UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended:
SEPTEMBER 30, 1997
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ________ to ________.
Commission File Number 333-31009
COMCAST CELLULAR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 23-2687447
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1105 North Market Street, Wilmington, Delaware 19801
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (302) 427-8991
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes X * No ___
* The Registrant became subject to the reporting requirements of the
Securities Act of 1934 on September 30, 1997.
--------------------------
As of September 30, 1997, there were 100 shares of Common Stock outstanding.
The Registrant meets the conditions set forth in General Instructions H (1)(a)
and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
<PAGE>
AMENDMENT TO FORM 10-Q
This Form 10-Q/A amends the registrant's previously filed Form 10-Q for the
quarter ended September 30, 1997. On December 23, 1997, Comcast Cellular
Holdings, Inc. was merged with and into its wholly owned subsidiary,
Comcast Cellular Corporation ("Comcast Cellular") with Comcast Cellular
being the surviving entity. Accordingly, effective December 23, 1997, the
registrant is Comcast Cellular Corporation. This amendment reflects the
change in the registrant's name as well as the matters discussed in Note 2
to the unaudited condensed consolidated financial statements.
<PAGE>
COMCAST CELLULAR CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheet as of September 30, 1997 and December 31,
1996 (Unaudited)..........................................3
Condensed Consolidated Statement of
Operations and Accumulated Deficit for
the Nine and Three Months Ended September 30,
1997 and 1996 (Unaudited).................................4
Condensed Consolidated Statement of Cash
Flows for the Nine Months Ended September 30,
1997 and 1996 (Unaudited).................................5
Notes to Condensed Consolidated
Financial Statements (Unaudited).....................6 - 10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations..........................................11 - 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................18
Item 6. Exhibits and Reports on Form 8-K.........................18
SIGNATURE........................................................19
-----------------------------------
This Quarterly Report on Form 10-Q contains forward looking statements made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned that such forward looking statements
involve risks and uncertainties which could significantly affect expected
results in the future from those expressed in any such forward looking
statements made by, or on behalf, of the Company. Certain factors that could
cause actual results to differ materially include, without limitation, the
effects of legislative and regulatory changes; the potential for increased
competition; technological changes; the need to generate substantial growth in
the subscriber base by successfully launching, marketing and providing services
in identified markets; pricing pressures which could affect demand for the
Company's services; the Company's ability to expand its distribution; changes in
labor, equipment and capital costs; future acquisitions, strategic partnerships
and divestitures; general business and economic conditions; and other risks
detailed from time to time in the Company's periodic reports filed with the
Securities and Exchange Commission.
<PAGE>
COMCAST CELLULAR CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1997
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, except share data)
September 30, December 31,
1997 1996
(Restated)
(See Note 2)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................... $12,481 $4,980
Accounts receivable, less allowance for doubtful
accounts of $5,830 and $3,148.............................................. 64,174 66,425
Inventories.................................................................. 22,174 10,458
Other current assets......................................................... 4,005 3,470
---------- ----------
Total current assets..................................................... 102,834 85,333
---------- ----------
INVESTMENT IN AFFILIATE......................................................... 29,404 29,823
---------- ----------
PROPERTY AND EQUIPMENT.......................................................... 554,251 467,558
Accumulated depreciation..................................................... (163,665) (114,144)
---------- ----------
Property and equipment, net.................................................. 390,586 353,414
---------- ----------
DEFERRED CHARGES AND OTHER...................................................... 1,261,557 1,245,283
Accumulated amortization..................................................... (313,988) (285,671)
---------- ----------
Deferred charges and other, net.............................................. 947,569 959,612
---------- ----------
$1,470,393 $1,428,182
========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses........................................ $81,660 $83,831
Accrued commissions.......................................................... 5,745 7,836
Accrued interest............................................................. 38,239 3,166
Deferred revenue and customer deposits....................................... 11,299 9,291
Current portion of long-term debt............................................ 10,423 1,902
Due to affiliates............................................................ 51,253 45,926
---------- ----------
Total current liabilities................................................ 198,619 151,952
---------- ----------
LONG-TERM DEBT, less current portion............................................ 1,139,596 1,259,325
---------- ----------
INVESTMENT IN AND DUE TO AFFILIATES............................................. 112,700 108,804
---------- ----------
DEFERRED INCOME TAXES........................................................... 238,781 256,737
---------- ----------
MINORITY INTEREST AND OTHER..................................................... 6,605 7,219
---------- ----------
COMMITMENTS AND CONTINGENCIES
MANDATORILY REDEEMABLE PREFERRED STOCK HELD BY AFFILIATE........................ 168,583
---------- ----------
STOCKHOLDER'S DEFICIENCY
Common stock, $.01 par value - authorized, 1,000 shares; issued, 100 shares..
Additional capital........................................................... 493,320 500,425
Accumulated deficit.......................................................... (887,811) (856,280)
---------- ----------
Total stockholder's deficiency........................................... (394,491) (355,855)
---------- ----------
$1,470,393 $1,428,182
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
COMCAST CELLULAR CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1997
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
Nine Months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
(Restated) (Restated)
(See Note 2) (See Note 2)
<S> <C> <C> <C> <C>
SERVICE INCOME, net........................................... $335,380 $317,115 $115,107 $110,019
--------- --------- --------- ---------
COSTS AND EXPENSES
Operating.................................................. 28,242 26,415 9,311 9,120
Selling, general and administrative........................ 170,849 177,274 56,102 53,990
Depreciation and amortization.............................. 80,662 84,777 27,080 28,008
--------- --------- --------- ---------
279,753 288,466 92,493 91,118
--------- --------- --------- ---------
OPERATING INCOME.............................................. 55,627 28,649 22,614 18,901
OTHER (INCOME) EXPENSE
Interest expense........................................... 89,061 86,131 27,896 30,453
Investment income.......................................... (1,898) (2,060) (328) (489)
Equity in net losses of affiliates......................... 4,524 5,102 1,004 1,559
Litigation settlement...................................... 21,647
Other...................................................... 1,173 2,340 733 242
--------- --------- --------- ---------
92,860 113,160 29,305 31,765
--------- --------- --------- ---------
LOSS BEFORE INCOME TAX BENEFIT AND
EXTRAORDINARY ITEM......................................... (37,233) (84,511) (6,691) (12,864)
INCOME TAX BENEFIT............................................ (13,015) (32,286) (2,067) (4,961)
--------- --------- --------- ---------
LOSS BEFORE EXTRAORDINARY ITEM................................ (24,218) (52,225) (4,624) (7,903)
EXTRAORDINARY ITEM............................................ (7,313)
--------- --------- --------- ---------
NET LOSS...................................................... (31,531) (52,225) (4,624) (7,903)
PREFERRED DIVIDENDS........................................... (7,105) (4,844)
--------- --------- --------- ---------
NET LOSS FOR COMMON STOCKHOLDER............................... ($38,636) ($52,225) ($9,468) ($7,903)
========= ========= ========= =========
ACCUMULATED DEFICIT
Beginning of period ....................................... ($856,280) ($786,696) ($883,187) ($831,018)
Net loss................................................... (31,531) (52,225) (4,624) (7,903)
--------- --------- --------- ---------
End of period.............................................. ($887,811) ($838,921) ($887,811) ($838,921)
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
COMCAST CELLULAR CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1997
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
Nine Months Ended September 30,
1997 1996
(Restated)
(See Note 2)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss..................................................................... ($31,531) ($52,225)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization.............................................. 80,662 84,777
Non-cash interest expense.................................................. 29,337 51,353
Equity in net losses of affiliates......................................... 4,524 5,102
Minority interest.......................................................... 1,149 530
Deferred management fees................................................... 2,211 4,159
Deferred income taxes and other............................................ (15,781) (31,113)
Extraordinary item......................................................... 7,313
--------- ---------
77,884 62,583
(Increase) decrease in net accounts receivable,
inventories and other current assets.................................. (10,000) 27,195
Increase in accrued interest............................................... 35,073 1,861
Decrease in accounts payable and accrued expenses, accrued commissions
and deferred revenue and customer deposits............................... (2,254) (14,377)
--------- ---------
Net cash provided by operating activities............................ 100,703 77,262
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings..................................................... 1,018,370 140,000
Repayments of long-term debt................................................. (1,155,076) (1,500)
Repayments under deferred payment plan....................................... (85,413)
Deferred financing costs..................................................... (28,353)
Proceeds from issuance of mandatorily redeemable preferred stock to affiliate 161,478
Net transactions with affiliates............................................. (932) 5,747
--------- ---------
Net cash (used in) provided by financing activities.................. (4,513) 58,834
--------- ---------
INVESTING ACTIVITIES
Capital expenditures......................................................... (87,213) (69,026)
Acquisitions, net of cash acquired........................................... (13,958)
Other........................................................................ (1,476) (24,801)
--------- ---------
Net cash used in investing activities................................ (88,689) (107,785)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS........................................... 7,501 28,311
CASH AND CASH EQUIVALENTS, beginning of period.................................. 4,980 19,640
--------- ---------
CASH AND CASH EQUIVALENTS, end of period........................................ $12,481 $47,951
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
COMCAST CELLULAR CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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
was accounted for in a manner similar to a pooling of interests.
Accordingly, the condensed consolidated financial statements of the Company
include the accounts of the Company and 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
In the fourth quarter of 1997, the Company recorded an adjustment to
amortization expense to reverse amounts previously recorded during 1997
related to intangible assets which had become fully amortized. The effect
of this adjustment on the accompanying condensed consolidated financial
statements is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Accumulated Net Loss Net Loss
Deficit as of Three Months Ended Nine Months Ended
September 30, 1997 September 30, 1997 September 30, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
As previously reported ($896,760) ($8,459) ($40,480)
Adjustment 8,949 3,835 8,949 (a)
--------- ------- --------
As Restated ($887,811) ($4,624) ($31,531)
========= ======= ========
</TABLE>
(a) Includes $1,279 and $3,835 for the three months ended March 31, 1997
and June 30, 1997, respectively.
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 September 30, 1997, the
condensed consolidated statement of operations and accumulated deficit for
the nine and three months ended September 30, 1997 and 1996 and the
condensed consolidated statement of cash flows for the nine months ended
September 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 September 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 which
were included in the Company's Registration Statement on Form S-4,
effective as of September 30, 1997, as filed with the Securities and
Exchange Commission. The results of operations for the periods ended
September 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.
6
<PAGE>
COMCAST CELLULAR CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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 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 October 1997, the Company completed an exchange of 100% of the Old Notes
for new notes (the "Notes") (having the terms described above) which were
registered under the Securities Act of 1933, as amended.
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 its $1.3 billion credit
agreement with certain banks (the "Credit Agreement").
Repayment of Term Loan and Revolving Credit Loan
The Credit Agreement provided 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
7
<PAGE>
COMCAST CELLULAR CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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 nine months ended September 30, 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 September 30,
1997, the Company had outstanding $150.0 million under the Revolving Credit
Loan. In October 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 September 30, 1997
includes such amount.
In October 1997, the Company refinanced the Revolving Credit Loan with the
proceeds from borrowings under a new $400.0 million credit agreement (the
"New Bank Facility") with certain banks (the "Refinancing"), which consists
of a $300.0 million five and one-quarter year revolving credit facility
(the "Tranche A Facility") and a $100.0 million 364-day revolving credit
facility (the "Tranche B Facility"). Amounts outstanding under the Tranche
B Facility at the end of the 364-day period are convertible, at the
Company's option, into a four and one-quarter year term loan. Borrowings
under the New Bank Facility bear interest at a rate equal to, at the option
of the Company, either (a) the greater of the (i) prime rate or (ii) the
federal funds rate plus 1/2% or (b) the Applicable Margin, as defined based
on CCCI's leverage ratio, plus the London Interbank Offered Rate. Initial
borrowings under the Tranche A Facility of $215.0 million were used
principally to repay existing debt, to pay interest on the Notes, to
purchase twelve 10-MHz personal communications services ("PCS") licenses
from Comcast, at Comcast's cost of $17.5 million, and to repay $17.0
million of previously deferred management fees to Comcast (see Note 5). The
purchase of the PCS licenses is subject to the Federal Communications
Commission's approval of their transfer to the Company. In connection with
the Refinancing, the Company will expense unamortized debt acquisition
costs of approximately $5.2 million, resulting in an extraordinary loss,
net of tax, of approximately $3.4 million in the fourth quarter of 1997.
Borrowings under the New Bank Facility are senior to the Notes and are
secured by a pledge of the capital stock of CCCI's subsidiaries. The New
Bank Facility contains various covenants, including financial covenants
restricting changes in control (or making such an event of default) and
restricting the payment of dividends, distributions and loans or advances
to the Company.
Authorization and Issuance of Mandatorily Redeemable Preferred Stock
In May 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. In May 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 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
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.
The Company accounted for the acquisition under the purchase method.
Atlantic City Cellular System
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.
8
<PAGE>
COMCAST CELLULAR CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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 nine months ended September 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.
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 $29.4 million and $29.8 million
as of September 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.
4. 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 $3.8 million, $6.2 million, $1.3 million and $2.2 million during
the nine and three months ended September 30, 1997 and 1996, respectively.
From the date of issuance through September 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, originally due on September 30, 1997, is due on demand. Accordingly,
such balance 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 September 30, 1997 and for
the nine and three months ended September 30, 1997 and 1996 is as follows
(dollars in thousands):
9
<PAGE>
COMCAST CELLULAR CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
<TABLE>
<CAPTION>
Nine Months EndedThree Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Results of Operations
Service income....................................... $81,754 $74,863 $27,208 $25,394
Operating, selling, general and administrative
expenses........................................... (34,240) (32,548) (11,218) (10,866)
Depreciation and amortization........................ (33,854) (36,367) (10,962) (12,198)
Operating income..................................... 13,660 5,948 5,028 2,330
Net loss............................................. (8,293) (10,882) (2,288) (3,150)
Company's equity in net loss......................... (4,105) (5,386) (1,133) (1,559)
September 30,
1997
Financial Position
<S> <C>
Current assets........................................... $ 8,026
Noncurrent assets........................................ 148,450
Current liabilities...................................... 20,763
Noncurrent liabilities................................... 326,274
</TABLE>
5. 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 $4.7
million, $4.2 million, $1.7 million and $1.4 million were charged to
selling, general and administrative expenses during the nine and three
months ended September 30, 1997 and 1996, respectively (on a pro forma
basis, giving effect to the New Management Agreement, management fees for
the nine and three months ended September 30, 1997 and 1996 would have been
$5.0 million, $4.8 million, $1.7 million and $1.7 million, respectively).
As of September 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
$17.0 million and $14.7 million, respectively. In November 1997, the
Company repaid $17.0 million of previously deferred management fees to
Comcast with a portion of the proceeds from the initial borrowings under
the New Bank Facility (see Note 3).
6. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of $24.7 million, $34.9
million, $2.5 million and $14.6 million during the nine and three months
ended September 30, 1997 and 1996, respectively.
The Company made cash payments for income taxes of $0.4 million, $0.7
million, $0.2 million and $0.1 million during the nine and three months
ended September 30, 1997 and 1996, respectively.
7. CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position, results of operations or liquidity of the
Company.
10
<PAGE>
COMCAST CELLULAR CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1997
ITEM 2. 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 accompanying 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.
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. The Company
accounted for the acquisition under the purchase method.
Atlantic City Cellular System
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.
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 $29.4 million and $29.8 million as of September 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.
LCH Preferred Stock Redemption
In June 1994, LCH Communications, Inc. 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,
Inc. ("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
11
<PAGE>
COMCAST CELLULAR CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1997
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.
Liquidity and Capital Resources
Cash and Cash Equivalents
The Company's cash equivalents are recorded at cost which approximates their
fair value. As of September 30, 1997, cash and cash equivalents were $12.5
million.
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 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 October 1997, the Company completed an exchange of 100% of the Old Notes for
new notes (the "Notes") (having the terms described above) which were registered
under the Securities Act of 1933, as amended.
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").
12
<PAGE>
COMCAST CELLULAR CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1997
The Credit Agreement provided 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"). 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 nine months ended September 30,
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 September
30, 1997, the Company had outstanding $150.0 million under its Revolving Credit
Loan. In October 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 September 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 Notes, subject to certain conditions. The
Series A Preferred Stock is generally non-voting.
In October 1997, the Company refinanced the Revolving Credit Loan with the
proceeds from borrowings under a new $400.0 million credit agreement (the "New
Bank Facility") with certain banks (the "Refinancing") which consists of a
$300.0 million five and one-quarter year revolving credit facility (the "Tranche
A Facility") and a $100.0 million 364-day revolving credit facility (the
"Tranche B Facility"). Amounts outstanding under the Tranche B Facility at the
end of the 364-day period are convertible, at the Company's option, into a four
and one-quarter year term loan. Borrowings under the New Bank Facility bear
interest at a rate equal to, at the option of the Company, either (a) the
greater of the (i) prime rate or (ii) the federal funds rate plus 1/2% or (b)
the Applicable Margin, as defined based on CCCI's leverage ratio, plus the
London Interbank Offered Rate. Initial borrowings under the Tranche A Facility
of $215.0 million were used principally to repay existing debt, to pay interest
on the Notes, to purchase twelve 10-MHz personal communications services ("PCS")
licenses from Comcast, at Comcast's cost of $17.5 million, and to repay $17.0
million of previously deferred management fees to Comcast. The purchase of the
PCS licenses is subject to the Federal Communications Commission's approval of
their transfer to the Company. In connection with the Refinancing, the Company
will expense unamortized debt acquisition costs of approximately $5.2 million,
resulting in an extraordinary loss, net of tax, of approximately $3.4 million in
the fourth quarter of 1997.
Borrowings under the New Bank Facility are senior to the Notes and are secured
by a pledge of the capital stock of CCCI's subsidiaries. The New Bank Facility
contains various covenants, including financial covenants restricting changes in
control (or making such an event of default) and restricting the payment of
dividends, distributions or loans or advances to the Company.
During the fourth quarter of 1997, 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 September 30, 1997 and December 31, 1996, the Company's weighted average
interest was 9.11% and 8.74%, 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
13
<PAGE>
COMCAST CELLULAR CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1997
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. 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 CCCI to pay dividends or for CCCI or its
subsidiaries to make other payments or advances to the Company will depend upon
the operating results of CCCI and its subsidiaries and any restrictions on
paying such dividends or making such payments or advances as may be applicable
to CCCI or any of its subsidiaries, such as those 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, CCCI or other sources on satisfactory terms or at all.
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, borrowings
under the New Bank Facility and other external financing.
Statement of Cash Flows
Cash and cash equivalents increased $7.5 million as of September 30, 1997 from
December 31, 1996 and increased $28.3 million as of September 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 $100.7 million and $77.3 million
for the nine months ended September 30, 1997 and 1996, respectively. The
increase of $23.4 million from 1996 to 1997 is due primarily to the increase in
the Company's operating income before depreciation and amortization expense (see
"Results of Operations") and the effects of changes in working capital as a
result of the timing of receipts and disbursements.
Net cash (used in) provided by financing activities was ($4.5) million and $58.8
million for the nine months ended September 30, 1997 and 1996, respectively.
During the nine months ended September 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 $1.155 billion of long-term
borrowings, including $628.3 million of Zero Coupon Notes, the $300.0 million
Term Loan and $225.0 million under the Revolving Credit Loan. In addition,
during the nine months ended September 30, 1997, the Company received $161.5
million from the issuance of its Series A Preferred Stock. Deferred financing
costs incurred during the nine months ended September 30, 1997 were related to
the issuance of the Old Notes. During the nine months ended September 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.
Net cash used in investing activities was $88.7 million and $107.8 million for
the nine months ended September 30, 1997 and 1996, respectively. The decrease of
$19.1 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 $18.2 million from 1996 to 1997.
Results of Operations
Summarized consolidated financial information for the Company for the nine and
three months ended September 30, 1997 and 1996 is as follows (dollars in
millions, "NM" denotes percentage is not meaningful):
14
<PAGE>
COMCAST CELLULAR CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Increase / (Decrease)
1997 1996 $ %
<S> <C> <C> <C> <C>
Service income, net.............................. $335.4 $317.1 $18.3 5.8%
Operating, selling, general and administrative
expenses.................................... 199.1 203.7 (4.6) (2.3)
------ ------
Operating income before depreciation and
amortization (1)............................ 136.3 113.4 22.9 20.2
Depreciation and amortization.................... 80.7 84.8 (4.1) (4.8)
------ ------
Operating income................................. 55.6 28.6 27.0 94.4
------ ------
Interest expense................................. 89.1 86.1 3.0 3.5
Investment income................................ (1.9) (2.1) (0.2) (9.5)
Equity in net losses of affiliates............... 4.5 5.1 (0.6) (11.8)
Litigation settlement............................ 21.6 (21.6) NM
Other............................................ 1.1 2.4 (1.3) (54.2)
Income tax benefit............................... (13.0) (32.3) (19.3) (59.8)
Extraordinary item............................... (7.3) 7.3 NM
------ ------
Net loss.................................... ($31.5) ($52.2) ($20.7) (39.7)%
====== ======
Three Months Ended
September 30, Increase / (Decrease)
1997 1996 $ %
Service income, net.............................. $115.1 $110.0 $5.1 4.6%
Operating, selling, general and administrative
expenses.................................... 65.4 63.1 2.3 3.6
------ ------
Operating income before depreciation and
amortization (1)............................ 49.7 46.9 2.8 6.0
Depreciation and amortization.................... 27.1 28.0 (0.9) (3.2)
------ ------
Operating income................................. 22.6 18.9 3.7 19.6
------ ------
Interest expense................................. 27.9 30.5 (2.6) (8.5)
Investment income................................ (0.3) (0.5) (0.2) (40.0)
Equity in net losses of affiliates............... 1.0 1.6 (0.6) (37.5)
Other............................................ 0.7 0.2 0.5 NM
Income tax benefit............................... (2.1) (5.0) (2.9) (58.0)
------ ------
Net loss.................................... ($4.6) ($7.9) ($3.3) (41.8)%
====== ======
</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.
15
<PAGE>
COMCAST CELLULAR CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1997
Service Income, net
Of the respective $18.3 million and $5.1 million increases in service income for
the nine and three month periods from 1996 to 1997, $16.9 million and $2.3
million are attributable to the Company's subscriber growth and $11.9 million
and $4.6 million are attributable to roamer growth. Offsetting these increases
are decreases of $10.5 million and $1.8 million resulting primarily from a
reduction in the average rate per minute of use as a result of promotional
and/or free minutes.
Operating, Selling, General and Administrative Expenses
The $4.6 million decrease in operating, selling, general and administrative
expenses for the nine month period from 1996 to 1997 is primarily attributable
to expense reductions achieved through implementation of fraud management
programs, improved bad debt experience as a result of stronger credit procedures
and a reduction in commission costs resulting from fewer gross sales in 1997 as
compared to the same period in 1996. The $2.3 million increase in operating,
selling, general and administrative expenses for the three month period from
1996 to 1997 is primarily attributable to an increase in the number of cellular
retail stores in 1997 as compared to the same period in 1996, partially offset
by expense reductions achieved through implementation of fraud management
programs and improved bad debt experience as a result of stronger credit
procedures.
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 $4.7 million, $4.2 million, $1.7 million and
$1.4 million were charged to selling, general and administrative expenses during
the nine and three months ended September 30, 1997 and 1996, respectively (on a
pro forma basis, giving effect to the New Management Agreement, management fees
for the nine and three months ended September 30, 1997 and 1996 would have been
$5.0 million, $4.8 million, $1.7 million and $1.7 million, respectively). As of
September 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 $17.0 million and $14.7
million, respectively. In November 1997, the Company repaid $17.0 million of
previously deferred management fees to Comcast with a portion of the proceeds
from the initial borrowings under the New Bank Facility (see "Financing").
Depreciation and Amortization Expense
The $4.1 million decrease in depreciation and amortization expense for the nine
month period from 1996 to 1997 is primarily due to a decrease in amortization
expense as a result of certain intangible assets becoming fully amortized during
the nine months ended September 30, 1997.
Interest Expense
The $3.0 million increase in interest expense for the nine month period from
1996 to 1997 is 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 and a portion of the
amounts outstanding under the Revolving Credit Loan in May 1997. The $2.6
million decrease in interest expense for the three month period from 1996 to
1997 is primarily due to a reduction in the Company's weighted average interest
rate, offset by higher levels of debt outstanding after the Offering.
In 1992, a subsidiary of AWACS, 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 $3.8 million, $6.2 million, $1.3 million
and $2.2 million during the nine and three months ended September 30, 1997 and
1996, respectively. From the date of issuance through September 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, originally due on September 30, 1997, is due on demand. Accordingly,
such balance has been classified as current in the Company's condensed
consolidated balance sheet.
16
<PAGE>
COMCAST CELLULAR CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1997
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 nine and three
months ended September 30, 1997 and 1996, the Company recognized equity in net
losses of Garden State Cablevision of $4.1 million, $5.4 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 during
the first quarter of 1998.
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 nine months ended September 30, 1996, the Company
recorded $21.6 million of 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 nine and three months ended September 30, 1997 and 1996, the Company's
distribution from Garden State Cablevision and income before extraordinary item,
income tax benefit, equity in net losses of affiliates and fixed charges
(interest expense) was $56.4 million, $8.7 million, $22.2 million and $21.1
million, respectively. Such amounts were not adequate to cover the Company's
fixed charges of $89.1 million, $86.1 million, $27.9 million and $30.4 million
for these periods, respectively. Fixed charges include non-cash interest expense
of $29.3 million, $51.4 million, $1.3 million and $17.6 million for the nine and
three months ended September 30, 1997 and 1996, respectively. The inadequacy of
the Company's distribution from Garden State Cablevision and income to cover
fixed charges is primarily due to substantial non-cash charges for depreciation
and amortization expense of $80.7 million, $84.8 million, $27.1 million and
$28.0 million during the nine and three months ended September 30, 1997 and
1996, respectively, and litigation settlement expense during the nine months
ended September 30, 1996.
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.
17
<PAGE>
COMCAST CELLULAR CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1997
PART II. OTHER INFORMATION
ITEM 1. 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K - none.
18
<PAGE>
COMCAST CELLULAR CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1997
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
COMCAST CELLULAR CORPORATION
/S/ LAWRENCE S. SMITH
Lawrence S. Smith
Executive Vice President
(Principal Accounting Officer)
Date: March 25, 1998
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This restated schedule contains summary financial information extracted from the
consolidated statement of operations and consolidated balance sheet and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001041854
<NAME> COMCAST CELLULAR CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 12,481
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<BONDS> 1,139,596
168,583
0
<COMMON> 0
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