UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended:
JUNE 30, 2001
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 0-6983
[GRAPHIC OMITTED - LOGO]
COMCAST CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1709202
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Market Street, Philadelphia, PA 19102-2148
--------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes X No
----- -----
--------------------------
As of June 30, 2001, there were 914,229,411 shares of Class A Special Common
Stock, 21,829,422 shares of Class A Common Stock and 9,444,375 shares of Class B
Common Stock outstanding.
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet as of June 30, 2001
and December 31, 2000 (Unaudited)......................................................2
Condensed Consolidated Statement of Operations and Retained
Earnings (Accumulated Deficit) for the Three and Six Months
Ended June 30, 2001 and 2000 (Unaudited)...............................................3
Condensed Consolidated Statement of Cash Flows for the
Six Months Ended June 30, 2001 and 2000 (Unaudited)....................................4
Notes to Condensed Consolidated Financial Statements (Unaudited)..................5 - 14
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................15 - 22
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.....................................................................23
ITEM 4. Submission of Matters to a Vote of Security Holders..............................23 - 24
ITEM 6. Exhibits and Reports on Form 8-K......................................................24
SIGNATURE........................................................................................25
-----------------------------------
This Quarterly Report on Form 10-Q is for the three months ended June 30,
2001. This Quarterly Report modifies and supersedes documents filed prior to
this Quarterly Report. The SEC allows us to "incorporate by reference"
information that we file with them, which means that we can disclose important
information to you by referring you directly to those documents. Information
incorporated by reference is considered to be part of this Quarterly Report. In
addition, information that we file with the SEC in the future will automatically
update and supersede information contained in this Quarterly Report. In this
Quarterly Report, "Comcast," "we," "us" and "our" refer to Comcast Corporation
and its subsidiaries.
You should carefully review the information contained in this Quarterly
Report and in other reports or documents that we file from time to time with the
SEC. In this Quarterly Report, we state our beliefs of future events and of our
future financial performance. In some cases, you can identify those so-called
"forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
Factors Affecting Future Operations
We have acquired and we anticipate acquiring cable communications systems
in new communities in which we do not have established relationships with the
franchising authority, community leaders and cable subscribers. Further, a
substantial number of new employees are being and must continue to be integrated
into our business practices and operations. Our results of operations may be
significantly affected by our ability to efficiently and effectively manage
these changes.
In addition, our businesses may be affected by, among other things:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o industry consolidation and mergers,
o franchise related matters,
o market conditions that may adversely affect the availability of debt
and equity financing for working capital, capital expenditures or other
purposes,
o demand for the programming content we distribute or the willingness of
other video program distributors to carry our content, and
o general economic conditions.
1
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
PART I. FINANCIAL INFORMATION
------ ---------------------
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in millions, except share data)
June 30, December 31,
2001 2000
--------- ---------
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents.................................................... $745.9 $651.5
Investments.................................................................. 1,928.7 3,059.7
Accounts receivable, less allowance for doubtful accounts
of $150.3 and $141.7....................................................... 828.8 891.9
Inventories, net............................................................. 471.8 438.5
Other current assets......................................................... 186.3 102.8
--------- ---------
Total current assets..................................................... 4,161.5 5,144.4
--------- ---------
INVESTMENTS..................................................................... 2,844.6 2,661.9
--------- ---------
PROPERTY AND EQUIPMENT.......................................................... 8,290.6 6,799.2
Accumulated depreciation..................................................... (1,818.3) (1,596.5)
--------- ---------
Property and equipment, net.................................................. 6,472.3 5,202.7
--------- ---------
DEFERRED CHARGES................................................................ 30,434.5 26,865.9
Accumulated amortization..................................................... (5,272.2) (4,130.4)
--------- ---------
Deferred charges, net........................................................ 25,162.3 22,735.5
--------- ---------
$38,640.7 $35,744.5
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses........................................ $3,116.0 $2,852.9
Accrued interest............................................................. 143.3 105.5
Deferred income taxes........................................................ 225.8 789.9
Current portion of long-term debt............................................ 548.0 293.9
--------- ---------
Total current liabilities................................................ 4,033.1 4,042.2
--------- ---------
LONG-TERM DEBT, less current portion............................................ 11,450.7 10,517.4
--------- ---------
DEFERRED INCOME TAXES........................................................... 6,426.2 5,786.7
--------- ---------
MINORITY INTEREST AND OTHER..................................................... 1,670.2 1,257.2
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
COMMON EQUITY PUT OPTIONS....................................................... 54.6
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock - authorized, 20,000,000 shares
5.25% series B mandatorily redeemable convertible, $1,000 par value;
issued, zero and 59,450 at redemption value................................ 59.5
Class A special common stock, $1 par value - authorized, 2,500,000,000
shares; issued, 937,554,322 and 931,340,103; outstanding, 914,229,411
and 908,015,192............................................................ 914.2 908.0
Class A common stock, $1 par value - authorized,
200,000,000 shares; issued, 21,829,422 and 21,832,250...................... 21.8 21.8
Class B common stock, $1 par value - authorized,
50,000,000 shares; issued, 9,444,375....................................... 9.4 9.4
Additional capital........................................................... 11,747.5 11,598.8
Retained earnings............................................................ 2,075.8 1,056.5
Accumulated other comprehensive income....................................... 291.8 432.4
--------- ---------
Total stockholders' equity............................................... 15,060.5 14,086.4
--------- ---------
$38,640.7 $35,744.5
========= =========
See notes to condensed consolidated financial statements.
2
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND
RETAINED EARNINGS (ACCUMULATED DEFICIT)
(Unaudited)
(Amounts in millions, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
--------- --------- --------- ---------
REVENUES
Service revenues....................................................... $1,422.5 $1,141.5 $2,734.6 $2,259.4
Net sales from electronic retailing.................................... 876.0 770.6 1,760.0 1,591.6
--------- --------- --------- ---------
2,298.5 1,912.1 4,494.6 3,851.0
--------- --------- --------- ---------
COSTS AND EXPENSES
Operating.............................................................. 672.2 529.0 1,312.5 1,077.9
Cost of goods sold from electronic retailing........................... 555.2 488.2 1,111.8 1,015.2
Selling, general and administrative.................................... 370.7 292.1 729.0 568.2
Depreciation........................................................... 250.9 204.8 472.2 376.7
Amortization........................................................... 582.8 429.6 1,102.9 803.4
--------- --------- --------- ---------
2,431.8 1,943.7 4,728.4 3,841.4
--------- --------- --------- ---------
OPERATING INCOME (LOSS).................................................... (133.3) (31.6) (233.8) 9.6
OTHER INCOME (EXPENSE)
Interest expense....................................................... (176.2) (163.2) (358.5) (331.8)
Investment income...................................................... 502.7 314.8 717.4 959.4
Income (expense) related to indexed debt............................... 289.5 (398.0)
Equity in net losses of affiliates..................................... (9.5) (1.1) (6.6) (4.0)
Other income (expense)................................................. (6.3) 2.2 1,187.9 (8.6)
--------- --------- --------- ---------
310.7 442.2 1,540.2 217.0
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES, MINORITY INTEREST, EXTRAORDINARY ITEMS
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE............................. 177.4 410.6 1,306.4 226.6
INCOME TAX EXPENSE......................................................... (103.8) (185.1) (589.4) (153.3)
--------- --------- --------- ---------
INCOME BEFORE MINORITY INTEREST, EXTRAORDINARY ITEMS
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE............................. 73.6 225.5 717.0 73.3
MINORITY INTEREST.......................................................... (36.9) (26.7) (63.6) (60.9)
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE............................................ 36.7 198.8 653.4 12.4
EXTRAORDINARY ITEMS........................................................ (1.5) (11.1) (1.5) (16.2)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE..................................... 384.5
--------- --------- --------- ---------
NET INCOME (LOSS).......................................................... 35.2 187.7 1,036.4 (3.8)
PREFERRED DIVIDENDS........................................................ (7.6) (15.1)
--------- --------- --------- ---------
NET INCOME (LOSS) FOR COMMON STOCKHOLDERS.................................. $35.2 $180.1 $1,036.4 ($18.9)
========= ========= ========= =========
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Beginning of period.................................................... $2,040.6 ($975.9) $1,056.5 ($619.8)
Net income (loss)...................................................... 35.2 187.7 1,036.4 (3.8)
Retirement of common stock............................................. (90.0) (17.1) (254.6)
--------- --------- --------- ---------
End of period.......................................................... $2,075.8 ($878.2) $2,075.8 ($878.2)
========= ========= ========= =========
BASIC EARNINGS (LOSS) FOR COMMON STOCKHOLDERS PER COMMON SHARE
Income before extraordinary items and cumulative effect of
accounting change..................................................... $0.04 $0.21 $0.69
Extraordinary items.................................................... (0.01) ($0.02)
Cumulative effect of accounting change................................. 0.40
--------- --------- --------- ---------
Net income (loss)................................................... $0.04 $0.20 $1.09 ($0.02)
========= ========= ========= =========
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING................. 951.1 909.8 948.2 873.2
========= ========= ========= =========
DILUTED EARNINGS (LOSS) FOR COMMON STOCKHOLDERS PER COMMON SHARE
Income before extraordinary items and cumulative effect of
accounting change..................................................... $0.04 $0.20 $0.67
Extraordinary items.................................................... (0.01) ($0.02)
Cumulative effect of accounting change................................. 0.40
--------- --------- --------- ---------
Net income (loss)................................................... $0.04 $0.19 $1.07 ($0.02)
========= ========= ========= =========
DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING............... 965.6 974.7 965.3 873.2
========= ========= ========= =========
See notes to condensed consolidated financial statements.
3
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in millions)
Six Months Ended June 30,
2001 2000
--------- --------
OPERATING ACTIVITIES
Net income (loss)................................................................ $1,036.4 ($3.8)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation................................................................... 472.2 376.7
Amortization................................................................... 1,102.9 803.4
Non-cash interest (income) expense, net........................................ 23.8 (25.4)
Non-cash expense related to indexed debt....................................... 398.0
Equity in net losses of affiliates............................................. 6.6 4.0
Gains on investments and other income, net..................................... (1,875.5) (863.2)
Minority interest.............................................................. 63.6 60.9
Extraordinary items............................................................ 1.5 16.2
Cumulative effect of accounting change......................................... (384.5)
Deferred income taxes and other................................................ (112.5) (109.7)
--------- --------
334.5 657.1
Changes in working capital..................................................... 375.0 (483.4)
--------- --------
Net cash provided by operating activities................................ 709.5 173.7
--------- --------
FINANCING ACTIVITIES
Proceeds from borrowings......................................................... 4,554.7 188.8
Retirements and repayments of debt............................................... (3,206.4) (1,078.3)
Issuances of common stock and sales of put options on common stock............... 20.2 21.5
Repurchases of common stock...................................................... (219.6)
Deferred financing costs......................................................... (22.5)
--------- --------
Net cash provided by (used in) financing activities...................... 1,346.0 (1,087.6)
--------- --------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired............................................... (872.8) (83.8)
(Purchases) sales of short-term investments, net................................. (135.5) 867.4
Purchases of investments......................................................... (175.7) (348.7)
Proceeds from sales of investments............................................... 505.6 983.8
Capital expenditures............................................................. (1,158.9) (608.0)
Additions to deferred charges.................................................... (123.8) (166.7)
--------- --------
Net cash (used in) provided by investing activities...................... (1,961.1) 644.0
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................... 94.4 (269.9)
CASH AND CASH EQUIVALENTS, beginning of period...................................... 651.5 922.2
--------- --------
CASH AND CASH EQUIVALENTS, end of period............................................ $745.9 $652.3
========= ========
See notes to condensed consolidated financial statements.
4
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
Comcast Corporation and its subsidiaries (the "Company") has prepared these
unaudited condensed consolidated financial statements based upon Securities
and Exchange Commission rules that permit reduced disclosure for interim
periods.
These financial statements include all adjustments that are necessary for a
fair presentation of the Company's results of operations and financial
condition for the interim periods shown including normal recurring accruals
and other items. The results of operations for the interim periods
presented are not necessarily indicative of results for the full year.
For a more complete discussion of the Company's accounting policies and
certain other information, refer to the financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31,
2000.
2. ADOPTION OF NEW ACCOUNTING STANDARD
SFAS No. 133, As Amended
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities", as amended. SFAS No. 133 establishes accounting and
reporting standards for derivatives and hedging activities. SFAS No. 133
requires that all derivative instruments be reported on the balance sheet
at their fair values.
For derivative instruments designated and effective as fair value hedges,
changes in the fair value of the derivative instrument will be
substantially offset in the statement of operations by changes in the fair
value of the hedged item. For derivative instruments designated as cash
flow hedges, the effective portion of any hedge is reported in other
comprehensive income until it is recognized in earnings during the same
period in which the hedged item affects earnings. The ineffective portion
of all hedges will be recognized in current earnings each period. Changes
in the fair value of derivative instruments that are not designated as a
hedge will be recorded each period in current earnings.
Upon adoption of SFAS No. 133, the Company recognized as income a
cumulative effect of accounting change, net of related income taxes, of
$384.5 million and a cumulative decrease in other comprehensive income, net
of related income taxes, of $127.0 million.
The increase in income consisted of a $400.2 million adjustment to record
the debt component of indexed debt at a discount from its value at maturity
(see Note 6) and $191.3 million principally related to the reclassification
of gains previously recognized as a component of accumulated other
comprehensive income on the Company's equity derivative instruments, net of
related deferred income taxes.
The decrease in other comprehensive income consisted principally of the
reclassification of the gains noted above.
3. EARNINGS (LOSS) PER SHARE
Earnings (loss) for common stockholders per common share is computed by
dividing net income (loss), after deduction of preferred stock dividends,
when applicable, by the weighted average number of common shares
outstanding during the period on a basic and diluted basis.
The following table reconciles the numerator and denominator of the
computations of diluted earnings (loss) for common stockholders per common
share ("Diluted EPS") for the interim periods presented.
5
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(Amounts in millions, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Net income (loss) for common stockholders............ $35.2 $180.1 $1,036.4 ($18.9)
Preferred dividends.................................. 7.6
--------- --------- --------- ---------
Net income (loss) for common stockholders used
for Diluted EPS.................................... $35.2 $187.7 $1,036.4 ($18.9)
========= ========= ========= =========
Basic weighted average number of common shares
outstanding........................................ 951.1 909.8 948.2 873.2
Dilutive securities:
Series B convertible preferred stock............... 42.5 2.1
Stock option and restricted stock plans............ 14.5 22.2 15.0
Put options on Class A Special Common Stock........ 0.2
--------- --------- --------- ---------
Diluted weighted average number of common shares
outstanding........................................ 965.6 974.7 965.3 873.2
========= ========= ========= =========
Diluted earnings (loss) for common stockholders
per common share................................... $.04 $.19 $1.07 ($.02)
========= ========= ========= =========
The Company sold put options on its Class A Special Common Stock during the
six months ended June 30, 2000 (see Note 7). These put options were
excluded from the computation of Diluted EPS for the interim periods during
which the options' exercise price was less than the average market price of
the Company's Class A Special Common Stock.
In December 2000 and January 2001, the Company issued $1.478 billion
aggregate principal amount at maturity of Zero Coupon Convertible
Debentures due 2020 (the "Zero Coupon Debentures" - see Note 6). The Zero
Coupon Debentures may be converted at any time prior to maturity if the
closing sale price of the Company's Class A Special Common Stock is greater
than 110% of the accreted conversion price (as defined). The Zero Coupon
Debentures were excluded from the computation of Diluted EPS for the
interim periods in 2001 as the weighted average closing sale price of the
Company's Class A Special Common Stock was not greater than 110% of the
accreted conversion price.
Potentially dilutive securities related to the Company's Series B
convertible preferred stock, stock options and restricted stock plans were
excluded from the computation of Diluted EPS for the six months ended June
30, 2000 because their effect on loss for common stockholders per common
share was antidilutive.
4. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Adelphia Cable Systems Exchange
On January 1, 2001, the Company completed its cable systems exchange with
Adelphia Communications Corporation ("Adelphia"). The Company received
cable systems serving approximately 445,000 subscribers from Adelphia and
Adelphia received certain of the Company's cable systems serving
approximately 441,000 subscribers. The Company recorded to other income a
pre-tax gain of $1.199 billion representing the difference between the
estimated fair value as of the closing date of the transaction and the
Company's cost basis in the systems exchanged.
6
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Home Team Sports Acquisition
On February 14, 2001, the Company acquired Home Team Sports (now known as
Comcast SportsNet - MidAtlantic), a regional sports programming network
serving approximately 4.8 million homes in the Mid-Atlantic region, from
Viacom, Inc. ("Viacom") and Affiliated Regional Communications, Ltd. (an
affiliate of Fox Cable Network Services, LLC ("Fox")). The Company agreed
to increase the distribution of certain of Viacom's and Fox's programming
networks on certain of the Company's cable systems. The estimated fair
value of Home Team Sports as of the closing date of the acquisition was
$240.0 million.
AT&T Cable Systems Acquisition
On April 30, 2001, the Company acquired cable systems serving approximately
585,000 subscribers from AT&T Corp. ("AT&T") in exchange for approximately
63.9 million shares of AT&T common stock then held by the Company. The
market value of the AT&T shares was approximately $1.423 billion, based on
the price of the AT&T common stock on the closing date of the transaction.
Under the terms of the agreement between the Company and AT&T, however,
approximately 39.6 million shares of the AT&T common stock included in the
exchange were valued at $54.41 per share for purposes of the exchange. The
transaction is expected to qualify as tax free to both the Company and to
AT&T.
Acquisition of Controlling Interest in the Golf Channel
On June 8, 2001, the Company acquired the approximate 30.8% interest in The
Golf Channel ("TGC") held by Fox Entertainment Group, Inc. ("Fox
Entertainment"), a subsidiary of The News Corporation Limited ("News
Corp."). In addition, Fox and News Corp. agreed to a five-year
non-competition agreement. The Company paid aggregate consideration of
$364.9 million in cash. The Company previously accounted for TGC under the
equity method. The Company now owns approximately 91.0% of TGC and
consolidates TGC.
Baltimore, Maryland System Acquisition
On June 30, 2001, the Company acquired the cable system serving
approximately 112,000 subscribers in Baltimore, Maryland from AT&T for
$518.7 million in cash. The purchase price is subject to adjustment.
The Company accounted for the acquisitions under the purchase method of
accounting. As such, the Company's results include the operating results of
the acquired businesses from the dates of acquisition. The Company's cable
systems exchange with Adelphia, the Home Team Sports acquisition and the
AT&T cable systems acquisition had no significant impact on the Company's
statement of cash flows during 2001 due to their noncash nature. The
allocations of the purchase price for the 2001 acquisitions are preliminary
pending completion of final appraisals (see Note 8).
Option to Acquire Outdoor Life Network
In May 2001, the Company entered into an agreement with Fox Entertainment
in which the Company obtained an option to acquire from Fox Entertainment
the approximate 83.2% interest in Outdoor Life Network ("OLN") not
previously owned by the Company. In connection with the transaction and to
facilitate Fox Entertainment's acquisition of the other minority interests
in OLN, the Company agreed to loan Fox Entertainment up to $400 million on
a short-term basis on terms that the Company believes represent an
arm's-length basis. The loan, together with accrued interest on the loan,
may be applied against the purchase price at closing. If the option is
exercised, the Company will own 100% of OLN and will consolidate OLN.
Unaudited Pro Forma Information
The following unaudited pro forma information has been presented as if the
acquisitions and cable systems exchanges made by the Company in 2001 and
2000 each occurred on January 1, 2000. For a discussion of the Company's
2000 acquisitions and cable systems exchange, refer to the financial
statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2000.This information is based on historical
results of operations and has been adjusted for acquisition costs. This
information is not necessarily indicative of what the results would have
been had the Company operated the entities acquired since January 1, 2000.
7
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(Amounts in millions,
except per share data)
Six Months Ended June 30,
2001 2000
---------- ---------
Revenues.................................................... $4,688.1 $4,302.3
Income (loss) before extraordinary items and
cumulative effect of accounting change.................... $645.1 ($211.0)
Net income (loss)........................................... $1,028.1 ($227.2)
Diluted EPS................................................. $1.07 ($.26)
5. INVESTMENTS
June 30, December 31,
2001 2000
--------- ---------
(Dollars in millions)
Fair value method
AT&T Corp............................................ $1,837.3 $1,174.3
Sprint Corp. PCS Group............................... 2,156.9 2,149.8
Other................................................ 316.6 1,873.0
--------- ---------
4,310.8 5,197.1
Cost method................................................. 300.4 128.4
Equity method............................................... 162.1 396.1
--------- ---------
Total investments.................................... 4,773.3 5,721.6
Less, current investments................................... 1,928.7 3,059.7
--------- ---------
Non-current investments..................................... $2,844.6 $2,661.9
========= =========
Fair Value Method
The Company holds unrestricted equity investments in certain publicly
traded companies which it accounts for as available for sale or trading
securities. The unrealized pre-tax gains on available for sale investments
as of June 30, 2001 and December 31, 2000 of $479.6 million and $707.1
million, respectively, have been reported in the Company's balance sheet
principally as a component of accumulated other comprehensive income, net
of related deferred income taxes of $167.9 million and $240.0 million,
respectively.
In June 2001, the Company and AT&T entered into an Amended and Restated
Share Issuance Agreement (the "Share Issuance Agreement"). AT&T issued to
the Company approximately 80.3 million unregistered shares of AT&T common
stock and the Company agreed to settle its right under a previous agreement
(the "Share Exchange Agreement") to exchange an aggregate 31.2 million
Excite@Home shares and warrants held by the Company for shares of AT&T
common stock. The Company has registration rights, subject to customary
restrictions, which allow the Company to require AT&T to register the AT&T
shares received. Under the terms of the Share Issuance Agreement, the
Company retained the Excite@Home shares and warrants held by it. The
Company recorded to investment income a pre-tax gain of $296.3 million,
representing the fair value on the closing date of the transaction of the
increased consideration received by the Company to settle its right under
the Share Exchange Agreement.
Derivatives
The Company uses derivative financial instruments to manage its exposure to
fluctuations in interest rates, securities prices and certain foreign
currencies. The Company also invests in businesses, to some degree, through
the purchase of equity call option or call warrant agreements.
8
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The unrealized pre-tax losses on cash flow hedges as of June 30, 2001 of
$2.6 million have been reported in the Company's balance sheet as a
component of accumulated other comprehensive income, net of related
deferred income taxes of $0.9 million.
Investment Income
Investment income for the interim periods includes the following (in
millions):
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
-------- -------- --------- --------
Interest and dividend income.............................. $17.4 $45.2 $35.0 $105.3
Gains on sales and exchanges of investments............... 448.0 272.1 459.6 861.5
Investment impairment losses.............................. (45.0) (2.5) (939.1) (7.4)
Reclassification of unrealized gains...................... 1,092.4
Unrealized gain on Sprint PCS common stock................ 392.4 265.6
Mark to market adjustments on derivatives related
to Sprint PCS common stock........................... (317.9) (191.5)
Mark to market adjustments on derivatives and
hedged items......................................... 7.8 (4.6)
-------- -------- --------- --------
Investment income.................................... $502.7 $314.8 $717.4 $959.4
======== ======== ========= ========
The investment impairment loss for the six months ended June 30, 2001
relates principally to an other than temporary decline in the Company's
investment in AT&T, a portion of which was exchanged on April 30, 2001 (see
Note 4).
The Company reclassified its investment in Sprint PCS from an available for
sale security to a trading security in connection with the adoption of SFAS
No. 133. In connection with this reclassification, the Company recorded to
investment income the accumulated unrealized gain of $1.092 billion on the
Company's investment in Sprint PCS which was previously recorded as a
component of accumulated other comprehensive income.
6. LONG-TERM DEBT
Senior Notes Offerings
Comcast Cable Communications, Inc. ("Comcast Cable"), a wholly owned
subsidiary of the Company, sold an aggregate of $3.0 billion of public debt
during the six months ended June 30, 2001 consisting of the following
(dollars in millions):
Issue Date Amount Rate Maturity
---------- ------ ---- --------
January 2001 $500.0 6.375% 2006
January 2001 1,000.0 6.75% 2011
May/June 2001 750.0 6.875% 2009
May/June 2001 750.0 7.125% 2013
---------
Total $3,000.0
---------
Comcast Cable used substantially all of the net proceeds from the offerings
to repay a portion of the amounts outstanding under its commercial paper
program, revolving credit facility and notes payable to affiliates, and to
fund acquisitions.
9
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Zero Coupon Convertible Debentures
In December 2000, the Company issued $1.285 billion principal amount at
maturity of Zero Coupon Debentures for proceeds of $1.002 billion. In
January 2001, the Company issued an additional $192.8 million principal
amount at maturity of Zero Coupon Debentures for proceeds of $150.3
million. The Company used substantially all of the net proceeds from the
offering to repay a portion of the amounts outstanding under Comcast
Cable's commercial paper program and revolving credit facility.
ZONES
At maturity, holders of the Company's 2.0% Exchangeable Subordinated
Debentures due 2029 (the "ZONES") are entitled to receive in cash an amount
equal to the higher of the principal amount of the ZONES or the market
value of Sprint PCS common stock.
Prior to maturity, each ZONES is exchangeable at the holders' option for an
amount of cash equal to 95% of the market value of Sprint PCS Stock. As of
June 30, 2001, the number of Sprint PCS shares held by the Company exceeded
the number of ZONES outstanding.
As of June 30, 2001 and December 31, 2000, long-term debt includes $1.593
billion and $1.807 billion, respectively, of ZONES. Upon adoption of SFAS
No. 133, the Company split the ZONES into their derivative and debt
components. In connection with the adoption of SFAS No. 133, the Company
recorded the debt component of the ZONES at a discount from its value at
maturity resulting in a reduction in the outstanding balance of the ZONES
of $400.2 million (see Note 2).
The Company recorded the increase in the fair value of the derivative
component of the ZONES (see Note 5) and the increase in the carrying value
of the debt component of the ZONES as follows (in millions):
Three Months Six Months
Ended Ended
June 30, 2001 June 30, 2001
------------- -------------
Increase in derivative component to investment income..... $245.0 $175.6
Increase in debt component to interest expense............ $5.5 $11.0
Extraordinary Items
Extraordinary items during the interim periods consist of unamortized debt
issue costs and debt extinguishment costs, net of related tax benefits,
expensed principally in connection with the redemption and retirement of
certain indebtedness.
Interest Rates
As of June 30, 2001 and December 31, 2000, the Company's effective weighted
average interest rate on its long-term debt outstanding was 5.95% and
6.30%, respectively.
Lines and Letters of Credit
As of June 30, 2001, certain subsidiaries of the Company had unused lines
of credit of $3.878 billion under their respective credit facilities.
As of June 30, 2001, the Company and certain of its subsidiaries had unused
irrevocable standby letters of credit totaling $124.4 million to cover
potential fundings under various agreements.
10
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
7. STOCKHOLDERS' EQUITY
Board-Authorized Repurchase Programs
The Company repurchased approximately 2.7 million shares and 6.0 million
shares, respectively, of its common stock for $91.7 million and $219.6
million, respectively, during the three and six months ended June 30, 2000.
Common Equity Put Options
The Company sold put options on 2.0 million shares of its Class A Special
Common Stock during the six months ended June 30, 2000 in connection with
the Company's repurchase programs. Put options on 0.7 million shares
expired unexercised during the fourth quarter of 2000 while the remaining
put options on 1.3 million shares expired unexercised during the six months
ended June 30, 2001.
The Company reclassified $54.6 million, the amount it would have been
obligated to pay to repurchase such shares had the put options been
exercised, from common equity put options to additional capital upon
expiration of the put options during 2001.
Conversion of Series B Preferred Stock
In March 2001, the Company issued approximately 4.2 million shares of its
Class A Special Common Stock to the holder of the Company's Series B
Preferred Stock in connection with the holder's election to convert the
remaining $59.5 million at redemption value of Series B Preferred Stock.
Comprehensive Income (Loss)
The Company's total comprehensive income (loss) for the interim periods was
as follows (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
--------- ---------- --------- ----------
Net income (loss).................................... $35.2 $187.7 $1,036.4 ($3.8)
Unrealized gains (losses) on marketable securities... 16.9 (2,068.4) (132.2) (3,059.4)
Unrealized losses on the effective portion
of cash flow hedges................................ (0.5) (1.7)
Foreign currency translation gains (losses).......... 2.7 (3.7) (6.7) (4.3)
--------- ---------- --------- ----------
Comprehensive income (loss).......................... $54.3 ($1,884.4) $895.8 ($3,067.5)
========= ========== ========= ==========
8. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The fair values of the assets and liabilities acquired by the Company
through noncash transactions during 2001 (see Note 4) are as follows (in
millions):
Current assets.............................. $56.6
Property, plant & equipment................. 686.1
Deferred charges............................ 2,755.8
Current liabilities......................... (37.0)
-----------
Net assets acquired................ $3,461.5
===========
11
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The Company made cash payments for interest and income taxes during the
interim periods as follows (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
-------- -------- -------- --------
Interest...................................... $193.5 $231.6 $296.7 $358.4
Income taxes.................................. $111.3 $140.9 $126.4 $596.9
9. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to such actions is not expected to
materially affect the financial position, results of operations or
liquidity of the Company.
In connection with a license awarded to an affiliate, the Company is
contingently liable in the event of nonperformance by the affiliate to
reimburse a bank which has provided a performance guarantee. The amount of
the performance guarantee is approximately $200 million; however the
Company's current estimate of the amount of future expenditures
(principally in the form of capital expenditures) that will be made by the
affiliate necessary to comply with the performance requirements will not
exceed $75 million.
12
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
10. FINANCIAL DATA BY BUSINESS SEGMENT
The following represents the Company's significant business segments,
"Cable" and "Commerce." The components of net income (loss) below operating
income (loss) are not separately evaluated by the Company's management on a
segment basis (dollars in millions).
Corporate and
Cable Commerce Other (1) Total
----- -------- --------- -----
Three Months Ended June 30, 2001
--------------------------------
Revenues.................................................... $1,255.5 $876.0 $167.0 $2,298.5
Operating income (loss) before
depreciation and amortization (2)...................... 549.7 159.8 (9.1) 700.4
Depreciation and amortization............................... 733.0 36.8 63.9 833.7
Operating income (loss) .................................... (183.3) 123.0 (73.0) (133.3)
Interest expense............................................ 128.7 7.1 40.4 176.2
Capital expenditures........................................ 511.6 41.9 83.5 637.0
Six Months Ended June 30, 2001
------------------------------
Revenues.................................................... $2,395.0 $1,760.0 $339.6 $4,494.6
Operating income (loss) before
depreciation and amortization (2)...................... 1,037.7 332.5 (28.9) 1,341.3
Depreciation and amortization............................... 1,409.3 71.4 94.4 1,575.1
Operating income (loss)..................................... (371.6) 261.1 (123.3) (233.8)
Interest expense............................................ 261.5 15.1 81.9 358.5
Capital expenditures........................................ 949.3 68.0 141.6 1,158.9
Three Months Ended June 30, 2000
--------------------------------
Revenues.................................................... $1,022.0 $770.6 $119.5 $1,912.1
Operating income before
depreciation and amortization (2)...................... 467.5 134.0 1.3 602.8
Depreciation and amortization............................... 569.6 29.5 35.3 634.4
Operating income (loss)..................................... (102.1) 104.5 (34.0) (31.6)
Interest expense............................................ 118.9 9.0 35.3 163.2
Capital expenditures........................................ 262.8 43.2 12.9 318.9
Six Months Ended June 30, 2000
------------------------------
Revenues.................................................... $1,998.3 $1,591.6 $261.1 $3,851.0
Operating income before
depreciation and amortization (2)...................... 904.3 278.7 6.7 1,189.7
Depreciation and amortization............................... 1,072.1 59.0 49.0 1,180.1
Operating income (loss)..................................... (167.8) 219.7 (42.3) 9.6
Interest expense............................................ 243.0 18.0 70.8 331.8
Capital expenditures........................................ 491.3 77.9 38.8 608.0
As of June 30, 2001
-------------------
Assets...................................................... $29,382.7 $2,471.4 $6,786.6 $38,640.7
Long-term debt, less current portion........................ 7,840.1 185.0 3,425.6 11,450.7
As of December 31, 2000
-----------------------
Assets...................................................... $25,750.3 $2,503.0 $7,491.2 $35,744.5
Long-term debt, less current portion........................ 6,711.0 302.0 3,504.4 10,517.4
---------------
13
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
(1) Other includes segments not meeting certain quantitative guidelines
for reporting including the Company's content and business
communications operations as well as elimination entries related to
the segments presented. Corporate and other assets consist primarily
of the Company's investments (see Note 5).
(2) Operating income (loss) before depreciation and amortization is
commonly referred to in the Company's businesses as "operating cash
flow (deficit)." 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 Company's businesses
and the resulting significant level of non-cash depreciation and
amortization expense, operating cash flow is frequently used as one of
the bases for comparing businesses in the Company's industries,
although the Company's measure of operating cash flow may not be
comparable to similarly titled measures of other companies. Operating
cash flow is the primary basis used by the Company's management to
measure the operating performance of its 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.
14
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We have grown significantly in recent years both through strategic
acquisitions and growth in our existing businesses. We have historically met our
cash needs for operations through our cash flows from operating activities. We
have generally financed our cash requirements for acquisitions and capital
expenditures through borrowings of long-term debt, sales of investments and from
existing cash, cash equivalents and short-term investments.
We have acquired cable systems in new communities in which we do not have
established relationships with the franchising authority, community leaders and
cable subscribers. Further, a substantial number of new employees are being and
must continue to be integrated into our business practices and operations. Our
results of operations may be significantly affected by our ability to
efficiently and effectively manage these changes.
General Developments of Business
Refer to Note 4 to our financial statements included in Item 1 for a
discussion of our 2001 acquisitions and other significant events.
Liquidity and Capital Resources
The cable communications and the electronic retailing industry are
experiencing increasing competition and rapid technological changes. Our future
results of operations will be affected by our ability to react to changes in the
competitive environment and by our ability to implement new technologies. We
believe that competition and technological changes will not significantly affect
our ability to obtain financing.
We believe that we will be able to meet our current and long-term liquidity
and capital requirements, including fixed charges, through our cash flows from
operating activities, existing cash, cash equivalents and investments, and
through available borrowings under our existing credit facilities.
We have both the ability and intent to redeem the Zero Coupon Debentures
with amounts available under subsidiary credit facilities if holders exercise
their rights to require us to repurchase the Zero Coupon Debentures in December
2001. As of June 30, 2001, certain of our subsidiaries had unused lines of
credit of $3.878 billion under their respective credit facilities.
Refer to Note 6 to our financial statements included in Item 1 for a
discussion of our Zero Coupon Debentures. Refer to Note 9 to our financial
statements included in Item 1 for a discussion of our commitments and
contingencies.
Cash, Cash Equivalents and Short-term Investments
We have traditionally maintained significant levels of cash, cash
equivalents and short-term investments to meet our short-term liquidity
requirements. Our cash equivalents and short-term investments are recorded at
fair value. Cash, cash equivalents and short-term investments as of June 30,
2001 were $2.675 billion, substantially all of which is unrestricted.
Investments
A significant portion of our investments are in publicly traded companies
and are reflected at fair value which fluctuates with market changes.
We do not have any significant contractual funding commitments with respect
to any of our investments. Our ownership interests in these investments may,
however, be diluted if we do not fund our investees' non-binding capital calls.
We continually evaluate our existing investments, as well as new investment
opportunities.
Refer to Note 5 to our financial statements included in Item 1 for a
discussion of our investments.
Capital Expenditures
We have accelerated our cable system rebuild program and have increased
deployment of cable modems and digital converters to our customers. As a result,
we currently expect to invest $1.75 billion in capital expenditures for our
cable operations in 2001, up from our previous estimate of $1.45 billion, and we
expect our consolidated capital expenditures for 2001 to increase from our
previous estimate of $1.65 billion to $1.95 billion.
Financing
As of June 30, 2001 and December 31, 2000, our long-term debt, including
current portion, was $11.999 billion and $10.811 billion, respectively.
15
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
The $1.188 billion increase from December 31, 2000 to June 30, 2001 results
principally from the effects of our net borrowings, offset by the $213.6 million
aggregate reduction to the carrying value of our ZONES during 2001.
Excluding the effects of interest rate risk management instruments, 10.9%
and 28.5% of our long-term debt as of June 30, 2001 and December 31, 2000,
respectively, was at variable rates. The decrease from December 31, 2000 to June
30, 2001 in the percentage of our variable rate debt was due principally to the
effects of our 2001 financings described below.
During 2001, our wholly owned subsidiary, Comcast Cable Communications,
Inc. ("Comcast Cable") sold an aggregate of $3.0 billion of senior notes with
interest rates ranging from 6.375% to 7.125% and maturing between 2006 and 2013.
In addition, in January 2001, we issued an additional $192.8 million principal
amount at maturity of our Zero Coupon Debentures. We used substantially all of
the net proceeds from the offerings to repay a portion of the amounts
outstanding under Comcast Cable's commercial paper program, revolving credit
facility and notes payable to affiliates, and to fund acquisitions.
We have and may in the future, depending on certain factors including
market conditions, make optional repayments on our debt obligations, which may
include open market repurchases of our outstanding public notes and debentures.
Refer to Notes 6 and 7 to our financial statements included in Item 1 for a
discussion of our 2001 financing activities.
Equity Price Risk
During 1999, we entered into cashless collar agreements (the "Equity
Collars") covering $1.365 billion notional amount of our Sprint PCS common stock
which we account for at fair value. The Equity Collars limit our exposure to and
benefits from price fluctuations in the Sprint PCS common stock. During the
three months ended June 30, 2001, $290.2 million notional amount of Equity
Collars matured and we sold the related Sprint PCS common stock. The remaining
$1.075 billion notional amount of Equity Collars mature between 2001 and 2003.
As we had accounted for the Equity Collars as a hedge, changes in the value of
the Equity Collars were substantially offset by changes in the value of the
Sprint PCS common stock which were also marked to market through accumulated
other comprehensive income in our balance sheet through December 31, 2000.
In connection with the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended on January 1, 2001, we reclassified our investment in
Sprint PCS from an available for sale security to a trading security. During the
three and six months ended June 30, 2001, the increase in the fair value of our
investment in Sprint PCS common stock of $392.4 million and $265.6 million,
respectively, was substantially offset by the decrease in the fair value of the
Equity Collars and the increase in the fair value of the derivative component of
the ZONES. See "Results of Operations - Investment Income" below.
Interest Rate Risk
During the six months ended June 30, 2001, interest rate exchange
agreements ("Swaps") with an aggregate notional amount of $60.5 million were
either terminated or expired. As of June 30, 2001, we have Swaps with an
aggregate notional amount of $967.2 million having an average pay rate of 5.64%
and an average receive rate of 6.78%.
-----------------------
Statement of Cash Flows
Cash and cash equivalents increased $94.4 million as of June 30, 2001 from
December 31, 2000. The increase 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 $709.5 million for
the six months ended June 30, 2001, due principally to our operating income
before depreciation and amortization (see "Results of Operations"), and by
changes in working capital as a result of the timing of receipts and
disbursements and the effects of net interest and current income tax expense.
Net cash provided by financing activities includes borrowings and
repayments of debt, as well as the issuances and repurchases of our equity
securities. Net cash provided by financing activities was $1.346 billion
16
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
for the six months ended June 30, 2001. During the six months ended June 30,
2001, we borrowed $4.555 billion, consisting of:
o $2.991 billion from Comcast Cable's senior notes offerings,
o $150.3 million from our Zero Coupon Debentures offering,
o $1.197 billion under Comcast Cable's commercial paper program, and
o $216.2 million under revolving credit facilities.
During the six months ended June 30, 2001, we repaid $3.206 billion of our
long-term debt, consisting primarily of:
o $1.765 billion under Comcast Cable's commercial paper program, and
o $1.427 billion on certain of our revolving credit facilities.
In addition, during the six months ended June 30, 2001, we received
proceeds of $20.2 million related to issuances of our common stock and incurred
$22.5 million of deferred financing costs.
Net cash used in investing activities includes the effects of acquisitions,
net of cash acquired, purchases of investments, capital expenditures and
additions to deferred charges, offset by proceeds from sales of investments. Net
cash used in investing activities was $1.961 billion for the six months ended
June 30, 2001.
During the six months ended June 30, 2001, acquisitions, net of cash
acquired, amounted to $872.8 million, consisting primarily of:
o $518.7 million for the cable system serving Baltimore City, and
o $305.9 million for a controlling interest in The Golf Channel.
Results of Operations
Our summarized financial information for the interim periods is as follows
(dollars in millions, "NM" denotes percentage is not meaningful):
Three Months Ended
June 30, Increase / (Decrease)
2001 2000 $ %
--------- --------- --------- ---------
Revenues...................................................... $2,298.5 $1,912.1 $386.4 20.2%
Cost of goods sold from electronic retailing.................. 555.2 488.2 67.0 13.7
Operating, selling, general and administrative expenses....... 1,042.9 821.1 221.8 27.0
--------- --------- --------- ---------
Operating income before depreciation and amortization (1)..... 700.4 602.8 97.6 16.2
Depreciation.................................................. 250.9 204.8 46.1 22.5
Amortization.................................................. 582.8 429.6 153.2 35.7
--------- --------- --------- ---------
Operating income (loss)....................................... (133.3) (31.6) 101.7 NM
--------- --------- --------- ---------
Interest expense.............................................. (176.2) (163.2) 13.0 8.0
Investment income............................................. 502.7 314.8 187.9 59.7
Income related to indexed debt................................ 289.5 (289.5) NM
Equity in net losses of affiliates............................ (9.5) (1.1) 8.4 NM
Other income (expense)........................................ (6.3) 2.2 (8.5) NM
Income tax expense............................................ (103.8) (185.1) (81.3) (43.9)
Minority interest............................................. (36.9) (26.7) 10.2 38.2
--------- --------- --------- ---------
Income before extraordinary items and cumulative
effect of accounting change................................ $36.7 $198.8 ($162.1) (81.5%)
========= ========= ========= =========
17
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
Six Months Ended
June 30, Increase / (Decrease)
2001 2000 $ %
--------- --------- --------- ---------
Revenues..................................................... $4,494.6 $3,851.0 $643.6 16.7%
Cost of goods sold from electronic retailing................. 1,111.8 1,015.2 96.6 9.5
Operating, selling, general and administrative expenses...... 2,041.5 1,646.1 395.4 24.0
--------- --------- --------- ---------
Operating income before depreciation and amortization (1).... 1,341.3 1,189.7 151.6 12.7
Depreciation................................................. 472.2 376.7 95.5 25.4
Amortization................................................. 1,102.9 803.4 299.5 37.3
--------- --------- --------- ---------
Operating income (loss)...................................... (233.8) 9.6 (243.4) NM
--------- --------- --------- ---------
Interest expense............................................. (358.5) (331.8) 26.7 8.0
Investment income............................................ 717.4 959.4 (242.0) (25.2)
Expense related to indexed debt.............................. (398.0) (398.0) NM
Equity in net losses of affiliates........................... (6.6) (4.0) 2.6 65.0
Other income (expense)....................................... 1,187.9 (8.6) 1,196.5 NM
Income tax expense........................................... (589.4) (153.3) 436.1 NM
Minority interest............................................ (63.6) (60.9) 2.7 4.4
--------- --------- --------- ---------
Income before extraordinary items and
cumulative effect of accounting change.................... $653.4 $12.4 $641.0 NM
========= ========= ========= =========
------------
(1) Operating income before depreciation and amortization is commonly referred
to in our businesses 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 our businesses
and the resulting significant level of non-cash depreciation expense and
amortization expense, operating cash flow is frequently used as one of the
bases for comparing businesses in our industries, although our measure of
operating cash flow may not be comparable to similarly titled measures of
other companies. Operating cash flow is the primary basis used by our
management to measure the operating performance of our 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 our performance. See
"Statement of Cash Flows" above for a discussion of net cash provided by
operating activities.
18
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
Operating Results by Business Segment
The following represent the operating results of our significant business
segments, "Cable" and "Commerce." Refer to Note 10 to our financial statements
included in Item 1 (dollars in millions).
Cable Three Months Ended
June 30, Increase
2001 2000 $ %
--------- --------- --------- --------
Video........................................................ $1,059.5 $892.0 $167.5 18.8%
Cable modem.................................................. 64.8 26.3 38.5 146.4
Advertising sales............................................ 85.7 71.8 13.9 19.4
Other........................................................ 45.5 31.9 13.6 42.6
--------- --------- --------- --------
Revenues................................................ 1,255.5 1,022.0 233.5 22.8
Operating, selling, general and administrative expenses...... 705.8 554.5 151.3 27.3
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $549.7 $467.5 $82.2 17.6%
========= ========= ========= ========
Six Months Ended
June 30, Increase
2001 2000 $ %
--------- --------- --------- --------
Video........................................................ $2,044.3 $1,757.4 $286.9 16.3%
Cable modem.................................................. 119.3 47.0 72.3 153.8
Advertising sales............................................ 151.9 130.0 21.9 16.8
Other........................................................ 79.5 63.9 15.6 24.4
--------- --------- --------- --------
Revenues................................................ 2,395.0 1,998.3 396.7 19.9
Operating, selling, general and administrative expenses...... 1,357.3 1,094.0 263.3 24.1
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $1,037.7 $904.3 $133.4 14.8%
========= ========= ========= ========
---------------
(a) See footnote (1) on page 18.
Video revenue consists of our basic, expanded basic, premium, pay-per-view
and digital subscriptions. Of the $167.5 million and $286.9 million increases in
video revenues for the interim periods from 2000 to 2001, $107.8 million and
$171.4 million are attributable to the effects of our acquisitions and exchanges
of cable systems and $59.7 million and $115.5 million relate to changes in rates
and subscriber growth in our historical operations, driven principally by growth
in digital subscriptions. During the three and six months ended June 30, 2001 we
added approximately 285,000 and 486,000 digital subscriptions, respectively.
The increases in cable modem revenue are primarily due to the addition of
approximately 134,000 and 276,000 cable modem subscribers during the three and
six months ended June 30, 2001, respectively.
The increases in advertising sales revenue are attributable to the effects
of new advertising contracts, market-wide fiber interconnects and the continued
leveraging of our existing fiber networks.
Other revenue includes installation revenues, guide revenues, commissions
from electronic retailing and other product offerings. The increases are
primarily attributable to growth in our historical operations.
The increases in operating, selling, general and administrative expenses
are primarily due to the effects of increases in the costs of cable programming,
cable modem subscriber growth, and, to a lesser extent, increases in labor costs
and other volume related expenses in our historical operations.
Our cost of programming increases as a result of changes in rates,
subscriber growth, additional channel offerings and our acquisitions of cable
systems. We anticipate the cost of cable programming will increase in the future
as cable programming rates increase and additional sources of cable programming
become available.
19
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
Commerce (QVC, Inc. and Subsidiaries) Three Months Ended
June 30, Increase
2001 2000 $ %
--------- --------- --------- --------
Net sales from electronic retailing.......................... $876.0 $770.6 $105.4 13.7%
Cost of goods sold from electronic retailing................. 555.2 488.2 67.0 13.7
Operating, selling, general and administrative
expenses................................................ 161.0 148.4 12.6 8.5
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $159.8 $134.0 $25.8 19.3%
========= ========= ========= ========
Gross margin................................................. 36.6% 36.7%
========= =========
Six Months Ended
June 30, Increase
2001 2000 $ %
--------- --------- --------- --------
Net sales from electronic retailing.......................... $1,760.0 $1,591.6 $168.4 10.6%
Cost of goods sold from electronic retailing................. 1,111.8 1,015.2 96.6 9.5
Operating, selling, general and administrative
expenses................................................ 315.7 297.7 18.0 6.0
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $332.5 $278.7 $53.8 19.3%
========= ========= ========= ========
Gross margin................................................. 36.8% 36.2%
========= =========
---------------
(a) See footnote (1) on page 18.
Of the $105.4 million and $168.4 million increases in net sales from
electronic retailing for the interim periods, $98.9 million and $157.3 million,
respectively, is attributable to increases in net sales in the United States.
This growth is principally the result of increases in the average number of
homes receiving QVC services and in net sales per home as follows:
Three Months Six Months
Ended Ended
June 30, 2001 June 30, 2001
----------------- ---------------
Increase in average number of homes............ 3.6% 4.0%
Increase in net sales per home................. 11.0% 7.3%
The remaining increases of $6.5 million and $11.1 million in net sales from
electronic retailing for the interim periods are primarily attributable to
increases in net sales in Germany offset, in part, by decreases in net sales in
the United Kingdom, and to the effects of fluctuations in foreign currency
exchange rates during the periods.
The increases in cost of goods sold are primarily related to the growth in
net sales. The increase in gross margin for the six month period is primarily
due to the effects of increases in product margins across all product
categories, as well as to the effects of a shift in sales mix.
The increases in operating, selling, general and administrative expenses
are primarily attributable to higher variable costs and personnel costs
associated with the increase in sales volume.
20
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
Consolidated Analysis
The effects of our recent acquisitions were to increase our revenues and
expenses, resulting in increases in our operating income before depreciation and
amortization. The increases in our property and equipment and deferred charges
and the corresponding increases in depreciation expense and amortization expense
for the interim periods from 2000 to 2001 are primarily due to the effects of
our acquisitions, our cable system exchanges, as well as our increased levels of
capital expenditures.
Refer to Notes 4 and 8 to our financial statements included in Item 1 for a
discussion of our 2001 acquisitions and of the effect of these acquisitions on
our balance sheet.
Interest Expense
The increases in interest expense for the interim periods from 2000 to 2001
are primarily due to the increase in our net borrowings.
We anticipate that, for the foreseeable future, interest expense will be a
significant cost to us. We believe we will continue to be able to meet our
obligations through our ability both to generate operating income before
depreciation and amortization and to obtain external financing.
Investment Income
Investment income for the interim periods includes the following (in
millions):
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
-------- --------- --------- ---------
Interest and dividend income........................... $17.4 $45.2 $35.0 $105.3
Gains on sales and exchanges of investments............ 448.0 272.1 459.6 861.5
Investment impairment losses........................... (45.0) (2.5) (939.1) (7.4)
Reclassification of unrealized gains................... 1,092.4
Unrealized gain on Sprint PCS common stock............. 392.4 265.6
Mark to market adjustments on derivatives
related to Sprint PCS common stock................ (317.9) (191.5)
Mark to market adjustments on derivatives and
hedged items...................................... 7.8 (4.6)
-------- --------- --------- ---------
Investment income................................. $502.7 $314.8 $717.4 $959.4
======== ========= ========= =========
The investment impairment loss for the six months ended June 30, 2001
relates principally to an other than temporary decline in our investment in
AT&T, a portion of which was exchanged on April 30, 2001.
In connection with the reclassification of our investment in Sprint PCS
from an available for sale security to a trading security, we recorded to
investment income the accumulated unrealized gain of $1.092 billion on our
investment in Sprint PCS which was previously recorded as a component of
accumulated other comprehensive income.
21
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
Income (Expense) Related to Indexed Debt
Through December 31, 2000, we accounted for the ZONES as an indexed debt
instrument since the maturity value is dependent upon the fair value of Sprint
PCS common stock. During the 2000 interim periods, we recorded income (expense)
related to indexed debt of $289.5 million and ($398.0) million, respectively, to
reflect fair value of the underlying Sprint PCS common stock.
Other Income (Expense)
On January 1, 2001, we completed our cable systems exchange with Adelphia.
We received cable systems serving approximately 445,000 subscribers from
Adelphia in exchange for certain of our cable systems serving approximately
441,000 subscribers. We recorded a pre-tax gain of $1.199 billion, representing
the difference between the estimated fair value as of the closing date of the
transaction and our cost basis in the systems exchanged.
Income Tax Expense
The changes in income tax expense for the interim periods from 2000 to 2001
are primarily the result of the effects of changes in our income before taxes
and minority interest, and non-deductible goodwill amortization.
Minority Interest
The changes in minority interest for the interim periods from 2000 to 2001
are attributable to the effects of changes in the net income or loss of our less
than 100% owned consolidated subsidiaries.
Extraordinary Items
We incurred debt extinguishment costs and wrote off unamortized debt issue
costs principally in connection with the redemption and retirement of certain
indebtedness, resulting in extraordinary losses, net of tax, during the 2001 and
2000 interim periods.
Cumulative Effect of Accounting Change
Upon adoption of SFAS No. 133, we recognized as income a cumulative effect
of accounting change, net of related income taxes, of $384.5 million during the
six months ended June 30, 2001. The income consisted of a $400.2 million
adjustment to record the debt component of our ZONES at a discount from its
value at maturity and $191.3 million principally related to the reclassification
of gains previously recognized as a component of accumulated other comprehensive
income on our equity derivative instruments, net of related deferred income
taxes.
We believe that our operations are not materially affected by inflation.
Expected Impact of Adoption of SFAS No.'s 141 and 142
The Financial Accounting Standards Board issued SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets" in June
2001. These statements address how intangible assets that are acquired
individually, with a group of other assets or in connection with a business
combination should be accounted for in financial statements upon and subsequent
to their acquisition. The new statements require that all business combinations
initiated after June 30, 2001 be accounted for using the purchase method and
establish specific criteria for the recognition of intangible assets separately
from goodwill.
We adopted SFAS No. 141 on July 1, 2001, as required by the new statement.
We do not expect the adoption of SFAS No. 141 to have a material impact on our
financial position or results of operations.
We will adopt SFAS No. 142 on January 1, 2002, as required by the new
statement. Upon adoption of SFAS No. 142, we will no longer amortize goodwill
and other indefinite lived intangible assets. We will be required to test our
goodwill and intangible assets that are deemed to have an indefinite life for
impairment at least annually. Other than in those periods in which we may report
an asset impairment, we expect that the adoption of SFAS No. 142 will result in
increased income as a result of reduced amortization expense. We are currently
evaluating the impact adoption of SFAS No. 142 will have on our financial
position and results of operations.
22
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
PART II OTHER INFORMATION
------- -----------------
ITEM 1. LEGAL PROCEEDINGS
We are subject to legal proceedings and claims which arise in the ordinary
course of our business. In the opinion of our management, the amount of
ultimate liability with respect to such actions is not expected to
materially affect our financial position, results of operations or
liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting on June 6, 2001, the shareholders approved the
following proposals:
To elect ten directors to serve for the ensuing year and until their
respective successors shall have been duly elected and qualified.
Director Class of Stock For Withheld
-------- -------------- --- --------
Ralph J. Roberts Class A 19,324,359 59,407
Class B 141,665,625
Julian A. Brodsky Class A 19,328,808 54,958
Class B 141,665,625
Brian L. Roberts Class A 19,332,412 51,354
Class B 141,665,625
Decker Anstrom Class A 19,326,245 57,521
Class B 141,665,625
Sheldon M. Bonovitz Class A 18,614,761 769,005
Class B 141,665,625
Joseph L. Castle II Class A 19,324,859 58,907
Class B 141,665,625
Felix G. Rohatyn Class A 19,318,664 65,102
Class B 141,665,625
Bernard C. Watson Class A 19,324,499 59,267
Class B 141,665,625
Irving A. Wechsler Class A 19,324,266 59,500
Class B 141,665,625
Anne Wexler Class A 19,322,475 61,291
Class B 141,665,625
To ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the 2001 fiscal year.
Class of Stock For Against Abstain
-------------- --- ------- -------
Class A 19,306,841 44,285 32,640
Class B 141,665,625
23
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
To consider a proposal to approve the adoption of the Comcast Corporation
2001 Employee Stock Purchase Plan.
Class of Stock For Against Abstain
-------------- --- ------- -------
Class A 11,634,982 256,067 81,373
Class B 141,665,625
To consider a proposal to approve an amendment to the Comcast Corporation
1996 Executive Cash Bonus Plan.
Class of Stock For Against Abstain
-------------- --- ------- -------
Class A 11,340,162 526,293 105,967
Class B 141,665,625
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
10.1 Comcast Corporation 1996 Stock Option Plan, as amended and
restated, effective June 5, 2001.
10.2 Comcast Corporation 1996 Executive Cash Bonus Plan, as amended
and restated, effective June 6, 2001.
10.3 Comcast Corporation 2001 Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4.1 to our Registration
Statement on Form S-8 filed on June 7, 2001).
(b) Reports on Form 8-K:
(i) None.
24
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMCAST CORPORATION
------------------------------------
/S/ LAWRENCE J. SALVA
------------------------------------
Lawrence J. Salva
Senior Vice President
(Principal Accounting Officer)
Date: August 7, 2001
25