<PAGE>
PROSPECTUS
September 30, 1997
Offer to Exchange
9 1/2% Senior Notes due 2007, Series B
for Any and All Outstanding 9 1/2% Senior Notes due 2007, Series A
of
Comcast Cellular Holdings, Inc.
The Exchange Offer will expire at 5:00 P.M.,
New York City time, on October 30, 1997, unless extended
Comcast Cellular Holdings, Inc. (the "Company"), hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange $1,000 principal amount of 9 1/2% Senior Notes due 2007,
Series B (the "New Notes") for each $1,000 principal amount of the issued and
outstanding 9 1/2% Senior Notes due 2007, Series A (the "Old Notes" and,
together with the New Notes, the "Notes") of the Company. As of the date of
this Prospectus, there were outstanding $1,000,000,000 principal amount of Old
Notes. The terms of the New Notes are identical in all material respects to
those of the Old Notes, except that the offer of the New Notes will have been
registered under the Securities Act of 1933, as amended (the "Securities Act")
and, therefore, the New Notes will not be subject to certain transfer
restrictions, registration rights and related liquidated damages provisions
applicable to the Old Notes. This Prospectus and Letter of Transmittal will be
first sent to all Holders of Old Notes on or about October 1, 1997.
The New Notes will bear interest from May 8, 1997. Holders of Old Notes
whose Old Notes are accepted for exchange will be deemed to have waived the
right to receive any payment in respect of interest on the Old Notes accrued
from May 8, 1997 to the date of the issuance of the New Notes. Interest on the
New Notes is payable semi-annually on May 1 and November 1 of each year,
commencing November 1, 1997, accruing from May 8, 1997.
The Notes will be redeemable, in whole or in part, at the option of the
Company at any time after May 1, 2002 at a redemption price set forth herein
plus accrued and unpaid interest, if any, to the date of redemption. In
addition, prior to May 1, 2000, the Company may redeem the Notes at a price
equal to 108.5% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption, with the net cash proceeds
of one or more Public Equity Offerings (as defined); provided, however, that at
least 65% of the originally issued principal amount of the Notes would remain
outstanding after giving effect to any such redemption. See "Description of the
Notes--Optional Redemption." The Company currently has no Indebtedness
outstanding other than the Old Notes. The Company is a holding company and,
therefore, upon consummation of the Exchange Offer, the New Notes will be
effectively subordinated to all liabilities (including trade payables) of the
Company's subsidiaries. As of June 30, 1997, the outstanding liabilities of the
Company's subsidiaries reflected on the Company's balance sheet was $689.9
million.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company under the Registration Rights Agreement, dated May
8, 1997, among the Company and the other signatories thereto (the "Registration
Rights Agreement"). Based upon interpretations set forth in no-action letters
issued to third parties, including Exxon Capital Holdings Corporation, SEC
No-Action Letter (April 13, 1989), Morgan Stanley & Co. Incorporated, SEC
No-Action Letter (June 5, 1991) and Shearman & Sterling, SEC No-Action Letter
(July 2, 1993) (collectively, the "Exchange Offer No-Action Letters"), by the
staff of the Securities and Exchange Commission (the "Commission"), the Company
believes that the New Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by
each Holder thereof (other than a broker-dealer, as set forth below, and any
such Holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holder's business and such
Holder has no arrangement or understanding with any person to participate in
the distribution of such New Notes. Eligible Holders wishing to accept the
Exchange Offer must represent to the Company in the Letter of Transmittal that
such conditions have been met. Each broker-dealer that receives New Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of the New Notes received in exchange
of the Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. The Company has
agreed that, for a period of 90 days after the consummation of the Exchange
Offer, it will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of
Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date (as defined). In the event the Company terminates the
Exchange Offer and does not accept for exchange any Old Notes, the Company will
promptly return tendered Old Notes to the Holders thereof. See "The Exchange
Offer."
Prior to this Exchange Offer, there has been no public market for the
Notes. The Company does not currently intend to list the New Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance than an active public market for
the New Notes will develop.
--------------
See "Risk Factors" beginning on page 11 for a discussion of certain risk
factors that should be considered by Holders prior to tendering their Old Notes
in the Exchange Offer.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
AVAILABLE INFORMATION
This Prospectus constitutes a part of a registration statement (the
"Registration Statement," which term shall encompass any amendments thereto)
filed by the Company with the Commission under the Securities Act. As permitted
by the rules and regulations of the Commission, this Prospectus does not
contain all of the information contained in the Registration Statement and the
exhibits and schedules thereto, and reference is hereby made to the
Registration Statement and the exhibits and schedules thereto for further
information with respect to the Company and the securities offered hereby.
Statements contained herein concerning the provisions of any documents filed as
an exhibit to the Registration Statement or otherwise filed with the Commission
are not necessarily complete, and in each instance reference is made to the
copy of such document so filed. Each such statement is qualified in its
entirety by such reference. The Registration Statement and the exhibits and
schedules thereto can be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the
Commission at Seven World Trade Center, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
also can be obtained from the Public Reference Section of the Commission,
Washington, D.C. 20549 at prescribed rates. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
As a result of this Exchange Offer, the Company will become subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and in accordance therewith will file periodic
reports and other information with the Commission. Such reports and other
information can be inspected and copied at the addresses, and may be accessed
electronically at the Internet address set forth above. The Company has agreed
that, whether or not it is required to do so by the rules and regulations of
the Commission, for so long as any of the Notes remain outstanding, it will
furnish to The Bank of New York, as trustee and to any Holder or beneficial
owner of Notes and file with the Commission (unless the Commission will not
accept such a filing) (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all reports that
would be required to be filed with the Commission on Form 8-K if the Company
were required to file such reports.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information (including the financial statements and the notes thereto) included
elsewhere in this Prospectus. Comcast Cellular Holdings, Inc. is a newly formed
wholly owned subsidiary of Comcast Corporation ("Comcast") which, prior to the
Formation referred to below, had no assets or liabilities. Immediately prior to
the closing of the offering of the Old Notes, Comcast contributed all of the
outstanding capital stock of its wholly owned subsidiary, Comcast Cellular
Corporation ("Comcast Cellular"), to Comcast Cellular Holdings, Inc. (the
"Formation"). Unless otherwise indicated, all references herein to the Company
refer to Comcast Cellular Holdings, Inc. and its subsidiaries (after giving
effect to the Formation), including Comcast Cellular and Comcast Cellular
Communications, Inc. ("CCCI"). Operating cash flow for any period is defined
for purposes of this Prospectus as operating income before depreciation and
amortization for such period. For a definition of certain terms, see "Certain
Terms."
THE COMPANY
The Company is one of the largest independent operators of cellular
telephone systems in the United States based on its 8.1 million aggregate Net
Pops. The Company serves approximately 768,000 subscribers in a large
contiguous area which comprises the Philadelphia, Pennsylvania area, Delaware
and significant portions of New Jersey. The Company's wireless products and
services are currently distributed under the Comcast MetrophoneSM and Comcast
CELLULARONE(R) brand names. For the six months ended June 30, 1997 and for the
year ended December 31, 1996, the Company had net service income of $220.3
million and $426.1 million, respectively, and operating cash flow of $86.6
million and $154.0 million, respectively.
The Company's markets are primarily in urban and suburban areas with
above-average population density and per capita income. The Company's
geographic footprint includes a significant portion of the heavily traveled
I-95 corridor connecting New York, Philadelphia and Baltimore/Washington D.C.
The Company believes that its ability to offer service over a wide contiguous
geographic area will continue to attract new customers and retain existing
customers. The Company's contiguous markets allow its systems to realize
operating efficiencies due to increased utilization and effectiveness of
equipment, personnel, and marketing and advertising resources. The Company's
subscriber base grew from approximately 116,000 as of December 31, 1991 to
approximately 768,000 as of June 30, 1997. Net service income grew from $142.9
million in 1992 to $426.1 million in 1996, while operating cash flow grew from
$58.8 million to $154.0 million over the same period.
Since January 1, 1995, the Company has invested over $400.0 million to
rebuild and expand the capacity of its network, to upgrade network system
security, to increase its direct distribution capabilities and for other
capital expenditures. The Company intends to further expand the capacity and
improve the quality of its network by deploying Time Division Multiple Access
("TDMA") digital cellular technology throughout its entire coverage area
commencing in the third quarter of 1997. As a result of the Company's continued
expansion of its network and its anticipated deployment of digital technology,
the Company believes that its network will have sufficient capacity to
accommodate continued subscriber growth, as well as any increase in subscriber
minutes.
Business Strategy
The Company's objective is to continue to pursue growth in subscribers,
revenues and operating cash flow. The Company intends to achieve this objective
by providing a broad range of high quality integrated wireless communications
products and services. Key elements of the Company's strategy include:
Enhance Wireless Network. The Company has continually improved its
cellular network in order to better serve its customers and position itself to
offer competitive services and features. The Company's significant investment
in switching and cell site equipment manufactured by Lucent Technologies, Inc.
has
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positioned it to efficiently deploy TDMA digital cellular technology throughout
its network. The Company currently anticipates deploying TDMA technology
commencing in the third quarter of 1997, which will permit its subscribers and
roamers to use both analog and TDMA services throughout its coverage area. It
is anticipated that a substantial portion of the increased capacity for
subsequent traffic and subscriber growth will be accommodated using the lower
cost digital technology. The Company intends to continue expanding and
upgrading its cellular network in order to improve coverage and capacity as
required. A subsidiary of Comcast was the high bidder on twelve 10-MHz PCS
licenses covering the Philadelphia, PA MTA and the Allentown, PA BTA, all of
which have been awarded. Subject to the approval of the FCC, Comcast intends to
transfer the PCS licenses to the Company at Comcast's cost of $17.5 million.
These PCS licenses will provide the Company with additional spectrum capacity
and serve as a resource for future enhancement of its network.
Emphasize Customer Service. The Company places a priority on providing
consistently high quality customer service through on-line customer support 24
hours a day, 7 days a week. The Company utilizes a third party billing and
customer care platform in conjunction with an internally developed management
information system. Together, these systems enable the Company to provide
prompt, high quality services to its expanding customer base and afford the
Company access to detailed customer data which it uses to facilitate its
marketing efforts.
Grow Direct Distribution Channels. The Company distributes its products
and services through its direct distribution network (direct sales force,
retail stores and telemarketing) as well as through third party or indirect
distribution channels (national retailers, local agencies and automotive
dealers). The Company's long-term emphasis is on the development of direct
distribution channels, particularly its own retail outlets. The Company
believes that direct distribution offers substantial benefits, including lower
costs, greater effectiveness in selling to higher margin customers, a
consistent point of customer contact and greater ongoing satisfaction for
customers generated both indirectly and directly. The Company currently
operates 48 retail outlets in its markets and anticipates building additional
retail outlets, as well as upgrading existing outlets in the future. The
Company also intends to maintain significant indirect sales distribution
channels.
Capitalize on Regional Brand. The Company currently markets its services
under the Comcast Metrophone(SM) and Comcast CELLULARONE(R) brand names. The
Company believes that the Comcast name has particular regional benefits due to
the Company's telecommunications presence, Comcast's ownership of extensive
cable television facilities in Philadelphia and New Jersey, and Comcast's
interest in the Philadelphia 76ers NBA franchise, the Philadelphia Flyers NHL
franchise and two sports arenas.
Expand Product Offering. The Company continues to offer new and innovative
products and services in order to increase the value of the basic voice product
to its customers, broaden distribution, increase airtime revenues and
differentiate the Company. Among other products and services, the Company has
developed GroupTalk(R), a cellular dispatch service which enables work groups
to communicate among themselves at reduced airtime rates, and has begun to
offer paging services to the customers within its systems. In addition to
providing enhanced cellular voice service packages, the Company has begun to
offer data transmission, through both its existing analog network and the
Cellular Digital Packet Data protocol ("CDPD"). With the integration of digital
technology, the Company will be able to offer a variety of additional services
such as caller identification, short messaging and call encryption.
The Company and Comcast Cellular are Delaware corporations formed in 1997
and 1992, respectively. Both the Company and Comcast Cellular have their
principal executive offices at 1105 North Market Street, Wilmington, Delaware
19801 ((302) 427-8991).
THE REFINANCING
In May 1997, the Company issued $1.0 billion principal amount of Old Notes
for net proceeds of approximately $971.2 million. Such net proceeds were
contributed to Comcast Cellular and were used by
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Comcast Cellular to redeem (the "Zero Coupon Note Redemption") in full on May
19, 1997, all of Comcast Cellular's outstanding Series A Senior Participating
Redeemable Zero Coupon Notes due 2000 and Series B Senior Participating
Redeemable Zero Coupon Notes due 2000 (collectively the "Zero Coupon Notes").
The redemption price of the Zero Coupon Notes on the redemption date was
approximately $742.4 million, which represented their accreted value on such
date. Approximately $628.3 million of the net proceeds from the offering of the
Old Notes was used to redeem the Zero Coupon Notes, net of approximately $114.1
million for redemption of Zero Coupon Notes owned by CCCI and eliminated in
consolidation.
The remaining net proceeds of approximately $228.8 million were
contributed by Comcast Cellular to CCCI, which used such amount, together with
the $114.1 million received by it in the Zero Coupon Redemption, to repay a
portion of the amount outstanding under its existing credit agreement with
certain banks (the "Credit Agreement"), which provides for a term loan in the
principal amount of $300.0 million (the "Term Loan") and a reducing revolving
credit facility of up to $1.0 billion (the "Revolving Credit Loan"). Comcast
Financial Corporation ("CFC"), a wholly owned subsidiary of Comcast, owned
$217.7 million principal amount of Zero Coupon Notes and used the $161.5
million received by it in the Zero Coupon Note Redemption to purchase from the
Company an equal amount of mandatorily redeemable preferred stock (the "Series
A Preferred Stock") of the Company. The Company contributed the $161.5 million
received from the sale of its Series A Preferred Stock to CCCI, which used such
amount, as well as available cash, to further reduce the amount outstanding
under the Credit Agreement, resulting in a total reduction in borrowings under
the Credit Agreement of $505.0 million. The foregoing transactions are
collectively referred to in this Prospectus as the "Refinancing."
The approximate sources and uses of funds in connection with the
Refinancing are set forth below (in millions):
Sources of funds:
Old Notes ............................................. $ 998.4
Series A Preferred Stock issued to CFC ............... 161.5
Available cash ....................................... 0.6
--------
Total sources ....................................... $1,160.5
========
Uses of funds:
Redeem Zero Coupon Notes held by non-affiliates ...... $ 466.8
Redeem Zero Coupon Notes held by CFC .................. 161.5
Repay bank debt ....................................... 505.0
Estimated fees and expenses ........................... 27.2
--------
Total uses .......................................... $1,160.5
========
Dividends on the Series A Preferred Stock accrue at 12% per annum, payable
semi-annually in arrears. At the option of the Company, dividends on the Series
A Preferred Stock may be paid in additional shares of Series A Preferred Stock
instead of cash through May 1, 2007. The Series A Preferred Stock is
mandatorily redeemable after the final maturity of the Notes and, subject to
the restricted payment provisions of the Indenture for the Notes, is redeemable
at the option of the Company at any time.
CCCI expects to enter into a new revolving credit facility of up to $400.0
million with a group of banks (the "New Bank Facility"). Borrowings under the
New Bank Facility will be used to repay all amounts remaining outstanding under
the Credit Agreement. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources --
Financing" for further information regarding the New Bank Facility. It is
expected that the Company will merge into
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Comcast Cellular following complete repayment of all amounts outstanding under
the Credit Agreement, in which event the New Notes and, following the Exchange
Offer, any Old Notes which remain outstanding, will become direct obligations
of Comcast Cellular. The Indenture does not permit Comcast Cellular to incur
any other indebtedness prior to the merger.
THE EXCHANGE OFFER
The following summary description of the Exchange Offer is qualified in
its entirety by the more detailed information contained elsewhere in this
Prospectus.
Notes Offered............ Up to $1,000,000,000 principal amount of 9 1/2%
Senior Notes due 2007, Series B. The terms of the
New Notes and the Old Notes are identical in all
material respects, except that the offer of the New
Notes will have been registered under the Securities
Act and, therefore, the New Notes will not be
subject to certain transfer restrictions,
registration rights and related liquidated damages
provisions applicable to the Old Notes.
The Exchange Offer ...... The Company is offering, upon the terms and
subject to the conditions of the Exchange Offer, to
exchange $1,000 principal amount of New Notes for
each $1,000 principal amount of Old Notes. See "The
Exchange Offer" for a description of the procedures
for tendering Old Notes. The Exchange Offer is
intended to satisfy obligations of the Company under
the Registration Rights Agreement.
Tenders, Expiration Date;
Withdrawal ............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on October 30, 1997, or such later
date and time to which it is extended. The tender of
Old Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
Any Old Notes not accepted for exchange for any
reason will be returned without expense to the
tendering Holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer.
Federal Income Tax
Consequences............ The exchange pursuant to the Exchange Offer will
not result in any income, gain or loss to the
Holders or the Company for federal income tax
purposes. See "Certain Federal Income Tax
Consequences."
Use of Proceeds ......... There will be no proceeds to the Company from the
issuance of the New Notes pursuant to the Exchange
Offer.
Exchange Agent ......... The Bank of New York is serving as Exchange Agent
in connection with the Exchange Offer.
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CONSEQUENCE OF EXCHANGING OLD NOTES
PURSUANT TO THE EXCHANGE OFFER
Based upon interpretations by the staff of the Commission, as set forth in
the Exchange Offer No-Action Letters, the Company believes that, generally, any
Holder of Old Notes (other than a broker-dealer, as set forth below, and any
Holder who is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) who exchanges its Old Notes for New Notes pursuant to
the Exchange Offer may offer such New Notes for resale, resell such New Notes,
or otherwise transfer such New Notes without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided such New
Notes are acquired in the ordinary course of the Holder's business and such
Holder has no arrangement or understanding with any person to participate in a
distribution of such New Notes. Eligible Holders wishing to accept the Exchange
Offer must represent to the Company in the Letter of Transmittal that such
conditions have been met and must represent, if such Holder is not a
broker-dealer, or is a broker-dealer but will not receive New Notes for its own
account in exchange for Old Notes, that neither such Holder nor the person
receiving such New Notes, if other than the Holder, is engaged in or intends to
participate in the distribution of such New Notes. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes must represent
that the Old Notes tendered in exchange therefor were acquired as a result of
market-making activities or other trading activities and must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
See "Plan of Distribution." To comply with the securities laws of certain
jurisdictions, it may be necessary to qualify for sale or register the New
Notes prior to offering or selling such New Notes. The Company does not
currently intend to take any action to register or qualify the New Notes for
resale in any such jurisdiction. If a Holder of Old Notes does not exchange
such Old Notes for New Notes pursuant to the Exchange Offer, such Old Notes
will continue to be subject to the restrictions on transfer contained in the
legend thereon. In general, the Old Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. Any Holder who tenders in the Exchange Offer with the
intention to participate, or for the purpose or participating, in a
distribution of New Notes could not rely on the position of the staff of the
Commission enunciated in Exxon Capital Holdings Corporation (available April
13, 1989) or similar no-action letters and, in the absence of an exemption
therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Failure to comply with such requirements in such instance may
result in such Holder incurring liability under the Securities Act for which
the Holder is not indemnified by the Company. See "The Exchange
Offer--Consequences of Failure to Exchange" and "Registration Rights;
Liquidated Damages."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes (collectively, the "Notes")
are identical in all material respects, except that the offer of the New Notes
will have been registered under the Securities Act and, therefore, the New
Notes will not be subject to certain transfer restrictions, registration rights
and related liquidated damages provisions applicable to the Old Notes. The Old
Notes were originally issued to certain initial purchasers pursuant to Section
4(2) of the Securities Act who privately sold them only (i) in the United
States to qualified institutional buyers as defined in Rule 144A under the
Securities Act in compliance with Rule 144A to a limited number of
institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act) and (ii) outside the United States in accordance
with Regulation S under the Securities Act. The following summary description
of the New Notes is qualified in its entirety by the more detailed information
set forth under the caption "Description of the Notes" contained elsewhere in
this Prospectus.
New Notes Offered ...... Up to $1,000,000,000 aggregate principal amount of
9 1/2% Senior Notes due 2007, Series B.
Maturity Date............ May 1, 2007.
Scheduled Interest Payment
Dates .................. May 1 and November 1, commencing November 1, 1997.
The New Notes will bear interest from May 8, 1997.
Holders of Old Notes
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whose Old Notes are accepted for exchange in the
Exchange Offer will be deemed to have waived the
right to receive any payment in respect of interest
on such Old Notes accrued from May 8, 1997 (the
original issue date of the Old Notes) to the date
of the issuance of the New Notes. Consequently,
Holders who exchange their Old Notes for New Notes
will receive the same interest payment on November
1, 1997 (the first interest payment date with
respect to the Old Notes and the New Notes
following consummation of the Exchange Offer) that
they would have received had they not accepted the
Exchange Offer.
Ranking.................. The New Notes will be general unsecured
obligations of the Company ranking senior to all
Subordinated Indebtedness (as defined) of the
Company and pari passu in right of payment with all
other existing and future unsecured and
unsubordinated Indebtedness (including any Old Notes
not exchanged pursuant to the Exchange Offer) and
other liabilities of the Company. As of the date of
this Prospectus, the Company has no Indebtedness
outstanding other than the Old Notes. The Company is
a holding company and, therefore, the New Notes will
be effectively subordinated to all liabilities
(including trade payables) of the Company's
subsidiaries. As of June 30, 1997, the outstanding
liabilities of the Company's subsidiaries reflected
on the Company's balance sheet was $689.9 million.
See "Description of the Notes -- Ranking."
Optional Redemption...... The New Notes are redeemable, in whole or in part,
at the option of the Company at any time after May
1, 2002 at the redemption prices set forth herein
plus accrued and unpaid interest, if any, to the
date of redemption.
In addition, prior to May 1, 2000, the Company may
redeem the Notes at a redemption price equal to
108.5% of the principal amount so redeemed, plus
accrued and unpaid interest thereon, if any, to the
date of redemption, with the net cash proceeds of
one or more Public Equity Offerings resulting in
aggregate gross cash proceeds to the Company of at
least $100.0 million; provided, however, that at
least 65% of the originally issued principal amount
of the Notes would remain outstanding immediately
after giving effect to any such redemption
(excluding any Notes owned by the Company or any of
its Affiliates (as defined)). Notice of any such
redemption must be given within 60 days after the
date of the last Public Equity Offering resulting
in gross cash proceeds to the Company, when
aggregated with all prior Public Equity Offerings,
of at least $100.0 million.
Change of Control ...... Upon the occurrence of a Change of Control
Triggering Event (as defined), each Holder of New
Notes will have the right to require the Company to
repurchase such Holder's New Notes at 101% of the
principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the repurchase date.
Certain Covenants ...... The Indenture imposes certain limitations on the
ability of the Company and its Restricted
Subsidiaries (as defined) to, among other things,
incur Indebtedness, make Restricted Payments (as
defined), effect certain Asset Sales (as defined),
enter into certain transactions with affiliates,
merge or consolidate with any other person or
transfer all or substantially all of their
properties and assets. See "Description of the Notes
-- Certain Covenants."
The New Notes are obligations only of the Company and are not guaranteed
by, and do not otherwise constitute obligations of, Comcast.
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RISK FACTORS
Prior to tendering Old Notes in the Exchange Offer, Holders should
carefully consider the factors discussed in detail elsewhere in this Prospectus
under the caption "Risk Factors."
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth summary consolidated financial and other
data for the Company as of and for the six months ended June 30, 1997 and 1996
and as of and for each of the years in the five-year period ended December 31,
1996. The financial and other data (other than total Pops, total subscribers at
period end and penetration) as of and for each of the five years in the period
ended December 31, 1996 have been derived from the annual consolidated
financial statements of the Company. The financial and other data (other than
total Pops, total subscribers at period end and penetration) as of and for the
six months ended June 30, 1997 and 1996 have been derived from the unaudited
condensed consolidated financial statements of the Company. In the opinion of
management of the Company, the unaudited condensed consolidated financial data
reflect all adjustments, which are of a normal recurring nature, necessary for
a fair presentation of the financial position and results of operations for the
unaudited periods. The results of operations for the six months ended June 30,
1997 are not necessarily indicative of operating results for the full year. The
following data should be read in conjunction with "Selected Consolidated
Financial and Other Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and notes thereto of the Company included elsewhere herein.
<TABLE>
<CAPTION>
Six Months
Ended June 30,
----------------------------
1997(1) 1996(1)
------------- -------------
(Dollars in thousands)
<S> <C> <C>
Statement of Operations Data:
Service income, net ........................ $ 220,273 $ 207,096
Operating expenses ........................ 18,931 17,295
Selling, general and administrative
expenses ................................. 114,747 123,284
Depreciation and amortization ............... 61,449 56,769
Operating income (loss) ..................... 25,146 9,748
Interest expense ........................... 61,165 55,678
Loss before extraordinary items and
cumulative effect of accounting changes . (24,708) (44,322)
Extraordinary items ........................ (7,313)
Cumulative effect of accounting changes(4)
Net loss .................................... (32,021) (44,322)
Balance Sheet Data (at period end):
Working capital (deficiency) ............... $ (70,238) $ 8,905
Property and equipment, net ............... 379,224 305,212
Total assets .............................. 1,461,880 1,430,371
Long-term debt, less current portion ...... 1,149,679 1,237,892
Long-term investment in and due to
affiliates ................................. 114,437 144,087
Stockholder's (deficiency) equity ......... (390,137) (330,593)
Other Data:
Total Pops (000s)(5) ........................ 8,080 8,119
Total subscribers at period end (000s)(5) ... 768 746
Penetration(5) .............................. 9.5% 9.2%
Operating income before depreciation and
amortization(6) ........................... $ 86,595 $ 66,517
Net cash provided by operating
activities(7) .............................. $ 73,628 $ 17,741
Capital expenditures ........................ $ 57,897 $ 36,610
Ratio of earnings to fixed charges(8) ......
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1996(1) 1995(1)(2) 1994(1) 1993(3) 1992(3)
------------- ------------ -------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Service income, net ........................ $ 426,053 $ 374,880 $ 286,137 $ 202,030 $ 142,926
Operating expenses ........................ 36,876 28,923 22,684 16,997 12,457
Selling, general and administrative
expenses ................................. 235,176 212,657 154,011 97,210 71,697
Depreciation and amortization ............... 117,225 205,733 89,916 84,740 66,785
Operating income (loss) ..................... 36,776 (72,433) 19,526 3,083 (8,013)
Interest expense ........................... 116,297 97,694 83,338 77,744 59,937
Loss before extraordinary items and
cumulative effect of accounting changes . (69,584) (109,779) (55,089) (65,924) (79,971)
Extraordinary items ........................ (3,047) (6,072)
Cumulative effect of accounting changes(4) (425,106)
Net loss .................................... (69,584) (112,826) (61,161) (491,030) (79,971)
Balance Sheet Data (at period end):
Working capital (deficiency) ............... $ (66,619) $ (86,843) $ (15,593) $ 23,727 $ 18,131
Property and equipment, net ............... 353,414 286,681 221,945 186,833 169,352
Total assets .............................. 1,428,182 1,431,386 1,283,028 1,277,641 1,293,364
Long-term debt, less current portion ...... 1,259,325 1,068,104 869,605 844,589 798,167
Long-term investment in and due to
affiliates ................................. 108,804 133,239 110,173 90,711 74,772
Stockholder's (deficiency) equity ......... (355,855) (286,271) (173,445) (112,284) 378,746
Other Data:
Total Pops (000s)(5) ........................ 8,164 7,859 7,332 7,332 7,256
Total subscribers at period end (000s)(5) ... 762 665 501 323 230
Penetration(5) .............................. 9.3% 8.5% 6.8% 4.4% 3.2%
Operating income before depreciation and
amortization(6) ........................... $ 154,001 $ 133,300 $ 109,442 $ 87,823 $ 58,772
Net cash provided by operating
activities(7) .............................. $ 122,096 $ 69,340 $ 79,664 $ 65,942 $ 36,249
Capital expenditures ........................ $ 116,018 $ 228,706 $ 71,943 $ 50,488 $ 40,243
Ratio of earnings to fixed charges(8) ......
</TABLE>
9
<PAGE>
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of events which affect the
comparability of the information reflected in the above summary
consolidated financial and other data.
(2) In 1995, in connection with the Cellular Rebuild (as defined), the Company
made capital expenditures of $172.0 million and charged $110.0 million to
depreciation expense, which represented the difference between the net
book value of the equipment replaced and the residual value realized upon
its disposal.
(3) Comparability of the information presented for the years ended December 31,
1993 and 1992 is affected by the Company's acquisition of AWACS, Inc.
("AWACS"), the non-wireline cellular telephone system serving the
Philadelphia, PA MSA, from Metromedia Company in March, 1992.
(4) Relates principally to the adoption of the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
(5) Includes only the Company's consolidated systems. See "Business -- Summary
Market Data."
(6) Operating income before depreciation and amortization is commonly referred
to in the Company's industry 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
cellular industry and the resulting significant level of non-cash
depreciation and amortization expense, operating cash flow is frequently
used as one of the bases for evaluating cellular businesses. Operating
cash flow does not purport to represent net income or net cash provided by
operating activities, as those terms are defined under generally accepted
accounting principles, and should not be considered as an alternative to
such measurements as an indicator of the Company's performance.
(7) Represents net cash provided by operating activities as presented in the
Company's consolidated statement of cash flows.
(8) For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of distributions from Garden State Cablevision and income
(loss) before extraordinary items and cumulative effect of accounting
changes, income tax expense (benefit), equity in net losses of affiliates
and fixed charges. Fixed charges consist of interest expense. For the six
months ended June 30, 1997 and 1996 and the years ended December 31, 1996,
1995, 1994, 1993 and 1992, earnings, as defined above, were inadequate to
cover fixed charges by $34.9 million, $68.1 million, $65.6 million, $163.1
million, $68.8 million, $73.6 million and $67.9 million, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Results of Operations."
10
<PAGE>
RISK FACTORS
In addition to the other matters described in this Prospectus, Holders of
the Old Notes should consider the specific factors set forth below before
accepting the Exchange Offer.
This Prospectus contains statements which constitute forward looking
statements. Those statements appear in a number of places in this Prospectus
and include statements regarding the intent, belief or current expectations of
the Company, its directors or its officers primarily with respect to the future
operating performance of the Company. Holders of the Old Notes are cautioned
that any such forward looking statements are not guarantees of future
performance and may involve risks and uncertainties, and that actual results
may differ from those in the forward looking statements as a result of various
factors. The accompanying information contained in this Prospectus, including
without limitation the information set forth below and the information under
the heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations," identifies important factors that could cause such
differences.
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon, and, except
in certain limited circumstances, will no longer have any registration rights
with respect to the Old Notes or be entitled to any liquidated damages with
respect to the Old Notes. See "Registration Rights--Liquidated Damages." In
general, the Old Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. The
Company does not intend to register the Old Notes under the Securities Act. The
Company believes that, based upon interpretations contained in letters issued
to third parties by the staff of the Commission, New Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
or otherwise transferred by each Holder thereof (other than a broker-dealer, as
set forth below, and any such Holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities Act
provided that such New Notes are acquired in the ordinary course of such
Holder's business and such Holder has no arrangement or understanding with any
person to participate in the distribution of such New Notes. Eligible Holders
wishing to accept the Exchange Offer must represent to the Company in the
Letter of Transmittal that such conditions have been met and must represent, if
such Holder is not a broker-dealer, or is a broker-dealer but will not receive
New Notes for its own account in exchange for Old Notes, that neither such
Holder nor the person receiving such New Notes, if other than the Holder, is
engaged in or intends to participate in the distribution of such New Notes.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must represent that the Old Notes tendered in exchange therefor
were acquired as a result of market-making activities or other trading
activities and must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with the resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, prior to the 91st day after the
consummation of the Exchange Offer, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution." However, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdiction or an
exemption from registration or qualification is available and is complied with.
The Company does not currently intend to take any action to register or qualify
the New Notes for resale in any such jurisdictions. In addition, the tender of
Old Notes pursuant to the Exchange Offer will reduce the principal amount of
the Old Notes outstanding, which may have an adverse effect upon, and increase
the volatility of, the market price of the Old Notes due to a reduction in
liquidity.
11
<PAGE>
Leverage; Ability to Service Debt
The Company has been and will continue to be highly leveraged. For the six
months ended June 30, 1997 and for the year ended December 31, 1996, the
Company's earnings (deficit) were inadequate to cover fixed charges by $34.9
million and $65.6 million, respectively. As of June 30, 1997 the Company's
total long-term debt was $1.1 billion and the Company's ratio of total debt to
total capitalization was 124.5%. The degree to which the Company is leveraged
could have important consequences to Holders of the Notes, including the
following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes may be impaired; (ii) a substantial
portion of the Company's cash flows from operations will be dedicated to the
payment of principal and interest on its indebtedness, thereby reducing the
funds available to the Company for its operations and expansion plans; and
(iii) the Company may be more vulnerable to a downturn in general economic
conditions or its business. The discretion of the Company's management with
respect to certain business matters will be limited by covenants contained in
the Indenture and future debt instruments. Among other things, the covenants
contained in the Indenture restrict, condition or prohibit the Company from
incurring additional indebtedness, creating liens on its assets, making certain
asset dispositions and entering into transactions with affiliates. In addition,
CCCI's existing Credit Agreement contains, and the New Bank Facility (as
defined) is expected to contain, financial and operating covenants and
prohibitions, including requirements that CCCI maintain certain financial
ratios and use a portion of excess cash flow (as defined) and proceeds of
assets sales to repay indebtedness under such facility. There can be no
assurance that the Company's leverage and such restrictions will not materially
and adversely affect the Company's ability to finance its future operations or
capital needs or to engage in other business activities. Moreover, a failure to
comply with the obligations contained in the Indenture or any other agreements
with respect to additional financing (including the Credit Agreement or the New
Bank Facility) could result in an event of default under such agreements, which
could permit acceleration of the related debt and acceleration of debt under
future debt agreements that may contain cross-acceleration or cross-default
provisions. See "Description of the Notes."
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness depends on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors beyond its control and
to the ability of the Company to access payments and advances from its
subsidiaries in amounts and at times sufficient to fund its debt obligations.
There can be no assurance that the Company's operating results or access to
payments and advances from its subsidiaries will be sufficient for payment of
the Company's indebtedness, including the Notes. See "--Holding Company
Structure; Dependence upon Payments from Subsidiaries; Effective
Subordination."
Holding Company Structure; Dependence upon Payments from Subsidiaries;
Effective Subordination
The Company is a holding company and conducts all of its operations
through subsidiaries. Consequently, the ability of the Company to pay its
obligations, including its obligation to pay interest on and principal of the
Notes, whether at the maturity thereof or upon an earlier redemption or
purchase at the option of the Company or the Holders of the Notes, will be
dependent on the ability of the Company to receive dividends and other payments
or advances from its subsidiaries or to obtain additional capital or other
payments or advances, in cash or otherwise from Comcast (which has no
obligation to provide such capital, payments or advances) or from another
source. Comcast Cellular, CCCI and its subsidiaries are separate and distinct
legal entities and have no obligation, contingent or otherwise, to pay any
amounts due pursuant to the Notes or to make funds available therefor. The
ability of Comcast Cellular and CCCI to pay dividends or for Comcast Cellular
or CCCI or its subsidiaries to make other payments or advances to the Company
will depend upon the operating results of Comcast Cellular, CCCI and CCCI's
subsidiaries and any restrictions on paying such dividends or making such
payments or advances as may be applicable to Comcast Cellular, CCCI or any of
CCCI's subsidiaries.
The Indenture permits the Company and its subsidiaries to incur
substantial indebtedness. The Indenture permits the instruments governing such
indebtedness to restrict the ability of the Company's subsidiaries to pay
dividends or make other payments or advances to the Company and CCCI's existing
Credit Agreement contains, and the New Bank Facility is expected to contain,
such restrictions. There can be no assurance that, in the
12
<PAGE>
absence of other sources of liquidity, such restrictions, including
restrictions pursuant to the Credit Agreement and those likely to exist under
the New Bank Facility, will not have a material adverse effect on the ability
of the Company to service its indebtedness, including the Notes.
The right of the Company to receive assets of any of its subsidiaries upon
liquidation or reorganization (and the consequent right of Holders to
participate in those assets) of such subsidiary will be subject to the prior
claims of that subsidiary's creditors (including trade creditors) and preferred
stockholders. Accordingly, the New Notes effectively will be subordinated to
all liabilities of the Company's subsidiaries, including trade payables and the
liquidation value of preferred stock of the Company's subsidiaries, if any,
except to the extent that the Company is itself recognized as a creditor of
such subsidiary, in which case the claims of the Company would still be
subordinate to any security interest in the assets of such subsidiary, and any
indebtedness of such subsidiary senior to that held by the Company. The
Indenture will not limit the incurrence by Unrestricted Subsidiaries (as
defined) of additional indebtedness or the issuance of preferred stock. The
aggregate amount of liabilities of the Company's subsidiaries that effectively
would have ranked senior to the Old Notes would have been approximately $689.9
million as of June 30, 1997.
The Indenture will permit the incurrence by the Company of certain secured
indebtedness (without providing for the equal and ratable securing of the
Notes) and any such secured indebtedness would be effectively senior to the
Notes to the extent of the assets securing such indebtedness (which may be all
of the Company's assets). In addition, the indebtedness of CCCI under the
Credit Agreement is, and it is expected that borrowings under the New Bank
Facility may be, secured by the pledge of the capital stock of each of CCCI's
direct subsidiaries.
Limited Operating History; Net Losses
The Company and Comcast Cellular were formed in March 1997 and 1992,
respectively. In May 1997, Comcast contributed all of the outstanding capital
stock of Comcast Cellular to the Company. This contribution has been accounted
for in a manner similar to a pooling of interests. Since its formation, Comcast
Cellular has concentrated on the acquisition, exchange, construction, operation
and development of its cellular telephone systems. Comcast Cellular has
experienced significant losses since its inception. For the six months ended
June 30, 1997 and the year ended December 31, 1996, the Company incurred net
losses of $32.0 million and $69.6 million, respectively, and as of June 30,
1997, had an accumulated deficit of $888.3 million. The Company anticipates
that for the foreseeable future, depreciation, amortization and interest
expense will continue to be significant and will have a significant adverse
effect on the Company's ability to realize net earnings. See "Summary
Consolidated Financial and Other Data," "Selected Consolidated Financial and
Other Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- General."
Relationship with Comcast; Possible Conflicts of Interest
The interests of Comcast and the Company may conflict and there can be no
assurance that any such conflict will be resolved in favor of the Company. All
of the directors and certain of the officers of the Company are directors,
officers, or both, of Comcast. All of the officers and directors of the
Company, when acting in such capacity, have a fiduciary duty to the Company and
to its sole stockholder, Comcast. Officers and directors generally do not have
fiduciary duties to holders of debt securities such as the Notes. See
"Management."
Possible Disposition of the Company by Comcast
Over the past several years, Comcast has considered various transactions
involving the sale or other disposition (including a possible spin-off) of its
interest in the Company. While Comcast is not currently considering any such
transaction, no assurance can be given that the Company will remain a wholly
owned subsidiary of Comcast. See "-- Change of Control" below.
Issues Related to Brand Names
The Company currently markets its services under the Comcast Metrophone(SM)
brand name in the Philadelphia, PA MSA and under the Comcast CELLULARONE(R)
brand name in its other markets in New Jersey and
13
<PAGE>
Delaware. The Company intends to consolidate the provision of its services
under a single brand. There is no assurance that the Company will continue its
use of either brand name or that any change in brand name would not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
The Company does not own or have the contractual right to use the
"Comcast" name, which belongs to Comcast. While Comcast currently permits and
currently intends to continue to permit the Company to use the "Comcast" name
in marketing its products and services, there can be no assurance that Comcast
will continue to permit the Company to use the "Comcast" name or that any loss
of or limitation on the Company's right to use the "Comcast" name would not
have a material adverse effect on the Company's financial position, results of
operations or liquidity.
Competition
The FCC generally grants two licenses to operate cellular telephone
systems in each market. One of the two licenses was initially awarded to a
company or group affiliated with a local landline telephone carrier in the
market (the "wireline" license), and the other license was initially awarded to
a company, individual or a group not affiliated with any landline telephone
carrier (the "non-wireline" license). The Company's systems are all
non-wireline systems and compete directly with the wireline licensee in each
market in attracting and retaining cellular telephone customers and dealers.
The Company's principal wireline competitor has a larger coverage area and may
have access to more substantial financial resources than the Company.
Competition between wireless operators in each market is principally on the
basis of services and enhancements offered, technical quality of the system,
quality and responsiveness of customer service, pricing and coverage area.
In recent years, new mobile telecommunications service providers have
entered the market and created additional competition in the wireless
telecommunications business. Many of such providers have access to substantial
capital resources and operate, or through affiliates operate, cellular
telephone systems, thus bringing significant wireless experience to the new
marketplace. While there are only two cellular providers licensed in a given
area, new competitors continue to emerge utilizing different frequencies and
new technologies, including personal communications services ("PCS"),
Specialized Mobile Radio ("SMR") and Enhanced SMR. Winners of the auctions for
the 30-MHz licenses for PCS in the Company's Philadelphia market were AT&T
Wireless Services, Inc. and PhillieCo, L.P., an affiliate of Sprint PCS (see
below). PhillieCo, L.P. and Nextel Communications, Inc. (an Enhanced SMR
operator) have each recently begun offering their wireless services in the
Philadelphia, PA area. Additional companies recently were granted 10-MHz PCS
licenses authorizing their operation throughout the Company's cellular service
area. The Company is unable to predict whether such competing technologies will
be successful and as a result will provide significant competition for the
Company.
Comcast, Tele-Communications, Inc. ("TCI"), Cox Communications, Inc.
("Cox") and Sprint Corporation ("Sprint"), through certain subsidiaries, engage
in the wireless communications business through a limited partnership known as
"Sprint Spectrum" or "Sprint PCS," a development stage enterprise through June
30, 1997. Comcast owns 15% of Sprint PCS (other than with respect to the
markets operated by the Company in the Philadelphia, PA MTA). Pursuant to the
Sprint PCS limited partnership agreements, Comcast and its subsidiaries,
including the Company, are prohibited from acquiring any interest in Commercial
Mobile Radio Service ("CMRS") licenses or businesses beyond a predetermined
cellular footprint, consisting of the Philadelphia, PA MTA and the Allentown,
PA BTA. Such limitations reduce the Company's ability to expand the geographic
scope of its existing cellular telephone network.
The Company has entered into various reciprocal agreements among cellular
telephone system operators to allow their respective subscribers ("roamers") to
place and receive calls in other markets. Roamers are charged rates that are
generally at a premium to the regular service rate. While the Company believes
that it will maintain its ability to offer the ability to roam outside its
network to its customers, it also anticipates that increased competition will
both place downward pressure on roaming rates paid by other carriers to the
Company and permit a number of the cellular telephone providers who currently
allow their customers to roam on the Company's systems to migrate such roaming
to the systems of other providers. See "Business--Competition."
Change of Control
Upon a Change of Control Triggering Event, each holder of the Notes will
have the right to require the Company to repurchase any or all of the Notes
owned by such holder at a price equal to 101% of the principal
14
<PAGE>
amount thereof, together with accrued and unpaid interest. A Change of Control
Triggering Event requires both a Change of Control (as defined) and a Ratings
Decline (as defined). However, the Company's ability to repurchase the Notes
upon a Change of Control Triggering Event may be limited by the terms of then
existing contractual obligations of the Company and its subsidiaries. Although
the Company does not currently have any indebtedness containing change of
control provisions which indebtedness ranks pari passu with the Notes, the
Indenture does not prohibit the Company in the future from incurring
indebtedness otherwise permitted by the Indenture that contains such
provisions. Furthermore, CCCI's existing Credit Agreement ($160.0 million
outstanding thereunder as of June 30, 1997) has, and the New Bank Facility is
expected to have, change of control provisions that would require CCCI to repay
indebtedness thereunder before any funds from CCCI would be available to the
Company to satisfy its obligations under the Notes. CCCI expects the New Bank
Facility will provide for a revolving credit line of up to $400.0 million. In
order for funds from CCCI to be available to the Company to repurchase the
Notes upon a Change of Control Triggering Event, CCCI would have to repay all
of its obligations under the Credit Agreement, or following the refinancing
thereof, the New Bank Facility (and any other agreements relating to debt that
contain similar change of control provisions) or would have to obtain the
consent of the holders of such indebtedness. In addition, the Company may not
have adequate financial resources to effect such a repurchase, and there can be
no assurance that the Company would be able to obtain such resources through a
refinancing of the Notes to be repurchased or otherwise. If the Company fails
to repurchase all of the Notes tendered for purchase upon the occurrence of a
Change of Control Triggering Event, such failure will constitute an Event of
Default under the Indenture. See "--Leverage; Ability to Service Debt" above.
With respect to the sale of assets referred to in the definition of Change
of Control, the phrase "all or substantially all" as used in such definition
varies according to the facts and circumstances of the subject transaction, has
no clearly established meaning under the relevant law and is subject to
judicial interpretation. Accordingly, in certain circumstances there may be a
degree of uncertainty in ascertaining whether a particular transaction would
involve a disposition of "all or substantially all" of the assets of a person
and therefore it may be unclear whether a Change of Control has occurred and
whether the Notes are subject to an offer to purchase.
The Change of Control provision may not necessarily afford the Holders
protection in the event of a highly leveraged transaction, including a
reorganization, restructuring, merger or other similar transaction involving
the Company that may adversely affect the Holders, because such transactions
may not involve a shift in voting power or beneficial ownership or, even if
they do, may not involve a shift of the magnitude required under the definition
of Change of Control to trigger such provisions. Except as described under
"Description of the Notes -- Offer to Purchase upon Change of Control
Triggering Event," the Indenture does not contain provisions that permit the
Holders of the Notes to require the Company to repurchase or redeem the Notes
in the event of a takeover, recapitalization or similar transaction.
Potential for Adverse Regulatory Change and Need for Regulatory Approvals
The FCC regulates the licensing, construction, operation, acquisition and
sale of cellular systems, as well as the number of cellular and other wireless
licensees permitted in each market. All cellular licenses in the United States
were initially granted for a ten-year term. The FCC's current rules establish a
presumption in favor of the renewal of licenses that have complied with their
regulatory obligations during the initial license period. While the Company
believes that each of its licenses will be renewed based upon the FCC's rules,
there can be no assurance that all of the Company's licenses will be renewed on
favorable terms or at all. The Company's license for the Trenton, NJ MSA
expires in 1997. The balance of the Company's licenses expire from 1998 through
2006.
The FCC also regulates the ability of cellular operators to bundle the
provision of service with hardware, the resale of cellular service by third
parties and the coordination of frequency usage with other cellular licensees.
Cellular systems also are subject to Federal Aviation Administration and FCC
regulations concerning the siting, construction, marking and lighting of
cellular transmitter towers and antennae and FCC regulations concerning base
station transmitting facilities and signal emissions. In addition, the FCC
regulates the employment practices of cellular operators. Changes in the
regulation of cellular activities, in the activities of other wireless
carriers, or with respect to other matters ancillary to the wireless business
could have a material adverse effect on the Company's financial position,
results of operations or liquidity.
15
<PAGE>
The Cellular Business and Non-Diversification
The Company through its subsidiaries is engaged in a single line of
business, the cellular communications business. The Company is, therefore,
subject to the risks of a non-diversified business.
The Company's assets consist principally of intangible assets in the form
of investments in cellular telephone system licenses and licensees. The future
value of the Company's cellular interests depends significantly upon the
success of the Company's cellular telephone system operations and the growth of
the industry in general. The cellular communications industry may be affected
by, among other things, (a) changes in governmental regulation, (b) changes in
the competitive environment, (c) changes in technology and (d) changes in
banking regulations relating to highly leveraged transactions and market
conditions that may adversely affect the availability of debt and equity
financing. As a consequence, the value of such assets in the future may be
significantly lower than at present. In addition, any transfer of control of an
entity holding a license to offer cellular telephone communications services is
subject to prior approval of the FCC. There can be no assurance that, in the
event of default on indebtedness of the Company or any other event that may
result in the sale or liquidation of the Company's assets, the proceeds of such
sale or liquidation will be sufficient to pay the Company's obligations. In
addition, all of the Company's licenses are held by direct and indirect
subsidiaries of CCCI. All the capital stock of CCCI's direct subsidiaries have
been pledged to secure the existing Credit Agreement and may be pledged to
secure the New Bank Facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Competition."
Equipment Failure; Natural Disaster
Although the Company carries "business interruption" insurance, a major
equipment failure or a natural disaster affecting any one of the Company's
central switching offices or certain of its cell sites could have a
significant, adverse effect on the Company's financial position, results of
operations and liquidity.
Radio Frequency Emission Concerns
Media reports have suggested that certain radio frequency ("RF") emissions
from portable cellular telephones may be linked to cancer and interfere with
heart pacemakers and other medical devices. Concerns over RF emissions and
interference may have the effect of discouraging the use of cellular
telephones, which could have an adverse effect upon the Company's business. In
August 1996, the FCC adopted new guidelines and methods for evaluating the
environmental effects of RF emissions. The updated guidelines generally are
more stringent than the previous rules, based on recommendations of federal
health and safety agencies, including the Environmental Protection Agency and
the Food and Drug Administration. Among the guidelines are limits for specific
absorption rates for evaluating certain hand-held devices such as cellular
telephones, as well as guidelines for the evaluation of cellular transmitting
facilities. The Company believes that the cellular telephones currently
marketed and in use by the Company's customers, as well as the Company's
transmitting facilities, comply with the new standards. Moreover, the FCC
preempted state and local government regulation of cellular and other personal
wireless services facilities based on RF emissions. Potential interference with
medical devices involves primarily digital transmissions rather than analog.
Industry, government, and medical experts have been conducting tests and
developing methods for reducing or eliminating such interference.
Adoption of New Technologies; Technological Obsolescence
The Company's commercial networks currently utilize analog technology. The
Company intends to deploy TDMA as its digital technology, utilizing the more
recently developed A-CELP vocoder, in 1997. The deployment of new technologies
incorporate certain inherent risks both from the standpoint of the Company's
transition of its operations and in the effectiveness of such technologies. In
addition, other digital technologies, including Code Division Multiple Access
("CDMA"), may ultimately provide substantial advantages over TDMA or analog
technology and, as these advantages become more established, the Company may be
at a competitive disadvantage and competitive pressures may force the Company
to implement CDMA or another digital technology at substantially increased
costs. However, as a result of the recent rebuild and enhancement of its
network, the Company could deploy CDMA digital radio technology in its network
in lieu of TDMA. In addition, other wireless communications companies may
implement digital technology before the Company, and
16
<PAGE>
consequently such companies may be able to provide enhanced services and/or
superior quality compared with that which the Company is able to provide
through its existing analog technologies. There can be no assurance that the
Company could respond to such competitive pressures and implement digital
technology on a timely basis or at an acceptable cost. One or more of the
technologies currently utilized by the Company or implemented in the future may
not be preferred by its customers or may become obsolete at some time in the
future, which in either case, could have a material adverse effect on the
Company's financial condition, results of operations and liquidity. There can
be no assurance that the Company's ongoing network improvements will be
sufficient to meet or exceed the capabilities and quality of competing
networks.
Operating Costs Due to Fraud
As do most companies in the cellular industry, the Company incurs costs
associated with the unauthorized use of its network, including administrative
and capital costs associated with detecting, monitoring and reducing the
incidence of fraud. Fraud impacts interconnection costs, capacity costs,
administrative costs, fraud prevention costs and payments to other carriers for
unbillable fraudulent roaming. During 1995, the Company experienced for the
first time significant costs associated with the fraudulent use of its system.
Since that time, the Company has adopted a variety of fraud protection
measures which have decreased the incidence of fraudulent use of its systems.
Among these are personal identification numbers ("PINs"), which are required to
be used by the majority of the Company's customers, and the Company's Security
Zone feature, which restricts customer usage outside of the Company's service
areas by customers who do not routinely roam outside of the Company's markets.
In addition, the Company has implemented authentication and RF
fingerprinting technologies which associate electronic serial number
("ESN")/mobile identification number ("MIN") combinations to particular
cellular telephone units. The use of digital radio technology also purportedly
will make it more difficult to commit cellular fraud with respect to ESN/MIN
combinations. However, fraudulent use of the Company's systems remains a
significant concern, and there can be no assurance that the Company will not
incur substantial costs due to fraud in the future.
Absence of Public Market
The New Notes are a new issue of securities for which there is currently
no trading market. The Company does not intend to apply for listing of the New
Notes on any securities exchange or for quotation through the National
Association of Securities Dealers Automated Quotation System. There can be no
assurance that an active trading market for the New Notes will develop. If any
of the New Notes are traded after their initial issuance, they may trade at a
discount from their principal amount, depending upon prevailing interest rates,
the market for the Company's securities and other factors, including general
economic conditions and the financial condition, performance of, and prospects
for, the Company. The liquidity of, and trading markets for, the New Notes may
also be adversely affected by declines in the market for high yield securities
generally.
17
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization
of the Company as of June 30, 1997. See "Prospectus Summary -- The
Refinancing." This table should be read in conjunction with the consolidated
financial statements, including the notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
As of June 30, 1997
--------------------
(In thousands)
<S> <C>
Long-term debt, less current portion:
Old Notes ............................................................... $ 998,384
Revolving Credit Loan (1) ................................................ 150,000
Other .................................................................. 1,295
----------
Total long-term debt, less current portion ........................... 1,149,679
----------
Series A Preferred Stock held by CFC .................................... 163,739
----------
Stockholder's deficiency:
Common stock, $.01 par value, authorized, 1,000 shares; issued, 100 shares
Additional capital ...................................................... 498,164
Accumulated deficit (2) ................................................ (888,301)
----------
Total stockholder's deficiency ....................................... (390,137)
----------
Total capitalization ................................................... $ 923,281
==========
</TABLE>
- ------------
(1) The maximum principal amount of the Revolving Credit Loan is reduced in
quarterly installments, which increase annually, commencing September 30,
1998 and continuing through 2004. Outstanding amounts under the Revolving
Credit Loan as of June 30, 1997 are due in quarterly installments
commencing in 2002. Interest rates are based on a base, London Interbank
Offered Rate or Certificate of Deposit rate, plus a percentage that varies
as the ratio of total indebtedness to annual operating cash flow (as
defined) varies. As of June 30, 1997, the effective weighted average
interest rate on amounts outstanding under the Credit Agreement was 6.69%.
The amount outstanding under the Revolving Credit Loan is expected to be
refinanced with borrowings under the New Bank Facility. The Company
expects to expense unamortized debt acquisition costs of $5.5 million,
resulting in an extraordinary loss, net of tax, of $3.6 million in
connection with such refinancing. For a discussion of the proposed New
Bank Facility, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources --
Financing."
(2) Does not give effect to an extraordinary loss, net of tax, of $3.6 million
in connection with the expected refinancing of the Revolving Credit Loan
(see Note 1). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources --
Financing."
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth selected consolidated financial and other
data for the Company as of and for the six months ended June 30, 1997 and 1996
and as of and for each of the years in the five-year period ended December 31,
1996. The financial and other data (other than total Pops, total subscribers at
period end and penetration) as of and for each of the five years in the period
ended December 31, 1996 have been derived from the annual consolidated
financial statements of the Company. The financial and other data (other than
total Pops, total subscribers at period end and penetration) as of and for the
six months ended June 30, 1997 and 1996 have been derived from the unaudited
condensed consolidated financial statements of the Company. In the opinion of
management of the Company, the unaudited condensed consolidated financial data
reflect all adjustments, which are of a normal recurring nature, necessary for
a fair presentation of the financial position and results of operations for the
unaudited periods. The results of operations for the six months ended June 30,
1997 are not necessarily indicative of operating results for the full year. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto of the Company included elsewhere
herein.
<TABLE>
<CAPTION>
Six Months
Ended June 30,
----------------------------
1997(1) 1996(1)
------------- -------------
(Dollars in thousands)
<S> <C> <C>
Statement of
Operations Data:
Service income, net ......... $ 220,273 $ 207,096
Operating expenses ......... 18,931 17,295
Selling, general and
administrative expenses ... 114,747 123,284
Depreciation and
amortization ............... 61,449 56,769
Operating income (loss) ...... 25,146 9,748
Interest expense ............ 61,165 55,678
Loss before extraordinary
items and cumulative
effect of accounting
changes ..................... (24,708) (44,322)
Extraordinary items ......... (7,313)
Cumulative effect of
accounting changes(4) ......
Net loss ..................... (32,021) (44,322)
Balance Sheet Data
(at period end):
Working capital (deficiency) $ (70,238) $ 8,905
Property and equipment, net . 379,224 305,212
Total assets .................. 1,461,880 1,430,371
Long-term debt, less current
portion ..................... 1,149,679 1,237,892
Long-term investment in and
due to affiliates ......... 114,437 144,087
Stockholder's (deficiency)
equity ..................... (390,137) (330,593)
Other Data:
Total Pops (000s)(5) ......... 8,080 8,119
Total subscribers at period
end (000s)(5) ............... 768 746
Penetration(5) ............... 9.5% 9.2%
Operating income before
depreciation and
amortization(6) ............ $ 86,595 $ 66,517
Net cash provided by operat-
ing activities(7) $ 73,628 $ 17,741
Capital expenditures ......... $ 57,897 $ 36,610
Ratio of earnings to fixed
charges(8) ..................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1996(1) 1995(1)(2) 1994(1) 1993(3) 1992(3)
------------- ------------ -------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Service income, net ......... $ 426,053 $ 374,880 $ 286,137 $ 202,030 $ 142,926
Operating expenses ......... 36,876 28,923 22,684 16,997 12,457
Selling, general and
administrative expenses ... 235,176 212,657 154,011 97,210 71,697
Depreciation and
amortization ............... 117,225 205,733 89,916 84,740 66,785
Operating income (loss) ...... 36,776 (72,433) 19,526 3,083 (8,013)
Interest expense ............ 116,297 97,694 83,338 77,744 59,937
Loss before extraordinary
items and cumulative
effect of accounting
changes ..................... (69,584) (109,779) (55,089) (65,924) (79,971)
Extraordinary items ......... (3,047) (6,072)
Cumulative effect of
accounting changes(4) ...... (425,106)
Net loss ..................... (69,584) (112,826) (61,161) (491,030) (79,971)
Balance Sheet Data
(at period end):
Working capital (deficiency) $ (66,619) $ (86,843) $ (15,593) $ 23,727 $ 18,131
Property and equipment, net . 353,414 286,681 221,945 186,833 169,352
Total assets .................. 1,428,182 1,431,386 1,283,028 1,277,641 1,293,364
Long-term debt, less current
portion ..................... 1,259,325 1,068,104 869,605 844,589 798,167
Long-term investment in and
due to affiliates ......... 108,804 133,239 110,173 90,711 74,772
Stockholder's (deficiency)
equity ..................... (355,855) (286,271) (173,445) (112,284) 378,746
Other Data:
Total Pops (000s)(5) ......... 8,164 7,859 7,332 7,332 7,256
Total subscribers at period
end (000s)(5) ............... 762 665 501 323 230
Penetration(5) ............... 9.3% 8.5% 6.8% 4.4% 3.2%
Operating income before
depreciation and
amortization(6) ............ $ 154,001 $ 133,300 $ 109,442 $ 87,823 $ 58,772
Net cash provided by operat-
ing activities(7) $ 122,096 $ 69,340 $ 79,664 $ 65,942 $ 36,249
Capital expenditures ......... $ 116,018 $ 228,706 $ 71,943 $ 50,488 $ 40,243
Ratio of earnings to fixed
charges(8) ..................
</TABLE>
19
<PAGE>
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of events which affect the
comparability of the information reflected in the above selected
consolidated financial and other data.
(2) In 1995, in connection with the Cellular Rebuild, the Company made capital
expenditures of $172.0 million and charged $110.0 million to depreciation
expense, which represented the difference between the net book value of
the equipment replaced and the residual value realized upon its disposal.
(3) Comparability of the information presented for the years ended December 31,
1993 and 1992 is affected by the Company's acquisition of AWACS, the
non-wireline cellular telephone system serving the Philadelphia, PA MSA,
from Metromedia Company in March, 1992.
(4) Relates principally to the adoption of the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
(5) Includes only the Company's consolidated systems. See "Business -- Summary
Market Data."
(6) Operating income before depreciation and amortization is commonly referred
to in the Company's industry 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
cellular industry and the resulting significant level of non-cash
depreciation and amortization expense, operating cash flow is frequently
used as one of the bases for evaluating cellular businesses. Operating
cash flow does not purport to represent net income or net cash provided by
operating activities, as those terms are defined under generally accepted
accounting principles, and should not be considered as an alternative to
such measurements as an indicator of the Company's performance.
(7) Represents net cash provided by operating activities as presented in the
Company's consolidated statement of cash flows.
(8) For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of distributions from Garden State Cablevision and income
(loss) before extraordinary items and cumulative effect of accounting
changes, income tax expense (benefit), equity in net losses of affiliates
and fixed charges. Fixed charges consist of interest expense. For six
months ended June 30, 1997 and 1996 and for the years ended December 31,
1996, 1995, 1994, 1993 and 1992, earnings, as defined above, were
inadequate to cover fixed charges by $34.9 million, $68.1 million, $65.6
million, $163.1 million, $68.8 million, $73.6 million and $67.9 million,
respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations."
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Comcast Cellular Holdings, Inc. (the "Company"), a Delaware corporation
incorporated on March 27, 1997, is a direct wholly owned subsidiary of Comcast
Corporation ("Comcast") and is a holding company that conducts all of its
operations through its wholly owned subsidiaries, Comcast Cellular Corporation
("Comcast Cellular"), Comcast Cellular Communications, Inc. ("CCCI") and CCCI's
subsidiaries. On May 7, 1997, Comcast contributed all 100 of Comcast Cellular's
issued and outstanding shares of common stock held by it to the Company. This
contribution has been accounted for in a manner similar to a pooling of
interests. Accordingly, the consolidated financial statements of the Company
include the accounts of Comcast Cellular for all periods presented. The Company
is principally engaged in the development, management and operation of cellular
telephone communications systems located in Pennsylvania, New Jersey and
Delaware.
The Company's business is capital intensive and continually requires cash
for development, expansion and debt service. The Company has historically met
its cash needs for operations through its cash flows from operating activities.
Cash requirements for acquisitions and capital expenditures have been provided
through the Company's financing activities, as well as its existing cash and
cash equivalents.
General Developments of Business
Cellular Retail Stores
In August 1996, the Company acquired twelve cellular retail stores and
direct sales locations located in Pennsylvania, New Jersey and Delaware, and
related assets from Advanced Telecomm, Inc. for $6.5 million in cash, subject
to certain purchase price adjustments. The Company accounted for the
acquisition under the purchase method.
Delaware 1 RSA
In May 1996, the Company and Southwestern Bell Mobile Systems, through a
partnership owned 50% by each of them, purchased the remaining 84% limited
partnership interests of the Delaware 1 Rural Statistical Area ("RSA") Limited
Partnership, the licensee of the non-wireline cellular license for the Kent and
Sussex, DE RSA (the "Delaware 1 RSA") for $44.1 million in cash, of which the
Company's share was $22.1 million. The surviving entity, C-SW Cellular
Partnership, a Delaware general partnership, now holds the cellular license for
the Delaware 1 RSA. American Cellular Network Corporation ("Amcell"), an
indirect wholly owned subsidiary of the Company, manages the daily operations
of the C-SW Cellular Partnership's interest in the Delaware 1 RSA. The
Company's investment of $29.3 million, $29.8 million and $5.5 million as of
June 30, 1997, December 31, 1996 and December 31, 1995, respectively, is
accounted for under the equity method and is classified as investment in
affiliate in the Company's consolidated balance sheet.
Ocean County RSA
In 1995, the Company completed its exchange agreement with McCaw Cellular
Communications, Inc. whereby the Company acquired a 100% interest in the entity
that held the Ocean County, NJ RSA (the "Ocean County RSA") non-wireline
cellular license in exchange for the Company's Hunterdon County, NJ RSA
cellular license and related assets, and $55.2 million in cash.
Vineland/Atlantic City MSA
In June 1995, the Company purchased all of the outstanding stock of United
States Cellular Operating Company of Vineland, Inc. ("USCC/Vineland") from
United States Cellular Corporation ("USCC") for $21.2 million in cash.
USCC/Vineland held an approximate 80.4% interest in the Vineland Cellular
Telephone Company, Inc. ("VCTC"), which holds the license to operate the
non-wireline cellular telephone system serving the Vineland, NJ Metropolitan
Statistical Area ("MSA"), and an approximate 9.3% interest in the non-wireline
cellular telephone system for the Atlantic City, NJ MSA (the "Atlantic City
Cellular System"). The entire cost of the acquisition of these interests was
funded with the proceeds of a loan from Comcast, which was repaid during 1995
in connection with the Company's refinancing of certain indebtedness. See
"Results of Operations -- Years Ended December 31, 1996, 1995 and 1994 --
Extraordinary Items." As of June 30, 1995, the Company began consolidating
VCTC.
21
<PAGE>
In June 1996, the Company completed the acquisition of the license to
operate the Atlantic City Cellular System for $7.5 million in cash. The Company
accounted for the acquisition under the purchase method and began consolidating
the Atlantic City Cellular System effective June 1, 1996.
LCH Preferred Stock Redemption
In June 1994, LCH Communications, Inc. ("LCH") redeemed the Class A
Redeemable Preferred Stock (the "LCH Preferred Stock") held by CCCI through the
transfer to CCCI of 100% of the capital stock of LIN Cellular Communications
Corporation. As a result of such redemption, the Company owns 100% of the
common stock of AWACS, a wholly owned subsidiary of CCCI. Since the Company has
historically accounted for the purchase of AWACS as if it had acquired a 100%
direct interest, the redemption of the LCH Preferred Stock had no effect on the
Company's accounting for AWACS.
In addition to the interest in AWACS, the redemption of the LCH Preferred
Stock entitled the Company to an interest in certain publishing and
broadcasting operations. CCCI issued to Metromedia Company participating
preferred stock which had economic attributes based on the performance and
ultimate value of the publishing and broadcasting operations. In June 1997,
CCCI redeemed the participating preferred stock in exchange for such assets. As
these operations are excluded from the Company's consolidated financial
statements, the redemption of the participating preferred stock had no
financial statement effect.
The Company in its normal course of business considers potential
acquisitions of cellular telephone systems and other related assets and
business opportunities as such opportunities arise.
Liquidity and Capital Resources
Cash and Cash Equivalents
The Company's cash equivalents are recorded at cost which approximates
their fair value. As of June 30, 1997, December 31, 1996 and December 31, 1995,
cash and cash equivalents were $29.0 million, $5.0 million, and $19.6 million,
respectively.
Capital Expenditures
It is anticipated that during 1997, the Company will incur approximately
$143.0 million of capital expenditures for the upgrading of its cellular
communications systems. This amount includes the Company's purchase of twelve
10-MHz PCS licenses from Comcast, at Comcast's cost of $17.5 million and
approximately $100.0 million for the upgrading of the Company's existing
cellular communications systems and the deployment of TDMA digital cellular
technology throughout its network. The purchase of the PCS licenses is subject
to the FCC's approval of their transfer to the Company. During the six months
ended June 30, 1997, the Company incurred capital expenditures of $57.9
million. The amount of capital expenditures for years subsequent to 1997 will
depend upon numerous factors, many of which are beyond the Company's control,
including competition, new product offerings and other factors. The Company,
however, anticipates that capital expenditures for years subsequent to 1997
will continue to be significant. The Company believes it will be able to meet
its requirements for capital expenditures from cash generated from operations
and through borrowings under the New Bank Facility (see "--Financing"). As of
June 30, 1997, the Company does not have any significant contractual
obligations for capital expenditures.
Financing
In May 1997, the Company completed the sale of $1.0 billion principal
amount of 9 1/2% Senior Notes due 2007 (the "Old Notes") through a private
offering with registration rights (the "Offering").
Interest on the Old Notes is payable in cash semi-annually on May 1 and
November 1 of each year, commencing on November 1, 1997. The Old Notes are
redeemable, in whole or in part, at the option of the Company, at any time on
or after May 1, 2002 at a redemption price, initially of 104.75% of the
principal amount of the Old Notes and declining annually to 100% on May 1,
2005, plus accrued and unpaid interest, if any, to the date of redemption. In
addition, prior to May 1, 2000, the Company may redeem the Old Notes at a price
equal to 108.5% of the principal amount, plus accrued and unpaid interest, if
any, to the redemption date, with the net cash proceeds from one or more Public
Equity Offerings (as defined); provided, however, that at least 65% of the
originally issued principal amount of the Old Notes would remain outstanding
after giving effect to
22
<PAGE>
any such redemption. Upon the occurrence of a Change of Control Triggering
Event (as defined), each holder of the Old Notes will have the right to require
the Company to repurchase such holder's Old Notes at 101% of the principal
amount, plus accrued and unpaid interest, if any, to the repurchase date.
The Old Notes are general unsecured obligations of the Company ranking
senior to all subordinated Indebtedness (as defined) of the Company and pari
passu in right of payment with all other existing and future unsecured
unsubordinated Indebtedness (as defined) and other liabilities of the Company.
The Old Notes are subordinate to all liabilities, including trade payables, of
the Company's subsidiaries.
The indenture for the Old Notes imposes certain limitations on the ability
of the Company and its Restricted Subsidiaries (as defined) to, among other
things, incur Indebtedness (as defined), make Restricted Payments (as defined),
including the payment of cash dividends on the Company's Series A Preferred
Stock (see below), effect certain Asset Sales (as defined), enter into certain
transactions with affiliates, merge or consolidate with any other person or
transfer all or substantially all of their properties and assets.
In May 1997, the Company contributed the net proceeds of $971.2 million
from the Offering to Comcast Cellular. On May 19, 1997 (the "Redemption Date"),
Comcast Cellular used such proceeds to redeem all of its Series A Senior
Participating Redeemable Zero Coupon Notes Due 2000 and Series B Senior
Participating Redeemable Zero Coupon Notes Due 2000 (together, the "Zero Coupon
Notes"), including the Zero Coupon Notes held by CCCI and Comcast Financial
Corporation ("CFC"), a wholly owned subsidiary of Comcast. Unamortized debt
acquisition costs related to the Zero Coupon Notes were not significant. As of
the Redemption Date, the Zero Coupon Notes had an aggregate accreted value of
$742.4 million, including the Zero Coupon Notes held by CCCI and CFC with
accreted values of $114.1 million and $161.5 million, respectively. On the
Redemption Date, CFC used the $161.5 million received upon redemption of the
Zero Coupon Notes held by it to purchase 1,614,775 shares of the Company's
newly authorized $.01 par value, Series A Preferred Stock (see below). The
Company contributed the $161.5 million received from the sale of its Series A
Preferred Stock to Comcast Cellular, which in turn contributed such amount and
the remaining net proceeds from the Offering, totaling $228.8 million, to CCCI
to repay a portion of the amounts outstanding under its $1.3 billion credit
agreement with certain banks (the "Credit Agreement").
The Credit Agreement provides for a term loan in the principal amount of
$300.0 million due 2004 (the "Term Loan") and a reducing revolving credit
facility of up to $1.0 billion (the "Revolving Credit Loan", and together with
the Term Loan, the "Loans"). Interest is payable quarterly at rates based on a
base, London Interbank Offered Rate or Certificate of Deposit rate, plus a
percentage which varies as the ratio of total indebtedness to annual operating
cash flow (as defined) varies. In May 1997, subsequent to the Offering, CCCI
canceled $575.0 million of its Revolving Credit Loan, thereby reducing the $1.0
billion commitment to $425.0 million. CCCI used the amounts contributed by
Comcast Cellular and the proceeds received upon redemption of the Zero Coupon
Notes held by it (aggregating $504.4 million), as well as available cash, to
repay the Term Loan and $205.0 million under the Revolving Credit Loan. In
connection with the repayment of the Term Loan and the reduction of the
Revolving Credit Loan commitment, during the second quarter of 1997, the
Company expensed unamortized debt acquisition costs of $11.3 million, resulting
in an extraordinary loss, net of tax, of $7.3 million. As of June 30, 1997,
CCCI had outstanding $160.0 million under its Revolving Credit Loan. In July
1997, the Company made an optional debt repayment on the Revolving Credit Loan
of $10.0 million with existing cash and cash equivalents. Current portion of
long-term debt as of June 30, 1997 includes such amount.
At the option of the Company, by declaration of the Company's Board of
Directors, dividends on the Series A Preferred Stock may be paid in additional
shares of Series A Preferred Stock (the "Additional Shares") instead of cash
through May 1, 2007. To the extent dividends are paid in Additional Shares,
such Additional Shares shall be valued at $100 per share with a liquidation
value of $100 per share. The Series A Preferred Stock is redeemable, at the
option of the Company at any time prior to May 2, 2007, at a redemption price
of $100 per share, plus accrued and unpaid dividends, and is mandatorily
redeemable on May 2, 2007, after final maturity of the Old Notes, subject to
certain conditions. The Series A Preferred Stock is generally non-voting.
During the third quarter of 1997, the Company expects to amend the
Revolving Credit Loan or to enter into a new revolving credit facility of up to
$400.0 million with a group of banks (the "New Bank Facility"), although there
can be no assurance that any such financing will be available on acceptable
terms and conditions. The New
23
<PAGE>
Bank Facility is expected to be used to repay all amounts outstanding under the
Revolving Credit Loan, to fund capital expenditures and for subsidiary general
purposes. In connection with the repayment of the Revolving Credit Loan, during
the third quarter of 1997, the Company expects to expense unamortized debt
acquisition costs of approximately $5.5 million, resulting in an extraordinary
loss, net of tax, of approximately $3.6 million.
Borrowings under the New Bank Facility would be effectively senior to the
Old Notes and are expected to be secured by a pledge of the capital stock of
CCCI's subsidiaries. The arrangement of the New Bank Facility is subject to the
satisfaction of a number of significant conditions, including (i) reaching an
agreement in principle regarding the terms of the New Bank Facility, (ii) the
banks' credit committee approval, (iii) the negotiation and execution of a
definitive credit agreement and related documents satisfactory to the Company
and the banks, and (iv) the completion of due diligence satisfactory to the
banks. The Company can give no assurance that any such conditions will be
satisfied or that the New Bank Facility will be entered into.
The Company expects that the New Bank Facility will contain various
covenants, including financial covenants restricting changes in control (or
making such an event of default), restricting the payment of dividends or
distributions by CCCI, or the making of loans or advances to the Company.
During the third quarter of 1997, upon amendment or repayment of the
Revolving Credit Loan, it is expected that the Company will be merged with and
into Comcast Cellular, with Comcast Cellular being the surviving entity. Upon
consummation of the merger, the Notes will become direct obligations of Comcast
Cellular.
As of June 30, 1997, December 31, 1996 and December 31, 1995, the
Company's long-term debt, including current portion, was $1.162 billion, $1.261
billion and $1.070 billion, respectively, of which 9.5%, 48.0% and 44.5%,
respectively, was at variable rates. The Company's long-term debt had estimated
fair values of $1.113 billion and $1.178 billion as of December 31, 1996 and
1995, respectively. The Company's weighted average interest on the Loans was
6.74%, 6.85%, 6.72% and 6.83%, during the six and three months ended June 30,
1997 and 1996, respectively, and 6.84%, 7.17% and 7.33% during the years ended
December 31, 1996, 1995 and 1994, respectively. The Company continually
evaluates its debt structure with the intention of reducing its debt service
requirements when desirable.
The Company is a holding company and conducts all of its operations
through subsidiaries of CCCI. Consequently, the ability of the Company to pay
its obligations, including its obligation to pay interest on and principal of
the Notes, whether at the maturity thereof or upon an earlier redemption at the
option of the Company or the holders of the Notes, will be dependent on the
ability of the Company to receive dividends and other payments or advances from
its subsidiaries or to obtain additional capital or other payments or advances,
in cash or otherwise from Comcast (which has no obligation to provide such
capital, payments or advances) or from another source. Comcast Cellular, CCCI
and its subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
Notes or to make funds available therefor. The ability of Comcast Cellular or
CCCI to pay dividends or for Comcast Cellular, CCCI or its subsidiaries to make
other payments or advances to the Company will depend upon the operating
results of Comcast Cellular, CCCI and its subsidiaries and any restrictions on
paying such dividends or making such payments or advances as may be applicable
to Comcast Cellular, CCCI or any of its subsidiaries, such as those contained
in the Credit Agreement or expected to be contained in the New Bank Facility.
There can be no assurance that the Company will be able to improve its results
of operations or that funds will be available to the Company from Comcast,
Comcast Cellular, CCCI or other sources on satisfactory terms or at all.
Interest Rate Risk Management
The Company is exposed to market risk, including changes in interest
rates. To manage the volatility relating to these exposures, the Company enters
into various derivative transactions pursuant to the Company's policies in
areas such as counterparty exposure and hedging practices. Positions are
monitored using techniques including market value and sensitivity analyses. The
Company does not hold or issue any derivative financial instruments for trading
purposes and is not a party to leveraged instruments. The credit risks
associated with the Company's derivative financial instruments are controlled
through the evaluation and monitoring of the creditworthiness of the
counterparties. Although the Company may be exposed to losses in the event of
nonperformance by the counterparties, the Company does not expect such losses,
if any, to be significant.
24
<PAGE>
The use of interest rate risk management instruments, such as interest
rate exchange agreements ("Swaps") and interest rate collar agreements
("Collars"), is required under the terms of the Credit Agreement and is
expected to be required under the New Bank Facility. The Company's policy is to
manage interest costs using a mix of fixed and variable rate debt. Using Swaps,
the Company agrees to exchange, at specified intervals, the difference between
fixed and variable interest amounts calculated by reference to an agreed-upon
notional principal amount. Collars limit the Company's exposures to and
benefits from interest rate fluctuations on variable rate debt to within a
range of rates.
The following table summarizes the terms of the Company's existing Swap
and Collars as of December 31, 1996 and 1995 (dollars in millions):
Notional Average
Amount Maturities Interest Rate
As of December 31, 1996
Variable to Fixed Swap ...... $ 50.0 1998 5.65%
Collars ..................... 220.0 1997 6.78%/5.38%
As of December 31, 1995
Variable to Fixed Swap ...... $ 50.0 1998 5.65%
Collar ..................... 50.0 1997 6.27%/5.00%
The notional amounts of interest rate agreements, as presented in the
above table, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The difference between the
carrying values and estimated fair values of the Company's derivative financial
instruments was not significant as of December 31, 1996 and 1995, and has been
estimated based upon amounts at which such items could be settled. While Swaps
and Collars represent an integral part of the Company's interest rate risk
management program, their incremental effect on interest expense for the years
ended December 31, 1996, 1995 and 1994 was not significant.
Of the existing derivative financial instruments as of December 31, 1996,
$170.0 million notional amount of Collars with an average interest rate of
6.93%/5.52% expired during the six months ended June 30, 1997.
The Company believes that it will be able to meet its current and
long-term liquidity and capital requirements, including fixed charges, through
its cash flows from operating activities, existing cash and cash equivalents
and lines of credit and other external financing.
Statement of Cash Flows
Six Months Ended June 30, 1997 and 1996
Cash and cash equivalents increased $24.0 million as of June 30, 1997 from
December 31, 1996 and increased $5.6 million as of June 30, 1996 from December
31, 1995. Increases in cash and cash equivalents resulted from cash flows from
operating, financing and investing activities which are explained below.
Net cash provided by operating activities was $73.6 million and $17.7
million for the six months ended June 30, 1997 and 1996, respectively. The
increase of $55.9 million from 1996 to 1997 is due primarily to the increase in
the Company's operating income before depreciation and amortization expense and
the effects of changes in working capital as a result of the timing of receipts
and disbursements.
Net cash provided by financing activities was $9.4 million and $55.5
million for the six months ended June 30, 1997 and 1996, respectively. During
the six months ended June 30, 1997, the Company incurred $998.4 million of
indebtedness in connection with the Offering and borrowed $20.0 million under
the Revolving Credit Loan, and repaid $1.143 billion of long-term borrowings,
including $628.3 million of Zero Coupon Notes, the $300.0 million Term Loan and
$215.0 million under its Revolving Credit Loan. In addition, during the six
months ended June 30, 1997, the Company received $161.5 million from the
issuance of its Series A Preferred Stock. Deferred financing costs incurred
during the six months ended June 30, 1997 were related to the issuance of the
Old Notes. During the six months ended June 30, 1996, the Company borrowed
$140.0 million under the Revolving Credit Loan and paid $85.4 million for
equipment purchased during 1995 subject to a deferred payment plan.
25
<PAGE>
Net cash used in investing activities was $59.0 million and $67.6 million
for the six months ended June 30, 1997 and 1996, respectively. The decrease of
$8.6 million from 1996 to 1997 is due to the effects of the Delaware RSA 1 and
Atlantic City Cellular System acquisitions in 1996, offset by an increase in
capital expenditures of $21.3 million from 1996 to 1997.
Years Ended December 31, 1996, 1995 and 1994
Cash and cash equivalents decreased $14.7 million as of December 31, 1996
from December 31, 1995 and increased $11.6 million as of December 31, 1995 from
December 31, 1994. Changes in cash and cash equivalents resulted from cash
flows from operating, financing and investing activities which are explained
below.
Net cash provided by operating activities amounted to $122.1 million,
$69.3 million and $79.7 million for the years ended December 31, 1996, 1995 and
1994, respectively. The increase of $52.8 million from 1995 to 1996 and the
decrease of $10.4 million from 1994 to 1995 is due primarily to the effects of
changes in working capital as a result of the timing of receipts and
disbursements and the increase in the Company's operating income before
depreciation and amortization expense.
Net cash (used in) provided by financing activities was ($18.1) million,
$232.4 million and ($24.4) million for the years ended December 31, 1996, 1995
and 1994, respectively. During 1996, the Company borrowed $166.9 million and
repaid $36.5 million under the Credit Agreement. In addition, during 1996, the
Company paid $120.2 million for equipment purchased during 1995 subject to a
deferred payment plan and repaid $35.5 million of its long-term due to
affiliate with the proceeds from distributions from Garden State Cablevision
L.P. ("Garden State Cablevision"). During 1995, the Company borrowed $553.6
million and repaid $423.4 million, primarily in connection with the refinancing
of its credit facility (see "Results of Operations -- Years Ended December 31,
1996, 1995 and 1994 -- Extraordinary Items") and to fund the USCC/Vineland
acquisition. In addition, during 1995, the Company borrowed $134.6 million for
equipment purchases subject to a deferred payment plan and incurred deferred
financing costs of $20.4 million in connection with the refinancing of its
credit facility. During 1994, the Company borrowed $70.0 million and repaid
$95.0 million under its credit facility.
Net cash used in investing activities was $118.6 million, $290.2 million
and $54.8 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The decrease of $171.6 million from 1995 to 1996 is due to the
effects of the Cellular Rebuild in 1995 (as described below), a $61.8 million
decrease from 1995 to 1996 in net cash used for acquisitions and distributions
of $35.5 million received from Garden State Cablevision in 1996. The $235.4
million increase from 1994 to 1995 results primarily from the effects of the
Cellular Rebuild in 1995, the proceeds of $25.7 million on the sales of
short-term investments in 1994 and net cash used for acquisitions of $75.8
million in 1995 (principally the Ocean County RSA and USCC/Vineland
acquisitions).
26
<PAGE>
Results of Operations
Six and Three Months Ended June 30, 1997 and 1996
Summarized consolidated financial information for the Company for the six
and three months ended June 30, 1997 and 1996 is as follows (dollars in
millions, "NM" denotes percentage is not meaningful):
<TABLE>
<CAPTION>
Six Months Ended June 30, Increase/(Decrease)
------------------------- -------------------------
1997 1996 $ %
<S> <C> <C> <C> <C>
Service income, net ........................ $ 220.3 $ 207.1 $ 13.2 6.4%
Operating, selling, general and administrative
expenses ................................. 133.7 140.6 (6.9) (4.9)
-------- --------
Operating income before depreciation and
amortization (1) ........................... 86.6 66.5 20.1 30.2
Depreciation and amortization ............... 61.5 56.8 4.7 8.3
-------- --------
Operating income ........................... 25.1 9.7 15.4 NM
-------- --------
Interest expense ........................... 61.2 55.7 5.5 9.9
Investment income ........................... (1.6) (1.6)
Equity in net losses of affiliates ......... 3.5 3.5
Litigation settlement ..................... 21.6 (21.6) NM
Other ....................................... 0.4 2.1 (1.7) (81.0)
Income tax benefit ........................ (13.7) (27.3) (13.6) (49.8)
Extraordinary item ........................... (7.3) 7.3 NM
-------- --------
Net loss ................................. ($ 32.0) ($ 44.3) ($ 12.3) (27.8)%
======== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Increase/(Decrease)
----------------------------- ---------------------
1997 1996 $ %
<S> <C> <C> <C> <C>
Service income, net ........................ $ 116.2 $ 108.9 $ 7.3 6.7%
Operating, selling, general and administrative
expenses ................................. 66.7 67.0 (0.3) (0.4)
-------- --------
Operating income before depreciation and
amortization (1) ........................... 49.5 41.9 7.6 18.1
Depreciation and amortization ............... 31.5 26.9 4.6 17.1
-------- --------
Operating income ........................... 18.0 15.0 3.0 20.0
-------- --------
Interest expense ........................... 31.7 29.1 2.6 8.9
Investment income ........................... (1.1) (1.2) (0.1) (8.3)
Equity in net losses of affiliates ......... 1.4 1.3 0.1 7.7
Other ....................................... 0.3 0.3 NM
Income tax benefit ........................ (5.1) (5.4) (0.3) (5.6)
Extraordinary item ........................... (7.3) 7.3 NM
-------- --------
Net loss ................................. ($ 16.5) ($ 8.8) $ 7.7 87.5%
======== ========
</TABLE>
- ------------
(1) Operating income before depreciation and amortization is commonly referred
to in the cellular industry 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
cellular industry and the resulting significant level of non-cash
depreciation and amortization expense, operating cash flow is frequently
used as one of the bases for evaluating cellular businesses. Operating
cash flow does not purport to represent net income or net cash provided by
operating activities, as those terms are defined under generally accepted
accounting principles, and should not be considered as an alternative to
such measurements as an indicator of the Company's performance. See "--
Statement of Cash Flows" above for a discussion of net cash provided by
operating activities.
Service Income, net
Of the respective $13.2 million and $7.3 million increases in service
income for the six and three month periods from 1996 to 1997, $14.6 million and
$6.1 million are attributable to the Company's subscriber growth
27
<PAGE>
and $7.3 million and $4.9 million are attributable to roamer growth. Offsetting
these increases are decreases of $8.7 million and $3.7 million resulting
primarily from a reduction in the average rate per minute of use and the
average minutes of use per subscriber from 1996 to the same periods in 1997.
Operating, Selling, General and Administrative Expenses
The respective $6.9 million and $0.3 million decreases in operating,
selling, general and administrative expenses for the six and three month
periods from 1996 to 1997 are primarily attributable to expense reductions
achieved through implementation of fraud management programs and a reduction in
commission costs resulting from fewer gross sales in 1997 as compared to the
same periods in 1996. These reductions were partially offset by increases in
volume related expenses resulting from subscriber growth.
Comcast and CCCI were parties to a management agreement (the "Old
Management Agreement") pursuant to which Comcast managed the business and
operations of CCCI. In May 1997, subsequent to the redemption of the Zero
Coupon Notes, the Old Management Agreement was terminated and replaced with a
new management agreement (the "New Management Agreement") which provides for an
annual management fee of 1.5% of revenues. The New Management Agreement
eliminated the prior management fee which was limited to $5.0 million, subject
to annual increases based on the consumer price index. The New Management
Agreement has a ten year term. Management fees of $3.0 million, $2.8 million,
$1.6 million and $1.4 million were charged to selling, general and
administrative expenses during the six and three months ended June 30, 1997 and
1996 (on a pro forma basis, giving effect to the New Management Agreement,
management fees for the six and three months ended June 30, 1997 and 1996 would
have been $3.3 million, $3.1 million, $1.7 million and $1.6 million,
respectively). As of June 30, 1997 and December 31, 1996, deferred management
fees payable, which are included in long-term investment in and due to
affiliates in the Company's condensed consolidated balance sheet, totaled $17.7
million and $14.7 million, respectively. The Company intends to pay all
previously deferred management fees as of the date the Credit Agreement is
amended or refinanced with the New Credit Facility.
Interest Expense
The respective $5.5 million and $2.6 million increases in interest expense
for the six and three month periods from 1996 to 1997 are primarily due to the
issuance of the Old Notes in May 1997, offset by the effects of lower levels of
debt outstanding under the Credit Agreement as a result of the repayment of the
Term Loan in May 1997 and the effects of compounding of interest on the Zero
Coupon Notes.
In 1992, a subsidiary of AWACS, Inc., an indirect subsidiary of the
Company, issued a note (the "AWACS Note") with an initial principal amount of
$51.0 million to purchase, from a subsidiary of Comcast, a 40% limited
partnership interest in Garden State Cablevision L.P. ("Garden State
Cablevision"). The AWACS Note bears interest at a rate of 11% per annum.
Interest is payable on a quarterly basis to the extent of available cash, with
any unpaid interest added to principal. Interest expense on the AWACS Note was
$2.5 million, $4.0 million, $1.3 million and $2.0 million during the six and
three months ended June 30, 1997 and 1996, respectively. From the date of
issuance through June 30, 1997, $35.5 million of principal and interest has
been paid on the AWACS Note with the proceeds from distributions from Garden
State Cablevision. The balance of the AWACS Note is due on September 30, 1997,
and, accordingly, has been classified as current in the Company's condensed
consolidated balance sheet.
Equity in Net Losses of Affiliates
Under the terms of the partnership agreement, 49.5% of Garden State
Cablevision's net losses are allocated to the Company. During the six and three
months ended June 30, 1997 and 1996, the Company recognized equity in net
losses of Garden State Cablevision of $3.0 million, $3.8 million, $1.1 million
and $1.6 million, respectively. While no assurances can be given, the Company
expects to transfer its interest in Garden State Cablevision to Comcast
subsequent to the refinancing of the Credit Agreement.
Litigation Settlement
The Company was involved in various civil lawsuits and administrative
proceedings regarding the ownership, operation and transfer of the license for
the Atlantic City Cellular System. In March 1995, the Company, Comcast,
Telephone and Data Systems, Inc. ("TDS"), United States Cellular Corporation,
Ellis Thompson and
28
<PAGE>
Ellis Thompson Corporation entered into a Settlement Agreement (the "Settlement
Agreement") with respect to outstanding civil litigation. During the six months
ended June 30, 1996, the Company recorded $21.6 million of estimated litigation
settlement expense in its condensed consolidated statement of operations and
accumulated deficit. In June 1996, the Company paid such amount to TDS under
the Settlement Agreement.
Earnings to Fixed Charges
For the six and three months ended June 30, 1997 and 1996, the Company's
income (loss) before extraordinary item, income tax benefit, equity in net
losses of affiliates and fixed charges (interest expense) was $26.3 million,
($12.4) million, $18.9 million and $16.2 million, respectively. Such amounts
were not adequate to cover the Company's fixed charges of $61.2 million, $55.7
million, $31.7 million and $29.1 million for these periods, respectively. Fixed
charges include non-cash interest expense of $28.0 million, $33.8 million,
$10.5 million and $17.2 million for the six and three months ended June 30,
1997 and 1996, respectively. The inadequacy of the Company's income (loss) to
cover fixed charges is primarily due to substantial non-cash charges for
depreciation and amortization expense of $61.5 million, $56.8 million, $31.5
million and $26.9 million during the six and three months ended June 30, 1997
and 1996, respectively, and litigation settlement expense during the six months
ended June 30, 1996.
Results of Operations
Years Ended December 31, 1996, 1995 and 1994
Summarized consolidated financial information for the Company for the
three years ended December 31, 1996 is as follows (dollars in millions, "NM"
denotes percentage is not meaningful):
<TABLE>
<CAPTION>
Year Ended December 31, Increase/(Decrease)
------------------------- -----------------------
1996 1995 $ %
<S> <C> <C> <C> <C>
Service income, net ........................ $ 426.1 $ 374.9 $ 51.2 13.7%
Operating, selling, general and administrative
expenses ................................. 272.1 241.6 30.5 12.6
-------- --------
Operating income before depreciation and
amortization(a) ........................... 154.0 133.3 20.7 15.5
Depreciation and amortization ............... 117.2 205.7 (88.5) (43.0)
-------- --------
Operating income (loss) ..................... 36.8 (72.4) 109.2 NM
-------- --------
Interest expense ........................... 116.3 97.7 18.6 19.0
Investment income ........................... (2.5) (3.3) (0.8) (24.2)
Equity in net losses of affiliates ......... 6.6 9.6 (3.0) (31.3)
Litigation settlement ..................... 21.6 21.6 NM
Other ....................................... 2.5 (3.7) 6.2 167.6
Income tax benefit ........................ (38.1) (62.9) 24.8 39.4
Extraordinary items ........................ (3.0) (3.0) NM
-------- --------
Net loss ................................. ($ 69.6) ($ 112.8) $ 43.2 38.3%
======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, Increase/(Decrease)
------------------------- -----------------------
1995 1994 $ %
<S> <C> <C> <C> <C>
Service income, net ........................ $ 374.9 $ 286.1 $ 88.8 31.0%
Operating, selling, general and administrative
expenses ................................. 241.6 176.7 64.9 36.7
-------- --------
Operating income before depreciation and
amortization(a) ........................... 133.3 109.4 23.9 21.8
Depreciation and amortization ............... 205.7 89.9 115.8 128.8
-------- --------
Operating (loss) income ..................... (72.4) 19.5 (91.9) NM
-------- --------
Interest expense ........................... 97.7 83.3 14.4 17.3
Investment income ........................... (3.3) (1.4) 1.9 135.7
Equity in net losses of affiliates ......... 9.6 8.2 1.4 17.1
Other ....................................... (3.7) 6.4 (10.1) (157.8)
Income tax benefit ........................ (62.9) (21.9) (41.0) (187.2)
Extraordinary items ........................ (3.0) (6.1) 3.1 50.8
-------- --------
Net loss ................................. ($ 112.8) ($ 61.2) ($ 51.6) 84.3%
======== ========
</TABLE>
- ------------
(a) See footnote (1) on page 27.
29
<PAGE>
Service Income, net
Of the respective increases of $51.2 million and $88.8 million in service
income from 1995 to 1996 and 1994 to 1995, $69.6 million and $99.6 million are
attributable to the Company's subscriber growth. Offsetting the increases from
1995 to 1996 and 1994 to 1995 are decreases of $19.3 million and $25.0 million,
respectively, resulting from reductions in the average rate per minute of use
in these respective periods. The remaining changes from 1995 to 1996 and 1994
to 1995 are attributable to growth in roamer revenue and other products of $0.9
million and $14.2 million, respectively. The Company expects that the decrease
in average minutes-of-use per subscriber will continue in the future, which is
consistent with industry trends.
Operating, Selling, General and Administrative Expenses
Of the respective $30.5 million and $64.9 million increases in operating,
selling, general and administrative expenses from 1995 to 1996 and 1994 to
1995, $24.3 million and $38.2 million, respectively, are related to subscriber
growth, including the costs to acquire and service subscribers. The remaining
increases of $6.2 million from 1995 to 1996 and $26.7 million from 1994 to 1995
are due to increases in other expenses, including subscriber retention costs,
administrative costs, bad debt expense resulting from a marketing campaign in
1996 and theft of service in 1995.
Pursuant to the Old Management Agreement, management fees were $5.5
million, $5.5 million and $5.3 million for the years ended December 31, 1996,
1995 and 1994, respectively. During the years ended December 31, 1995 and 1994,
CCCI was charged additional management fees (the "Additional Management Fees")
of $2.7 million and $2.5 million, respectively. Pursuant to the Old Management
Agreement, annual cash payments of management fees were limited to $5.0
million, subject to annual increases in proportion to the increase in the
consumer price index (eliminated by the New Management Agreement -- see below).
In certain circumstances, the Credit Agreement may further limit the payment of
management fees. As of December 31, 1996 and 1995, deferred management fees
payable, which are included in long-term investment in and due to affiliates in
the Company's consolidated balance sheet, totaled $14.7 million and $9.2
million, respectively. The Company intends to pay all previously deferred
management fees as of the date the Credit Agreement is amended or refinanced
with the New Bank Facility. On a pro forma basis, giving effect to the New
Management Agreement, management fees for the years ended December 31, 1996,
1995 and 1994 would have been $6.4 million, $5.6 million and $4.3 million,
respectively.
Depreciation and Amortization Expense
The $88.5 million decrease from 1995 to 1996 and the $115.8 million
increase from 1994 to 1995 in depreciation and amortization expense is
principally due to the effects of the Cellular Rebuild, as described below, and
the effects of capital expenditures during the respective periods.
In 1995, the Company purchased $172.0 million of switching and cell site
equipment which replaced the existing switching and cell site equipment (the
"Cellular Rebuild"). The Company substantially completed the Cellular Rebuild
during 1995. Accordingly, during 1995, the Company charged $110.0 million to
depreciation expense, which represented the difference between the net book
value of the equipment replaced and the residual value realized upon its
disposal.
Interest Expense
The increases in interest expense of $18.6 million from 1995 to 1996 and
$14.4 million from 1994 to 1995 are primarily due to higher levels of debt
outstanding under the Company's credit agreements during the years ended
December 31, 1996 and 1995 as compared to the prior year periods and the
effects of compounding of interest on the Zero Coupon Notes.
Interest expense on the AWACS Note was $8.2 million, $7.5 million and $6.7
million for the years ended December 31, 1996, 1995 and 1994, respectively.
From the date of issuance through December 31, 1996, $35.5 million of principal
and interest has been paid on the AWACS Note with the proceeds from
distributions from Garden State Cablevision. The balance of the AWACS Note is
due on September 30, 1997, and, accordingly, has been classified as current in
the Company's consolidated balance sheet as of December 31, 1996.
30
<PAGE>
Equity in Net Losses of Affiliates
During the years ended December 31, 1996, 1995 and 1994, the Company
recognized equity in net losses of Garden State Cablevision of $6.8 million,
$10.2 million and $8.9 million, respectively. While no assurances can be given,
the Company expects to transfer its interest in Garden State Cablevision to
Comcast subsequent to the refinancing of the Credit Agreement.
Litigation Settlement
The Company was involved in various civil lawsuits and administrative
proceedings regarding the ownership, operation and transfer of the license for
the Atlantic City Cellular System. In March 1995, the Company, Comcast, TDS,
USCC, Ellis Thompson and Ellis Thompson Corporation entered into the Settlement
Agreement with respect to outstanding civil litigation. In June 1996, the
Company paid $21.6 million to TDS under the Settlement Agreement. The Company
has recorded the expenses related to the Settlement Agreement in its 1996
consolidated statement of operations and accumulated deficit.
Extraordinary Items
In September 1995, the Company refinanced a portion of its outstanding
debt with the proceeds from the Credit Agreement. In connection with that
refinancing, the Company expensed unamortized debt acquisition costs of $4.7
million during 1995, resulting in an extraordinary loss, net of tax, of $3.0
million.
In 1994, CCCI purchased $153.8 million principal amount ($85.7 million
accreted value at that date) of Series A Zero Coupon Notes from a wholly owned
subsidiary of Comcast for $95.0 million. The premium paid in excess of the
accreted value of the Series A Zero Coupon Notes at the date of purchase of
$9.3 million resulted in an extraordinary loss, net of tax, of $6.1 million, in
the Company's 1994 consolidated statement of operations and accumulated
deficit.
Earnings to Fixed Charges
For the years ended December 31, 1996, 1995 and 1994, the Company's
distributions from Garden State Cablevision and income (loss) before
extraordinary items, income tax benefit, equity in net losses of affiliates and
fixed charges (interest expense) was $50.7 million, ($65.4) million and $14.5
million, respectively. Such amounts were not adequate to cover the Company's
fixed charges of $116.3 million, $97.7 million and $83.3 million for these
periods, respectively. Fixed charges include non-cash interest expense of $69.4
million, $62.5 million and $62.4 million for the years ended December 31, 1996,
1995 and 1994, respectively. The inadequacy of the Company's distributions from
Garden State Cablevision and (loss) income to cover fixed charges is primarily
due to substantial non-cash charges for depreciation and amortization expense
of $117.2 million, $205.7 million and $89.9 million during the years ended
December 31, 1996, 1995 and 1994, respectively. Included in depreciation and
amortization expense for the year ended December 31, 1995 is a one time charge
of $110.0 million relating to the Cellular Rebuild. See "--Depreciation and
Amortization Expense."
General
The Company anticipates that, for the foreseeable future, depreciation,
amortization and interest expense will continue to be significant and will have
a significant adverse effect on the Company's ability to realize net earnings.
The Company believes that its losses will not significantly affect the
performance of its normal business activities because of its existing cash and
cash equivalents, its ability to generate operating income before depreciation
and amortization and its ability to obtain external financing.
The Company believes that its operations are not materially affected by
inflation.
31
<PAGE>
THE EXCHANGE OFFER
Terms of the Exchange Offer; Period for Tendering Old Notes
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on October 30, 1997; provided, however, that if the
Company, in its sole discretion, has extended the period of time for which the
Exchange Offer is open, the term "Expiration Date" means the latest time and
date to which the Exchange Offer is extended.
As of the date of this Prospectus, $1,000,000,000 aggregate principal
amount of the Old Notes were outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about the date set forth on
the cover page to all Holders of Old Notes at the addresses set forth in the
security register with respect to Old Notes maintained by The Bank of New York,
as trustee (the "Trustee"). The Company's obligations to accept Old Notes for
exchange pursuant to the Exchange Offer is subject to certain conditions as set
forth under "--Certain Conditions to the Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to
time, to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance of any Old Notes, by giving oral or written notice of
such extension to the Exchange Agent (as defined below) and notice of such
extension to the Holders as described below. During any such extension, all Old
Notes previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering Holder thereof
as promptly as practicable after the expiration or termination of the Exchange
Offer.
The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Old Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified below under "--Certain Conditions to the Exchange
Offer." The Company will give oral or written notice of any extension,
amendment, non-acceptance or termination to the Holders of the Old Notes as
promptly as practicable, such notice in the case of any extension to be issued
by means of a press release or other public announcement no later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of the State of Delaware or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and
the rules and regulations of the Commission thereunder.
Holders tendering Old Notes held in global form shall receive New Notes in
global form and Holders tendering Old Notes held directly in certificated form
shall receive New Notes in certificated form, in each case unless otherwise
specified in the Letter of Transmittal.
Procedures for Tendering Old Notes
The tender to the Company of Old Notes by a Holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a Holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to The Bank of New York (the
"Exchange Agent") at one of the addresses set forth below under "--Exchange
Agent" on or prior to the Expiration Date. In addition, (i) certificates for
such Old Notes must be received by the Exchange Agent along with the Letter of
Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into the
Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior
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to the Expiration Date or (iii) the Holder must comply with the guaranteed
delivery procedures described below. THE METHOD OF DELIVERY OF OLD NOTES,
LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND
RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO
LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker or dealer or government securities
broker or dealer; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association (an "Eligible Institution"). If Old Notes are registered in the
name of a person other than the person signing the Letter of Transmittal, the
Old Notes surrendered for exchange must be endorsed by, or be accompanied by, a
written instrument or instruments of transfer or exchange, in satisfactory form
as determined by the Company in its sole discretion, duly executed by the
registered Holder and signed exactly as the name or names of the registered
Holder or Holders that appear on the Old Notes and with the signature thereon
guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right in its
sole discretion to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any Holder
who seeks to tender Old Notes in the Exchange Offer). The interpretation of the
terms and conditions of the Exchange Offer as to any particular Old Notes
either before or after the Expiration Date (including the Letter of Transmittal
and the instructions thereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with the
tenders of Old Notes for exchange must be cured within such reasonable period
of time as the Company shall determine. Neither the Company, the Exchange Agent
nor any other person shall be under any duty to give notification of any defect
or irregularity with respect to any tender of Old Notes for exchange, nor shall
any of them incur any liability for failure to give such notification.
If the Letter of Transmittal or any Old Notes or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers or corporations or
others acting in a fiduciary or representative capacity, such person should so
indicate when signing and, unless waived by the Company, proper evidence
satisfactory to the Company of its authority to so act must be submitted.
By tendering, each Holder will represent to the Company that, among other
things, (i) the New Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder, (ii) neither the Holder nor
any such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes, (iii) if the Holder is not a
broker-dealer, or is a broker-dealer but will not receive New Notes for its own
account in exchange for Old Notes, neither the Holder nor any such other person
is engaged in or intends to participate in the distribution of such New Notes
and (iv) neither the Holder nor any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act, of the Company. If the tendering
Holder is a broker-dealer, whether or not it is also an "affiliate," that will
receive New Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities,
it will be required to acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale
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<PAGE>
of such New Notes. By acknowledging that it will deliver and by delivering a
prospectus meeting the requirements of the Securities Act in connection with
any resale of such New Notes, the Holder will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will accept, promptly after the Expiration Date, all Old
Notes properly tendered and will issue the New Notes promptly after acceptance
of the Old Notes. See "--Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted
properly tendered Old Notes for exchange when, as and if the Company has given
oral or written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described below, a properly completed and duly executed Letter of Transmittal
and all other required documents. If any tendered Old Notes are not accepted
for any reason set forth in the terms and conditions of the Exchange Offer or
if certificates representing Old Notes are submitted for a greater principal
amount than the Holder desires to exchange, such unaccepted or non-exchanged
Old Notes will be returned without expense to the tendering Holder thereof (or,
in the case of Old Notes tendered by book-entry transfers into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described below, such non-exchanged Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
Interest on the New Notes
The New Notes will bear interest from May 8, 1997 (the original issue date
of the Old Notes), payable semiannually on May 1 and November 1, of each year
commencing on November 1, 1997. Holders of Old Notes whose Old Notes are
accepted for exchange will be deemed to have waived the right to receive any
payment in respect of interest on the Old Notes accrued from May 8, 1997 until
the date of the issuance of the New Notes. Consequently, Holders who exchange
their Old Notes for New Notes will receive the same interest payment on
November 1, 1997 (the first payment date with respect to the Old Notes and the
New Notes following the consummation of the Exchange Offer) that they would
have received had they not accepted the Exchange Offer.
Book-Entry Transfer
The Exchange Agent will make a request to establish an account with
respect to the Old Notes at the Book-Entry Transfer Facility for purposes of
the Exchange Offer promptly after the date of this Prospectus. Any financial
institution that is a participant in the Book-Entry Transfer Facility's systems
may make book-entry delivery of Old Notes by causing the Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account in
accordance with the Book-Entry Transfer Facility's Automated Tender Offer
Program ("ATOP") procedures for transfer. However, the exchange for the Old
Notes so tendered will only be made after timely confirmation of such
book-entry transfer of Old Notes into the Exchange Agent's account, and timely
receipt by the Exchange Agent of an Agent's Message (as such term is defined in
the next sentence) and any other documents required by the Letter of
Transmittal. The term "Agent's Message" means a message, transmitted by the
Book-Entry Transfer Facility and received by the Exchange Agent and forming a
party of a Book-Entry Confirmation, which states that the Book-Entry Transfer
Facility has received an express acknowledgment from a participant tendering
Old Notes that are the subject of such Book-Entry Confirmation that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal, and that the Company may enforce such agreement against such
participant.
Guaranteed Delivery Procedures
If a registered Holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) on or prior to the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed and
duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the
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form provided by the Company (by facsimile transmission, mail or hand
delivery), setting forth the name and address of the Holder of Old Notes and
the amount of Old Notes tendered, stating that the tender is being made thereby
and guaranteeing that within five New York Stock Exchange ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates of all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the
Letter of Transmittal, are received by the Exchange Agent within five NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"--Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes), include a
statement that such a Holder is withdrawing its election to have such Old Notes
exchanged, and the name of the registered Holder of such Old Notes, and be
signed by the Holder in the same manner as the original signature on the Letter
of Transmittal (including any required signature guarantees) or be accompanied
by evidence satisfactory to the Company that the person withdrawing the tender
has succeeded to the beneficial ownership of the Old Notes being withdrawn. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the
withdrawing Holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an Eligible Institution unless such Holder is an Eligible
Institution. If Old Notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
Holder thereof without cost to such Holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
Certain Conditions to the Exchange Offer
Notwithstanding any other provisions of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Old Notes and may terminate or amend the Exchange Offer, if at any
time before the acceptance of such Old Notes for exchange or the exchange of
the New Notes for such Old Notes, such acceptance or issuance would violate
applicable law or any interpretation of the staff of the Commission.
The foregoing condition is for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any
time to exercise the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if at such time any stop order shall be threatened or in effect with respect to
the Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended (the "TIA").
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Exchange Agent
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this Prospectus or of the
Letter of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent, addressed as follows:
Deliver To:
The Bank of New York, Exchange Agent
By Hand Or Overnight Delivery: By Registered or Certified Mail:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street, 7B
Corporate Trust Services Window New York, New York 10286
Ground Level Attention: Reorganization Section,
Attention: Reorganization Section, Arwin Gibbons
Arwin Gibbons
Facsimile Transmissions:
(Eligible Institutions Only)
(212) 815-6339
To Confirm by Telephone
or for Information Call:
(212) 815-6337
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
Fees and Expenses
The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone or in person by officers and
regular employees of the Company and its affiliates. No additional compensation
will be paid to any such officers and employees who engage in soliciting
tenders. The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
$600,000.
Transfer Taxes
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that Holders who
instruct the Company to register New Notes in the name of, or request that Old
Notes not tendered or not accepted in the Exchange Offer to be returned to, a
person other than the registered tendering Holder will be responsible for the
payment of any applicable transfer tax thereon.
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon and, except in
certain limited circumstances, will no longer have any registration rights or
be entitled to the
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<PAGE>
related liquidated damages with respect to the Old Notes. In general, the Old
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
intend to register the Old Notes under the Securities Act. The Company believes
that, based upon interpretations by the staff of the Commission, set forth in
the Exchange Offer No-Action Letters. New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by each Holder thereof (other than a broker-dealer, as set forth
below, and any such Holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Notes are acquired in the ordinary course of such Holder's
business and such Holder has no arrangement or understanding with any person to
participate in the distribution of such New Notes. If any Holder has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, such Holder (i) could not rely
on the applicable interpretation of the staff of the Commission and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution." In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdiction or an exemption from registration or qualification is
available and is complied with. The Company does not currently intend to take
any action to register or qualify the New Notes for resale in any jurisdiction.
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BUSINESS
General
The Company is one of the largest independent operators of cellular
telephone systems in the United States based on its 8.1 million aggregate Net
Pops. The Company serves approximately 768,000 subscribers in a large
contiguous area which comprises the Philadelphia, Pennsylvania area, Delaware
and significant portions of New Jersey. The Company's wireless products and
services are currently distributed under the Comcast MetrophoneSM and Comcast
CELLULARONE(R) brand names. For the six months ended June 30, 1997 and for the
year ended December 31, 1996, the Company had net service income of $220.3
million and $426.1 million, respectively, and operating cash flow of $86.6
million and $154.0 million, respectively.
The Company's markets are primarily in urban and suburban areas with
above-average population density and per capita income. The Company's
geographic footprint includes a significant portion of the heavily traveled
I-95 corridor connecting New York, Philadelphia and Baltimore/Washington D.C.
The Company believes that its ability to offer service over a wide contiguous
geographic area will continue to attract new customers and retain existing
customers. The Company's contiguous markets allows its systems to realize
operating efficiencies due to increased utilization and effectiveness of
equipment, personnel, and marketing and advertising resources. The Company's
subscriber base grew from approximately 116,000 as of December 31, 1991 to
approximately 768,000 as of June 30, 1997. Net service income grew from $142.9
million in 1992 to $426.1 million in 1996, while operating cash flow grew from
$58.8 million to $154.0 million over the same period.
Since January 1, 1995, the Company has invested over $400.0 million to
rebuild and expand the capacity of its network, to improve network system
security, to increase its direct distribution capabilities and for other
capital expenditures. The Company intends to further expand the capacity and
improve the quality of its network by deploying TDMA digital cellular
technology throughout its entire coverage area commencing in the third quarter
of 1997. As a result of the Company's continued expansion of its network and
its anticipated deployment of digital technology, the Company believes that its
network will have sufficient capacity to accommodate continued subscriber
growth, as well as any increase in subscriber minutes.
Business Strategy
The Company's objective is to continue to pursue growth in subscribers,
revenues and operating cash flow. The Company intends to achieve this objective
by providing a broad range of high quality integrated wireless communications
products and services. Key elements of the Company's strategy include:
Enhance Wireless Network. The Company has continually improved its
cellular network in order to better serve its customers and position itself to
offer competitive services and features. The Company's significant investment
in switching and cell site equipment manufactured by Lucent Technologies, Inc.
has positioned it to efficiently deploy TDMA digital cellular technology
throughout its network. The Company currently anticipates deploying TDMA
technology commencing in the third quarter of 1997, which will permit its
subscribers and roamers to use both analog and TDMA services throughout its
coverage area. It is anticipated that a substantial portion of the increased
capacity for subsequent traffic and subscriber growth will be accommodated
using the lower cost digital technology. The Company intends to continue
expanding and upgrading its cellular network in order to improve coverage and
capacity as required. A subsidiary of Comcast was the high bidder on twelve
10-MHz PCS licenses covering the Philadelphia, PA MTA and the Allentown, PA
BTA, all of which have been awarded. Subject to the approval of the FCC,
Comcast intends to transfer the PCS licenses to the Company at Comcast's cost
of $17.5 million. These PCS licenses will provide the Company with additional
spectrum capacity and serve as a resource for future enhancement of its
network.
Emphasize Customer Service. The Company places a priority on providing
consistently high quality customer service through on-line customer support 24
hours a day, 7 days a week. The Company utilizes a third party billing and
customer care platform in conjunction with an internally developed management
information system. Together, these systems enable the Company to provide
prompt, high quality services to its expanding customer base and afford the
Company access to detailed customer data which it uses to facilitate its
marketing efforts.
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Grow Direct Distribution Channels. The Company distributes its products
and services through its direct distribution network (direct sales force,
retail stores and telemarketing) as well as through third party or indirect
distribution channels (national retailers, local agencies and automotive
dealers). The Company's long-term emphasis is on the development of direct
distribution channels, particularly its own retail outlets. The Company
believes that direct distribution offers substantial benefits, including lower
costs, greater effectiveness in selling to higher margin customers, a
consistent point of customer contact and greater ongoing satisfaction for
customers generated both indirectly and directly. The Company currently
operates 48 retail outlets in its markets and anticipates building additional
retail outlets, as well as upgrading existing outlets in the future. The
Company also intends to maintain significant indirect sales distribution
channels.
Capitalize on Regional Brand. The Company currently markets its services
under the Comcast Metrophone(SM) and Comcast CELLULARONE(R) brand names. The
Company believes that the Comcast name has particular regional benefits due to
the Company's telecommunications presence, Comcast's ownership of extensive
cable television facilities in Philadelphia and New Jersey and Comcast's
interest in the Philadelphia 76ers NBA franchise, the Philadelphia Flyers NHL
franchise and two sports arenas.
Expand Product Offering. The Company continues to offer new and innovative
products and services in order to increase the value of the basic voice product
to its customers, broaden distribution, increase airtime revenues and
differentiate the Company. Among other products and services, the Company has
developed GroupTalk(R), a cellular dispatch service which enables work groups
to communicate among themselves at reduced airtime rates, and has begun to
offer paging services to the customers within its systems. In addition to
enhanced cellular voice service packages, the Company has begun to offer data
transmission, through both its existing analog network and CDPD. With the
integration of digital technology, the Company will be able to offer a variety
of additional services such as caller identification, short messaging and call
encryption.
Summary Market Data
The table below sets forth, as of December 31, 1996, (i) the markets in
which the Company owns an interest in a cellular system, (ii) the Company's
ownership percentage of the system, (iii) total Pops and (iv) the Company's
Pops based on its ownership percentage.
Approximate Approximate Approximate
Market Ownership Pops(1) Net Pops
(In thousands)
MSAs:
Atlantic City, NJ ......... 97% 333 323
Aurora-Elgin, IL ......... 82% 48 39
Joliet, IL ............... 84% 36 30
Long Branch, NJ ......... 100% 591 591
New Brunswick, NJ ......... 100% 703 703
Philadelphia, PA ......... 100% 4,894 4,894
Trenton, NJ ............... 85% 331 281
Vineland, NJ ............ 95% 139 132
Wilmington, DE ............ 100% 618 618
------ ------
7,693 7,611
------ ------
RSAs:
Ocean County, NJ ......... 100% 471 471
Kent and Sussex, DE ...... 50% 257 129
------ ------
728 600
------ ------
8,421 8,211
====== ======
- ------------
(1) Source: 1997 Rand McNally Commercial Atlas & Marketing Guide.
As of June 30, 1997, the Company's consolidated cellular telephone
business had approximately 768,000 subscribers in the markets listed above,
which number does not include approximately 19,000 subscribers in the Delaware
1 RSA. Provisions in the limited partnership agreements among Comcast, TCI, Cox
and Sprint limit the Company's ability to expand the geographic scope of its
existing cellular telephone network. See "Risk Factors -- Competition."
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General Developments of Business; Acquisitions
Cellular Retail Stores
In August 1996, the Company acquired twelve cellular retail stores and
direct sales locations in Pennsylvania, New Jersey and Delaware, and related
assets, from Advanced Telecomm, Inc. for $6.5 million in cash, subject to
certain purchase price adjustments.
Delaware 1 RSA
In May 1996, the Company and Southwestern Bell Mobile Systems, through a
partnership owned 50% by each of them, purchased the remaining 84% limited
partnership interest of the Delaware 1 RSA Limited Partnership, the licensee of
the non-wireline cellular license for the Kent and Sussex, DE RSA (the
"Delaware 1 RSA") for $44.1 million in cash, of which the Company's share was
$22.1 million. The surviving entity, C-SW Cellular Partnership, a Delaware
general partnership, now holds the cellular license for the Delaware 1 RSA.
Amcell manages the daily operations of the C-SW Cellular Partnership's interest
in the Delaware 1 RSA.
Ocean County RSA
In 1995, the Company completed its exchange agreement with McCaw Cellular
Communications, Inc. whereby the Company acquired a 100% interest in the entity
that held the Ocean County RSA non-wireline cellular license in exchange for
the Company's Hunterdon County RSA cellular license and related assets, and
$55.2 million in cash.
Vineland/Atlantic City MSA
In June 1995, the Company purchased all of the outstanding stock of United
States Cellular Operating Company of Vineland, Inc. ("USCC/Vineland") from
United States Cellular Corporation for $21.2 million in cash. USCC/Vineland
held an approximate 80.4% interest in Vineland Cellular Telephone Company, Inc.
("VCTC"), which holds the license to operate the non-wireline cellular
telephone system serving the Vineland, NJ MSA and an approximate 9.3% interest
in the non-wireline cellular telephone system for the Atlantic City, NJ MSA
(the "Atlantic City Cellular System"). The acquisition of these interests was
funded with the proceeds of a loan from Comcast, which was repaid during 1995.
As of June 30, 1995, the Company began consolidating VCTC.
In June 1996, the Company completed the acquisition of the license to
operate the Atlantic City Cellular System for $7.5 million in cash. The Company
holds an approximate 97% interest in the Atlantic City Cellular System.
The Company in its normal course of business considers potential
acquisitions of cellular telephone systems and other related assets and
business opportunities as such opportunities arise.
Subscribers
The Company believes that its subscribers are primarily businesses and
consumers who utilize cellular telephone service to improve productivity.
Historically, the Company's business users were individuals who worked
extensively from their cars, in such professions as sales, construction and
real estate, and high end consumers. As a result of the growing acceptance of
cellular communications and the declining cost of portable and transportable
phones, as well as the Company's marketing efforts, the Company's users now are
drawn from a wider range of occupations and are increasingly from consumer
segments. Business users normally generate more revenue than non-business
consumers. While the Company anticipates increasing consumer acceptance of
cellular telephone service, business users are expected to generate the
majority of the Company's revenues for the foreseeable future.
The following table sets forth the aggregate number of subscribers and
penetration in the Company's consolidated systems:
<TABLE>
<CAPTION>
At June 30, At December 31,
------------- ---------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Subscribers (in thousands) ...... 768 762 665 501 323 230
Penetration ..................... 9.5% 9.3% 8.5% 6.8% 4.4% 3.2%
</TABLE>
40
<PAGE>
The Company believes that subscriber growth and increased penetration
since December 31, 1992 were products of the growing acceptance of cellular
communications, declining cost and availability of portable and transportable
phones, the Company's marketing efforts, in particular its expansion of
indirect distribution in that period, and to a lesser extent acquisitions.
During 1996, the Company endeavored to reduce its costs of acquiring new
subscribers who were determined to be low end users with less potential for
revenue generation, consumer loyalty or growth. The Company intends to continue
attempting to balance subscriber growth and growth in revenues with the costs
of acquiring new subscribers or maintaining existing subscribers, and to
develop more efficient means of offering its products and services to
businesses and consumers.
Products and Services
The Company provides services to its cellular telephone subscribers
similar to those provided by conventional landline telephone systems, including
custom calling features such as call forwarding, call waiting, conference
calling, directory assistance and voice mail. The Company is responsible for
the quality, pricing and packaging of cellular telephone service for each of
the systems it owns or controls.
Reciprocal agreements between the cellular telephone systems in which the
Company has an interest and other cellular telephone systems allow their
respective subscribers to receive and place calls in most service areas
throughout the country. The Company also services roamers when they place or
receive calls on the Company's systems. Roamers are charged rates which are
generally at a premium to the regular service rate.
With respect to certain markets, the Company charges its customers who
roam out of the Company's systems only the rates it charges in its own markets,
rather than passing through higher roaming rates customarily charged by many
cellular carriers. This billing practice creates a marketing advantage by
providing the customer with an apparently broader service area but also results
in increased costs for the Company. The Company has been reducing these costs
through the continued negotiation of more favorable roaming agreements with
cellular service providers in relevant markets.
The Company has offered and will continue to offer new and innovative
products and services in order to increase the value of the basic voice product
to the customer and to increase airtime revenues. Recent or near term service
additions include (i) GroupTalk(R), a cellular dispatch service which enables
work groups to communicate among themselves using the cellular system at
reduced airtime rates, (ii) paging services, (iii) enhanced directory
assistance and concierge services, which permit category searches of listings
and direct connections of cellular calls, (iv) personal numbering services,
which consolidate access to multiple communications numbers into a single
number, (v) QuickLink(R), which offers businesses four digit dialing capability
with their company's PBX, (vi) Voice Connect(R), which is a switch based voice
activated dialing system (requiring no special user equipment), (vii) enhanced
voice mail, which includes pager notification upon the receipt of voice mail
entries, and (viii) Prepaid Advanced Cellular(SM) or PAC(SM), through which
customers can purchase increments of cellular usage in advance, thereby
reducing the Company's risk of collection for applicable usage.
The Company now offers data transmission over its existing cellular
network, which allows the rapid transfer of data to and from personal
computers, personal digital assistants ("PDAs") and other devices. In addition,
the Company has deployed CDPD, an advanced data transmission method, in select
portions of its systems. The Company is anticipating the deployment of the TDMA
digital protocol in 1997 throughout its contiguous networks. Digital technology
will allow the Company to offer additional services such as caller
identification, short messaging, message waiting indicators and enhanced voice
privacy through call encryption. See "--Cellular Telephone Communications"
below.
The Company is in the course of conducting trials of cellular-based
vehicle location technologies, and is also exploring the possibility of
offering long distance telephone service as an agent or reseller in order to
further enhance its overall product and service offerings.
Marketing and Distribution
The Company currently markets its services under the Comcast MetrophoneSM
brand name in the Philadelphia, PA MSA and under the Comcast CELLULARONE(R)
brand name in its other markets in New Jersey and
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Delaware. The Company intends to consolidate the provision of its services
under a single brand. In particular, the Company believes that the "Comcast"
name has particular regional benefits due to the Company's telecommunications
presence, Comcast's extensive cable television facilities in the Philadelphia
area and New Jersey and Comcast's more recent acquisition of a 66% interest in
Comcast Spectacor, L.P., the assets of which consist of the Philadelphia 76ers
NBA franchise, the Philadelphia Flyers NHL franchise, and two sports arenas.
See "Risk Factors -- Relationship with Comcast; Possible Conflicts of
Interest," "--Issues Related to Brand Names," and "--Possible Disposition of
the Company by Comcast."
Among other things, the Company currently leverages the Comcast brand name
through a credit card loyalty rewards program developed in conjunction with
Advanta Corp. known as "Comcast Rewards." Through the program holders of the
co-branded Comcast Rewards Visa(R) card (the "Card") can accumulate rewards
points through their use of their cellular telephone and the Card. In addition,
selected premium customers who do not obtain the Card can accumulate rewards
points through their use of their cellular telephone. Rewards points may be
redeemed for the Company's products and services, cellular telephone and paging
equipment, tickets, sporting and entertainment events and other prizes.
The Company uses multiple distribution channels throughout its contiguous
markets to provide effective and extensive marketing of its products and
services and to reduce reliance on any single distribution source. These
distribution channels fall into two broad categories: direct channels (direct
sales force, retail stores and telemarketing) and indirect channels (national
retailers, local agencies and automotive dealers).
The Company's long-term emphasis is on the development of its direct
distribution channels, particularly its own retail outlets and telemarketing,
as a means to reduce the cost and improve the quality of new subscribers. The
Company's retail stores have been a historically low-cost distribution channel
once established, and telemarketing has been particularly effective at reducing
the cost of incremental sales. Also, Company sales representatives are most
effective in selling to the high-end customers and businesses, which tend to
provide the Company with the highest profit margins. The Company believes that
cellular customers increasingly prefer to deal directly with sales
representatives employed by the Company, particularly as the features and
services offered become more varied. In addition, Company stores provide an
ongoing point of contact with subscribers regardless of whether the point of
purchase was direct or indirect. The Company operates 48 retail outlets in its
markets and anticipates building additional retail outlets, as well as
upgrading its existing retail outlets in the future.
The Company maintains a knowledgeable, customer-oriented sales force. The
Company has developed and administers its own sales training program designed
to educate sales representatives for its markets. The program offers a
curriculum that highlights mobile technologies, sales techniques and the
customer service process. The Company believes that, following the program,
sales representatives are better able to address existing and potential
customers' needs in a professional, knowledgeable and productive manner.
The Company has relied, upon its indirect distribution network to generate
a significant percentage of its subscriber growth. The Company's indirect
channels consist of independent contractors paid solely on a commission basis,
with portions of the commission dependent upon the subscribers maintaining
service for a specified period of time. The Company intends to maintain
significant indirect sales distribution channels.
The Company sells cellular telephone equipment to its customers in order
to encourage use of its services. The Company's practice, typical in the
industry, is to sell telephones at or below cost in response to competitive
pressures.
The Company's current marketing strategy is to generate continued net
subscriber growth by offering a wide range of pricing plans so that customers
are able to choose the plan that best fits their calling needs. The offering of
digital telephones and service will further enhance customer choice. The use of
digital technology results in more efficient use of the Company's networks
thereby permitting an even broader range of more competitive pricing plans and
features. The Company's pricing plans currently, and in the future will,
combine different charges for monthly access, usage, customer calling features,
and, in some cases, varying amounts of pre-paid minutes of usage. The Company
periodically reviews its pricing and promotional offers and, when it believes
appropriate, revises, develops or terminates its strategies or programs. As
part of its efforts to reduce subscriber cancellations, the Company generally
requires new customers to enter into one year agreements for cellular service.
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<PAGE>
Customer Service
The Company places a priority on providing consistently high quality
customer service. In 1996 the Company consolidated its Delaware operations,
including customer care operations, into the operations of the Philadelphia
market. The Company is currently consolidating its New Jersey operations,
including customer care operations, into the operations of the Philadelphia
market. The Company's sales and marketing presence (including through the
Company's direct sales group and retail stores) and customer and dealer support
will be maintained throughout the systems. In addition to overall reductions in
operating costs and increases in operational efficiencies, such consolidations
permit an increased emphasis by the Company upon more uniform, efficient and
cost effective delivery of customer service and support from the Company's
offices in Wayne, Pennsylvania. The Company will continue to seek ways of
improving its delivery of customer service and support to its customers while
driving operating efficiencies.
The Company utilizes the MacroCell(R) billing and customer care platform
developed and licensed by Cincinnati Bell Information Systems, Inc. Customer
service representatives are able to access current billing information quickly
in order to respond promptly to customer inquiries. In addition, the Company is
continually improving its management information systems in order to enhance
internal operations and the customer service function. To supplement the
Company's customer service operations, Company telemarketers contact customers
periodically to determine their satisfaction with the Company's service and to
identify problems that can lead to subscriber cancellations.
Cellular Telephone Communications
The Company is engaged in the development, management and operation of
cellular telephone communications systems in various service areas pursuant to
licenses granted by the FCC. Each service area is divided into segments
referred to as "cells" equipped with a receiver, signaling equipment and a
low-power transmitter. The use of low-power transmitters and the placement of
cells close to one another permits re-use of frequencies, thus substantially
increasing the volume of calls capable of being handled simultaneously over the
number handled by prior generation systems. Each cell has a coverage area
generally ranging from one to more than 300 square miles. A cellular telephone
system includes one or more computerized central switching facilities known as
mobile switching centers ("MSC"), which control the automatic transfer of
calls, coordinate calls to and from cellular telephones and connect calls to
the local exchange carrier ("LEC") or to an interexchange carrier. An MSC also
records information on system usage and subscriber statistics.
Each cell's facilities monitor the strength of the signal returned from
the subscriber's cellular telephone. When the signal strength declines to a
predetermined level and the transmission strength is greater at another cell in
or interconnected with the system, the MSC automatically and instantaneously
passes the mobile user's call in progress to the other cell without
disconnecting the call ("hand off"). Interconnection agreements between
cellular telephone system operators and various LECs and interexchange carriers
establish the manner in which the cellular telephone system integrates with
other telecommunications systems.
As required by the FCC, all cellular telephones are designed for
compatibility with cellular systems in all markets within the United States so
that a cellular telephone may be used wherever cellular service is available.
Each cellular telephone system in the United States uses one of two groups of
channels, termed "Block A" and "Block B," which the FCC has allotted for
cellular service. Minor adjustments to cellular telephones may be required to
enable the subscriber to change from a cellular system on one frequency block
to a cellular system on the other frequency block.
While most MSCs process information digitally, most radio transmission of
cellular telephone calls is done on an analog basis. Digital transmission of
cellular telephone calls offers advantages, including larger system capacity
and the potential for lower incremental costs for additional subscribers. The
FCC allows carriers to provide digital service and requires cellular carriers
to provide analog service. The Company's implementation of digital radio
technology is expected to commence in the third quarter of 1997. It is
anticipated that a substantial portion of increased capacity for subsequent
traffic and subscriber growth will be accommodated using the lower cost digital
technology.
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<PAGE>
Reciprocal agreements among cellular telephone system operators allow
roamers to place and receive calls in most service areas throughout the
country. Roamers are charged rates which are generally at a premium to the
regular service rate. In recent years, cellular carriers have experienced
increased fraud associated with roamer service, including ESN cloning. The
Company and other carriers have implemented a number of features which have
decreased the incidents of fraudulent use of their systems. Among these are
PINs, which are required to be used by a majority of the Company's customers,
and the Company's Security Zone feature which restricts customer usage outside
of the Company's service areas.
In addition, the Company has implemented authentication and RF
fingerprinting technologies which associate ESN/MIN combinations with
particular cellular telephone units. The use of digital radio technology also
purportedly will make it more difficult to commit cellular fraud. However,
fraudulent use of the Company's systems remains a significant concern.
Certain Anticipated Asset Transfers
The Company through a wholly owned subsidiary has a 40% limited
partnership interest in Garden State Cablevision. The Company acquired its
interest in Garden State Cablevision in 1992 from Comcast for $51.0 million
through the issuance of a note bearing interest at 11% per annum and payable in
September 1997. See Note 3 of notes to condensed consolidated financial
statements for the quarter ended June 30, 1997 and 1996 and Note 5 of notes to
consolidated financial statements for the years ended December 31, 1996, 1995
and 1994 included elsewhere herein. While no assurance can be given, the
Company expects to transfer its interest in Garden State Cablevision to Comcast
subsequent to the refinancing of the Credit Agreement. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Results of Operations."
The Company through a wholly owned subsidiary has a 51% interest in a
partnership that provides directory assistance services to the public. A
subsidiary of Comcast owns the remaining 49% interest. Although no assurance
can be given, the Company expects to transfer its interest in the partnership
to Comcast some time after the Expiration Date of the Exchange Offer.
The Company's interests in the foregoing entities and assets will
constitute Unrestricted Subsidiaries for purposes of the Indenture relating to
the Notes. See "Description of the Notes -- Certain Covenants -- Designation of
Unrestricted Subsidiaries."
Competition
The FCC generally grants two licenses to operate cellular telephone
systems in each market. One of the two licenses was initially awarded to a
company or group affiliated with the local landline telephone carriers in the
market (the "wireline" license), and the other license was initially awarded to
a company, individual, or group not affiliated with any landline telephone
carrier (the "non-wireline" license). The Company's systems are all
non-wireline systems and compete directly with the wireline licensee in each
market in attracting and retaining cellular telephone customers and dealers.
The wireline licensee in the Company's principal markets is Cellco Partnership,
a joint venture between Bell Atlantic Mobile Systems, Inc. and NYNEX Mobile
Communications Co. The Company's principal wireline competitor has a larger
coverage area and may have access to more substantial financial resources than
the Company.
In recent years, new mobile telecommunications service providers have
entered the market and created additional competition in the wireless
telecommunications business. Many of such providers have access to substantial
capital resources and operate, or through affiliates operate, cellular
telephone systems, bringing significant wireless experience to the new
marketplace. Accordingly, while there are only two cellular providers licensed
in a given area, new competitors continue to emerge utilizing different
frequencies and new technologies. Competition between wireless operators in
each market is principally on the basis of services and enhancements offered,
technical quality of the system, quality and responsiveness of customer
service, price and coverage area.
The most prominent new providers are the PCS operators. PCS is used to
describe a variety of digital, wireless communications systems currently
primarily suited for use in densely populated areas. At the power levels that
the FCC's rules now provide, each cell of a PCS system would have more limited
coverage than a cell in a cellular telephone system. The FCC has allocated
spectrum and adopted rules for both narrow and
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broadband PCS services. In 1994, the FCC completed a spectrum auction for
nationwide narrowband PCS licenses, undertook the first regional narrowband PCS
auction, and began the first auction of broadband PCS spectrum. All of the
30-MHz MTA licenses for PCS were issued by June 1995 and PCS licensees are
required to construct their networks to be capable of covering one-third of
their service area population within five years of the date of licensing.
Winners in the Company's Philadelphia markets were AT&T Wireless Services, Inc.
and PhillieCo L.P., an affiliate of Sprint PCS. Broadband PCS service likely
will become a direct competitor to cellular service. PhillieCo, L.P. has
recently begun offering its wireless services in the Philadelphia, PA area. In
September 1996, the FCC granted, through a bidding process, additional 30-MHz
BTA PCS licenses, designated for license to small businesses, rural telephone
companies and other entrepreneurs. Additional auctions for 10-MHz blocks of PCS
spectrum (including licenses designated for small businesses) were concluded in
January 1997. An affiliate of the Company was the high bidder on twelve 10-MHz
licenses covering the Philadelphia MTA and the Allentown BTA, all of which have
been awarded. Subject to the approval of the FCC, Comcast intends to transfer
the PCS licenses to the Company at Comcast's cost of $17.5 million.
Cellular telephone systems, including the Company's systems, also face
actual or potential competition from other current and developing technologies.
SMR systems, such as those used by taxicabs, as well as other forms of mobile
communications service, may provide competition in certain markets. SMR systems
are permitted by FCC rules to be interconnected to the public switched
telephone network and are significantly less expensive to build and operate
than cellular telephone systems. SMR systems are, however, licensed to operate
on substantially fewer channels per system than cellular telephone systems and
currently lack cellular's ability to expand capacity through frequency re-use
by using many low-power transmitters and to hand-off calls. Nextel
Communications, Inc., in which Comcast holds an equity interest, has begun to
implement its proposal to use its available SMR spectrum in various
metropolitan areas more efficiently to increase capacity and to provide a broad
range of mobile radio communications services. This proposal, known as Enhanced
SMR service, could provide additional competition to existing cellular
carriers, including the Company. Nextel Communications, Inc. has recently begun
offering its wireless services in the Philadelphia, PA area. In 1994, the FCC
decided to license SMR systems in the 800-MHz bands for wide-area use, thus
increasing potential competition with cellular. The FCC has also decided to
license SMR spectrum in contiguous blocks via the competitive bidding process.
The first auction of SMR spectrum is scheduled for October 1997.
One-way paging or beeper services that feature voice message, data
services and tones are also available in the Company's markets. These services
may provide adequate capacity and sufficient mobile capabilities for some
potential cellular subscribers, thus providing additional competition to the
Company's systems.
The FCC requires cellular licensees to provide service to resellers of
cellular service which purchase cellular service from licensees, usually in the
form of blocks of numbers, then resell the service to the public. Thus, a
reseller may be both a customer and a competitor of a licensed cellular
operator. The FCC currently is seeking comment on whether resellers should be
permitted to install separate switching facilities in cellular systems,
although it has tentatively concluded not to require such interconnections. The
FCC is also considering whether resellers should receive direct assignments of
telephone numbers from LECs.
In April 1997, the FCC concluded auctioning spectrum for "Wireless
Communications Services" which broadly encompasses all wireless services.
Another subsidiary of Comcast was the high bidder on 17 of the "WCS" licenses
auctioned in April. These WCS licenses were granted on July 21, 1997. It is
likely that the FCC will offer additional spectrum for wireless mobile CMRS
licenses in the future. Applicants also have received and others are seeking
FCC authorization to construct and operate global satellite networks to provide
domestic and international mobile communications services from geostationary
and low earth orbit satellites. In addition, the 1993 Budget Act provided,
among other things, for the release of 200-MHz of Federal government spectrum
for commercial use over a fifteen-year period. These developments and further
technological advances may make available other alternatives to cellular
service, thereby creating additional sources of competition.
In February 1997, the U.S. government entered into a World Trade
Organization agreement with respect to telecommunications. When it becomes
effective on January 1, 1998, the agreement will require the United States,
among other things, to afford "national" treatment to foreign investors seeking
indirect ownership of CMRS licenses in the United States. These changes may
permit additional foreign investment and participation in the United States'
wireless marketplace and therefore may enhance competition. The FCC has
instituted a rule making proceeding to develop policies for implementing the
agreement.
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<PAGE>
Legislation and Regulation
FCC Regulation. The FCC regulates the licensing, construction, operation
and acquisition of cellular telephone systems pursuant to the Communications
Act of 1934 (the "Communications Act"). For licensing purposes, the FCC divided
the United States into separate markets: 306 MSAs and 428 RSAs. In each market,
the allocated cellular frequencies are divided into two blocks: Block A,
initially awarded for utilization by non-wireline entities such as the Company,
and Block B, initially awarded for utilization by affiliates of local exchange
wireline telephone companies. There is no technical or operational difference
between wireline and non-wireline systems other than different frequencies.
Under the Communications Act, no party may transfer control of or assign a
cellular license without first obtaining FCC consent. FCC rules (i) prohibit an
entity controlling one system in a market from holding any interest in the
competing cellular system in the market and (ii) prohibit an entity from
holding non-controlling interests in more than one system in any market, if the
common ownership interests present anti-competitive concerns under FCC
policies. Cellular radio licenses generally expire on October 1 of the tenth
year following grant of the license in the particular market and are renewable
for periods of ten years upon application to the FCC. Licenses may be revoked
for cause and license renewal applications denied if the FCC determines that a
renewal would not serve the public interest. FCC rules provide that competing
renewal applications for cellular licenses will be considered in comparative
hearings, and establish the qualifications for competing applications and the
standards to be applied in such hearings. Under current policies, the FCC will
grant incumbent cellular licensees a "renewal expectancy" if the licensee has
provided substantial service to the public, substantially complied with
applicable FCC rules and policies and the Communications Act and is otherwise
qualified to hold an FCC license. The FCC has granted renewal of the Company's
licenses for the Philadelphia, PA, Wilmington, DE and New Brunswick and Long
Branch, NJ MSAs. The Company's license for the Trenton, NJ MSA expires in 1997.
The balance of the Company's licenses expire from 1998 through 2006.
The FCC regulates the ability of cellular operators to bundle the
provision of service with hardware, the resale of cellular service by third
parties and the coordination of frequency usage with other cellular licensees.
The FCC also regulates the height and power of base station transmitting
facilities and signal emissions in the cellular system. Cellular systems also
are subject to Federal Aviation Administration and FCC regulations concerning
the siting, construction, marking and lighting of cellular transmitter towers
and antennae. In addition, the FCC also regulates the employment practices of
cellular operators.
The Communications Act currently restricts foreign ownership or control
over commercial mobile radio licenses, which include cellular radio service
licenses. The FCC recently decided to consider the opportunities that other
nations provide to U.S. companies in their communications industries as a
factor in deciding whether to permit higher levels of indirect foreign
ownership in companies controlling common carrier and certain other radio
licenses. The 1996 Telecom Act relaxed these restrictions by eliminating the
statutory provisions restricting foreign officers and directors in licensees
and their parent corporations.
In February 1997, the U.S. government entered into a World Trade
Organization agreement with respect to telecommunications. Upon its
effectiveness, the agreement will require the United States, among other
things, to afford "national" treatment to foreign investors seeking indirect
ownership of CMRS licenses in the United States. These changes may permit
additional foreign investment and participation in the United States' wireless
marketplace and therefore may enhance competition. The FCC has instituted a
rulemaking proceeding to develop policies for implementing the agreement.
Allegations of harmful effects from the use of hand-held cellular phones
have caused the cellular industry to fund additional research to review and
update previous studies concerning the safety of the emissions of
electromagnetic energy from cellular phones. In August 1996, however, the FCC
adopted new standards for evaluating the extent to which wireless facilities
will expose both employees and the public to RF radiation. At that time, the
FCC determined that state and local regulation of RF radiation from facilities
used to provide "personal wireless services," including cellular and PCS, is
preempted to the extent the facilities comply with the FCC's RF exposure
limits.
The FCC also requires LECs in each market to offer reasonable terms and
facilities for the interconnection of both cellular telephone systems in that
market to the LECs' landline network. Cellular telephone companies affiliated
with the LEC are required to disclose how their systems will interconnect with
the landline network. The licensee not affiliated with the LEC has the right to
interconnect with the landline network in a manner no
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less favorable than that of the licensee affiliated with the LEC. In addition,
the licensee not affiliated with the LEC may, at its discretion, request
reasonable interconnection arrangements that are different than those provided
to the affiliated licensee in that market, and the LEC must negotiate such
requests in good faith. The FCC reiterated its position on interconnection
issues in a declaratory ruling which clarified that LECs are expected to
provide, within a reasonable time, the agreed-upon form of interconnection. In
June 1996, the FCC adopted a national regulatory framework for implementing the
local competition provisions of the 1996 Telecom Act, including adoption of
rules delineating interconnection obligations of incumbent LECs, ("ILECs"),
unbundling requirements for ILECs, network elements, requirements for access to
local rights-of-way, dialing parity and telephone numbering and number
portability, and requirements for resale of and non-discriminatory access to
ILEC services. In many instances, the FCC left the task of implementing the
FCC's regulatory standards to the individual states, but the FCC also
established a national regulatory framework that set pricing standards and
negotiation and arbitration guidelines. The U.S. Court of Appeals for the
Eighth Circuit vacated the FCC's national standards and guidelines on the
grounds that the FCC lacked the authority to bind state regulators on the
matter of local pricing of interconnection. The FCC attempted to set a national
framework for landline interconnection pricing and related issues. As a result
of the Eighth Circuit's decision, however, these matters will be left to
state-by-state determinations. The Eighth Circuit in its decision also
determined that the FCC had special authority over CMRS carriers and their
interconnection to incumbent LECs. Thus, according to the Eighth Circuit
decision, national interconnection rules will be maintained for the Company's
existing CMRS operations.
Prior to the Eighth Circuit ruling, the Company renegotiated its
interconnection contracts with Bell Atlantic pursuant to the 1996 Telecom Act.
The agreements, covering Pennsylvania, New Jersey, Delaware and Maryland,
provide for the reciprocal transport and termination of CMRS traffic by Bell
Atlantic and the Company at substantially reduced rates. These agreements all
have been approved by the four applicable state public utility commissions and
are in effect.
To date, the FCC has undertaken significant efforts to reconsider the
regulation of CMRS providers in the wake of competitive developments in the
telecommunications marketplace. For instance, in June 1996, the FCC eliminated
the cellular/PCS cross-ownership rule in favor of a single, generally
applicable, CMRS spectrum cap rule. The change permits cellular providers to
hold attributable interests in 20-MHz of PCS spectrum (e.g., two 10-MHz
licenses) in areas where there is significant service area overlap. The FCC has
not thus far imposed a requirement that all CMRS providers provide
interconnection to all other CMRS providers, but has stated that it will
consider interconnection complaints on a case-by-case basis and that it may
consider in the future whether to impose more general interconnection
obligations on CMRS operators.
The FCC recently established new federal universal service mechanisms that
will affect cellular and other wireless operators. Under the new rules,
wireless service providers gain access to universal service subsidies for the
first time; however, they also are required to contribute to both federal and
state universal service funds. The new rules have been appealed in numerous
jurisdictions throughout the country. A judical determination of the legality
of the rules will determine the extent to which cellular and other wireless
service providers will be required to support state universal service programs.
The FCC on July 18, 1997 determined that the National Exchange Carrier
Association ("NECA") will be the temporary administrator of the universal
service program. All entities potentially contributing to the program must file
a revenue worksheet with NECA by September 1, 1997 and NECA will calculate
amounts owed for universal service support. The first of four quarterly
payments will be due January 1, 1998. The extent of the Company's universal
service payment obligations cannot be predicted with accuracy at this time, but
may be substantial. A number of parties have challenged the FCC's universal
service order and the cases have been consolidated in the U.S. Court of Appeals
for the Fifth Circuit in New Orleans.
The FCC also recently promulgated rules to reform its system of interstate
access charges to make it compatible with the 1996 Telecom Act and with federal
and state actions to open local networks to competition. The new rules
establish a transition to an access charge structure that more closely reflects
the economic costs of accessing landline networks for the termination of long
distance calls. These rules also have been appealed, principally by incumbent
local exchange carriers. Judicial resolution of the issues raised in the
litigation will affect the costs of interstate access to local
telecommunications networks. Wireless carriers indirectly are affected by these
costs to the extent they provide cellular long distance and other offerings
that package or utilize long
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distance services for the convenience and benefit of their customers. Further,
the FCC is considering new rules to govern how customer proprietary network
information ("CPNI") may be used by telecommunications carriers, including the
BOCs in marketing a broad range of telecommunications services to their
customers, and the customers of affiliated companies. Resolution of the issues
raised in these proceedings may affect the costs of providing cellular service
and the way in which the Company conducts its business. However, the Company
does not anticipate that resolution of these issues will result in a
significant adverse impact on its financial position, results of operations or
liquidity.
Finally, the 1996 Telecom Act relieved cellular providers affiliated with
a BOC of their equal access obligations. As such, BOC-affiliated carriers are
afforded greater flexibility in contracting with interexchange carriers for the
provision of long distance services. Prior to the legislative change, cellular
systems affiliated with the BOCs were required to offer equal access to
interexchange carriers and those affiliated with AT&T voluntarily provided
equal access. Nevertheless, the FCC retains authority to require all CMRS
operators to provide unblocked access through the use of other mechanisms if
customers are being denied access to the telephone toll service providers of
their choice, and if such denial is contrary to the public interest.
State Regulation and Local Approvals. Except for the State of Illinois,
the states in which the Company presently operates currently do not regulate
cellular telephone service. In the 1993 Budget Act, Congress gave the FCC the
authority to preempt states from regulating rates or entry into CMRS, including
cellular. In its order implementing the provisions of the 1993 Budget Act
affecting CMRS, the FCC preempted the states and established a procedure for
states to petition the FCC for authority to regulate rates and entry into CMRS.
The FCC, to date, has denied all state petitions to regulate the rates charged
by CMRS providers.
The scope of the allowable level of state regulation of CMRS, however,
remains unclear. The 1993 Budget Act does not identify the "other terms and
conditions" of CMRS service that can be regulated by the states. Moreover, the
extent to which states may regulate intrastate LEC-CMRS interconnection remains
unresolved. The resolution of this issue will impact the extent to which
cellular providers will be subject to state regulation of CMRS interconnection
to the LECs. The siting of cells also remains subject to state and local
jurisdiction although petitions seeking clarification of states' siting
authority are currently pending at the FCC.
Employees
As of June 30, 1997, the Company had approximately 1,600 employees. None
of the Company's employees is represented by a labor organization, and the
Company's management considers its employee relations to be good.
Properties
The principal physical assets of a cellular telephone system include cell
sites and central switching equipment. The Company primarily leases its sites
used for its transmission facilities and its administrative offices. The
physical components of a cellular telephone communications system require
maintenance and upgrading to keep pace with technological advances over the
next several years. It is anticipated that digital capability will be added to
the Company's system beginning in the third quarter of 1997.
Legal Proceedings
The Company is not party to litigation which, in the opinion of the
Company's management, will have a material adverse effect on the Company's
financial position, results of operations or liquidity.
48
<PAGE>
MANAGEMENT
Directors and Executive Officers
The business and operations of CCCI are managed by Comcast pursuant to the
Management Agreement between Comcast and CCCI. See "Certain Relationships and
Related Transactions." The following table sets forth certain information with
respect to directors and executive officers of the Company as of August 1,
1997. All of the Company's directors and executive officers are employees of,
and compensated by Comcast, and will receive no separate compensation from the
Company. The Company reimburses all directors for expenses incurred in
performing their duties as directors. Except as indicated below, all of the
Company's directors and executive officers were elected to their positions with
Comcast Cellular in 1992 and hold the same position with the Company, Comcast
Cellular and Comcast.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Ralph J. Roberts 77 Chairman of the Board of Directors; Director
Julian A. Brodsky 64 Vice Chairman of the Board of Directors; Director
Brian L. Roberts 38 President; Director
Lawrence S. Smith 49 Executive Vice President
John R. Alchin 49 Senior Vice President; Treasurer
Stanley L. Wang 56 Senior Vice President; Secretary
</TABLE>
Ralph J. Roberts has served as a Director and Chairman of the Board of
Directors of Comcast for more than five years. Mr. Roberts has been the
President and a Director of Sural Corporation, a privately-held investment
company ("Sural") and Comcast's largest shareholder, for more than five years.
Mr. Roberts devotes a major portion of his time to the business and affairs of
Comcast. Mr. Roberts currently has voting control of Sural. Mr. Ralph J.
Roberts has indicated his intention to transfer control of Sural to Mr. Brian
L. Roberts upon receipt of various regulatory and other approvals required in
connection with such transfer. The FCC has granted its consent to the transfer
of control of Comcast Cellular and its subsidiaries to Mr. Brian L. Roberts.
Mr. Roberts is also a Director of Comcast UK Cable Partners Limited.
Julian A. Brodsky has served as a Director and Vice Chairman of the Board
of Directors of Comcast for more than five years. Mr. Brodsky presently serves
as the Treasurer and a Director of Sural. Mr. Brodsky devotes a major portion
of his time to the business and affairs of Comcast. Mr. Brodsky is also a
Director of Comcast UK Cable Partners Limited and RBB Fund, Inc.
Brian L. Roberts has served as President and a Director of Comcast for
more than five years. Mr. Roberts presently serves as Vice President and a
Director of Sural. Mr. Roberts devotes a major portion of his time to the
business and affairs of Comcast. Mr. Roberts is also a Director of Teleport
Communications Group, Inc., At Home Corporation and Comcast UK Cable Partners
Limited. He is a son of Ralph J. Roberts.
Lawrence S. Smith was named Executive Vice President of Comcast in
December 1995. Prior to that time, Mr. Smith served as Senior Vice President of
Comcast for more than five years. Mr. Smith is the Principal Accounting Officer
of the Company and Comcast. Mr. Smith is a Director of Teleport Communications
Group, Inc. and Comcast UK Cable Partners Limited and is a Partnership Board
Representative of Sprint Spectrum Holding Company, L.P.
John R. Alchin has served as Treasurer and Senior Vice President of
Comcast for more than five years. Mr. Alchin is the Principal Financial Officer
of the Company and Comcast. Mr. Alchin is a Director of Comcast UK Cable
Partners Limited.
Stanley L. Wang has served as Senior Vice President, Secretary and General
Counsel of Comcast for more than five years. Mr. Wang is a Director of the
Company and Comcast Cellular.
Key Operating Employees of CCCI
David N. Watson was named President of CCCI in February 1997. For the five
years immediately prior to that time, Mr. Watson served as Senior Vice
President and Vice President of Marketing and Sales of CCCI.
49
<PAGE>
Anna E. Hillman has served as Vice President and subsequently Senior Vice
President of Finance and Administration of CCCI for more than five years.
Raymond E. Dombroski has served as Vice President and subsequently Senior
Vice President of Engineering Operations and New Technologies of CCCI since
1994. Prior to that time, Mr. Dombroski served as Vice President of New
Technologies of CCCI from 1992.
Jeffrey E. Smith has served as Vice President and General Counsel of CCCI
since 1994. Mr. Smith has served as Deputy General Counsel of Comcast for more
than five years.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
All of the outstanding capital stock of the Company, consisting of 100
shares of Common Stock, are owned by Comcast. The following table provides
certain information regarding the beneficial ownership, as defined in Rule
13d-3 of the Exchange Act, of Comcast's Common Stock as of August 1, 1997 by
(i) each stockholder known to the Company to be the beneficial owner of 5% or
more of any class of Comcast's voting securities, (ii) each of the Company's
directors and executive officers and (iii) all directors and executive officers
as a group. So far as is known to the Company, the persons named in the tables
below as beneficially owning the shares set forth therein have sole voting
power and sole investment power with respect to such shares, unless otherwise
indicated.
Beneficial Ownership of
Class A Common Stock
-------------------------
Amount Percent
Beneficially of
Name and Address of Beneficial Owner Owned Class
- ------------------------------------------ -------------- --------
The Capital Group
Companies, Inc. ........................ 2,654,000(1) 8.3%
333 South Hope Street
Los Angeles, CA 90071
Neuberger & Berman, LLC .................. 1,642,000(2) 5.2%
605 Third Avenue
New York, NY 10158-3698
Wellington Management Company, LLP ...... 3,300,100(3) 10.4%
75 State Street
Boston, MA 02109
<TABLE>
<CAPTION>
Amount Beneficially Owned(4) Percent of Class(4)
---------------------------------------------------------- ----------------------------------
Class Class
Name of Beneficial Owner Class A A Special Class B Class A A Special Class B
- ---------------------------- ---------------- --------------------- --------------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Alchin, John R. ............ 242,081(8) (13) (13)
Brodsky, Julian A. ......... 280,559(5) 1,890,851 (13) (13)
Roberts, Brian L. ......... 4,061(6) 486,134(9) (13) (13)
Roberts, Ralph J. ......... 2,164,107(7) 10,838,704(10) 9,444,375(12) 6.8% 3.5% 100%
Smith, Lawrence S. ......... 308,364 (13) (13)
Wang, Stanley L. ......... 40,891 185,107(11) (13) (13)
All directors and executive
officers as a group (6 per-
sons)...................... 2,489,618 13,951,241 9,444,375 7.8% 4.4% 100%
(5)(6)(7) (8)(9)(10)(11) (12)
</TABLE>
- ------------
(1) The information contained in this table with respect to The Capital Group
Companies, Inc. ("TCG") is based upon filings made on Form 13F by TCG and
its wholly owned subsidiaries, Capital Research and Management Company
("Capital Research") and Capital Guardian Trust Company ("Capital
Guardian"), setting forth information as of March 31, 1997. Based upon
such filings, 1,950,000 and 704,000 of these shares are beneficially owned
by Capital Research and Capital Guardian, respectively.
(2) The information contained in this table with respect to Neuberger &
Berman, LLC ("Neuberger") is based upon filings made on Form 13F by
Neuberger, its wholly owned subsidiary, Neuberger & Berman Management,
Inc., and Neuberger & Berman Institutional Asset Management, setting forth
information as of March 31, 1997. Based upon such filings, 575,000 shares
are beneficially owned by Neuberger and 1,000,000 shares and 67,000 shares
are beneficially owned by Neuberger & Berman Management, Inc. and
Neuberger & Berman Institutional Asset Management, respectively.
51
<PAGE>
(3) The information contained in this table with respect to Wellington
Management Company, LLP ("Wellington") is based upon a filing made on
Schedule 13G by Wellington and its wholly owned subsidiary,
Wellington Trust Company, NA, setting forth information as of July 31,
1997. The 13G indicates that Wellington has shared dispositive power as to
all 3,300,100 shares and shared voting power as to 4,000 shares. The
Schedule 13G also states that the shares are owned of record by various
clients for which Wellington serves as investment advisor, of which only
one, Vanguard/Windsor Funds, Inc., holds more than 5% of the class.
(4) With respect to each beneficial owner, the shares issuable upon exercise
of his currently exercisable options and options exercisable within 60
days of August 1, 1997 are deemed to be outstanding for purposes of
computing the percentage of the class of Common Stock owned. Includes the
following shares of Class A Special Common Stock and Class B Common Stock,
respectively, for which the named individuals, and all directors and
executive officers as a group, hold currently exercisable options or
options exercisable within 60 days of August 1, 1997: John R. Alchin,
171,565 shares and none; Julian A. Brodsky, 1,041,071 shares and none;
Brian L. Roberts, 384,289 shares and none; Ralph J. Roberts, 4,796,141 and
658,125 shares; Lawrence S. Smith, 269,404 shares and none; Stanley L.
Wang, 112,778 shares and none; and all directors and executive officers as
a group, 6,775,248 and 658,125 shares.
(5) Includes 20,000 shares of Class A Common Stock owned by a charitable
foundation of which he and members of his family are directors and
officers, as to which shares he disclaims beneficial ownership.
(6) Includes 1,356 shares of Class A Common Stock owned by his wife, as to
which shares he disclaims beneficial ownership.
(7) At August 1, 1997, Sural owned 1,845,037 shares of Class A Common Stock.
Mr. Roberts, Chairman of the Board of Directors of Comcast, and members of
his family own all of the voting securities of Sural. Pursuant to Rule
13d-3 of the Exchange Act, Mr. Roberts is deemed to be the beneficial
owner of the shares of Class A Common Stock owned by Sural. Also includes
319,070 shares owned directly by Mr. Roberts. See also the last two
sentences of note (12) below.
(8) Includes 15 shares of Class A Special Common Stock owned in the Comcast
Corporation Retirement- Investment Plan as to which shares he disclaims
beneficial ownership.
(9) Includes 678 shares of Class A Special Common Stock owned by his wife,
20,542 shares owned in the Comcast Corporation Retirement-Investment Plan,
and 18,140 shares owned by a charitable foundation of which he and his
wife are directors and officers, as to all of which shares he disclaims
beneficial ownership.
(10) Includes 5,315,772 shares of Class A Special Common Stock owned by Sural
and 10,000 shares owned by a charitable foundation of which he and his
wife are trustees and as to which shares he disclaims beneficial
ownership. See also the last sentence of note (12) below.
(11) Includes 15 shares of Class A Special Common Stock owned in the Comcast
Corporation Retirement-Investment Plan, as to which shares he disclaims
beneficial ownership.
(12) At August 1, 1997, Sural was the sole owner of Comcast's Class B Common
Stock. Pursuant to Rule 13d-3 of the Exchange Act, Mr. Roberts is deemed
to be the beneficial owner of the shares of Class B Common Stock owned by
Sural. In addition to the shares owned by Sural, Mr. Roberts has options
to purchase 658,125 shares of Class B Common Stock, all of which are
currently exercisable. Since each share of Class B Common Stock is
entitled to fifteen votes, the shares of Class A Common Stock and Class B
Common Stock owned by Sural constitute approximately 82% of the voting
power of the two classes of Comcast's voting Common Stock combined (83% if
all others shares of Class A Common Stock which he is deemed to
beneficially own and shares underlying his options to purchase Class B
Common Stock currently exercisable or exercisable within 60 days of August
1, 1997 are included). The Class B Common Stock is convertible on a
share-for-share basis into Class A Common Stock or Class A Special Common
Stock. If Sural and Mr. Roberts were to convert the Class B Common Stock
which they are deemed to beneficially own into Class A Common Stock, Mr.
Roberts would beneficially own 11,608,482 shares of Class A Common Stock
(approximately 28% of the Class A Common Stock). Mr. Ralph J. Roberts has
indicated his intention to transfer control of Sural to Mr. Brian L.
Roberts upon receipt of various regulatory and other approvals required in
connection with such transfer. The FCC has granted its consent to the
transfer of control of Comcast Cellular and its subsidiaries to Mr. Brian
L. Roberts.
(13) Less than one percent of the applicable class.
52
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is a newly formed, direct wholly owned subsidiary of Comcast.
Comcast and CCCI were parties to a management agreement (the "Old Management
Agreement") pursuant to which Comcast managed the business and operations of
CCCI. In May 1997, subsequent to the redemption of the Zero Coupon Notes, the
Old Management Agreement was terminated and replaced with a new management
agreement (the "New Management Agreement") which provides for management fees
of 1.5% of revenues. The New Management Agreement eliminated the prior
management fee which was limited to $5.0 million, subject to annual increases
based on the consumer price index. The New Management Agreement has a ten year
term. Management fees of $3.0 million, $2.8 million, $1.6 million, $1.4
million, $5.5 million, $5.5 million and $5.3 million were charged to selling,
general and administrative expenses during the six and three months ended June
30, 1997 and 1996 and during the years ended December 31, 1996, 1995 and 1994,
respectively (on a pro forma basis, giving effect to the New Management
Agreement, management fees would have been $3.3 million and $6.4 million for
the six months ended June 30, 1997 and the year ended December 31, 1996,
respectively). During the years ended December 31, 1995 and 1994, CCCI was
charged additional management fees (the "Additional Management Fees") of $2.7
million and $2.5 million, respectively. As of June 30, 1997 deferred management
fees payable totaled $17.7 million. The Company intends to pay all previously
deferred management fees as of the date the Credit Agreement is amended or
refinanced with the New Bank Facility.
The Company, Comcast Cellular, Comcast and CCCI are parties to a tax
sharing agreement (the "Tax Sharing Agreement") whereby the Company joins with
Comcast in filing a consolidated federal income tax return. Comcast allocates
income tax expense or benefit to the Company as if the Company were filing a
separate federal income tax return. Tax benefits from both losses and tax
credits are made available to the Company as it is able to realize such
benefits on a separate return basis. The Company is required to pay to Comcast
for income taxes an amount equal to that amount of tax the Company would pay if
it filed a separate tax return. Subsidiaries that were less than 80% owned have
been excluded from the Tax Sharing Agreement, as they were not members of the
Comcast consolidated group for tax purposes.
In 1992, a subsidiary of AWACS, issued a note (the "AWACS Note") with an
initial principal amount of $51.0 million to purchase from a subsidiary of
Comcast, a 40% limited partnership interest in Garden State Cablevision.
Interest is payable on a quarterly basis to the extent of available cash, with
any unpaid interest added to principal. The AWACS Note bears interest at a rate
of 11% per annum. Interest expense on the AWACS Note was $2.5 million, $4.0
million, $1.3 million, $2.0 million, $8.2 million, $7.5 million and $6.7
million during the six and three months ended June 30, 1997 and 1996 and the
years ended December 31, 1996, 1995 and 1994, respectively. From the date of
issuance through June 30, 1997, $35.5 million of principal and interest has
been paid on the AWACS Note with the proceeds from distributions from Garden
State Cablevision. The balance of the AWACS Note is due on September 30, 1997,
and, accordingly, has been classified as current in the Company's consolidated
balance sheet as of June 30, 1997 and December 31, 1996. See "Business --
Certain Anticipated Asset Transfers."
In June 1995, the Company purchased all of the outstanding stock of
USCC/Vineland from USCC for $21.2 million in cash. The entire cost of the
acquisition was funded with the proceeds of a loan from Comcast at an interest
rate of 10% per annum. Interest expense related to the loan was not significant
as the loan was repaid in September 1995 in connection with the Company's
refinancing of certain indebtedness.
53
<PAGE>
DESCRIPTION OF THE NOTES
The New Notes will be issued, and the Old Notes were issued, under an
Indenture (the "Indenture") dated as of May 8, 1997 between the Company and The
Bank of New York, as trustee (the "Trustee"), which has been filed as an
exhibit to the Registration Statement of which the Prospectus constitutes a
part. The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), and to all of the provisions of the Indenture, including the definitions
of certain terms therein and those terms made a part of the Indenture by
reference to the Trust Indenture Act, as in effect on the date of the
Indenture. The definitions of certain capitalized terms used in the following
summary are set forth under "-- Certain Definitions" below. Capitalized terms
that are used but not otherwise defined herein have the meaning assigned to
them in the Indenture. References in this "Description of the Notes" section to
"the Company" mean only Comcast Cellular Holdings, Inc. and not any of its
Subsidiaries.
The terms of the New Notes are identical in all material respects to the
terms of the Old Notes, except for certain transfer restrictions, and
registration rights and the related liquidated damages provisions applicable to
the Old Notes and except that, if the Exchange Offer is not consummated by
November 4, 1997, Holders that have complied with their obligations under the
Registration Rights Agreement will be entitled, subject to certain exceptions,
to liquidated damages in an amount equal to $0.05 per week per $1,000 principal
amount of Old Notes held by such Holder. The amount of liquidated damages will
increase by an additional $0.05 per week per $1,000 principal amount of Old
Notes for each subsequent 90-day period until the Exchange Offer is
consummated, up to a maximum amount of liquidated damages of $0.25 per week per
$1,000 principal amount of Old Notes held by such Holder.
General
The New Notes will be, and the Old Notes were, issued only in registered
form, without coupons, in denominations of $1,000 and integral multiples of
$1,000. The Company has initially appointed the Trustee to serve as registrar
and paying agent under the Indenture at its offices at 101 Barclay Street, New
York, New York 10286. No service charge will be made for any registration of
transfer or exchange of the Old Notes and the New Notes, except for any tax or
other governmental charge that may be imposed in connection therewith. The Old
Notes and the New Notes are treated as a single class of securities under the
Indenture and are collectively referred to herein as the Notes.
Upon amendment of the Revolving Credit Loan or the repayment thereof with
borrowings under the New Bank Facility (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Financing"), it is expected that the Company will be
merged into Comcast Cellular, with Comcast Cellular being the surviving entity.
Upon consummation of the merger, Comcast Cellular will assume all obligations
of the Company under the Indenture and the Notes.
Ranking
The Indebtedness evidenced by the New Notes will rank, and the Old Notes
rank, pari passu in right of payment with all other unsubordinated and
unsecured indebtedness of the Company and senior in right of payment to all
subordinated and unsecured indebtedness of the Company. The New Notes will be,
and the Old Notes are, unsecured.
The Company is a holding company with limited assets and no business
operations of its own. The Company operates its business through its
Subsidiaries. Any right of the Company and its creditors, including Holders of
the Notes, to participate in the assets of any of the Company's Subsidiaries
upon any liquidation, dissolution or winding-up of any such Subsidiary will be
subject to the prior claims of the creditors of such Subsidiary. The claims of
creditors of the Company, including Holders of the Notes, will be effectively
subordinated to all existing and future indebtedness and liabilities, including
trade payables, of the Company's Subsidiaries. As of June 30, 1997, the
outstanding liabilities of the Company's subsidiaries reflected on the
Company's balance sheet that would have ranked effectively senior to the Notes
was approximately $689.9 million.
54
<PAGE>
The Company and its Subsidiaries may incur other debt in the future, including
secured debt, which, in the case of the debt of such Subsidiaries or secured
debt of the Company, would be effectively senior to the Notes. As of the date
of this Prospectus, the Company has no Subordinated Indebtedness outstanding.
Maturity, Interest and Principal of the Notes
The Notes are limited to $1,000,000,000 aggregate principal amount and
will mature on May 1, 2007. Cash interest on the New Notes will accrue at a
rate of 9 1/2% per annum and will be payable semi-annually in arrears on each
May 1 and November 1, commencing November 1, 1997, to the Holders of record of
Notes at the close of business on April 15 and October 15, respectively,
immediately preceding such interest payment date. Cash interest will accrue
from May 8, 1997. Holders of Old Notes whose Old Notes are accepted for
exchange in the Exchange Offer will be deemed to have waived the right to
receive any payment in respect of interest on the Old Notes accrued from May 8,
1997 to the date of issuance of the New Notes. Consequently, Holders of Old
Notes who exchange their Old Notes for New Notes will receive the same interest
payment on November 1, 1997 (the first interest payment date with respect to
the Notes following consummation of the Exchange Offer) that they would have
received had they not accepted the Exchange Offer. Interest will be computed on
the basis of a 360-day year of twelve 30-day months.
Optional Redemption
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after May 1, 2002, at the redemption prices (expressed
as a percentage of principal amount) set forth below, plus accrued and unpaid
interest thereon, if any, to the redemption date, if redeemed during the
12-month period beginning on May 1 of the years indicated below:
Redemption
Year Price
--- ---------
2002 ..................... 104.750%
2003 ..................... 103.167%
2004 ..................... 101.583%
2005 and thereafter ...... 100.000%
In addition, prior to May 1, 2000, the Company may redeem up to 35% of the
originally issued principal amount of the Notes at a redemption price equal to
108.5% of the principal amount of the Notes so redeemed, plus accrued and
unpaid interest thereon, if any, to the redemption date with the net cash
proceeds of one or more Public Equity Offerings resulting in aggregate gross
cash proceeds to the Company of at least $100.0 million; provided, however,
that at least 65% of the originally issued principal amount of the Notes would
remain outstanding immediately after giving effect to any such redemption
(excluding any Notes owned by the Company or any of its Affiliates). Notice of
any such redemption must be given within 60 days after the date of the last
Public Equity Offering resulting in gross cash proceeds to the Company, when
aggregated with all prior Public Equity Offerings, of at least $100.0 million.
Selection and Notice of Redemption
In the event that less than all of the Notes are to be redeemed at any
time pursuant to an optional redemption, selection of such Notes for redemption
will be made by the Trustee in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed
or, if the Notes are not then listed on a national securities exchange, on a
pro rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided, however, that no Notes of a principal amount of $1,000
or less shall be redeemed in part. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as the
Company has deposited with the paying agent for the Notes funds in satisfaction
of the redemption price pursuant to the Indenture.
55
<PAGE>
Offer to Purchase upon Change of Control Triggering Event
Following the occurrence of a Change of Control Triggering Event (the date
of such occurrence being the "Change of Control Date"), the Company shall
notify the Holders of such occurrence in the manner prescribed by the Indenture
and shall, within 20 Business Days after the Change of Control Date, make an
Offer to Purchase all Notes then outstanding at a purchase price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Purchase Date. The Company's obligations may
be satisfied if a third party makes the Offer to Purchase in the manner, at the
times and otherwise in compliance with the requirements of the Indenture
applicable to an Offer to Purchase made by the Company and purchases all Notes
validly tendered and not withdrawn under such Offer to Purchase.
If an Offer to Purchase is made, there can be no assurance that the
Company will have available funds sufficient to pay for all of the Notes that
might be tendered by Holders seeking to accept the Offer to Purchase. If the
Company fails to repurchase all of the Notes tendered for purchase upon the
occurrence of a Change of Control Triggering Event, such failure will
constitute an Event of Default under the Indenture. See "-- Events of Default"
below and "Risk Factors -- Change of Control."
If the Company makes an Offer to Purchase, the Company will comply with
all applicable tender offer laws and regulations, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable Federal or state securities laws and regulations and any applicable
requirements of any securities exchange on which the Notes are listed, and any
violation of the provisions of the Indenture relating to such Offer to Purchase
occurring as a result of such compliance shall not be deemed a Default or an
Event of Default.
Certain Covenants
Limitation on Restricted Payments. The Company shall not, and shall not
cause or permit any Restricted Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or any other distribution on any Equity
Interests of the Company or any Restricted Subsidiary or make any payment or
distribution to the direct or indirect holders (in their capacities as such) of
Equity Interests of the Company or any Restricted Subsidiary (other than (A)
any dividend, distribution or payment made to the Company or any Restricted
Subsidiary, (B) any dividend, distribution or other payment by any Restricted
Subsidiary on or with respect to its Equity Interests that is paid pro rata to
all holders of such Equity Interests or (C) any dividend, distribution or
payment on or with respect to Equity Interests of the Company or any Restricted
Subsidiary payable solely in Qualified Equity Interests of the Company or such
Restricted Subsidiary, as the case may be, or in options, warrants or other
rights to purchase Qualified Equity Interests of the Company or such Restricted
Subsidiary, as the case may be);
(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Company;
(iii) purchase, redeem, defease or retire for value, or make any principal
payment on, prior to any scheduled maturity, scheduled repayment or scheduled
sinking fund payment or mandatory redemption or mandatory repurchase thereof
pursuant to the terms thereof, any Subordinated Indebtedness (other than any
Subordinated Indebtedness held by any Restricted Subsidiary); or
(iv) make any Restricted Investment
(such payments or any other actions (other than the exceptions thereto)
described in (i), (ii), (iii) and (iv) collectively, "Restricted Payments"),
unless
(a) no Default or Event of Default shall have occurred and be continuing
at the time or after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, the
Company would be able to Incur $1.00 of Indebtedness under the Debt to
Annualized Operating Cash Flow Ratio of the first paragraph of "-- Limitation
on Indebtedness" below; and
56
<PAGE>
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after the
Issue Date of the Old Notes does not exceed an amount equal to the sum of (1)
the difference between (x) the Cumulative Operating Cash Flow determined at the
time of such Restricted Payment and (y) 120% of cumulative Consolidated
Interest Expense of the Company determined for the period commencing on the
Issue Date and ending on the last day of the most recent fiscal quarter
immediately preceding the date of such Restricted Payment for which
consolidated financial information of the Company is available, plus (2) the
aggregate Net Proceeds received by the Company either (x) as capital
contributions to the Company after the Issue Date of the Old Notes or (y) from
the issue or sale (other than to a Restricted Subsidiary) of its Qualified
Equity Interests after the Issue Date of the Old Notes (excluding the Net
Proceeds from any issuance or sale of Qualified Equity Interests financed,
directly or indirectly, using funds borrowed from the Company or any Restricted
Subsidiary until and to the extent such borrowing is repaid), plus (3) the
principal amount (or accreted value (determined in accordance with GAAP), if
less) of any Indebtedness of the Company or any Restricted Subsidiary which has
been converted into or exchanged for Qualified Equity Interests of the Company,
plus (4) in the case of the disposition or repayment of any Restricted
Investment constituting a Restricted Payment made after the Issue Date of the
Old Notes, an amount (to the extent not included in the computation of
Cumulative Operating Cash Flow) equal to the lesser of: (x) the return of
capital with respect to such Investment and (y) the amount of such Investment
which was treated as a Restricted Payment, in either case, less the cost of the
disposition of such Investment, plus (5) so long as the Designation thereof was
treated as a Restricted Payment made after the Issue Date of the Old Notes,
with respect to any Unrestricted Subsidiary that has been redesignated as a
Restricted Subsidiary after the Issue Date of the Old Notes in accordance with
"-- Designation of Unrestricted Subsidiaries" below, the Company's
proportionate interest in an amount equal to the excess of (x) the total assets
of such Subsidiary, valued on an aggregate basis at the lesser of book value
and Fair Market Value, over (y) the total liabilities of such Subsidiary,
determined in accordance with GAAP (and provided that such amount shall not in
any case exceed the Designation Amount with respect to such Restricted
Subsidiary upon its Designation), plus (6) (to the extent not included in the
computation of Cumulative Operating Cash Flow) the amount of cash dividends or
cash distributions (other than to pay taxes) received from any Unrestricted
Subsidiary since the Issue Date of the Old Notes, plus (7) $25.0 million minus
(8) the greater of (x) $0 and (y) the Designation Amount (measured as of the
date of Designation) with respect to any Subsidiary of the Company which has
been designated as an Unrestricted Subsidiary after the Issue Date of the Old
Notes in accordance with "-- Designation of Unrestricted Subsidiaries" below.
For purposes of the preceding clauses (c)(2) and (c)(3), the value of the
aggregate Net Proceeds received by the Company from the issuance of Qualified
Equity Interests upon the conversion or exchange of outstanding Indebtedness or
upon the exercise of options, warrants or rights will be the Net Proceeds
received upon the issuance of such Indebtedness, options, warrants or rights
plus the incremental amount received by the Company upon such conversion,
exchange or exercise.
The foregoing provisions will not prevent (i) the payment of any dividend
or distribution on, or redemption of, Equity Interests within 60 days after the
date of declaration of such dividend or distribution or the giving of formal
notice of such redemption, if at the date of such declaration or giving of
formal notice such payment or redemption would comply with the foregoing
provisions; (ii) the purchase, redemption, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the net cash
proceeds of the substantially concurrent issue or sale (other than to a
Restricted Subsidiary) of, Qualified Equity Interests of the Company; provided,
however, that any such net cash proceeds and the value of any Equity Interests
issued in exchange for such retired Equity Interests are excluded from clause
(c)(2) of the preceding paragraph (and were not included therein at any time);
(iii) the purchase, redemption, retirement, defeasance or other acquisition of
Subordinated Indebtedness made in exchange for, or out of the net cash proceeds
of a substantially concurrent issue or sale (other than to a Restricted
Subsidiary) of, (x) Qualified Equity Interests of the Company; provided,
however, that any such net cash proceeds and the value of any Equity Interests
issued in exchange for Subordinated Indebtedness are excluded from clauses
(c)(2) and (c)(3) of the preceding paragraph (and were not included therein at
any time) or (y) other Subordinated Indebtedness having no stated maturity for
the payment of principal thereof prior to the final stated maturity of the
Notes; (iv) Restricted Investments not to exceed $10.0 million in the aggregate
since the Issue Date of the Old Notes; (v) the purchase, redemption or other
acquisition, cancellation or retirement for value of Equity Interests, or
options, warrants, equity appreciation rights or other rights to purchase or
acquire Equity Interests, of the Company or any Restricted Subsidiary, or
similar securities, held by officers or employees or former officers or
employees of the Company or any Restricted Subsidiary
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(or their estates or beneficiaries under their estates), upon death,
disability, retirement or termination of employment, not to exceed $2.0 million
in any calendar year and $10.0 million in the aggregate since the Issue Date of
the Old Notes; and (vi) the redemption, retirement, purchase or other
acquisition of shares of Participating Preferred Stock required or permitted
by, or for consideration with a value not greater than the redemption price of
the Participating Preferred Stock as provided in, Article II of the Certificate
of Designation therefor, without giving effect to any amendments thereto or
waivers thereof; provided, however, that in the case of each of clauses (ii),
(iii), (iv), (v) and (vi) no Default or Event of Default shall have occurred
and be continuing or would arise therefrom.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i), (iv), (v) and (vi) of the
preceding paragraph shall be included as Restricted Payments and amounts
expended pursuant to clauses (ii) and (iii) shall be excluded. The amount of
any non-cash Restricted Payment shall be deemed to be equal to the Fair Market
Value thereof at the date of the making of such Restricted Payment.
The Company's obligations to comply with this covenant will terminate if
and when the Notes are rated Investment Grade by both Moody's and S&P and the
Company delivers an Officers' Certificate to the Trustee certifying as to the
same.
Limitation on Indebtedness. (a) The Company shall not, and shall not cause
or permit any Restricted Subsidiary to, directly or indirectly, Incur any
Indebtedness (including Acquired Indebtedness) or issue any Disqualified Equity
Interests except for Permitted Indebtedness; provided, however, that the
Company or any Restricted Subsidiary (other than Comcast Cellular so long as it
is a Subsidiary of the Company) may Incur Indebtedness and the Company or any
Restricted Subsidiary (other than Comcast Cellular so long as it is a
Subsidiary of the Company) may issue Disqualified Equity Interests if, at the
time of and immediately after giving pro forma effect to such Incurrence of
Indebtedness or issuance of Disqualified Equity Interests and the application
of the proceeds therefrom, the Debt to Annualized Operating Cash Flow Ratio
would be less than or equal to 8.50 to 1.0.
(b) The foregoing limitations of clause (a) of this covenant will not
apply to the Incurrence by the Company or any Restricted Subsidiary (other than
Comcast Cellular so long as it is a Subsidiary of the Company) of any of the
following (collectively, "Permitted Indebtedness"), each of which shall be
given independent effect:
(i) Indebtedness under the Notes;
(ii) Existing Indebtedness;
(iii) Indebtedness under the Bank Credit Agreement in an aggregate
principal amount at any one time outstanding not to exceed the sum of (A)
$500.0 million, plus (B) any amounts outstanding under the Bank Credit
Agreement that utilize subparagraph (xi) of this paragraph of this
covenant (less the amount of net proceeds which have been received in
connection with a Permitted Receivables Financing; provided that such
reduction shall apply only for so long as a Permitted Receivables
Financing is in effect);
(iv) (x) Indebtedness of any Restricted Subsidiary owed to and held by
the Company or any Restricted Subsidiary and (y) Indebtedness of the
Company owed to and held by any Restricted Subsidiary; provided, however,
that an Incurrence of Indebtedness that is not permitted by this clause
(iv) shall be deemed to have occurred upon (I) any sale or other
disposition of any Indebtedness of the Company or any Restricted
Subsidiary referred to in this clause (iv) to any Person other than the
Company or any Restricted Subsidiary; (II) any sale or other disposition
of Equity Interests of any Restricted Subsidiary which holds Indebtedness
of the Company or another Restricted Subsidiary such that such Restricted
Subsidiary ceases to be a Restricted Subsidiary; or (III) the designation
of a Restricted Subsidiary which holds Indebtedness of the Company or any
other Restricted Subsidiary as an Unrestricted Subsidiary;
(v) Interest Rate Protection Obligations relating to (A) Indebtedness of
the Company or any Restricted Subsidiary (which Indebtedness is otherwise
permitted to be Incurred under this covenant) or (B) Indebtedness for
which a lender has provided a commitment in an amount reasonably
anticipated to be Incurred by the Company or any Restricted Subsidiary in
the 12 months after such Interest Rate Protection Obligation has been
Incurred; provided, however, that the notional principal amount of such
Interest Rate Protection Obligations does not exceed the principal amount
of the Indebtedness (including Indebtedness subject to commitments) to
which such Interest Rate Protection Obligations relate;
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(vi) Purchase Money Indebtedness and Capital Lease Obligations which do
not exceed $15.0 million in the aggregate at any one time outstanding;
(vii) Indebtedness or Disqualified Equity Interests to the extent
representing a replacement, renewal, refinancing or extension
(collectively, a "refinancing") of outstanding Indebtedness or
Disqualified Equity Interests Incurred in compliance with the Debt to
Annualized Operating Cash Flow Ratio of the first paragraph of this
covenant or clause (i), (ii), (ix) or (x) of this paragraph of this
covenant; provided, however, that (1) any such refinancing shall not
exceed the sum of the principal amount (or accreted amount (determined in
accordance with GAAP), if less) of the Indebtedness or Disqualified
Equity Interests being refinanced, plus the amount of accrued interest or
dividends thereon, plus the amount of any reasonably determined prepayment
premium necessary to accomplish such refinancing and such reasonable fees
and expenses incurred in connection therewith; (2) Indebtedness
representing a refinancing of Indebtedness shall have a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of the Indebtedness being refinanced; and (3) Indebtedness that is
pari passu with the Notes may be refinanced only with Indebtedness that is
made pari passu with or subordinate in right of payment to the Notes,
Subordinated Indebtedness may be refinanced only with Subordinated
Indebtedness or Disqualified Equity Interests, and Disqualified Equity
Interests may be refinanced only with Disqualified Equity Interests;
(viii) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities or obligations in respect of
purchase price adjustments, in connection with the disposition of assets
permitted under the Indenture, in a principal amount not to exceed the
gross proceeds actually received by the Company or any Restricted
Subsidiary in connection with such disposition;
(ix) Indebtedness of a Securitization Subsidiary pursuant to a Permitted
Receivables Financing; provided that after giving effect to the Incurrence
thereof, the Company could Incur at least $1.00 of Indebtedness under
clause (iii) of this second paragraph of this covenant;
(x) the Series A Preferred Stock; and
(xi) in addition to the items referred to in clauses (i) through (x)
above, Indebtedness (including any Indebtedness under the Bank Credit
Agreement that utilizes this subparagraph (xi)) having an aggregate
principal amount not to exceed $50.0 million at any time outstanding.
(c) For purposes of determining any particular amount of Indebtedness
under this covenant, Guarantees, Liens or obligations with respect to letters
of credit supporting Indebtedness otherwise included in the determination of
such particular amount shall not be included. For purposes of determining
compliance with this covenant, (i) in the event that an item of Indebtedness
meets the criteria of more than one of the types of Indebtedness provided for
in paragraph (a) or described in the definition of Permitted Indebtedness, the
Company shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in paragraph (a) or in one of
the clauses in the definition of Permitted Indebtedness and (ii) the amount of
Indebtedness issued at a price that is less than the principal amount thereof
shall be equal to the amount of the liability in respect thereof determined in
conformity with GAAP.
The Company's obligations to comply with this covenant will terminate if
and when the Notes are rated Investment Grade by both Moody's and S&P and the
Company delivers an Officers' Certificate to the Trustee certifying as to the
same.
Limitations on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries. The Company shall not, and shall not cause or permit
any Restricted Subsidiary to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions to the Company or any other Restricted Subsidiary on its Equity
Interests or with respect to any other interest or participation in, or
measured by, its profits, or pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (b) make loans or advances to, or guarantee any
Indebtedness or other obligations of, the Company or any other Restricted
Subsidiary or (c) transfer any of its properties or assets to the Company or
any other Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of (i) the Bank Credit Agreement; provided,
however, that in no event shall Comcast Cellular (so long as it is a Subsidiary
of the Company) be subject to any encumbrance
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or restriction with respect to actions taken by it; (ii) any agreement of the
Company or any Restricted Subsidiary outstanding on the Issue Date of the Old
Notes, as in effect on the Issue Date of the Old Notes, and any amendments,
restatements, renewals, replacements or refinancings thereof (each, a
"refinancing"); provided, however, that (x) no such refinancing is more
restrictive in the aggregate with respect to such encumbrances or restrictions
than those contained in such agreement on the Issue Date of the Old Notes; and
(y) in no event shall any such refinancing cause Comcast Cellular (so long as
it is a Subsidiary of the Company) to be subject to any such encumbrance or
restriction with respect to actions taken by it; (iii) applicable law; (iv) any
agreement of an Acquired Person acquired by the Company or any Restricted
Subsidiary as in effect at the time of such acquisition (except to the extent
such agreement was created by such Acquired Person in connection with, as a
result of or in contemplation of such acquisition) and any refinancing thereof;
provided, however, that no such refinancing is more restrictive in the
aggregate with respect to such encumbrances or restrictions than those
contained in such agreement at the time of such acquisition; and provided,
further, that such encumbrances and restrictions are not applicable to the
Company or any Restricted Subsidiary, or the properties or assets of the
Company or any Restricted Subsidiary, other than the Acquired Person; (v)
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices; (vi) Purchase Money
Indebtedness for property acquired in the ordinary course of business that
imposes encumbrances and restrictions only on the property so acquired; (vii)
any agreement for the sale or disposition of the Equity Interests or assets of
any Restricted Subsidiary; provided, however, that such encumbrances and
restrictions described in this clause (vii) are only applicable to such
Restricted Subsidiary or assets, as applicable, and any such sale or
disposition is made in compliance with "-- Disposition of Proceeds of Asset
Sales" below to the extent applicable thereto; (viii) refinancing Indebtedness
permitted under clause (vii) of the second paragraph of "-- Limitation on
Indebtedness" above; provided, however, that the encumbrances and restrictions
contained in the agreements governing such Indebtedness are no more restrictive
in the aggregate than those contained in the agreements governing the
Indebtedness being refinanced immediately prior to such refinancing; (ix) with
respect to a Securitization Subsidiary, an agreement relating to Indebtedness
of a Securitization Subsidiary which is permitted under "-- Limitation on
Indebtedness" above or pursuant to an agreement relating to a Permitted
Receivables Financing by a Securitization Subsidiary; or (x) the Indenture.
The Company's obligations to comply with this covenant will terminate if
and when the Notes are rated Investment Grade by both Moody's and S&P and the
Company delivers an Officers' Certificate to the Trustee certifying as to the
same.
Designation of Unrestricted Subsidiaries. (a) AWACS Investment Holdings,
Inc. was initially designated by the Company as an Unrestricted Subsidiary as
of the Issue Date of the Old Notes. The Company may designate after the Issue
Date of the Old Notes any other Subsidiary of the Company as an "Unrestricted
Subsidiary" under the Indenture (a "Designation") only if:
(i) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Designation;
(ii) at the time of and after giving effect to such Designation, the
Company could Incur $1.00 of additional Indebtedness under the Debt to
Annualized Operating Cash Flow Ratio of the first paragraph of
"-- Limitation on Indebtedness" above; and
(iii) (A) the Subsidiary to be so designated has total assets of $1,000
or less or (B) the Company would be permitted to make a Restricted
Investment at the time of Designation (assuming the effectiveness of such
Designation) pursuant to the first paragraph of "-- Limitation on
Restricted Payments" above in an amount (the "Designation Amount") equal
to the Fair Market Value of the Company's proportionate interest in the
net worth of such Subsidiary on such date calculated in accordance with
GAAP.
Notwithstanding the foregoing, Comcast Directory Services, Inc. ("CDSI")
may be designated an Unrestricted Subsidiary at any time on or after the Issue
Date of the Old Notes (and such designation shall not be deemed a Restricted
Payment for purposes of "-- Limitation on Restricted Payments"), provided
Investments by the Company and the Restricted Subsidiaries in CDSI since the
Issue Date of the Old Notes and outstanding on the date of designation shall
not exceed $200,000 in the aggregate (without giving effect to any writedown or
writeoff of such Investment).
Neither the Company nor any Restricted Subsidiary shall at any time (x)
provide credit support for, subject any of its property or assets (other than
the Equity Interests of any Unrestricted Subsidiary) to the satisfaction
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of, or guarantee, any Indebtedness of any Unrestricted Subsidiary (including
any undertaking, agreement or instrument evidencing such Indebtedness) or (y)
be directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary, except, in the case of clause (x) or (y), to the extent otherwise
permitted under the terms of the Indenture, including, without limitation,
pursuant to "-- Limitation on Restricted Payments" above or "-- Limitation on
Indebtedness" above and "-- Disposition of Proceeds of Asset Sales" below, and
except for any non-recourse guarantee given solely to support the pledge by the
Company or any Restricted Subsidiary of the Equity Interests of any
Unrestricted Subsidiary. All Subsidiaries of Unrestricted Subsidiaries shall be
Unrestricted Subsidiaries.
(b) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") if:
(i) no Default or Event of Default shall have occurred and be continuing
at the time of and after giving effect to such Revocation;
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at
such time, have been permitted to be Incurred for all purposes of the
Indenture; and
(iii) any transaction (or series of related transactions) between such
Subsidiary and any of its Affiliates that occurred while such Subsidiary
was an Unrestricted Subsidiary would be permitted by "-- Transactions
with Affiliates" below as if such transaction (or series of related
transactions) had occurred at the time of such Revocation.
All Designations and Revocations must be evidenced by resolutions of the
Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.
Limitation on Liens. The Company shall not, and shall not cause or permit
any Restricted Subsidiary to, directly or indirectly, Incur any Liens of any
kind against or upon any of their respective properties or assets now owned or
hereafter acquired, or any proceeds therefrom or any income or profits
therefrom, to secure any Indebtedness unless contemporaneously therewith
effective provision is made to secure the Notes equally and ratably with such
Indebtedness with a Lien on the same properties and assets securing
Indebtedness for so long as such Indebtedness is secured by such Lien, except
for Permitted Liens.
Disposition of Proceeds of Asset Sales. (a) The Company shall not, and
shall not cause or permit any Restricted Subsidiary to, directly or indirectly,
make any Asset Sale, unless (i) the Company or such Restricted Subsidiary, as
the case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the assets sold or otherwise disposed of and
(ii) at least 80% of such consideration consists of (A) cash or Cash
Equivalents, (B) properties and assets to be owned by and used in the business
of the Company or any Restricted Subsidiary or (C) Equity Interests in one or
more Persons which (x) are or thereby become Restricted Subsidiaries, or (y)
are engaged in the Wireless Telecommunications Business to the extent that
immediately after such Asset Sale (and the receipt of the proceeds therefrom),
the percentage of the aggregate Net Pops of the cellular wireless
communications systems in which the Company or any of its Restricted
Subsidiaries has ownership interests represented by cellular wireless
telecommunications systems owned directly by the Company or a Person or Persons
a majority of whose voting power and Equity Interests is owned by the Company
and/or the Restricted Subsidiaries is no less than 80%. The amount of any (i)
Indebtedness (other than any Subordinated Indebtedness) of the Company or any
Restricted Subsidiary that is actually assumed by the transferee in such Asset
Sale and from which the Company and the Restricted Subsidiaries are fully
released shall be deemed to be cash solely for purposes of determining the
percentage of cash consideration received by the Company or the Restricted
Subsidiaries and (ii) notes or other similar obligations received by the
Company or the Restricted Subsidiaries from such transferee that are
immediately converted, sold or exchanged (or are converted, sold or exchanged
within thirty days of the related Asset Sale) by the Company or the Restricted
Subsidiaries into cash shall be deemed to be cash, in an amount equal to the
net cash proceeds realized upon such conversion, sale or exchange for purposes
of determining the percentage of cash consideration received by the Company or
the Restricted Subsidiaries.
The Net Cash Proceeds (or any portion thereof) from any Asset Sale may be
applied by the Company or a Restricted Subsidiary, to the extent the Company or
such Restricted Subsidiary elects, (i) to repay, prepay or
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purchase Indebtedness under the Bank Credit Agreement or Indebtedness of the
Company that is not subordinate to the Notes or other Indebtedness of any
Restricted Subsidiary (in each case, excluding Indebtedness owed to the Company
or an Affiliate of the Company) or (ii) to reinvest in Additional Assets
(including by means of an Investment in Additional Assets by a Restricted
Subsidiary with Net Cash Proceeds received by the Company or another Restricted
Subsidiary).
To the extent all or part of the Net Cash Proceeds of any Asset Sale are
not applied within 365 days of such Asset Sale as described in the immediately
preceding paragraph (such Net Cash Proceeds, the "Unutilized Net Cash
Proceeds"), the Company shall, within 20 days after such 365th day, make an
Offer to Purchase all outstanding Notes up to a maximum principal amount
(expressed as a multiple of $1,000) of Notes equal to the Note Portion of
Unutilized Net Cash Proceeds, at a purchase price in cash equal to 100% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the Purchase Date; provided, however, that the Offer to Purchase may be
deferred until there are aggregate Unutilized Net Cash Proceeds equal to or in
excess of $25.0 million, at which time the entire amount of such Unutilized Net
Cash Proceeds, and not just the amount in excess of $25.0 million, shall be
applied as required pursuant to this paragraph.
In the event that any other Indebtedness of the Company which ranks pari
passu with the Notes (the "Other Debt") requires an offer to purchase to be
made to repurchase such Other Debt upon the consummation of an Asset Sale, the
Company may apply the Unutilized Net Cash Proceeds otherwise required to be
applied to an Offer to Purchase to offer to purchase such Other Debt and to an
Offer to Purchase so long as the amount of such Unutilized Net Cash Proceeds
applied to purchase the Notes is not less than the Note Portion of Unutilized
Net Cash Proceeds. With respect to any Unutilized Net Cash Proceeds, the
Company shall make the Offer to Purchase in respect thereof at the same time as
the analogous offer to purchase is made pursuant to any Other Debt and the
Purchase Date in respect thereof shall be the same as the purchase date in
respect thereof pursuant to any Other Debt.
For purposes of this covenant, "Note Portion of Unutilized Net Cash
Proceeds" means (1) if no Other Debt is being offered to be repurchased, the
amount of the Unutilized Net Cash Proceeds and (2) if Other Debt is being
offered to be repurchased, the amount of the Unutilized Net Cash Proceeds equal
to the product of (x) the Unutilized Net Cash Proceeds and (y) a fraction the
numerator of which is the principal amount of all Notes tendered pursuant to
the Offer to Purchase related to such Unutilized Net Cash Proceeds (the "Note
Amount") and the denominator of which is the sum of the Note Amount and the
lesser of the aggregate principal face amount or accreted value as of the
relevant purchase date of all Other Debt tendered pursuant to a concurrent
offer to purchase such Other Debt made at the time of such Offer to Purchase.
With respect to any Offer to Purchase effected pursuant to this covenant,
among the Notes to the extent the aggregate principal amount of Notes tendered
pursuant to such Offer to Purchase exceeds the Note Portion of Unutilized Net
Cash Proceeds to be applied to the repurchase thereof, such Notes shall be
purchased pro rata based on the aggregate principal amount of such Notes
tendered by each Holder.
To the extent the Note Portion of Unutilized Net Cash Proceeds exceeds the
aggregate principal amount of Notes tendered by the Holders pursuant to such
Offer to Purchase, the Company may retain and utilize any portion of the Note
Portion of Unutilized Net Cash Proceeds not applied to repurchase the Notes for
any purpose consistent with the other terms of the Indenture, and such amounts
shall thereafter not constitute Unutilized Net Cash Proceeds.
In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1
under, the Exchange Act, and any violation of the provisions of the Indenture
relating to such Offer to Purchase occurring as a result of such compliance
shall not be deemed a Default or an Event of Default.
(b) Each Holder shall be entitled to tender all or any portion of the
Notes owned by such Holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount and subject to any proration among
tendering Holders as described above.
The Company's obligations to comply with this covenant will terminate if
and when the Notes are rated Investment Grade by both Moody's and S&P and the
Company delivers an Officers' Certificate to the Trustee certifying as to the
same.
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Transactions with Affiliates. The Company shall not, and shall not cause
or permit any Restricted Subsidiary to, directly or indirectly, enter into any
transaction (or series of related transactions) with any of their respective
Affiliates or any officer or director of the Company or any Restricted
Subsidiary (each an "Affiliate Transaction"), unless such Affiliate Transaction
is on terms which are no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than would be available in a comparable
transaction with an unaffiliated third party. For any such transaction that
involves an amount in excess of $10.0 million, the Company shall deliver to the
Trustee an Officers' Certificate stating that the transaction satisfies the
above criteria and a majority of the Disinterested Directors, or, if there are
no Disinterested Directors, a majority of the members of the Board of Directors
of such Person, shall determine that the transaction satisfies the above
criteria and shall evidence such a determination by a Board Resolution filed
with the Trustee.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and any
Restricted Subsidiary or between or among Restricted Subsidiaries; (ii)
customary directors' fees, indemnification and similar arrangements, employee
salaries, bonuses or employment agreements, compensation or employee benefit
arrangements and incentive arrangements with any officer, director or employee
of the Company entered into in the ordinary course of business (including
customary benefits thereunder) and payments under any indemnification
arrangements permitted by applicable law; (iii) transactions pursuant to the
Management Agreement and the Tax Sharing Agreement, each as in effect on the
Issue Date, and any transactions undertaken pursuant to any other contractual
obligations in existence on the Issue Date (as in effect on the Issue Date), or
as any such agreement (including the Management Agreement and the Tax Sharing
Agreement) may be amended, modified or supplemented after the Issue Date in a
manner not materially adverse to the Holders (it being understood that the
increase of the fee payable to Comcast Corporation pursuant to the Management
Agreement or any amendment thereof to 1.5% of revenues of the Company shall be
permitted by this covenant); (iv) the entering into of a tax-sharing agreement
or payments pursuant thereto, between the Company and any other Person with
which the Company is required or permitted to file a consolidated tax return or
with which the Company is or could be part of a consolidated group for tax
purposes, which payments are not in excess of the tax liabilities attributable
solely to the Company and the Restricted Subsidiaries (as a consolidated
group); (v) the issue and sale by the Company to its Affiliates of Qualified
Equity Interests; (vi) any Restricted Payments made in compliance with "--
Limitation on "Restricted Payments" above; (vii) loans and advances to
officers, directors and employees of the Company and the Restricted
Subsidiaries for travel, entertainment, moving and other relocation expenses,
in each case made in the ordinary course of business and consistent with past
business practices; (viii) roaming and switching agreements customary in the
industry; (ix) any transaction in the ordinary course of business or approved
by a majority of the Disinterested Directors (or, if there are no Disinterested
Directors, a majority of the members of the Board of Directors of such Person)
of the Company between the Company or any Restricted Subsidiary and any
Affiliate of the Company controlled by the Company (other than a Wholly Owned
Restricted Subsidiary) that is a joint venture or similar entity primarily
engaged in the Wireless Telecommunications Business (provided that no Person or
entity that has an economic interest in Comcast Corporation or any of its
Affiliates has an interest in such joint venture other than through the Company
or any Restricted Subsidiary); (x) the pledge of Equity Interests of
Unrestricted Subsidiaries to support the Indebtedness thereof; (xi)
transactions in connection with a Permitted Receivables Financing; (xii) any
transaction in the ordinary course of business and on ordinary business terms
between the Company or any Restricted Subsidiary and any Affiliate thereof
engaged in the Wireless Telecommunications Business; (xiii) the transfer to the
Company or any of its Subsidiaries by Comcast Corporation of the 10-MHz PCS
licenses covering the Philadelphia, PA MTA and the Allentown, PA BTA for $17.5
million; and (xiv) the payment of accrued management fees to Comcast in an
amount not to exceed $17.0 million.
The Company's obligations to comply with this covenant will terminate if
and when the Notes are rated Investment Grade by both Moody's and S&P and the
Company delivers an Officers' Certificate to the Trustee certifying as to the
same.
Transactions not Subject to Covenants. Notwithstanding anything to the
contrary in the Indenture, the following shall not be prohibited (regardless of
the form or substance of the transaction or series of transactions effecting
the same):
(i) the redemption, repurchase or cancellation of all (but not less than
all) of the Participating Preferred Stock in exchange for, or out of the
proceeds of the substantially concurrent sale of, Guest Informant (which
stock redemption and asset transfer occurred in June 1997):
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(ii) the issuance of up to 4.11% of the Qualified Equity Interests of
Amcell of Atlantic City, Inc., a New Jersey corporation, to the holders of
the 4.11% minority interest in the Atlantic City MSA License in exchange
for all (but not less than all) of such interest; and
(iii) the transfer, by sale, dividend or other distribution or
otherwise, directly or indirectly, in one transaction or series of
transactions, of all of the Equity Interests or all or substantially all
of the assets of AWACS Investment Holdings, Inc. and its Subsidiaries or
Comcast Directory Services, Inc. and its Subsidiaries.
No transaction described in this covenant, and no change in the results
of operations or financial condition of the Company or any Restricted
Subsidiary resulting solely therefrom, shall be taken into account in any
calculation under "-- Limitation on Restricted Payments" above or in the
calculation under the first paragraph under "-- Limitation on Indebtedness"
above of the Debt to Annualized Operating Cash Flow Ratio.
Merger, Sale of Assets, etc. The Company shall not consolidate with or
merge with or into (whether or not the Company is the Surviving Person) any
other entity, and the Company shall not, and shall not cause or permit any
Restricted Subsidiary to, sell, convey, assign, transfer, lease or otherwise
dispose of all or substantially all of the Company's and the Restricted
Subsidiaries' properties and assets (determined on a consolidated basis for the
Company and the Restricted Subsidiaries) to any entity in a single transaction
or series of related transactions, unless: (i) either (x) the Company shall be
the Surviving Person or (y) the Surviving Person (if other than the Company)
shall be a corporation organized and validly existing under the laws of the
United States of America or any State thereof or the District of Columbia, and
shall, in any such case, expressly assume by a supplemental indenture, the due
and punctual payment of the principal of, premium, if any, and interest on the
Notes and the performance and observance of every covenant of the Indenture and
the Registration Rights Agreement to be performed or observed on the part of
the Company; (ii) immediately thereafter, no Default or Event of Default shall
have occurred and be continuing; and (iii) immediately after giving effect to
any such transaction involving the Incurrence by the Company or any Restricted
Subsidiary, directly or indirectly, of additional Indebtedness (and treating
any Indebtedness not previously an obligation of the Company or any Restricted
Subsidiary in connection with or as a result of such transaction as having been
Incurred at the time of such transaction), the Surviving Person could Incur, on
a pro forma basis after giving effect to such transaction as if it had occurred
at the beginning of the quarter immediately preceding the latest fiscal quarter
for which consolidated financial statements of the Company are available, at
least $1.00 of additional Indebtedness under the Debt to Annualized Operating
Cash Flow Ratio of the first paragraph of "-- Limitation on Indebtedness"
above; provided, however, that neither clause (ii) nor clause (iii) shall
prohibit a merger of the Company with and into Comcast Cellular or a merger of
a Restricted Subsidiary with and into the Company.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraph in
which the Company is not the Surviving Person and the Surviving Person is to
assume all the Obligations of the Company under the Notes, the Indenture and
the Registration Rights Agreement pursuant to a supplemental indenture, such
Surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of, the Company and the Company shall be discharged from
its Obligations under the Notes, the Indenture and the Registration Rights
Agreement.
Provision of Financial Information. Whether or not the Company is subject
to Section 13(a) or 15(d) of the Exchange Act, or any successor provision
thereto, the Company shall file with the SEC (if permitted by SEC practice and
applicable law and regulations) the annual reports, quarterly reports and other
documents which the Company would have been required to file with the SEC
pursuant to such Section 13(a) or 15(d) or any successor provision thereto if
the Company were so required, such documents to be filed with the SEC on or
prior to the respective dates (the "Required Filing Dates") by which the
Company would have been required so to file such documents if the Company were
so required. The Company shall also in any event (a) within 15 days of each
Required Filing Date (whether or not permitted or required to be filed with the
SEC) (i) transmit (or cause to be transmitted) by mail to all Holders, as their
names and addresses appear in the Note register, without cost to such Holders,
and (ii) file with the Trustee, copies of the annual reports, quarterly reports
and other documents which the Company is required to file with the SEC pursuant
to the preceding sentence, or, if such filing is not so permitted, information
and data of a similar nature, and (b) if, notwithstanding the preceding
sentence,
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filing such documents by the Company with the SEC is not permitted by SEC
practice or applicable law or regulations, promptly upon written request supply
copies of such documents to any Holder. In addition, for so long as any Old
Notes remain outstanding, the Company will furnish to the Holders thereof and
to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act, and, to any beneficial holder of Old Notes, if not obtainable
from the SEC, information of the type that would be filed with the SEC pursuant
to the foregoing provisions, upon the request of any such Holder.
Events of Default
The occurrence of any of the following will be defined as an "Events of
Default" under the Indenture: (a) failure to pay principal of (or premium, if
any, on) any Note when due; (b) failure to pay any interest on any Note when
due, continued for 30 days or more; (c) default in the payment of principal of
or interest on Notes required to be purchased pursuant to any Offer to Purchase
required by the Indenture when due and payable or failure to pay on the
Purchase Date the Purchase Price for any Note validly tendered pursuant to any
Offer to Purchase; (d) failure to perform any other covenant, warranty or
agreement of the Company under the Indenture or in the Notes continued for 30
days or more after written notice to the Company by the Trustee or Holders of
at least 25% in aggregate principal amount of the outstanding Notes; (e)
default or defaults under the terms of one or more instruments evidencing or
securing Indebtedness of the Company or any of its Significant Restricted
Subsidiaries having an outstanding principal amount of $25.0 million or more
individually or in the aggregate that has resulted in the acceleration of the
payment of such Indebtedness or failure by the Company or any of its
Significant Restricted Subsidiaries to pay principal when due at the stated
final maturity (but not any interim maturity) of any such Indebtedness;
provided, however, that it shall not be an Event of Default if such
Indebtedness shall have been repaid in full or such acceleration shall have
been rescinded within 60 days; (f) the rendering of a final judgment or
judgments (not subject to appeal) against the Company or any of its Significant
Restricted Subsidiaries in an amount of $25.0 million or more (net of any
amounts covered by reputable and creditworthy insurance companies) which
remains undischarged or unstayed for a period of 60 days after the date on
which the right to appeal has expired; (g) certain events of bankruptcy,
insolvency or reorganization affecting the Company or any of its Significant
Restricted Subsidiaries; or (h) at any time that Comcast is an Affiliate of the
Company, Comcast or any Subsidiary of Comcast, other than the Company or any of
its Subsidiaries, is engaged in the cellular telecommunications business or
broadband personal communication services business in any market in which the
Company or any of its Subsidiaries is engaged in the cellular
telecommunications business or broadband personal communication services
business (other than any market where Comcast or any such Subsidiary was
engaged in such business prior to the Company and its Subsidiaries). Subject to
the provisions of the Indenture relating to the duties of the Trustee, in case
an Event of Default shall occur and be continuing, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the Holders, unless the Holders shall have
offered to the Trustee reasonable indemnity. Subject to such provisions for the
indemnification of the Trustee, the Holders of a majority in aggregate
principal amount of the outstanding Notes will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee.
If an Event of Default with respect to the Notes (other than an Event of
Default with respect to the Company described in clause (g) of the preceding
paragraph) occurs and is continuing, the Trustee or the Holders of at least 25%
in aggregate principal amount of the outstanding Notes by notice in writing to
the Company may declare the unpaid principal of (and premium, if any) and
accrued interest to the date of acceleration on all the outstanding Notes to be
due and payable immediately and, upon any such declaration, such principal
amount (and premium, if any) and accrued interest, notwithstanding anything
contained in the Indenture or the Notes to the contrary, will become
immediately due and payable. If an Event or Default specified in clause (g) of
the preceding paragraph with respect to the Company occurs under the Indenture,
the Notes will ipso facto become immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder of the Notes.
Any such declaration with respect to the Notes may be annulled by the
Holders of a majority in aggregate principal amount of the outstanding Notes
upon the conditions provided in the Indenture. For information as to waiver of
defaults, see "-- Modification and Waiver" below.
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The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the Notes, give
the Holders notice of all uncured Defaults or Events of Default thereunder
known to it; provided, however, that, except in the case of an Event of Default
in payment with respect to the Notes, the Trustee shall be protected in
withholding such notice if and so long as a committee of its trust officers in
good faith determines that the withholding of such notice is in the interest of
the Holders.
No Holder will have any right to institute any proceeding with respect to
the Indenture or for any remedy thereunder, unless such Holder shall have
previously given to the Trustee written notice of a continuing Event of Default
thereunder and unless the Holders of at least 25% of the aggregate principal
amount of the outstanding Notes shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as Trustee,
and the Trustee shall not have received from the Holders of a majority in
aggregate principal amount of the Notes a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a Holder of any
Note for enforcement of payment of the principal of and premium, if any, or
interest on such Note on or after the due date expressed in such Note.
The Company will be required to furnish to the Trustee quarterly a
statement as to the performance by it of certain of its obligations under the
Indenture and as to any default in such performance.
No Personal Liability of Directors, Officers, Employees, Incorporator and
Stockholders
No director, officer, employee, incorporator or stockholder of the Company
or any of its Affiliates, as such, shall have any liability for any obligations
of the Company or any of its Affiliates under the Notes or the Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes.
Satisfaction and Discharge of Indenture; Defeasance
The Company may terminate its substantive obligations in respect of the
Notes by delivering all outstanding Notes to the Trustee for cancellation and
paying all sums payable by it on account of principal of, premium, if any, and
interest on all Notes or otherwise. In addition to the foregoing, the Company
may terminate the applicability of the covenants under "--Certain Covenants" or
any Event of Default under clause (d) of "--Events of Default" by (i)
depositing with the Trustee, under the terms of an irrevocable trust agreement,
money or United States Government Obligations sufficient (without reinvestment)
to pay all remaining indebtedness on such Notes at maturity or upon earlier
redemption; (ii) delivering to the Trustee either an Opinion of Counsel or a
ruling directed to the Trustee from the Internal Revenue Service to the effect
that the Holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and termination of
obligations; (iii) delivering to the Trustee an Opinion of Counsel to the
effect that the Company's exercise of its option under this paragraph will not
result in any of the Company, the Trustee or the trust created by the Company's
deposit of funds pursuant to this provision becoming or being deemed to be an
"investment company" under the Investment Company Act of 1940, as amended (the
"Investment Act"); and (iv) complying with certain other requirements set forth
in the Indenture. In addition, the Company may, provided that no Default or
Event of Default has occurred and is continuing or would arise therefrom (or,
with respect to a Default or Event of Default specified in clause (g) of
"-- Events of Default" above, occurs at any time on or prior to the 91st
calendar day after the date of the deposit (it being understood that this
condition shall not be deemed satisfied until after such 91st day)) under the
Indenture, terminate all of its substantive obligations in respect of the Notes
(including its obligations to pay the principal of (and premium, if any, on)
and interest on such Notes) by (i) depositing with the Trustee, under the terms
of an irrevocable trust agreement, money or United States Government
Obligations sufficient (without reinvestment) to pay all remaining Indebtedness
on such Notes at maturity or upon earlier redemption; (ii) delivering to the
Trustee either a ruling directed to the Trustee from the Internal Revenue
Service to the effect that the Holders of such Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit and
termination of obligations or an Opinion of Counsel addressed to the Trustee
based upon such a ruling or based on a change in the applicable
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federal tax law since the date of the Indenture, to such effect; (iii)
delivering to the Trustee an Opinion of Counsel to the effect that the
Company's exercise of its option under this paragraph will not result in any of
the Company, such Trustee or the relevant trust created by the Company's
deposit of funds pursuant to this provision becoming or being deemed to be an
"investment company" under the Investment Act; and (iv) complying with certain
other requirements set forth in the Indenture.
Governing Law
The Indenture and the Notes will be governed by the laws of the State of
New York without regard to principles of conflicts of laws.
Modification and Waiver
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Notes (including consents obtained in connection with a
tender offer or exchange offer for such Notes); provided, however, that no such
modification or amendment to the Indenture may, without the consent of the
Holder of each Note affected thereby, (a) change the Stated Maturity of the
principal of or any installment of interest on any such Note or alter the
optional redemption or repurchase provisions of any such Note or the Indenture
in a manner adverse to the Holders of such Notes; (b) reduce the principal
amount of (or the premium) of any such Note; (c) reduce the rate of or extend
the time for payment of interest on any such Note; (d) change the place or
currency of payment of principal of (or premium) or interest on any such Note;
(e) modify any provisions of the Indenture relating to the waiver of past
defaults (other than to add sections of the Indenture or the Notes subject
thereto) or the right of the Holders of Notes to institute suit for the
enforcement of any payment on or with respect to any such Note in respect
thereof or the modification and amendment provisions of the Indenture and such
Notes (other than to add sections of the Indenture or such Notes which may not
be amended, supplemented or waived without the consent of each Holder therein
affected); (f) reduce the percentage of the principal amount of outstanding
Notes necessary for amendment to or waiver of compliance with any provision of
the Indenture or the Notes or for waiver of any Default in respect thereof; (g)
waive a default in the payment of principal of, interest on, or redemption
payment with respect to, such Note (except a rescission of acceleration of the
relevant Notes by the Holders thereof as provided in the Indenture and a waiver
of the payment default that resulted from such acceleration); (h) modify the
ranking or priority of any Note; or (i) modify the provisions of any covenant
(or the related definitions) in the Indenture requiring the Company to make an
Offer to Purchase in a manner materially adverse to the Holders of Notes
affected thereby.
The Holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all Holders, may waive compliance by the Company with
certain restrictive provisions of the Indenture. Subject to certain rights of
the Trustee as provided in the Indenture, the Holders of a majority in
aggregate principal amount of the Notes, on behalf of all Holders, may waive
any past default under the Indenture (including any such waiver obtained in
connection with a tender offer or exchange offer for such Notes), except a
default in the payment of principal, premium or interest or a default arising
from failure to purchase any Notes tendered pursuant to an Offer to Purchase
pursuant thereto, or a default in respect of a provision that under the
Indenture cannot be modified or amended without the consent of the Holder of
each Note that is affected.
The Trustee
Except during the continuance of a Default, the Trustee will perform only
such duties as are specifically set forth in the Indenture. During the
existence of a Default under the Indenture, the Trustee will exercise such
rights and powers vested in it under the Indenture and use the same degree of
care and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company or any other obligor upon the Notes, to obtain
payment of claims in certain cases or to realize on certain property received
by it in respect of
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any such claim as the Notes or otherwise. The Trustee is permitted to engage in
other transactions with the Company or an Affiliate of the Company; provided,
however, that if it acquires any conflicting interest (as defined in the
Indenture or in the Trust Indenture Act), it must eliminate such conflict or
resign.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b) existing at the time
such Person becomes a Restricted Subsidiary or is merged or consolidated with
or into the Company or any Restricted Subsidiary.
"Acquired Person" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Restricted
Subsidiary to any other Person, or any acquisition or purchase of Equity
Interests of any other Person by the Company or any Restricted Subsidiary, in
either case pursuant to which such Person shall become a Restricted Subsidiary
or shall be consolidated, merged with or into the Company or any Restricted
Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary
of the assets of any Person which constitute substantially all of an operating
unit or line of business of such Person or which is otherwise outside of the
ordinary course of business.
"Additional Assets" means (i) any property (other than cash, cash
equivalents or securities) to be owned by the Company or a Restricted
Subsidiary and used in the Wireless Telecommunications Business, (ii) the costs
of improving or developing any Property owned by the Company or a Restricted
Subsidiary which is used in the Wireless Telecommunications Business and (iii)
Investments in any other Person engaged primarily in the Wireless
Telecommunications Business (including the acquisition from third parties of
Equity Interests of such Person) to the extent that the percentage of the
aggregate Net Pops of the cellular wireless communications systems in which the
Company or any of its Restricted Subsidiaries has ownership interests
represented by cellular wireless telecommunications systems owned directly by
the Company or a Person or Persons a majority of whose voting power and Equity
Interests is owned by the Company and/or the Restricted Subsidiaries is no less
than 80%.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person.
"Asset Sale" means any direct or indirect sale, conveyance, transfer,
lease (that has the effect of a disposition and is not for security purposes)
or other disposition (including, without limitation, any merger, consolidation
or sale-leaseback transaction) to any Person other than the Company or a
Restricted Subsidiary, in one transaction or a series of related transactions,
of (i) any Equity Interest of any Restricted Subsidiary; (ii) any material
license, franchise or other authorization of the Company or any Restricted
Subsidiary; (iii) any assets of the Company or any Restricted Subsidiary which
constitute substantially all of an operating unit or line of business of the
Company or any Restricted Subsidiary; or (iv) any other property or asset of
the Company or any Restricted Subsidiary outside of the ordinary course of
business (including the receipt of proceeds paid on account of the loss of or
damage to any property or asset and awards of compensation for any asset taken
by condemnation, eminent domain or similar proceedings). For the purposes of
this definition, the term "Asset Sale" shall not include (a) any transaction
consummated in compliance with "-- Certain Covenants -- Merger, Sale of Assets,
etc." above and the creation of any Lien not prohibited by "-- Certain
Covenants -- Limitation on Liens" above; provided, however, that any
transaction consummated in compliance with "-- Certain Covenants -- Merger,
Sale of Assets, etc.", above involving a sale, conveyance, assignment,
transfer, lease or other disposal of less than all of the properties or assets
of the Company and the Restricted Subsidiaries shall be deemed to be an Asset
Sale with respect to the properties or assets of the Company and Restricted
Subsidiaries that are not so sold, conveyed, assigned, transferred, leased or
otherwise disposed of in such transaction; (b) sales of
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property or equipment that has become worn out, obsolete or damaged or
otherwise unsuitable for use in connection with the business of the Company or
any Restricted Subsidiary, as the case may be; (c) any transaction consummated
in compliance with "-- Certain Covenants -- Limitation on Restricted Payments"
above; (d) sales of accounts receivable for cash at fair market value; and (e)
any Permitted Receivables Financing. In addition, solely for purposes of
"-- Certain Covenants -- Disposition of Proceeds of Asset Sales" above, any
sale, conveyance, transfer, lease or other disposition of any property or
asset, whether in one transaction or a series of related transactions,
involving assets with a Fair Market Value not in excess of $5.0 million in any
fiscal year shall be deemed not to be an Asset Sale.
"Atlantic City MSA License" means the license to operate the non-wireline
cellular telephone system for the Atlantic City, NJ MSA.
"AWACS Investment Holdings, Inc." means AWACS Investment Holding, Inc., a
Delaware corporation, and its successors.
"Bank Credit Agreement" means the Credit Agreement, dated as of September
14, 1995, among CCCI, the lenders named therein, The Bank of New York, Barclays
Bank PLC, The Chase Manhattan Bank, N.A., PNC Bank, National Association and
The Toronto-Dominion Bank, as Arranging Agent, and Toronto Dominion (Texas),
Inc., as Administrative Agent, including any deferrals, renewals, extensions,
replacements, refinancings or refundings thereof, or amendments, modifications
or supplements thereto and any agreement providing therefor, whether by or with
the same or any other lender, creditor, group of lenders or group of creditors,
and including related notes, guarantees and other instruments and agreements
executed in connection therewith.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on the balance sheet in
accordance with GAAP.
"Cash Equivalents" means: (a) U.S. dollars; (b) securities issued or
directly and fully guaranteed or insured by the U.S. government or any agency
or instrumentality thereof having maturities of not more than one year from the
date of acquisition; (c) certificates of deposit and eurodollar time deposits
with maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank deposits,
in each case with any domestic commercial bank having capital and surplus in
excess of $500 million; (d) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses (b) and
(c) entered into with any financial institution meeting the qualifications
specified in clause (c) above; (e) commercial paper rated P-1, A-1 or the
equivalent thereof by Moody's or S&P, respectively, and in each case maturing
within six months after the date of acquisition; and (f) investments in money
market funds substantially all of the assets of which comprise securities
described in the foregoing clauses (b)-(e).
"CCCI" means Comcast Cellular Communications, Inc., a Delaware
corporation, and its successors.
"Change of Control" shall mean the occurrence of any of the following
events (whether or not approved by the Board of Directors of the Company): (a)
any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of
the Exchange Act or any successor provision to either of the foregoing,
including any group acting for the purpose of acquiring, holding or disposing
of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act),
excluding Permitted Holders, is or becomes the "beneficial owner," directly or
indirectly, of 50% or more of the total voting power of the Voting Equity
Interests of the Company or Comcast Corporation; (b) the Company consolidates
with, or merges with or into, another Person (other than a Wholly Owned
Restricted Subsidiary) or the Company or any Restricted Subsidiary sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of the assets of the Company and the Restricted Subsidiaries
(determined on a consolidated basis) to any Person (other than a Wholly Owned
Restricted Subsidiary), or any Person (other than a Wholly Owned Restricted
Subsidiary) consolidates with, or merges with or into, the Company, other than
in any such event pursuant to a transaction in which immediately after such
transaction the Permitted Holders or the Person or Persons that "beneficially
owned" immediately prior to such transaction, directly or indirectly, the
Voting Equity Interests of the Company "beneficially own," directly or
indirectly, a majority of the total voting power of the Voting Equity Interests
of the surviving or transferee Person; (c) during any consecutive two-year
period, individuals who at the beginning of such period constituted the Board
of Directors of
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the Company or Comcast Corporation (together with any new directors whose
election by the Board of Directors of the Company or Comcast Corporation or
whose nomination for election by the stockholders of the Company or Comcast
Corporation was approved by a vote of at least a majority of the directors then
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason (other than by action of the Permitted Holders) to constitute a
majority of the Board of Directors of the Company or Comcast Corporation then
in office; or (d) there shall occur the liquidation or dissolution of the
Company. For purposes of this definition "beneficially own," "beneficial owner"
and "beneficial ownership" shall have the meaning as defined pursuant to Rules
13d-3 and 13d-5 under the Exchange Act (except that a Person shall be deemed to
have "beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time, upon the happening of an event or otherwise). For purposes of
this definition, references to Comcast Corporation shall be deemed to apply
only so long as Comcast Corporation controls the Company.
"Change of Control Date" has the meaning set forth under "-- Offer to
Purchase upon Change of Control Triggering Event" above.
"Change of Control Triggering Event" shall mean the occurrence of both a
Change of Control and a Rating Decline.
"Comcast Cellular" means Comcast Cellular Corporation, a Delaware
corporation and a Wholly Owned Subsidiary of the Company, and its successors
(other than the Company).
"Comcast Corporation" means Comcast Corporation, a Pennsylvania
corporation, and its successors.
"Consolidated Income Tax Expense" means, with respect to the Company for
any period, the provision for federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the Company for any
period, without duplication, the sum of (i) the interest expense of the Company
and the Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) any
amortization of debt discount, (b) the net cost under Interest Rate Protection
Obligations (including any amortization of discounts), (c) the interest portion
of any deferred payment obligation, (d) all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (e) all capitalized interest and all accrued interest and (f)
interest-equivalent costs associated with any Permitted Receivables Financing,
whether accounted for as interest expense or loss on the sale of Receivables
and Related Assets, (ii) the interest component of Capital Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by the Company and the
Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP and (iii) dividends and distributions in respect
of Disqualified Equity Interests actually paid in cash by the Company during
such period as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any period, the net
income of the Company and the Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, adjusted, to the
extent included in calculating such net income, by excluding, without
duplication, (a) all extraordinary gains or losses and all gains and losses
from the sales or other dispositions of assets out of the ordinary course of
business (net of taxes, fees and expenses relating to the transaction giving
rise thereto) for such period; (b) that portion of such net income derived from
or in respect of investments in Persons other than Restricted Subsidiaries,
except to the extent actually received in cash by the Company or any Restricted
Subsidiary (subject, in the case of any Restricted Subsidiary, to the
provisions of clause (e) of this definition); (c) the portion of such net
income (or loss) allocable to minority interests in any Person (other than a
Restricted Subsidiary) for such period, except to the extent actually received
in cash by the Company or any Restricted Subsidiary (subject, in the case of
any Restricted Subsidiary, to the provisions of clause (e) of this definition);
(d) the net income (or loss) of any other Person combined with the Company or
any Restricted Subsidiary on a "pooling of interests" basis attributable to any
period prior to the date of combination; (e) the net income (or loss) of any
Restricted Subsidiary to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is not at
the time permitted, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulations applicable to that Restricted Subsidiary or its Equity
Interest holders; and (f) the cumulative effect of a change in accounting
principles.
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"Consolidated Operating Cash Flow" means, with respect to any period,
Consolidated Net Income for such period increased (without duplication) by the
sum of (a) Consolidated Income Tax Expense for such period to the extent
deducted in determining Consolidated Net Income for such period; (b)
Consolidated Interest Expense for such period to the extent deducted in
determining Consolidated Net Income for such period; and (c) depreciation,
amortization and any other non cash items for such period to the extent
deducted in determining Consolidated Net Income for such period of the Company
and the Restricted Subsidiaries, including, without limitation, amortization of
capitalized debt issuance costs for such period, all of the foregoing
determined on a consolidated basis in accordance with GAAP minus non cash items
to the extent they increase Consolidated Net Income (including the partial or
entire reversal of reserves taken in prior periods) for such period.
"control" means, as used with respect to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities or other voting interests, by agreement or otherwise; provided,
however, that beneficial ownership of 10.0% or more of the voting securities or
other voting interests of a Person shall be deemed to be control (and the terms
"controlling," "controlled by" and "under common control with" shall have
correlative meanings).
"Cumulative Operating Cash Flow" means, as at any date of determination,
the positive cumulative Consolidated Operating Cash Flow realized during the
period commencing on the Issue Date and ending on the last day of the most
recent fiscal quarter immediately preceding the date of determination for which
consolidated financial information of the Company is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"Debt to Annualized Operating Cash Flow Ratio" means the ratio of (a) the
Total Consolidated Indebtedness as of the date of calculation (the
"Determination Date") to (b) two times the Consolidated Operating Cash Flow for
the latest two fiscal quarters for which financial information is available
immediately preceding such Determination Date (the "Measurement Period"). For
purposes of calculating Consolidated Operating Cash Flow for the Measurement
Period immediately prior to the relevant Determination Date, (I) any Person
that is a Restricted Subsidiary on the Determination Date (or would become a
Restricted Subsidiary on such Determination Date in connection with the
transaction that requires the determination of such Consolidated Operating Cash
Flow) will be deemed to have been a Restricted Subsidiary at all times during
such Measurement Period, (II) any Person that is not a Restricted Subsidiary on
such Determination Date (or would cease to be a Restricted Subsidiary on such
Determination Date in connection with the transaction that requires the
determination of such Consolidated Operating Cash Flow) will be deemed not to
have been a Restricted Subsidiary at any time during such Measurement Period,
and (III) if the Company or any Restricted Subsidiary shall have in any manner
(x) acquired (including through an Acquisition or the commencement of
activities constituting such operating business) or (y) disposed of (including
by way of an Asset Sale or the termination or discontinuance of activities
constituting such operating business) any operating business during such
Measurement Period or after the end of such period and on or prior to such
Determination Date, such calculation will be made on a pro forma basis in
accordance with GAAP as if, in the case of an Acquisition or the commencement
of activities constituting such operating business, all such transactions had
been consummated on the first day of such Measurement Period and, in the case
of an Asset Sale or termination or discontinuance of activities constituting
such operating business, all such transactions had been consummated prior to
the first day of such Measurement Period; provided, however, that such pro
forma adjustment shall not give effect to the Consolidated Operating Cash Flow
of any Acquired Person to the extent that such Person's net income would be
excluded pursuant to clause (e) of the definition of Consolidated Net Income.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Designation" has the meaning set forth in "-- Certain Covenants --
Designation of Unrestricted Subsidiaries" above.
"Designation Amount" has the meaning set forth in "-- Certain Covenants --
Designation of Unrestricted Subsidiaries" above.
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"Disinterested Director" means, with respect to any Person, a member of
the Board of Directors of such Person who does not have any material direct or
indirect financial interest in or with respect to the transaction being
considered.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance
or other disposition of all or substantially all of such Person's assets.
"Disqualified Equity Interest" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for
which it is exchangeable at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable, at the option of the
holder thereof, in whole or in part, or exchangeable into Indebtedness on or
prior to the earlier of the maturity date of the Notes or the date on which no
Notes remain outstanding; provided, however, that any Equity Interests that
would not constitute Disqualified Equity Interests but for provisions thereof
giving holders thereof the right to require the Company to repurchase or redeem
such Equity Interests upon the occurrence of a change in control occurring
prior to the final maturity date of the Notes shall not constitute Disqualified
Equity Interests if the change in control provisions applicable to such Equity
Interests are no more favorable to the holders of such Equity Interests than
the provisions described under the caption "-- Offer to Purchase upon Change of
Control Triggering Event" above and such Equity Interests specifically provide
that the Company will not repurchase or redeem any such Equity Interests
pursuant to such provisions prior to the Company's repurchase of the Notes as
are required to be repurchased pursuant to the provisions described under the
caption "-- Offer to Purchase upon Change of Control Triggering Event" above.
"Equity Interest" in any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of
or interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Existing Indebtedness" means any Indebtedness of the Company and the
Restricted Subsidiaries in existence on the Issue Date until such amounts are
repaid.
"Expiration Date" has the meaning set forth in the definition of "Offer to
Purchase" below.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Directors of the Company acting in good faith, and shall be evidenced by
resolutions of the Board of Directors of the Company delivered to the Trustee.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guarantee shall include,
without limitation, any agreement to maintain or preserve any other person's
financial condition or to cause any other Person to achieve certain levels of
operating results.
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"Guest Informant" means substantially all of the assets of Comcast
Publishing Holdings Corporation, a Pennsylvania corporation and a wholly owned
subsidiary of CCCI.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have
meanings correlative to the foregoing). Neither the accrual of interest
(including the issuance of "pay in kind" securities or similar instruments in
respect of such accrued interest), nor the accretion of original issue
discount, nor the extension of the maturity of any Indebtedness shall be deemed
to be an Incurrence of Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (a) every obligation of such Person for money
borrowed; (b) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments; (c) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person; (d) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(but excluding trade accounts payable incurred in the ordinary course of
business and payable in accordance with industry practices, or other accrued
liabilities arising in the ordinary course of business which are not overdue or
which are being contested in good faith); (e) every Capital Lease Obligation of
such Person; (f) every net obligation under interest rate swap or similar
agreements or foreign currency hedge, exchange or similar agreements of such
Person; (g) every obligation of the type referred to in clauses (a) through (f)
of another Person and all dividends of another Person the payment of which, in
either case, such Person has guaranteed or is responsible or liable for,
directly or indirectly, as obligor, guarantor or otherwise; and (h) any and all
deferrals, renewals, extensions and refundings of, or amendments, modifications
or supplements to, any liability of the kind described in any of the preceding
clauses (a) through (g) above. Indebtedness (i) shall never be calculated
taking into account any cash and cash equivalents held by such Person; (ii)
shall not include obligations of any Person (x) arising from the honoring by a
bank or other financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary course of
business, provided that such obligations are extinguished within two Business
Days of their incurrence unless covered by an overdraft line, (y) resulting
from the endorsement of negotiable instruments for collection in the ordinary
course of business and consistent with past business practices and (z) under
stand-by letters of credit to the extent collateralized by cash or Cash
Equivalents; (iii) which provides that an amount less than the principal amount
thereof shall be due upon any declaration of acceleration thereof shall be
deemed to be incurred or outstanding in an amount equal to the accreted value
thereof at the date of determination determined in accordance with GAAP; (iv)
shall include the liquidation preference and any mandatory redemption payment
obligations in respect of any Disqualified Equity Interests of the Company or
any Restricted Subsidiary; and (v) shall not include obligations under
performance bonds, performance guarantees, surety bonds and appeal bonds,
letters of credit or similar obligations, incurred in the ordinary course of
business and on ordinary business terms.
"interest" means, with respect to the Notes, any cash interest on the
Notes and, in the case of Old Notes, any Liquidated Damages.
"Interest Rate Protection Obligations" means, with respect to any Person,
the Obligations of such Person under (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements, and (ii)
other agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
loan, advance, guarantee or other extension of credit or capital contribution
to (by means of transfers of cash or other property or assets to others or
payments for property or services for the account or use of others, or
otherwise), or purchase or acquisition of capital stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued by, any
other Person. The amount of any Investment shall be the original cost of such
Investment, plus the cost of all additions thereto, and minus the amount of any
portion of such Investment repaid to such Person in cash as a repayment of
principal or a return of capital, as the case may be, but without any other
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment. In determining the
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amount of any investment involving a transfer of any property or asset other
than cash, such property shall be valued at its fair market value at the time
of such transfer, as determined in good faith by the board of directors (or
comparable body) of the Person making such transfer.
"Investment Grade" shall mean BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such ratings by S&P or Moody's. In the event that
the Company shall be permitted to select any other Rating Agency, the
equivalent of such ratings by such Rating Agency shall be used.
"Issue Date" means the original issue date of the Notes (May 8, 1997).
"Lien" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"Liquidated Damages" has the meaning provided in Section 4(a) of the
Registration Rights Agreement.
"Management Agreement" means the Management Agreement dated as of March 5,
1992 between Comcast Corporation and CCCI, as amended and restated on May 20,
1997.
"Maturity Date" means the date, which is set forth on the face of the
Notes, on which the Notes will mature.
"Moody's" means Moody's Investors Services, Inc., or any successor to such
rating agency business thereof.
"MSA" has the meaning given to such term in the definition of Pops.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash or
Cash Equivalents received by the Company or any Restricted Subsidiary in
respect of any Asset Sale, including all cash or Cash Equivalents received upon
any sale, liquidation or other exchange of proceeds of Asset Sales received in
a form other than cash or Cash Equivalents if sold, liquidated or exchanged
within 12 months from the date of receipt thereof, net of (a) the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof; (b) provisions for all taxes (whether or not such
taxes will actually be paid or are payable) as a result of such Asset Sale
without regard to the consolidated results of operations of the Company and the
Restricted Subsidiaries, taken as a whole; (c) amounts required to be applied
to the repayment of Indebtedness (i) secured by a Lien on the asset or assets
that were the subject of such Asset Sale or (ii) required to be repaid as a
result of such Asset Sale or in order to obtain a necessary consent to such
Asset Sale; (d) amounts deemed, in good faith, appropriate by the Board of
Directors of the Company to be provided as a reserve, in accordance with GAAP,
against any liabilities associated with such assets which are the subject of
such Asset Sale (provided that the amount of any such reserves shall be deemed
to constitute Net Cash Proceeds at the time such reserves shall have been
released or are not otherwise required to be retained as a reserve); and (e)
with respect to Asset Sales by Subsidiaries, the portion of such cash payments
attributable to Persons holding a minority interest in such Subsidiary.
"Net Pops" of any Person with respect to any system means the Pops of the
MSA or RSA served by such system multiplied by the direct and/or indirect
percentage interest of such Person in the entity licensed or designated to
receive an authorization by the Federal Communications Commission to construct
or operate a system in that MSA or RSA.
"Net Proceeds" means the aggregate net proceeds (including the fair market
value of non-cash proceeds constituting equipment, licenses or other assets of
a type generally used in the Wireless Telecommunications Business in an amount
to be determined by the Board of Directors of the Company for amounts under
$25.0 million and by a financial advisor or appraiser of national reputation
for equal or greater amounts) received by a Person from the sale of Qualified
Equity Interests after payment of out-of-pocket expenses, commission and
discounts incurred in connection therewith.
"Obligations" means any principal, interest (including, without
limitation, post-petition interest), penalties, fees, indemnifications,
reimbursement obligations, damages and other liabilities payable under the
documentation governing any Indebtedness.
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"Offer" has the meaning set forth in the definition of "Offer to Purchase"
below.
"Offer to Purchase" means a written offer (the "Offer") sent by or on
behalf of the Company by first-class mail, postage prepaid, to each Holder at
his address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount of Notes specified in such
Offer at the purchase price specified in such Offer (as determined pursuant to
the Indenture). Unless otherwise required by applicable law, the Offer shall
specify an expiration date (the "Expiration Date") of the Offer to Purchase,
which shall be not less than 20 Business Days nor more than 60 days after the
date of such Offer, and a settlement date (the "Purchase Date") for purchase of
Notes to occur no later than five Business Days after the Expiration Date. The
Company shall notify the Trustee at least 15 Business Days (or such shorter
period as is acceptable to the Trustee) prior to the mailing of the Offer of
the Company's obligation to make an Offer to Purchase, and the Offer shall be
mailed by the Company or, at the Company's request, by the Trustee in the name
and at the expense of the Company. The Offer shall contain all the information
required by applicable law to be included therein. The Offer shall also contain
a description of the events requiring the Company to make the Offer to
Purchase. The Offer shall contain all instructions and materials necessary to
enable such Holders to tender Notes pursuant to the Offer to Purchase. The
Offer shall also state:
(1) the Section of the Indenture pursuant to which the Offer to Purchase
is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Notes offered to be
purchased by the Company pursuant to the Offer to Purchase (including,
if less than 100%, the manner by which such amount has been determined
pursuant to the Section of the Indenture requiring the Offer to
Purchase) (the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000 aggregate
principal amount of Notes accepted for payment (as specified pursuant to
the Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the Notes registered
in the name of such Holder and that any portion of a Note tendered must
be tendered in an integral multiple of $1,000 principal amount at
maturity;
(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not purchased
by the Company pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment pursuant to the Offer
to Purchase and that interest thereon shall cease to accrue on and after
the Purchase Date;
(9) that each Holder electing to tender all or any portion of a Note
pursuant to the Offer to Purchase will be required to surrender such
Note at the place or places specified in the Offer prior to the close of
business on the Expiration Date (such Note being, if the Company or the
Trustee so requires, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or his attorney duly
authorized in writing);
(10) that Holders will be entitled to withdraw all or any portion of Notes
tendered if the Company (or its Paying Agent) receives, not later than
the close of business on the fifth Business Day next preceding the
Expiration Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Note
the Holder tendered, the certificate number of the Note the Holder
tendered and a statement that such Holder is withdrawing all or a
portion of his tender;
(11) that (a) if Notes in an aggregate principal amount less than or equal
to the Purchase Amount are duly tendered and not withdrawn pursuant to
the Offer to Purchase, the Company shall purchase all such Notes and
(b) if Notes in an aggregate principal amount in excess of the Purchase
Amount are tendered and not withdrawn pursuant to the Offer to
Purchase, the Company shall purchase Notes having an aggregate
principal amount equal to the Purchase Amount on a pro rata basis (with
such adjustments as may be deemed appropriate so that only Notes in
denominations of $1,000 principal amount at maturity or integral
multiples thereof shall be purchased); and
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(12) that in the case of any Holder whose Note is purchased only in part,
the Company shall execute and the Trustee shall authenticate and
deliver to the Holder of such Note without service charge, a new Note
or Notes, of any authorized denomination as requested by such Holder,
in an aggregate principal amount equal to and in exchange for the
unpurchased portion of the Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"Participating Preferred Stock" means the shares of Class B Participating
Redeemable Preferred Stock, par value $.01 per share, of CCCI.
"Permitted Holder" means any of (i) Comcast Corporation so long as
controlled by any other Permitted Holder or so long as no "person" or "group"
(as such terms are used in Section 13(d) and 14(d) of the Exchange Act or any
successor provision to either of the foregoing, including any group acting for
the purpose of acquiring, holding or disposing of securities within the meaning
of Rule 13d-5(b)(1) under the Exchange Act), excluding Permitted Holders, is or
becomes the "beneficial owner," directly or indirectly, of 50% or more of the
total voting power of the Voting Equity Interests of Comcast Corporation, (ii)
the Roberts Family, (iii) any of the Permitted Transferees of the persons
referred to in clauses (i) and (ii), and (iv) any person or group controlled by
each or any of the Persons referred to in clauses (i) through (iii). For
purposes of this definition "beneficially own," "beneficial owner" and
"beneficial ownership" shall have the meaning as defined pursuant to Rules
13d-3 and 13d-5 under the Exchange Act (except that a Person shall be deemed to
have "beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time, upon the happening of an event or otherwise).
"Permitted Liens" means (a) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; provided, however, that such Liens were not incurred in
contemplation of such merger or consolidation and do not secure any property or
assets of the Company or any Restricted Subsidiary other than the property or
assets subject to the Liens prior to such merger or consolidation; (b) Liens
existing on the Issue Date; (c) Liens securing Indebtedness consisting of
Capitalized Lease Obligations, Purchase Money Indebtedness, mortgage
financings, industrial revenue bonds or other monetary obligations, in each
case incurred solely for the purpose of financing all or any part of the
purchase price or cost of construction or installation of assets used in the
business of the Company or the Restricted Subsidiaries, or repairs, additions
or improvements to such assets, provided, however, that (I) such Liens secure
Indebtedness in an amount not in excess of the original purchase price or the
original cost of any such assets or repair, addition or improvement thereto
(plus an amount equal to the reasonable fees and expenses in connection with
the incurrence of such Indebtedness), (II) such Liens do not extend to any
other assets of the Company or the Restricted Subsidiaries (and, in the case of
repair, addition or improvements to any such assets, such Lien extends only to
the assets (and improvements thereto or thereon) repaired, added to or
improved), (III) the Incurrence of such Indebtedness is permitted by
"-- Certain Covenants -- Limitation on Indebtedness" above and (IV) such Liens
attach within 365 days of such purchase, construction, installation, repair,
addition or improvement; (d) any Lien granted by a Restricted Subsidiary on its
property or assets to the extent limitations on the incurrence of such Liens
are prohibited by any agreement to which such Restricted Subsidiary is subject
as of the date of the Indenture; (e) Liens to secure any refinancings,
renewals, extensions, modifications or replacements (collectively,
"refinancing") (or successive refinancings), in whole or in part, of any
Indebtedness secured by Liens referred to in the clauses above so long as such
Lien does not extend to any other property (other than improvements thereto);
(f) Liens securing letters of credit entered into in the ordinary course of
business and consistent with past business practice; (g) Liens on and pledges
of the capital stock of any Unrestricted Subsidiary securing any Indebtedness
of such Unrestricted Subsidiary; (h) Liens securing Indebtedness (including all
Obligations) under the Bank Credit Facility; (i) other Liens securing
Indebtedness that is permitted by the terms of the Indenture to be outstanding
having an aggregate principal amount at any one time outstanding not to exceed
$20.0 million; and (j) Liens on Receivables and Related Assets securing
Indebtedness or otherwise permitted to be Incurred, in each case, with a
Permitted Receivables Financing.
"Permitted Receivables Financing" means a transaction or series of
transactions (including amendments, supplements, extensions, renewals,
replacements, refinancings or modifications thereof) pursuant to which a
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Securitization Subsidiary purchases Receivables and Related Assets from the
Company or any Restricted Subsidiary and finances such Receivables and Related
Assets through the issuance of indebtedness or equity interests or through the
sale of the Receivables and Related Assets or a fractional undivided interest
in the Receivables and Related Assets; provided that (i) the Board of Directors
shall have determined in good faith that such Permitted Receivables Financing
is economically fair and reasonable to the Company and the Securitization
Subsidiary, (ii) all sales of Receivables and Related Assets to or by the
Securitization Subsidiary are made at fair market value (as determined in good
faith by the Board of Directors of the Company), (iii) the financing terms,
covenants, termination events and other provisions thereof shall be market
terms (as determined in good faith by the Board of Directors of the Company),
(iv) no portion of the Indebtedness of a Securitization Subsidiary is
guaranteed by or is recourse to the Company or any Restricted Subsidiary (other
than recourse for customary representations, warranties, covenants and
indemnities, none of which shall relate to the collectibility of the
Receivables and Related Assets) and (v) neither the Company nor any Subsidiary
has any obligation to maintain or preserve the Securitization Subsidiary's
financial condition.
"Permitted Transferee" means, with respect to any Person: (a) in the case
of any Person who is a natural person, such individual's spouse or children,
any trust for such individual's benefit or the benefit of such individual's
spouse or children, or any corporation or partnership in which the direct and
beneficial owner of all of the equity interest is such Person or such
individual's spouse or children or any trust for the benefit of such persons;
(b) in the case of any Person who is a natural person, the heirs, executors,
administrators or personal representatives upon the death of such Person or
upon the incompetency or disability of such Person for purposes of the
protection and management of such individual's assets; and (c) in the case of
any Person who is not a natural person, any Affiliate of such Person.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Pops" means the estimate of the population of a Metropolitan Statistical
Area ("MSA") or Rural Service Area ("RSA") as derived from the most recent Rand
McNally Commercial Atlas & Marketing Guide or if such statistics are no longer
printed in the Rand McNally Commercial Atlas & Marketing Guide or the Rand
McNally Commercial Atlas & Marketing Guide is no longer published the most
recent Donnelly Market Service or if such statistics are no longer printed in
the Donnelly Market Service or the Donnelly Market Service is no longer
published, such other nationally recognized source of such information.
"Preferred Equity Interest," in any Person, means an Equity Interest of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
"principal" of a debt security means the principal of the security plus,
when appropriate, the premium, if any, on the security.
"Public Equity Offering" means an underwritten public offering of common
equity of the Company pursuant to an effective registration statement filed
under the Securities Act (excluding registration statements filed on Form S-8).
"Purchase Amount" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Date" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property,
provided that the aggregate principal amount of such Indebtedness does not
exceed the lesser of the Fair Market Value of such property or such purchase
price or cost, including any refinancing of such indebtedness that does not
increase the aggregate principal amount (or accreted amount, if less) thereof
as of the date of refinancing.
"Purchase Price" has the meaning set forth in the definition of "Offer to
Purchase" above.
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<PAGE>
"Qualified Equity Interest" in any Person means any Equity Interest in
such Person other than any Disqualified Equity Interest (it being understood
that the New Preferred Stock shall in no event constitute Qualified Equity
Interest).
"Rating Agencies" shall mean (i) S&P and (ii) Moody's and (iii) if S&P or
Moody's or both shall not make a rating of the Notes publicly available, a
nationally recognized securities rating agency or agencies, as the case may be,
selected by the Company, which shall be substituted for S&P or Moody's or both,
as the case may be.
"Rating Category" shall mean (i) with respect to S&P, any of the following
categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii)
with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and
D (or equivalent successor categories); and (iii) the equivalent of any such
category of S&P or Moody's used by another Rating Agency. In determining
whether the rating of the Notes has decreased by one or more gradations,
gradations within Rating Categories (+ and - for S&P; 1, 2 and 3 for Moody's;
or the equivalent gradations for another Rating Agency) shall be taken into
account (e.g., with respect to S&P, a decline in a rating from BB to BB-, as
well as from BB- to B+, will constitute a decrease of one gradation).
"Rating Date" shall mean that date which is 90 days prior to the earlier
of (x) a Change of Control and (y) public notice of the occurrence of a Change
of Control or of the intention by the Company or any Permitted Holder to effect
a Change of Control.
"Rating Decline" shall mean the occurrence on, or within 90 days after,
the date of public notice of the occurrence of a Change of Control or the
intention by the Company or any Permitted Holder to effect a Change of Control
(which period shall be extended so long as the rating of the Notes is under
publicly announced consideration for possible downgrade by any of the Rating
Agencies) of any of (a) in the event the Notes are rated by both Moody's and
S&P on the Rating Date as Investment Grade, the rating of the Notes by either
Rating Agency shall be below Investment Grade; (b) in the event the Notes are
rated by either, but not both, of the Rating Agencies on the Rating Date as
Investment Grade, the rating of the Notes by both Rating Agencies shall be
below Investment Grade; or (c) in the event the Notes are rated below
Investment Grade by both Rating Agencies on the Rating Date, the rating of the
Notes by either Rating Agency shall be decreased by one or more gradations
(including gradations within Rating Categories as well as between Rating
Categories).
"Receivables and Related Assets" means accounts receivable and
instruments, chattel paper, obligations, general intangibles and other similar
assets, in each case relating to such receivables, including interests in
merchandise or goods, the sale or lease of which gave rise to such receivable,
related contractual rights, guarantees, insurance proceeds, collections, other
related assets and proceeds of all of the foregoing.
"Restricted Investment" means an Investment in any Person that is, or as a
result of such Investment becomes, an Affiliate of the Company other than an
Investment in (a) the Company, (b) a Restricted Subsidiary, (c) a Person that
immediately after giving effect to such Investment becomes a Restricted
Subsidiary or (d) any Person that is an Affiliate of the Company (other than an
Unrestricted Subsidiary) solely because of the control of such Person by the
Company and/or one or more of the Restricted Subsidiaries.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated as an Unrestricted Subsidiary pursuant to "-- Certain Covenants
- -- Designation of Unrestricted Subsidiaries" above. Any such designation may be
revoked by a resolution of the Board of Directors of the Company delivered to
the Trustee, subject to the provisions of such covenant.
"Roberts Family" means:
(i) Ralph J. Roberts or his spouse;
(ii) a lineal descendant of Ralph J. Roberts (whether by the whole or
half blood); or
(iii) a trust established for the benefit of any of Ralph J. Roberts,
his spouse and/or a lineal descendant or descendants of Ralph J. Roberts
(whether by the whole or half blood).
"RSA" has the meaning given to such term in the definition of Pops.
"SEC" means the Securities and Exchange Commission.
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<PAGE>
"Securitization Subsidiary" means a Wholly Owned Restricted Subsidiary
which is established for the limited purpose of acquiring and financing
Receivables and Related Assets and engaging in activities ancillary thereto.
"Series A Preferred Stock" means the pay-in-kind preferred stock of the
Company issued to CFC, which preferred stock was purchased by CFC with
substantially all of the proceeds received by it in the redemption of the Zero
Coupon Notes held by CFC.
"Significant Restricted Subsidiary" means, at any date of determination,
any Restricted Subsidiary that, together with its Subsidiaries that constitute
Restricted Subsidiaries (i) for the most recent fiscal year of the Company
accounted for more than 10.0% of the consolidated revenues of the Company and
the Restricted Subsidiaries or (ii) as of the end of such fiscal year, owned
more than 10.0% of the consolidated assets of the Company and the Restricted
Subsidiaries, all as set forth on the consolidated financial statements of the
Company and the Restricted Subsidiaries for such year prepared in conformity
with GAAP.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill,
Inc., or any successor to such rating agency business thereof.
"Stated Maturity" means, when used with respect to any security or any
installment of interest thereon, the date specified in such security as the
fixed date on which the principal of such security or such installment of
interest is due and payable.
"Subordinated Indebtedness" means any Indebtedness of the Company which is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, (a) any corporation of
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of which
at least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or
the Person to which such Disposition is made.
"Tax Sharing Agreement" means the tax sharing agreement dated as of March
5, 1992 among Comcast Corporation, Comcast Cellular and CCCI and its
Subsidiaries, as in effect on the Issue Date or as may be amended to include
the Company.
"Total Consolidated Indebtedness" means, as at any date of determination,
an amount equal to the aggregate amount of all Indebtedness and Disqualified
Equity Interests of the Company and the Restricted Subsidiaries outstanding as
of such date of determination.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated
as such pursuant to "-- Certain Covenants -- Designation of Unrestricted
Subsidiaries" above. Any such designation may be revoked by a resolution of the
Board of Directors of the Company delivered to the Trustee, subject to the
provisions of such covenant.
"Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
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<PAGE>
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary all
of the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the Company.
"Wireless Telecommunications Business" means the development, management
and operation of cellular telephone systems, paging systems and personal
communication systems and activities reasonably related thereto, including,
without limitation, retail distribution thereof.
"Zero Coupon Notes" means the Series A Senior Participating Redeemable
Zero Coupon Notes due 2000 and the Series B Senior Participating Redeemable
Zero Coupon Notes due 2000.
Book-Entry, Delivery and Form
New Notes will be in registered certificated form ("Certificated Notes")
or registered global form ("Global Notes"). Each Global Note will be deposited
upon issuance with The Depository Trust Company ("DTC") and registered in the
name of a nominee of DTC. Holders may elect to hold their New Notes directly
or, subject to the rules and procedures of DTC described below, in a Global
Note. However, tendering Holders of Old Notes held in global form shall
initially receive an interest held in a Global Note and tendering Holders of
Old Notes held directly in certificated form shall initially receive New Notes
in certificated form, in each case unless otherwise specified in the Letter of
Transmittal.
The Global Notes
The Company expects that pursuant to procedures established by DTC (a)
upon the issuance of the Global Notes, DTC or its custodian will credit, on its
internal system, the principal amount of Notes of the individual beneficial
interests represented by the Global Notes to the respective accounts of persons
who have accounts with DTC and (b) ownership of beneficial interests in the
Global Notes will be shown on, and the transfer of such ownership will be
effected only through, records maintained by DTC or its nominee (with respect
to interests of Participants (as defined herein)) and the records of
Participants (with respect to interests of persons other than Participants).
Ownership of beneficial interests in the Global Notes will be limited to
persons who have accounts with DTC ("Participants") or persons who hold
interests through Participants. Interests in the Global Notes may be held
directly through DTC, by Participants, or indirectly through organizations
which are Participants.
So long as DTC, or its nominee, is the registered owner or holder of the
Global Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Notes for all
purposes under the Indenture. No beneficial owner of an interest in any Global
Notes will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture.
Payments of the principal of, premium, if any, and interest on the Global
Notes will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Company, the Trustee or any paying agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment
of principal, premium, if any, or interest in respect of the Global Notes, will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Notes as
shown on the records of DTC or its nominee. The Company also expects that
payments by Participants to owners of beneficial interests in the Global Notes
held through such Participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such Participants.
Transfers between Participants will be effected in the ordinary way in
accordance with DTC rules and will be settled in clearinghouse funds. If a
Holder requires physical delivery of a Certificated Note for any reason,
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including to sell New Notes to persons in states which require physical
delivery of the New Notes, or to pledge such securities, such Holder must
transfer its interest in a Global Note in accordance with the normal procedures
of DTC and with the procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of New Notes only at the direction of one or more
Participants to whose account the DTC interests in the Global Notes are
credited and only in respect of such portion of the aggregate principal amount
of New Notes as to which such Participant or Participants has or have given
such direction. However, if there is an Event of Default under the Indenture,
DTC will exchange the Global Notes in whole for Certificated Notes, which it
will distribute to the Participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among Participants, it is under no
obligation to perform such procedures, and such procedures may be discontinued
at any time. Neither the Company nor the Trustee will have any responsibility
for the performance by DTC or the Participants or Indirect Participants of
their respective obligations under the rules and procedures governing their
operations.
Certificated Notes
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by the Company
within 90 days, Certificated Notes will be issued in exchange for the Global
Notes.
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REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Holders of New Notes are not entitled to any registration rights with
respect to the New Notes. Holders of Old Notes are entitled to certain
registration rights pursuant to the Registration Rights Agreement. Pursuant to
the Registration Rights Agreement, the Company has agreed to file with the
Commission and have declared effective on or prior to October 5, 1997, a
registration statement (the "Exchange Offer Registration Statement") under the
Securities Act with respect to the Exchange Offer. The Company also agreed
that, after the effectiveness of the Exchange Offer Registration Statement, it
would, subject to certain conditions, offer to the Holders of Old Notes who are
able to make certain representations the opportunity to exchange their Old
Notes for New Notes. In the event that applicable interpretations of the staff
of the Commission do not permit the Company to effect the Exchange Offer
("Commission Blockage") or do not permit any Holder of Old Notes, subject to
certain limitations, to participate in such Exchange Offer, the Company has
agreed to file with the Commission a shelf registration statement ("the Shelf
Registration Statement") to cover resales of the Old Notes. The Registration
Statement of which this Prospectus is a part constitutes the Exchange Offer
Registration Statement.
The Registration Rights Agreement provides that (i) the Company will use
its reasonable best efforts to have the Exchange Offer Registration Statement
(and, if applicable, a Shelf Registration Statement) declared effective by the
Commission on or prior to October 5, 1997. If the Exchange Offer has not been
consummated by November 4, 1997 (unless there exists a Commission Blockage)
(such event, a "Registration Default"), the Company will pay liquidated damages
to each Holder of Old Notes, during the first 90-day period immediately
following the occurrence of such Registration Default in an amount equal to
$0.05 per week per $1,000 principal amount of Old Notes held by such Holder.
The amount of the liquidated damages will increase by an additional $0.05 per
week per $1,000 principal amount of Old Notes for each subsequent 90-day period
until the Exchange Offer is consummated, up to a maximum amount of liquidated
damages of $0.25 per week per $1,000 principal amount of Old Notes. All accrued
liquidated damages shall be paid to Holders in the same manner and on the same
date as interest payments on the Old Notes. Following the cure of all
Registration Defaults, the payment of liquidated damages will cease.
The Registration Rights Agreement also provides that the Company (i) shall
make available for a period of 90 days after the consummation of the Exchange
Offer a prospectus meeting the requirements of the Securities Act to any
broker-dealer for use in connection with any resale of any of New Notes and
(ii) shall pay all expenses incident to the Exchange Offer (including the
expenses of one counsel to the Holders of the Notes) and will indemnify certain
Holders of the Old Notes (including any broker-dealer) against certain
liabilities, including liabilities under the Securities Act.
Holders of Old Notes will be required to make certain representations to
the Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and benefit from the provisions regarding
liquidated damages discussed above. In addition, for so long as the Old Notes
are outstanding, the Company will continue to provide to Holders of Old Notes
and to prospective purchasers of the Old Notes the information required by Rule
144A (d) (4). The Company will provide a copy of the Registration Rights
Agreement to prospective investors upon request.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Davis Polk & Wardwell, tax counsel to the Company, the
following summary describes the material federal income tax considerations
applicable to the exchange of Old Notes for New Notes and the ownership and
disposition of the New Notes by Holders who acquire the New Notes. The summary
applies only to a Holder of Old Notes that acquired such Old Notes from the
Company pursuant to their original issuance and will be an initial Holder of
the New Notes pursuant to the exchange hereunder. This discussion is based on
laws, regulations, rulings and decisions now in effect, all of which are
subject to change, possibly retroactively. The discussion does not cover all
aspects of federal income taxation that may be relevant to Holders, in light of
their specific circumstances, particularly Holders subject to special treatment
under the federal income tax laws (such as insurance companies, financial
institutions, tax exempt organizations, foreign persons and taxpayers
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<PAGE>
subject to the alternative minimum tax). It also does not address state, local,
foreign or other tax laws. The description assumes that Holders of the Old
Notes hold the Old Notes as "capital assets" within the meaning of Section 1221
of the Internal Revenue Code of 1986, as amended (the "Code").
Tax Consequences to U.S. Holders
Exchange of Notes
There will be no federal income tax consequences to Holders exchanging Old
Notes for New Notes pursuant to the Exchange Offer and a Holder will have the
same basis and holding period in the New Notes as it had in the Old Notes
immediately before the exchange.
Sale, Exchange or Retirement of the Notes
Upon the sale, exchange or retirement of an New Note, a Holder will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement and such Holder's adjusted tax
basis in the New Note. A Holder's adjusted tax basis in an New Note will equal
the cost of the Old Note to such Holder reduced by any payments of principal on
the Note received by the Holder.
EACH HOLDER SHOULD CONSULT HIS TAX ADVISOR IN DETERMINING THE FEDERAL,
STATE, LOCAL AND ANY OTHER TAX CONSEQUENCES TO THE PARTICULAR HOLDER OF THE
EXCHANGE OF OLD NOTES FOR NEW NOTES AND THE OWNERSHIP AND DISPOSITION OF THE
NEW NOTES.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market making activities or other
trading activities. The Company has agreed that, for a period of 90 days after
the consummation of the Exchange Offer, it will make this Prospectus, as
amended or supplemented, available to any such broker-dealer for use in
connection with any such resale. New Notes received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale,
at prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of New Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For the period of 90 days after the consummation of the Exchange Offer,
the Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed in the
Registration Rights Agreement to indemnify each broker-dealer reselling New
Notes pursuant to this Prospectus, and their officers, directors and
controlling persons, against certain liabilities in connection with the offer
and sale of the New Notes, including liabilities under the Securities Act, or
to contribute to payments that such broker-dealers may be required to make in
respect thereof.
CERTAIN TERMS
Interests in cellular markets that are licensed by the Federal
Communications Commission (the "FCC") are commonly measured on the basis of the
population of the market served, with each person residing in the market
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area referred to as a "Pop." As used in this Prospectus, unless otherwise
indicated, the term "Pops" means the estimate of the 1997 population of a
Metropolitan Statistical Area ("MSA") or Rural Service Area ("RSA"), as derived
from the 1997 Rand McNally Commercial Atlas & Marketing Guide. The term "Net
Pops" means the estimated population with respect to a given service area
multiplied by the percentage interest that the Company owns in the entity
licensed in such service area. See "Business -- Summary Market Data." The
number of Pops or Net Pops owned is not necessarily indicative of the number of
subscribers or potential subscribers. MSAs and RSAs are also referred to as
"markets." The term "wireline" license refers to the license for any market
initially awarded to a company or group that was affiliated with a local
landline telephone carrier in the market, and the term "non-wireline" or
"independent" license refers to the license for any market that was initially
awarded to a company, individual or group not affiliated with any landline
carrier. The term "system" means a FCC-licensed cellular telephone system, the
term "MTA" means Major Trading Area and the term "BTA" means Basic Trading
Area.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Davis Polk & Wardwell, New York, New York.
EXPERTS
The consolidated balance sheet of the Company and its subsidiaries as of
December 31, 1996 and 1995 and the related consolidated statements of
operations and accumulated deficit and of cash flows for each of the three
years in the period ended December 31, 1996 appearing in this Prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein. The Company's consolidated
financial statements include amounts for Garden State Cablevision L.P. ("Garden
State Cablevision"), an equity method investment of the Company. Other auditors
have audited the financial statements of Garden State Cablevision as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996. The report of such auditors with respect to Garden State
Cablevision was furnished to Deloitte & Touche LLP for the purpose of its
report with respect to the consolidated financial statements of the Company
described above, insofar as it relates to amounts included in the Company's
consolidated financial statements for Garden State Cablevision for the periods
specified in the Company's consolidated financial statements.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet as of June 30, 1997 and December 31, 1996
(unaudited) .......................................................................... F-2
Condensed Consolidated Statement of Operations and Accumulated Deficit for the six and
three months ended June 30, 1997 and 1996 (unaudited) .............................. F-3
Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 1997
and 1996 (unaudited) ................................................................. F-4
Notes to Condensed Consolidated Financial Statements for the quarter ended June 30,
1997 (unaudited) ................................................................... F-5
Independent Auditors' Report ......................................................... F-10
Consolidated Balance Sheet as of December 31, 1996 and 1995 ........................... F-11
Consolidated Statement of Operations and Accumulated Deficit for the years ended
December 31, 1996, 1995 and 1994 ..................................................... F-12
Consolidated Statement of Cash Flows for the years ended December 31, 1996, 1995 and
1994 ................................................................................. F-13
Notes to Consolidated Financial Statements for the years ended December 31, 1996,
1995 and 1994 ........................................................................ F-14
</TABLE>
F-1
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .............................. $ 28,982 $ 4,980
Accounts receivable, less allowance for doubtful accounts
of $5,469 and $3,148.................................... 62,287 66,425
Inventories ............................................. 10,721 10,458
Other current assets ................................. 3,718 3,470
---------- ----------
Total current assets .............................. 105,708 85,333
---------- ----------
INVESTMENT IN AFFILIATE ................................. 29,276 29,823
---------- ----------
PROPERTY AND EQUIPMENT .................................... 525,301 467,558
Accumulated depreciation .............................. (146,077) (114,144)
---------- ----------
Property and equipment, net ........................... 379,224 353,414
---------- ----------
DEFERRED CHARGES AND OTHER .............................. 1,260,381 1,245,283
Accumulated amortization .............................. (312,709) (285,671)
---------- ----------
Deferred charges and other, net ........................ 947,672 959,612
---------- ----------
$1,461,880 $1,428,182
========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses .................. $ 85,529 $ 83,831
Accrued commissions .................................... 5,043 7,836
Accrued interest ....................................... 13,918 3,166
Deferred revenue and customer deposits .................. 10,172 9,291
Current portion of long-term debt ........................ 11,916 1,902
Due to affiliates ....................................... 49,368 45,926
---------- ----------
Total current liabilities ........................... 175,946 151,952
---------- ----------
LONG-TERM DEBT, less current portion ..................... 1,149,679 1,259,325
---------- ----------
INVESTMENT IN AND DUE TO AFFILIATES ..................... 114,437 108,804
---------- ----------
DEFERRED INCOME TAXES .................................... 238,898 256,737
---------- ----------
MINORITY INTEREST AND OTHER .............................. 9,318 7,219
---------- ----------
COMMITMENTS AND CONTINGENCIES
MANDATORILY REDEEMABLE PREFERRED STOCK ..................... 163,739
---------- ----------
STOCKHOLDER'S DEFICIENCY
Common stock, $.01 par value - authorized, 1,000 shares;
issued, 100 shares ....................................
Additional capital ....................................... 498,164 500,425
Accumulated deficit .................................... (888,301) (856,280)
---------- ----------
Total stockholder's deficiency ..................... (390,137) (355,855)
---------- ----------
$1,461,880 $1,428,182
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
1997 1996 1997 1996
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
SERVICE INCOME, net ........................ $ 220,273 $ 207,096 $ 116,194 $ 108,904
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Operating ................................. 18,931 17,295 9,047 8,605
Selling, general and administrative ...... 114,747 123,284 57,628 58,449
Depreciation and amortization ............ 61,449 56,769 31,477 26,886
---------- ---------- ---------- ----------
195,127 197,348 98,152 93,940
---------- ---------- ---------- ----------
OPERATING INCOME .............................. 25,146 9,748 18,042 14,964
OTHER (INCOME) EXPENSE
Interest expense ........................ 61,165 55,678 31,717 29,066
Investment income ........................ (1,570) (1,571) (1,119) (1,215)
Equity in net losses of affiliates ...... 3,520 3,543 1,399 1,325
Litigation settlement ..................... 21,647
Other .................................... 440 2,098 271 (42)
---------- ---------- ---------- ----------
63,555 81,395 32,268 29,134
---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAX BENEFIT
AND EXTRAORDINARY ITEM ..................... (38,409) (71,647) (14,226) (14,170)
INCOME TAX BENEFIT ........................... (13,701) (27,325) (5,089) (5,418)
---------- ---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY ITEM ............... (24,708) (44,322) (9,137) (8,752)
EXTRAORDINARY ITEM ........................... (7,313) (7,313)
---------- ---------- ---------- ----------
NET LOSS .................................... (32,021) (44,322) (16,450) (8,752)
PREFERRED DIVIDENDS ........................... (2,261) (2,261)
---------- ---------- ---------- ----------
NET LOSS FOR COMMON
STOCKHOLDER ................................. ($ 34,282) ($ 44,322) ($ 18,711) ($ 8,752)
========== ========== ========== ==========
ACCUMULATED DEFICIT
Beginning of period ..................... ($ 856,280) ($ 786,696) ($ 871,851) ($822,266)
Net loss ................................. (32,021) (44,322) (16,450) (8,752)
---------- ---------- ---------- ----------
End of period ........................... ($ 888,301) ($ 831,018) ($ 888,301) ($831,018)
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
-------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ............................................. ($ 32,021) ($ 44,322)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization ..................... 61,449 56,769
Non-cash interest expense ........................ 27,997 33,834
Equity in net losses of affiliates ............... 3,520 3,543
Minority interest ................................. 702 289
Deferred management fees ........................... 3,006 2,772
Deferred income taxes and other .................. (12,503) (26,441)
Extraordinary item ................................. 7,313
------------ ---------
59,463 26,444
Decrease in accounts receivable, inventories and
other current assets .............................. 3,627 19,112
Increase in accrued interest ..................... 10,752 1,499
Decrease in accounts payable and accrued
expenses, accrued commissions and deferred
revenue and customer deposits ..................... (214) (29,314)
------------ ---------
Net cash provided by operating activities ...... 73,628 17,741
------------ ---------
FINANCING ACTIVITIES
Proceeds from borrowings of long-term debt ............ 1,018,370 140,000
Repayments of long-term debt ........................ (1,143,474)
Repayments under deferred payment plan ............... (85,413)
Deferred financing costs .............................. (27,572)
Proceeds from issuance of mandatorily redeemable
preferred stock ....................................... 161,478
Net transactions with affiliates ..................... 570 890
------------ ---------
Net cash provided by financing activities ...... 9,372 55,477
------------ ---------
INVESTING ACTIVITIES
Capital expenditures ................................. (57,897) (36,610)
Acquisition, net of cash acquired ..................... (7,466)
Other ................................................ (1,101) (23,507)
------------ ---------
Net cash used in investing activities ......... (58,998) (67,583)
------------ ---------
INCREASE IN CASH AND CASH EQUIVALENTS .................. 24,002 5,635
CASH AND CASH EQUIVALENTS, beginning of period 4,980 19,640
------------ ---------
CASH AND CASH EQUIVALENTS, end of period ............... $ 28,982 $ 25,275
============ =========
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 1997
(Unaudited)
1. ORGANIZATION
Comcast Cellular Holdings, Inc. (the "Company") was incorporated on March
27, 1997 under the laws of the State of Delaware. At the date of incorporation,
the Company issued 100 shares of its newly authorized $.01 par value common
stock to Comcast Corporation ("Comcast") and became a wholly owned subsidiary
of Comcast.
On May 7, 1997, Comcast contributed all 100 of the issued and outstanding
$.01 par value common shares of Comcast Cellular Corporation ("Comcast
Cellular"), its wholly owned subsidiary, to the Company. This contribution has
been accounted for in a manner similar to a pooling of interests. Accordingly,
the condensed consolidated financial statements of the Company include the
accounts of Comcast Cellular for all periods presented. The Company is
principally engaged in the development, management and operation of cellular
telephone communications systems located in Pennsylvania, New Jersey and
Delaware.
2. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The condensed consolidated balance sheet as of December 31, 1996 has been
condensed from the audited consolidated balance sheet as of that date. The
condensed consolidated balance sheet as of June 30, 1997, the condensed
consolidated statement of operations and accumulated deficit for the six and
three months ended June 30, 1997 and the condensed consolidated statement of
cash flows for the six months ended June 30, 1997 and 1996 have been prepared
by the Company 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 June 30, 1997 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
Company's December 31, 1996 audited consolidated financial statements. The
results of operations for the periods ended June 30, 1997 are not necessarily
indicative of operating results for the full year.
Reclassifications
Certain reclassifications have been made to the prior year condensed
consolidated financial statements to conform to those classifications used in
1997.
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Debt Offering
In May 1997, the Company completed the sale of $1.0 billion principal
amount of 9 1/2% Senior Notes due 2007 (the "Old Notes") through a private
offering with registration rights (the "Offering").
Interest on the Old Notes is payable in cash semi-annually on May 1 and
November 1 of each year, commencing on November 1, 1997. The Old Notes are
redeemable, in whole or in part, at the option of the Company, at any time on
or after May 1, 2002 at a redemption price, initially of 104.75% of the
principal amount of the Old Notes and declining annually to 100% on May 1,
2005, plus accrued and unpaid interest, if any, to the date of redemption. In
addition, prior to May 1, 2000, the Company may redeem the Old Notes at a price
equal to 108.5% of the principal amount, plus accrued and unpaid interest, if
any, to the redemption date, with the net cash proceeds from one or more Public
Equity Offerings (as defined); provided, however, that at least 65% of the
originally issued principal amount of the Old Notes would remain outstanding
after giving effect to
F-5
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
QUARTER ENDED JUNE 30, 1997
(Unaudited)
any such redemption. Upon the occurrence of a Change of Control Triggering
Event (as defined), each holder of the Old Notes will have the right to require
the Company to repurchase such holder's Old Notes at 101% of the principal
amount, plus accrued and unpaid interest, if any, to the repurchase date.
The Old Notes are general unsecured obligations of the Company ranking
senior to all subordinated Indebtedness (as defined) of the Company and pari
passu in right of payment with all other existing and future unsecured
unsubordinated Indebtedness (as defined) and other liabilities of the Company.
The Old Notes are subordinate to all liabilities, including trade payables, of
the Company's subsidiaries.
The indenture for the Old Notes imposes certain limitations on the ability
of the Company and its Restricted Subsidiaries (as defined) to, among other
things, incur Indebtedness (as defined), make Restricted Payments (as defined),
including the payment of cash dividends on the Company's Series A Preferred
Stock (see below), effect certain Asset Sales (as defined), enter into certain
transactions with affiliates, merge or consolidate with any other person or
transfer all or substantially all of their properties and assets.
Redemption of Zero Coupon Notes
In May 1997, the Company contributed the net proceeds of $971.2 million
from the Offering to Comcast Cellular. On May 19, 1997 (the "Redemption Date"),
Comcast Cellular used such proceeds to redeem all of its Series A Senior
Participating Redeemable Zero Coupon Notes Due 2000 and Series B Senior
Participating Redeemable Zero Coupon Notes Due 2000 (together, the "Zero Coupon
Notes"), including the Zero Coupon Notes held by Comcast Cellular
Communications, Inc. ("CCCI"), a wholly owned subsidiary of Comcast Cellular,
and Comcast Financial Corporation ("CFC"), a wholly owned subsidiary of
Comcast. Unamortized debt acquisition costs related to the Zero Coupon Notes
were not significant. As of the Redemption Date, the Zero Coupon Notes had an
aggregate accreted value of $742.4 million, including the Zero Coupon Notes
held by CCCI and CFC with accreted values of $114.1 million and $161.5 million,
respectively. On the Redemption Date, CFC used the $161.5 million received upon
redemption of the Zero Coupon Notes held by it to purchase 1,614,775 shares of
the Company's newly authorized $.01 par value, Series A Preferred Stock (see
below). The Company contributed the $161.5 million received from the sale of
its Series A Preferred Stock to Comcast Cellular, which in turn contributed
such amount and the remaining net proceeds from the Offering, totaling $228.8
million, to CCCI to repay a portion of the amounts outstanding under CCCI's
$1.3 billion credit agreement with certain banks (the "Credit Agreement").
Repayment of Term Loan and Revolving Credit Loan
The Credit Agreement provides for a term loan in the principal amount of
$300.0 million due 2004 (the "Term Loan") and a reducing revolving credit
facility of up to $1.0 billion (the "Revolving Credit Loan"). In May 1997,
subsequent to the Offering, CCCI canceled $575.0 million of its Revolving
Credit Loan, thereby reducing the $1.0 billion commitment to $425.0 million.
CCCI used the amounts contributed by Comcast Cellular and the proceeds received
upon redemption of the Zero Coupon Notes held by it (aggregating $504.4
million), as well as available cash, to repay the Term Loan and $205.0 million
under the Revolving Credit Loan. In connection with the repayment of the Term
Loan and the reduction in the Revolving Credit Loan commitment, during the
second quarter of 1997, the Company expensed unamortized debt acquisition costs
of $11.3 million, resulting in an extraordinary loss, net of tax, of $7.3
million. As of June 30, 1997, CCCI had outstanding $160.0 million under its
Revolving Credit Loan. In July 1997, the Company made an optional debt
repayment on the Revolving Credit Loan of $10.0 million with existing cash and
cash equivalents. Current portion of long-term debt as of June 30, 1997
includes such amount.
Authorization and Issuance of Mandatorily Redeemable Preferred Stock
On May 7, 1997, the Company authorized 10,000,000 shares of $.01 par value
preferred stock and designated 5,200,000 of such shares as Series A Preferred
Stock. On May 19, 1997, the Company issued 1,614,775 shares of its mandatorily
redeemable Series A Preferred Stock to CFC. Each holder of the Series A
Preferred
F-6
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
QUARTER ENDED JUNE 30, 1997
(Unaudited)
Stock is entitled to receive cumulative cash dividends at the annual rate of
$12 per share, payable semi-annually on May 1 and November 1 each year, in
arrears. At the option of the Company, by declaration of the Company's Board of
Directors, dividends may be paid in additional shares of Series A Preferred
Stock (the "Additional Shares") instead of cash through May 1, 2007. To the
extent dividends are paid in Additional Shares, such Additional Shares shall be
valued at $100 per share with a liquidation value of $100 per share. The Series
A Preferred Stock is redeemable, at the option of the Company, at any time
prior to May 2, 2007, at a redemption price of $100 per share, plus accrued and
unpaid dividends, and is mandatorily redeemable on May 2, 2007 after final
maturity of the Old Notes, subject to certain conditions. The Series A
Preferred Stock is generally non-voting.
Cellular Retail Stores
In August 1996, the Company acquired twelve cellular retail stores and
direct sales locations located in Pennsylvania, New Jersey and Delaware, and
related assets from Advanced Telecomm, Inc. for $6.5 million in cash, subject
to certain purchase price adjustments. The Company accounted for the
acquisition under the purchase method.
Delaware 1 RSA
In May 1996, the Company and Southwestern Bell Mobile Systems, through a
partnership owned 50% by each of them, purchased the remaining 84% limited
partnership interests of the Delaware 1 Rural Statistical Area ("RSA") Limited
Partnership, the licensee of the non-wireline cellular license for the Kent and
Sussex, DE RSA (the "Delaware 1 RSA") for $44.1 million in cash, of which the
Company's share was $22.1 million. The surviving entity, C-SW Cellular
Partnership, a Delaware general partnership, now holds the cellular license for
the Delaware 1 RSA. American Cellular Network Corporation, an indirect wholly
owned subsidiary of the Company, manages the daily operations of the C-SW
Cellular Partnership's interest in the Delaware 1 RSA. The Company's investment
of $29.3 million and $29.8 million as of June 30, 1997 and December 31, 1996,
respectively, is accounted for under the equity method and is classified as
investment in affiliate in the Company's condensed consolidated balance sheet.
Atlantic City MSA
In June 1996, the Company completed its acquisition of the license to
operate the non-wireline cellular telephone system for the Atlantic City, NJ
Metropolitan Statistical Area (the "Atlantic City Cellular System") for $7.5
million in cash. The Company accounted for the acquisition under the purchase
method and began consolidating the Atlantic City Cellular System effective June
1, 1996.
Litigation Settlement
The Company was involved in various civil lawsuits and administrative
proceedings regarding the ownership, operation and transfer of the license for
the Atlantic City Cellular System. In March 1995, the Company, Comcast,
Telephone and Data Systems, Inc. ("TDS"), United States Cellular Corporation,
Ellis Thompson and Ellis Thompson Corporation entered into a Settlement
Agreement (the "Settlement Agreement") with respect to outstanding civil
litigation. During the six months ended June 30, 1996, the Company recorded
$21.6 million of estimated litigation settlement expense in its condensed
consolidated statement of operations and accumulated deficit. In June 1996, the
Company paid such amount to TDS under the Settlement Agreement.
3. INVESTMENT IN AND DUE TO AFFILIATES
In 1992, a subsidiary of AWACS, Inc., an indirect subsidiary of the
Company, issued a note (the "AWACS Note") with an initial principal amount of
$51.0 million to purchase, from a subsidiary of Comcast, a 40% limited
partnership interest in Garden State Cablevision L.P. ("Garden State
Cablevision"). The AWACS Note bears interest at a rate of 11% per annum.
Interest is payable on a quarterly basis to the extent of available cash, with
any unpaid interest added to principal. Interest expense on the AWACS Note was
$2.5 million, $4.0 million, $1.3
F-7
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
QUARTER ENDED JUNE 30, 1997
(Unaudited)
million and $2.0 million during the six and three months ended June 30, 1997
and 1996, respectively. From the date of issuance through June 30, 1997, $35.5
million of principal and interest has been paid on the AWACS Note with the
proceeds from distributions from Garden State Cablevision. The balance of the
AWACS Note is due on September 30, 1997, and accordingly, has been classified
as current in the Company's condensed consolidated balance sheet.
Under the terms of the partnership agreement, 49.5% of Garden State
Cablevision's net losses are allocated to the Company. Summarized financial
information for Garden State Cablevision as of June 30, 1997 and for the six
and three months ended June 30, 1997 and 1996 is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
1997 1996 1997 1996
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Results of Operations
Service income .............................. $ 54,546 $ 49,469 $ 27,816 $ 25,290
Operating, selling, general and administrative
expenses ................................. (26,295) (24,650) (14,721) (13,824)
Depreciation and amortization ............... (22,892) (24,169) (11,411) (12,093)
Operating income (loss) ..................... 5,359 650 1,684 (627)
Net loss .................................... (6,005) (7,732) (2,310) (3,245)
Company's equity in net loss ............... (2,972) (3,827) (1,143) (1,606)
</TABLE>
June 30,
1997
----------
Financial Position
Current assets .............................. $ 10,669
Noncurrent assets ........................... 147,920
Current liabilities ........................ 14,602
Noncurrent liabilities ..................... 332,260
4. RELATED PARTY TRANSACTIONS
Comcast and CCCI were parties to a management agreement (the "Old
Management Agreement") pursuant to which Comcast managed the business and
operations of CCCI. In May 1997, subsequent to the redemption of the Zero
Coupon Notes, the Old Management Agreement was terminated and replaced with a
new management agreement (the "New Management Agreement") which provides for an
annual management fee of 1.5% of revenues. The New Management Agreement
eliminated the prior management fee which was limited to $5.0 million, subject
to annual increases based on the consumer price index. The New Management
Agreement has a ten year term. Management fees of $3.0 million, $2.8 million,
$1.6 million and $1.4 million were charged to selling, general and
administrative expenses during the six and three months ended June 30, 1997 and
1996, respectively, (on a pro forma basis, giving effect to the New Management
Agreement, management fees for the six and three months ended June 30, 1997 and
1996 would have been $3.3 million, $3.1 million, $1.7 million and $1.6 million,
respectively). As of June 30, 1997 and December 31, 1996, deferred management
fees payable, which are included in long-term investment in and due to
affiliates in the Company's condensed consolidated balance sheet, totaled $17.7
million and $14.7 million, respectively.
5. STATEMENT OF CASH FLOWS -- SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of $22.2 million, $20.3
million, $11.0 million and $10.4 million during the six and three months ended
June 30, 1997 and 1996, respectively.
F-8
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Concluded)
QUARTER ENDED JUNE 30, 1997
(Unaudited)
The Company made cash payments for income taxes of $0.2 million, $0.6
million, $0.2 million and $0.2 million during the six and three months ended
June 30, 1997 and 1996, respectively.
6. CONTINGENCIES
The Company is subject to claims which arise in the ordinary course of its
business and other legal proceedings. 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.
F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Comcast Cellular Holdings, Inc.
Wilmington, Delaware
We have audited the accompanying consolidated balance sheet of Comcast Cellular
Holdings, Inc. (a wholly owned subsidiary of Comcast Corporation) and its
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations and accumulated deficit, and of cash flows for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Garden State
Cablevision L.P. ("Garden State Cablevision"), the Company's investment which
is accounted for under the equity method. The Company's equity of $93,664,000
and $51,341,000 in Garden State Cablevision's deficit at December 31, 1996 and
1995, respectively, and of $6,844,000, $10,175,000 and $8,863,000 in Garden
State Cablevision's net loss for the years ended December 31, 1996, 1995 and
1994, respectively, are included in the accompanying consolidated financial
statements. The financial statements of Garden State Cablevision were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included in the Company's consolidated
financial statements for Garden State Cablevision as of December 31, 1996 and
1995, and for each of the three years in the period ended December 31, 1996 is
based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based upon our audit and the report of other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Comcast Cellular Holdings, Inc. and its subsidiaries as
of December 31, 1996 and 1995 and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, on May 7,
1997, Comcast Corporation contributed all 100 of the issued and outstanding
$.01 par value common shares of Comcast Cellular Corporation, its wholly owned
subsidiary, to the Company. This contribution has been accounted for in a
manner similar to a pooling of interests. Accordingly, the consolidated
financial statements of the Company include the accounts of Comcast Cellular
Corporation for all periods presented.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
May 7, 1997 (except for Note 3, as
to which the date is May 19, 1997)
F-10
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
1996 1995
--------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .............................. $ 4,980 $ 19,640
Accounts receivable, less allowance for doubtful accounts
of $3,148 and $3,264 ................................. 66,425 85,688
Inventories ............................................. 10,458 8,601
Other current assets ................................. 3,470 4,233
Due from affiliates .................................... 11,023
----------- -----------
Total current assets .............................. 85,333 129,185
----------- -----------
INVESTMENT IN AFFILIATE ................................. 29,823 5,523
----------- -----------
PROPERTY AND EQUIPMENT .................................... 467,558 353,810
Accumulated depreciation .............................. (114,144) (67,129)
----------- -----------
Property and equipment, net ........................... 353,414 286,681
----------- -----------
DEFERRED CHARGES AND OTHER .............................. 1,245,283 1,238,338
Accumulated amortization .............................. (285,671) (228,341)
----------- -----------
Deferred charges and other, net ........................ 959,612 1,009,997
----------- -----------
$ 1,428,182 $ 1,431,386
=========== ===========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses .................. $ 83,831 $ 189,934
Accrued commissions .................................... 7,836 11,001
Accrued interest ....................................... 3,166 5,019
Deferred revenue and customer deposits .................. 9,291 8,574
Current portion of long-term debt ........................ 1,902 1,500
Due to affiliates ....................................... 45,926
----------- -----------
Total current liabilities ........................... 151,952 216,028
----------- -----------
LONG-TERM DEBT, less current portion ..................... 1,259,325 1,068,104
----------- -----------
INVESTMENT IN AND DUE TO AFFILIATES ..................... 108,804 133,239
----------- -----------
DEFERRED INCOME TAXES .................................... 256,737 295,117
----------- -----------
MINORITY INTEREST AND OTHER .............................. 7,219 5,169
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S DEFICIENCY
Common stock, $.01 par value - authorized, 1,000 shares;
issued, 100 shares ....................................
Additional capital ....................................... 500,425 500,425
Accumulated deficit .................................... (856,280) (786,696)
----------- -----------
Total stockholder's deficiency ..................... (355,855) (286,271)
----------- -----------
$ 1,428,182 $ 1,431,386
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
-------------- -------------- -------------
<S> <C> <C> <C>
SERVICE INCOME, net ........................ $ 426,053 $ 374,880 $ 286,137
---------- ---------- ----------
COSTS AND EXPENSES
Operating ................................. 36,876 28,923 22,684
Selling, general and administrative ...... 235,176 212,657 154,011
Depreciation and amortization ............ 117,225 205,733 89,916
---------- ---------- ----------
389,277 447,313 266,611
---------- ---------- ----------
OPERATING INCOME (LOSS) ..................... 36,776 (72,433) 19,526
OTHER (INCOME) EXPENSE
Interest expense ........................ 116,297 97,694 83,338
Investment income ........................ (2,525) (3,288) (1,373)
Equity in net losses of affiliates ...... 6,559 9,600 8,146
Litigation settlement ..................... 21,647
Other .................................... 2,449 (3,716) 6,411
---------- ---------- ----------
144,427 100,290 96,522
---------- ---------- ----------
LOSS BEFORE INCOME TAX BENEFIT
AND EXTRAORDINARY ITEMS ..................... (107,651) (172,723) (76,996)
INCOME TAX BENEFIT ........................... (38,067) (62,944) (21,907)
---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY ITEMS ............ (69,584) (109,779) (55,089)
EXTRAORDINARY ITEMS ........................ (3,047) (6,072)
---------- ---------- ----------
NET LOSS .................................... (69,584) (112,826) (61,161)
ACCUMULATED DEFICIT
Beginning of year ........................ (786,696) (673,870) (612,709)
---------- ---------- ----------
End of year .............................. ($ 856,280) ($ 786,696) ($ 673,870)
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ............................................. ($ 69,584) ($ 112,826) ($ 61,161)
Adjustments to reconcile net loss to net cash provided
by operating activities: ...........................
Extraordinary items .............................. 3,047 6,072
Depreciation and amortization ..................... 117,225 205,733 89,916
Non-cash interest expense ........................ 69,400 62,461 62,369
Equity in net losses of affiliates ............... 6,559 9,600 8,146
Minority interest ................................. 773 1,099 959
Deferred management fees ........................... 5,545 6,746 2,500
Deferred income taxes and other .................. (38,070) (80,335) (27,639)
---------- ---------- ----------
91,848 95,525 81,162
Decrease (increase) in accounts receivable,
inventories and other current assets ............ 22,726 (15,752) (40,592)
(Decrease) increase in accrued interest ............ (1,853) 1,498 1,426
Increase (decrease) in accounts payable and
accrued expenses, accrued commissions and
deferred revenue and customer deposits ............ 9,375 (11,931) 37,668
---------- ---------- ----------
Net cash provided by operating activities ...... 122,096 69,340 79,664
---------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from borrowings of long-term debt ............ 166,908 553,618 70,000
Repayments of long-term debt ........................ (36,500) (423,438) (95,023)
Deferred financing costs .............................. (20,350)
(Repayments) borrowings under deferred payment
plan ................................................ (120,177) 134,636
Repayment of long-term due to affiliate ............... (35,479)
Net transactions with affiliates ..................... 7,100 (12,035) 629
---------- ---------- ----------
Net cash (used in) provided by financing
activities .................................... (18,148) 232,431 (24,394)
---------- ---------- ----------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired .................. (13,958) (75,755)
Capital expenditures ................................. (116,018) (228,706) (71,943)
Proceeds from sale of equipment and other ............ 256 17,872 (27)
Purchase of minority interests, license acquisition
costs and other .................................... (24,367) (3,601) (8,512)
Distributions from Garden State Cablevision ......... 35,479
Sales of short-term investments ..................... 25,682
---------- ---------- ----------
Net cash used in investing activities ......... (118,608) (290,190) (54,800)
---------- ---------- ----------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS ............................................. (14,660) 11,581 470
CASH AND CASH EQUIVALENTS, beginning of year . 19,640 8,059 7,589
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year .................. $ 4,980 $ 19,640 $ 8,059
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. BUSINESS
Comcast Cellular Holdings, Inc. (the "Company") was incorporated on March
27, 1997 under the laws of the State of Delaware. At the date of incorporation,
the Company issued 100 shares of its newly authorized $.01 par value common
stock to Comcast Corporation ("Comcast") and became a wholly owned subsidiary
of Comcast. On May 7, 1997, Comcast contributed all 100 of the issued and
outstanding $.01 par value common shares of Comcast Cellular Corporation
("Comcast Cellular"), its wholly owned subsidiary, to the Company. This
contribution has been accounted for in a manner similar to a pooling of
interests. Accordingly, the consolidated financial statements of the Company
include the accounts of Comcast Cellular for all periods presented. Comcast
Cellular is a holding company whose sole direct subsidiary is Comcast Cellular
Communications, Inc. ("CCCI"). The Company's business is operated through
CCCI's subsidiaries, AWACS, Inc. ("AWACS") and American Cellular Network Corp.
("Amcell"). The Company is principally engaged in the development, management
and operation of cellular telephone communications systems located in
Pennsylvania, New Jersey and Delaware. The Company's consolidated systems
served 762,000 subscribers as of December 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned or controlled subsidiaries. All significant intercompany
accounts and transactions among the consolidated entities have been eliminated.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Values
The estimated fair value amounts presented in these notes to consolidated
financial statements have been determined by the Company using available market
information and appropriate methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of fair value.
The estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts. Such fair value estimates
are based on pertinent information available to management as of December 31,
1996 and 1995, and have not been comprehensively revalued for purposes of these
consolidated financial statements since such dates.
A reasonable estimate of fair values of the due to/from affiliates in the
Company's consolidated balance sheet is not practicable to obtain because of
the related party nature of these items and the lack of quoted market prices.
Cash Equivalents
Cash equivalents consist principally of overnight investments in money
market funds with maturities of three months or less when purchased. The
carrying amounts of the Company's cash equivalents, classified as available for
sale securities, approximate their fair values as of December 31, 1996 and
1995.
F-14
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Inventories
Inventories, which include products held for sale, materials and supplies,
are stated at the lower of cost or market. Cost for products held for sale is
stated at weighted average cost, which approximates market.
Investments
Investments in entities in which the Company has the ability to exercise
significant influence over the operating and financial policies of the investee
are accounted for under the equity method. Equity method investments are
recorded at original cost and adjusted periodically to recognize the Company's
proportionate share of the investees' net income or losses after the date of
investment, additional contributions made and dividends received. Investments
in privately held companies are stated at cost, adjusted for any known
diminution in value.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided by the
straight-line method over estimated useful lives as follows:
Buildings .................. 10-40 years
Operating facilities ...... 8-12 years
Other equipment ............ 3-8 years
Improvements that extend asset lives are capitalized; other repairs and
maintenance charges are expensed as incurred. The cost and related accumulated
depreciation applicable to assets sold or retired are removed from the accounts
and the gain or loss on disposition is recognized as a component of
depreciation expense.
Deferred Charges and Other
Deferred charges consist principally of license acquisition costs and debt
acquisition costs. License acquisition costs are being amortized on a
straight-line basis over the estimated useful lives of the licenses of up to 40
years. Debt acquisition costs are being amortized on a straight-line basis over
the term of the related debt of nine years.
Valuation of Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets, including property and equipment and deferred charges using objective
methodologies. Such methodologies include evaluations based on the cash flows
generated by the underlying assets or other determinants of fair value.
Revenue Recognition
Service income is recognized as service is provided and is recorded net of
long distance and roaming incollect charges. Credit risk is managed by
disconnecting services to customers who are delinquent.
Postretirement and Postemployment Benefits
The estimated costs of retiree benefits and benefits for former or
inactive employees, after employment but before retirement, are accrued and
recorded as a charge to operations during the years the employees provide
services. The Company's retiree benefit obligation is unfunded and all benefits
are paid by Comcast. Accordingly, the Company's liability for these costs is
included in long-term investment in and due to affiliates.
Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities and expected benefits of utilizing net
operating loss carryforwards. The impact on deferred taxes of changes in tax
rates and laws, if any, applied to the years during which temporary differences
are expected to be settled, are reflected in the consolidated financial
statements in the period of enactment.
F-15
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Derivative Financial Instruments
The Company uses derivative financial instruments, including interest rate
exchange agreements ("Swaps") and interest rate collar agreements ("Collars")
to manage its exposure to fluctuations in interest rates. Swaps and Collars are
matched with either fixed or variable rate debt and periodic cash payments are
accrued on a settlement basis as an adjustment to interest expense.
The Company does not hold or issue any derivative financial instruments
for trading purposes and is not a party to leveraged instruments (see Note 4).
The credit risks associated with the Company's derivative financial instruments
are controlled through the evaluation and monitoring of the creditworthiness of
the counterparties. Although the Company may be exposed to losses in the event
of nonperformance by the counterparties, the Company does not expect such
losses, if any, to be significant.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 1996.
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Debt Offering and Related Transactions
In May 1997, the Company completed the sale of $1.0 billion principal
amount of 9 1/2% Senior Notes due 2007 (the "Old Notes") through a private
offering with registration rights (the "Offering"). On May 19, 1997, the
Company issued 1,614,775 shares of its newly authorized $.01 par value
mandatorily redeemable Series A Preferred Stock to Comcast Financial
Corporation ("CFC"), a wholly owned subsidiary of Comcast, for $161.5 million.
The Company used the net proceeds from the Offering and from the issuance of
its Series A Preferred Stock to repay all amounts outstanding under the Zero
Coupon Notes (as defined in Note 4) and a portion of the amounts outstanding
under CCCI's $1.3 billion credit agreement with certain banks (the "Credit
Agreement") (see Note 4).
Cellular Retail Stores
In August 1996, the Company acquired twelve cellular retail stores and
direct sales locations in Pennsylvania, New Jersey and Delaware, and related
assets from Advanced Telecomm, Inc. for $6.5 million in cash, subject to
certain purchase price adjustments. The Company accounted for the acquisition
under the purchase method.
Delaware 1 RSA
In May 1996, the Company and Southwestern Bell Mobile Systems, through a
partnership owned 50% by each of them, purchased the remaining 84% limited
partnership interests of the Delaware 1 Rural Statistical Area ("RSA") Limited
Partnership, the licensee of the non-wireline cellular license for the Kent and
Sussex, DE RSA (the "Delaware 1 RSA") for $44.1 million in cash, of which the
Company's share was $22.1 million. The surviving entity, C-SW Cellular
Partnership, a Delaware general partnership, now holds the cellular license for
the Delaware 1 RSA. Amcell manages the daily operations of the C-SW Cellular
Partnership's interest in the Delaware 1 RSA. The Company's investment of $29.8
million and $5.5 million as of December 31, 1996 and 1995, respectively, is
accounted for under the equity method and is classified as investment in
affiliate in the Company's consolidated balance sheet.
F-16
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Ocean County RSA
In 1995, the Company completed its exchange agreement with McCaw Cellular
Communications, Inc. whereby the Company acquired a 100% interest in the entity
that held the Ocean County, NJ RSA (the "Ocean County RSA") non-wireline
cellular license in exchange for the Company's Hunterdon County, NJ RSA
cellular license and related assets, and $55.2 million in cash.
Vineland/Atlantic City MSA
In June 1995, the Company purchased all of the outstanding stock of United
States Cellular Operating Company of Vineland, Inc. ("USCC/Vineland") from
United States Cellular Corporation ("USCC") for $21.2 million in cash.
USCC/Vineland held an approximate 80.4% interest in the Vineland Cellular
Telephone Company, Inc. ("VCTC"), which holds the license to operate the
non-wireline cellular telephone system serving the Vineland, NJ Metropolitan
Statistical Area ("MSA"), and an approximate 9.3% interest in the non-wireline
cellular telephone system for the Atlantic City, NJ MSA (the "Atlantic City
Cellular System"). The entire cost of the acquisition of these interests was
funded with the proceeds of a loan from Comcast, which was repaid during 1995
in connection with the 1995 Refinancing described in Note 4. As of June 30,
1995, the Company began consolidating VCTC.
In June 1996, the Company completed the acquisition of the license to
operate the Atlantic City Cellular System and paid $7.5 million in cash. The
Company began consolidating the Atlantic City Cellular System effective June 1,
1996. The Company accounted for the acquisitions under the purchase method.
Litigation Settlement
The Company was involved in various civil lawsuits and administrative
proceedings regarding the ownership, operation and transfer of the license for
the Atlantic City Cellular System. In March 1995, the Company, Comcast,
Telephone and Data Systems, Inc. ("TDS"), USCC, Ellis Thompson and Ellis
Thompson Corporation entered into a Settlement Agreement (the "Settlement
Agreement") with respect to outstanding civil litigation. In June 1996, the
Company paid $21.6 million to TDS under the Settlement Agreement. The Company
recorded the expenses related to the Settlement Agreement in its 1996
consolidated statement of operations and accumulated deficit.
Cellular Rebuild
In 1995, the Company purchased $172.0 million of switching and cell site
equipment which replaced the existing switching and cell site equipment (the
"Cellular Rebuild"). The Company substantially completed the Cellular Rebuild
during 1995. Accordingly, during 1995, the Company charged $110.0 million to
depreciation expense, which represented the difference between the net book
value of the equipment replaced and the residual value realized upon its
disposal.
4. LONG-TERM DEBT
Long-term debt consists of the following (dollars in thousands):
December 31,
1996 1995
------------ -----------
Zero Coupon Notes ............ $ 602,819 $ 541,604
Term Loan ..................... 300,000 300,000
Revolving Credit Loan ......... 355,000 225,000
Other, due through 2001 ...... 3,408 3,000
----------- -----------
1,261,227 1,069,604
Less current portion ......... 1,902 1,500
----------- -----------
$1,259,325 $1,068,104
=========== ===========
F-17
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Series A & B Senior Participating Redeemable Zero Coupon Notes Due 2000
As of December 31, 1996, the Series A Senior Participating Redeemable Zero
Coupon Notes Due 2000 (the "Series A Notes") and the Series B Senior
Participating Redeemable Zero Coupon Notes Due 2000 (the "Series B Notes" and,
together with the Series A Notes, the "Zero Coupon Notes") had an aggregate
face amount payable at maturity of $847.1 million, accreting from $359.7
million at 11% per annum (computed on a semi-annual bond equivalent basis). The
Zero Coupon Notes were effectively subordinate to all of the liabilities and
preferred stock obligations of the subsidiaries of the Company, including trade
payables.
The Company, at its option, may redeem the Zero Coupon Notes at any time.
Holders of a majority in principal amount of the Zero Coupon Notes have the
right to require the Company to redeem all of the Zero Coupon Notes at any time
on or after March 5, 1998. In the event of the sale of all or substantially all
of the Company, the Company has the option, and the holders of a majority in
principal amount of the Zero Coupon Notes have the right to require the
Company, to redeem the Zero Coupon Notes.
At maturity or upon an earlier redemption, the Company was required to pay
the Redemption Price (as defined), equal to the greater of (a) the then
accreted value of the Zero Coupon Notes and (b) the Applicable Percentage (as
defined; initially 35%) of the then Private Market Value of CCCI (plus
additional interest in certain cases). As defined, Private Market Value is
determined, in part, on a basis as if CCCI and its subsidiaries did not own any
of the Excluded Assets (as defined). The Excluded Assets include the AWACS
Cable Subsidiary (see Note 5).
The Series A Notes and the Series B Notes were identical except that the
Company could, at its option, pay the Series A Notes either in cash, or subject
to certain conditions, in shares of Comcast Class A Special Common Stock, which
is generally non-voting, or a combination thereof. The Company was required to
pay the Series B Notes solely in cash. The Zero Coupon Notes were not
obligations of or guaranteed by Comcast or CCCI.
The Zero Coupon Notes contained covenants which, among other things, (a)
prohibited the Company from incurring any indebtedness other than the Zero
Coupon Notes and certain expenses (such covenant did not, however, restrict
indebtedness which might have been incurred by subsidiaries of the Company),
(b) limited the ability of the Company and CCCI to pay any dividends or make
any distributions on their capital stock or make any loans to affiliates, (c)
limited the ability of the Company and its subsidiaries to engage in
transactions with affiliates on terms less favorable than those which could be
obtained from a non-affiliate, (d) limited the ability of CCCI and its
subsidiaries to engage in any business other than the management and operation
of cellular communications systems and operations ancillary thereto, and (e)
prohibited the Company from liquidating or causing CCCI to liquidate.
In 1994, CCCI purchased $153.8 million principal amount ($85.7 million
accreted value at that date) of the Company's Series A Notes from a wholly
owned subsidiary of Comcast for $95.0 million. The premium paid in excess of
the accreted value of the Series A Notes at the date of purchase of $9.3
million was recorded as an extraordinary loss, net of the related tax benefit
of $3.3 million, in the Company's 1994 consolidated statement of operations and
accumulated deficit.
As of December 31, 1996 and 1995, $217.7 million principal amount of the
Zero Coupon Notes with an accreted value of $154.9 million and $139.2 million,
respectively, were held CFC.
In May 1997, the Company redeemed the Zero Coupon Notes in full, with the
net proceeds from the Offering and from the issuance of its Series A Preferred
Stock (see Note 3). Unamortized debt acquisition costs related to the Zero
Coupon Notes were not significant.
F-18
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Debt Refinancing
In September 1995, the Company refinanced a portion of its outstanding
debt (the "1995 Refinancing"). In connection with the 1995 Refinancing, the
Company entered into a $1.3 billion credit agreement (the "Credit Agreement")
with certain banks. As a result of the 1995 Refinancing, the Company expensed
unamortized debt acquisition costs relating to its previous credit facility of
$4.7 million during 1995, resulting in an extraordinary loss, net of the
related tax benefit, of $3.0 million.
The Credit Agreement provides for a term loan in the principal amount of
$300.0 million due 2004 (the "Term Loan") and a reducing revolving credit
facility of up to $1.0 billion (the "Revolving Credit Loan" and, together with
the Term Loan, the "Loans").
The maximum principal amount of the Revolving Credit Loan is reduced in
quarterly installments, which increase annually, commencing September 30, 1998
and continuing through 2004. Outstanding amounts under the Revolving Credit
Loan as of December 31, 1996 are due in quarterly installments commencing in
2002. Interest rates are based on a base, London Interbank Offered Rate or
Certificate of Deposit rate, plus a percentage which varies as the ratio of
total indebtedness to annual operating cash flow (as defined) varies. The
Company's effective weighted average interest rate on the Loans was 6.84%,
7.17% and 7.33% during the years ended December 31, 1996, 1995 and 1994,
respectively.
As security for the Loans, CCCI has pledged the capital stock of its
direct subsidiaries. The Credit Agreement contains certain restrictions,
including prohibitions on the payment of dividends (with certain limited
exceptions), changes in CCCI's business, incurrence of indebtedness, liens,
asset acquisitions and sales, investments and affiliate transactions. CCCI is
required to maintain certain financial ratios relating to operating cash flow
(as defined) and is required to use a portion of excess cash flow (as defined)
and proceeds of asset sales to prepay indebtedness under the Credit Agreement.
The calculation of these financial ratios excludes the results of the AWACS
Cable Subsidiary (see Note 5).
In May 1997, the Company repaid the Term Loan and a portion of the amounts
outstanding under the Revolving Credit Loan (see Note 3) and canceled $575.0
million of its Revolving Credit Loan, thereby reducing the $1.0 billion
commitment to $425.0 million. In connection with the repayment of a portion of
the amounts outstanding under the Credit Agreement and the reduction in the
Revolving Credit Loan commitment, during the second quarter of 1997, the
Company will record an extraordinary loss, net of the related tax benefit, of
$7.3 million. As a result of these transactions, as of the redemption date, the
Company had $170.0 million outstanding under its Revolving Credit Loan.
Interest Rate Risk Management
The Company is exposed to market risk including changes in interest rates.
To manage the volatility relating to these exposures, the Company enters into
various derivative transactions pursuant to the Company's policies in areas
such as counterparty exposure and hedging practices. Positions are monitored
using techniques including market value and sensitivity analyses.
The use of interest rate risk management instruments, such as Swaps and
Collars, is required under the terms of the Credit Agreement. The Company's
policy is to manage interest costs using a mix of fixed and variable rate debt.
Using Swaps, the Company agrees to exchange, at specified intervals, the
difference between fixed and variable interest amounts calculated by reference
to an agreed-upon notional principal amount. Collars limit the Company's
exposures to and benefits from interest rate fluctuations on variable rate debt
to within a range of rates.
F-19
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The following table summarizes the terms of the Company's existing Swap
and Collars as of December 31, 1996 and 1995 (dollars in thousands):
Notional Average
Amount Maturities Interest Rate
---------- ------------ --------------
As of December 31, 1996
- -----------------------
Variable to Fixed Swap ...... $ 50,000 1998 5.65%
Collars ..................... 220,000 1997 6.78%/5.38%
As of December 31, 1995
- -----------------------
Variable to Fixed Swap ...... $ 50,000 1998 5.65%
Collar ..................... 50,000 1997 6.27%/5.00%
The notional amounts of interest rate agreements, as presented in the
above table, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. While Swaps and Collars
represent an integral part of the Company's interest rate risk management
program, their incremental effect on interest expense for the years ended
December 31, 1996, 1995 and 1994 was not significant.
The Company's long-term debt had carrying amounts of $1.261 billion and
$1.070 billion and estimated fair values of $1.113 billion and $1.178 billion
as of December 31, 1996 and 1995, respectively. The estimated fair value of the
Company's publicly traded debt is based on quoted market prices for that debt.
Interest rates that are currently available to the Company for issuance of debt
with similar terms and remaining maturities are used to estimate fair value for
debt issues for which quoted market prices are not available.
The difference between the carrying values and estimated fair values of
the Company's derivative financial instruments was not significant as of
December 31, 1996 and 1995, and has been estimated based upon amounts at which
such items could be settled.
5. INVESTMENT IN AND DUE TO AFFILIATES
In 1992, a subsidiary (the "AWACS Cable Subsidiary") of AWACS issued a
note (the "AWACS Note") with an initial principal amount of $51.0 million to
purchase, from a subsidiary of Comcast, a 40% limited partnership interest in
Garden State Cablevision L.P. ("Garden State Cablevision"). The AWACS Note
bears interest at a rate of 11% per annum. Interest is payable on a quarterly
basis to the extent of available cash, with any unpaid interest added to
principal. Interest expense on the AWACS Note was $8.2 million, $7.5 million,
and $6.7 million for the years ended December 31, 1996, 1995 and 1994,
respectively. From the date of issuance through December 31, 1996, $35.5
million of principal and interest has been paid on the AWACS Note with the
proceeds from distributions from Garden State Cablevision. The balance of the
AWACS Note is due on September 30, 1997, and accordingly, has been classified
as current in the Company's consolidated balance sheet as of December 31, 1996.
Under the terms of the partnership agreement, 49.5% of Garden State
Cablevision's net losses are allocated to the Company. Under the terms of the
Zero Coupon Notes and Loans (see Note 4), the AWACS Cable Subsidiary is
excluded for the purposes of determining the Redemption Price (as defined), and
the required cash flow ratios.
F-20
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Summarized financial information for Garden State Cablevision for 1996,
1995 and 1994 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Results of Operations
Service income ................................................ $ 100,756 $ 91,771 $ 91,288
Operating, selling, general and administrative expenses ...... 43,608 40,595 39,068
Depreciation and amortization ................................. 48,524 46,976 47,293
Operating income ............................................. 8,624 4,200 4,927
Net loss ...................................................... (13,826) (20,556) (17,905)
Company's equity in net loss ................................. (6,844) (10,175) (8,863)
December 31,
1996 1995
---------- --------
Financial Position
Current assets ................................................................. $ 8,457 $ 7,003
Noncurrent assets .............................................................. 161,241 186,196
Current liabilities ............................................................ 17,609 12,877
Noncurrent liabilities ......................................................... 334,356 260,047
</TABLE>
6. LCH PREFERRED STOCK REDEMPTION
In June 1994, LCH Communications, Inc. ("LCH") redeemed the Class A
Redeemable Preferred Stock (the "LCH Preferred Stock") held by CCCI through the
transfer to CCCI of 100% of the capital stock of LIN Cellular Communications
Corporation. As a result of such redemption, CCCI owns 100% of the common stock
of AWACS. Since the Company has historically accounted for the purchase of
AWACS as if it had acquired a 100% direct interest, the redemption of the LCH
Preferred Stock had no effect on the Company's accounting for AWACS.
In addition to the interest in AWACS, the redemption of the LCH Preferred
Stock entitled the Company to an interest in certain publishing and
broadcasting operations. CCCI issued to Metromedia Company participating
preferred stock which had economic attributes based on the performance and
ultimate value of the publishing and broadcasting operations. In June 1997,
CCCI redeemed the participating preferred stock in exchange for such assets. As
these operations are excluded from the Company's consolidated financial
statements, the redemption of the participating preferred stock will have no
financial statement effect.
7. RELATED PARTY TRANSACTIONS
Comcast and CCCI were parties to a management agreement (the "Old
Management Agreement") pursuant to which Comcast managed the business and
operations of CCCI. Pursuant to the Old Management Agreement, management fees
of $5.5 million, $5.5 million and $5.3 million were charged to selling, general
and administrative expenses during the years ended December 31, 1996, 1995 and
1994, respectively. During the years ended December 31, 1995 and 1994, CCCI was
charged additional management fees (the "Additional Management Fees") of $2.7
million and $2.5 million, respectively. In accordance with the provisions of
the Old Management Agreement, annual cash payments of management fees were
limited to $5.0 million, subject to annual increases based on the consumer
price index (eliminated by the New Management Agreement -- see below). In
certain circumstances, the Credit Agreement may further limit the payment of
management fees. As of December 31, 1996 and 1995, deferred management fees
payable, which are included in long-term investment in and due to affiliates,
totaled $14.7 million and $9.2 million, respectively. In May 1997, subsequent
to the redemption of the Zero Coupon Notes, the Old Management Agreement was
terminated and replaced with a new management agreement (the "New Management
Agreement") which provides for an annual management fee of 1.5% of revenues (on
a pro forma basis, giving effect to the New Management Agreement, management
fees for the years ended December 31, 1996, 1995 and 1994 would have been $6.4
million, $5.6 million and $4.3 million, respectively). The New Management
Agreement has a ten year term.
F-21
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
8. INCOME TAXES
Comcast, the Company, and CCCI have entered into a tax sharing agreement
(the "Tax Sharing Agreement") whereby, the Company joins with Comcast in filing
a consolidated federal income tax return. Comcast allocates income tax expense
or benefit to the Company as if the Company was filing a separate federal
income tax return. Tax benefits from both losses and tax credits are made
available to the Company as it is able to realize such benefits on a separate
return basis. The Company is required to pay to Comcast for income taxes an
amount equal to that amount of tax the Company would pay if it filed a separate
tax return. Subsidiaries which were less than 80% owned have been excluded from
the Tax Sharing Agreement, as they were not members of the Comcast consolidated
group for tax purposes. Accordingly, their tax liabilities have been determined
on a separate company basis.
Significant components of the Company's net deferred tax liability are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
----------- -------------
<S> <C> <C>
Deferred tax liabilities:
Difference between book and tax basis of property and equipment ... $ 394,308 $ 394,202
--------- ---------
Deferred tax assets:
Net operating loss carryforwards ................................. 147,953 107,190
Difference between book and tax basis of property and equipment and
deferred charges ................................................ 24,911 27,188
Less valuation allowance .......................................... (35,293) (35,293)
--------- ---------
137,571 99,085
--------- ---------
Net deferred tax liability .......................................... $ 256,737 $ 295,117
========= =========
</TABLE>
Income tax benefit consists of the following components (dollars in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Current expense
Federal ................................... $ $ 1,932 $ 5,682
State ..................................... 313 921 6,522
--------- --------- ---------
313 2,853 12,204
--------- --------- ---------
Deferred (benefit) expense
Federal ................................... (36,836) (60,571) (34,757)
State ..................................... (1,544) (5,226) 646
--------- --------- ---------
(38,380) (65,797) (34,111)
--------- --------- ---------
($ 38,067) ($ 62,944) ($ 21,907)
========= ========= =========
</TABLE>
F-22
<PAGE>
COMCAST CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Concluded)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The effective income tax benefit of the Company differs from the statutory
amount because of the effect of the following items (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Federal tax at statutory rate .................. ($ 37,678) ($ 60,453) ($ 26,949)
State income taxes, net of federal benefit ...... (800) (2,798) 4,659
Other, net ....................................... 411 307 383
--------- --------- ---------
($ 38,067) ($ 62,944) ($ 21,907)
========= ========= =========
</TABLE>
As of December 31, 1996, the Company has available net operating loss
carryforwards of approximately $367.0 million for which a deferred tax asset
has been recorded and which expire through the year 2011.
9. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of $48.7 million, $33.7
million and $19.5 million during the years ended December 31, 1996, 1995 and
1994, respectively.
The Company made cash payments for income taxes of $0.8 million, $7.5
million and $5.9 million during the years ended December 31, 1996, 1995 and
1994, respectively.
10. COMMITMENTS AND CONTINGENCIES
The Company leases certain office and transmissions facilities under
noncancellable operating leases expiring on various dates through 2039. The
leases generally provide for fixed annual rentals plus certain real estate
taxes and other costs. Rental expense of $10.5 million, $7.6 million and $6.3
million for 1996, 1995 and 1994, respectively, has been charged to operations.
As of December 31, 1996, the minimum rental commitments under
noncancellable operating leases are as follows (dollars in thousands):
1997 ............ $10,900
1998 ............ 10,902
1999 ............ 10,007
2000 ............ 8,545
2001 ............ 6,557
Thereafter ...... 16,326
The Company is subject to claims which arise in the ordinary course of its
business and other legal proceedings. 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.
F-23
<PAGE>
================================================================================
No person has been authorized to give any information or make any
representations, other than those contained in this Prospectus, in
connection with the offering made hereby, and, if given or made, such
information or representation must not be relied upon as having been
authorized by the Company or any other person. Neither the delivery of
this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any securities offered
hereby by anyone in any jurisdiction in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation
is not qualified to do so or to any person to whom it is unlawful to make
such an offer or solicitation.
------------------------
TABLE OF CONTENTS
Page
-----------
Available Information ........................ 2
Prospectus Summary ........................... 3
Risk Factors ................................. 11
Capitalization .............................. 18
Selected Consolidated Financial and Other
Data .................................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .............................. 21
The Exchange Offer ........................... 32
Business .................................... 38
Management ................................. 49
Principal Stockholders ..................... 51
Certain Relationships and Related
Transactions .............................. 53
Description of the Notes ..................... 54
Registration Rights; Liquidated Damages . 82
Certain Federal Income Tax Consequences 82
Plan of Distribution ........................ 83
Certain Terms .............................. 83
Legal Matters .............................. 84
Experts .................................... 84
Index to Consolidated Financial
Statements .............................. F-1
Until December 29, 1997 (90 days after the date hereof), all dealers
effecting transactions in the New Notes, whether or not participating in
this distribution, may be required to deliver a prospectus. This is in
addition to the obligations of dealers to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
<PAGE>
================================================================================
$1,000,000,000
COMCAST CELLULAR
HOLDINGS, INC.
9 1/2% Senior Notes due 2007, Series B
-----------------------------------------------------
PROSPECTUS
-----------------------------------------------------
September 30, 1997
================================================================================
