed charges of $162.6 million, $135.2 million, $95.0 million and
$68.8 million for the six and three months ended June 30, 1999 and 1998,
respectively. Our fixed charges include non-cash interest expense of $3.7
million, $27.5 million, $1.9 million and $14.5 million for the six and three
months ended June 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:
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
12
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
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 June 30, 1999, except for Jones Intercable, we are in the Testing
Phase and the Implementation Phase of our Year 2000 remediation program and have
entered the Implementation Phase with respect to certain of our key systems. For
Jones Intercable, as of June 30, 1999, we are in the Conversion Phase and the
Testing Phase of our Year 2000 remediation program . Through June 30, 1999, we
have incurred approximately $5.0 million in connection with our Year 2000
remediation program. We estimate that we will incur between approximately $3.0
million to $5.0 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. We plan to complete the Year 2000 mitigation by the end of the third
quarter of 1999, except for Jones Intercable which will be completed in November
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.
13
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 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 April 8,
1999 relating to our announcement that Comcast Corporation had
completed the acquisition of a controlling interest in Jones
Intercable. Inc.
(ii) We filed a Current Report on Form 8-K under Item 5 on May 6, 1999
relating to our announcement that Comcast Corporation had entered
into an agreement with AT&T Corp. to exchange certain cable
systems and that Comcast Corporation had terminated its Agreement
and Plan of Merger with MediaOne Group, Inc.
(iii)We filed a Current Report on Form 8-K under Item 5 on May 27,
1999 relating to our announcement that Comcast Corporation had
entered into an agreement with Adelphia Communications to
exchange certain cable systems.
14
<PAGE>
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 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: August 16, 1999
15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001040573
<NAME> COMCAST CABLE COMMUNICATIONS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 90
<SECURITIES> 7
<RECEIVABLES> 137
<ALLOWANCES> (25)
<INVENTORY> 64
<CURRENT-ASSETS> 324<F1>
<PP&E> 3,977
<DEPRECIATION> (1,329)
<TOTAL-ASSETS> 9,137
<CURRENT-LIABILITIES> 643
<BONDS> 5,086
0
0
<COMMON> 0
<OTHER-SE> 841
<TOTAL-LIABILITY-AND-EQUITY> 9,137
<SALES> 1,354
<TOTAL-REVENUES> 1,354
<CGS> 0
<TOTAL-COSTS> (1,362)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (163)
<INCOME-PRETAX> (178)<F2>
<INCOME-TAX> (30)
<INCOME-CONTINUING> (90)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (90)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1> Current assets includes investments available for sale of $15.
<F2> Loss before income tax benefit and other items excludes the effect of
minority interests, net of tax, of $58.
</FN>
</TABLE>
