0000950159-01-500320.txt : 20011107
0000950159-01-500320.hdr.sgml : 20011107
ACCESSION NUMBER: 0000950159-01-500320
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20010930
FILED AS OF DATE: 20011102
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: COMCAST CORP
CENTRAL INDEX KEY: 0000022301
STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841]
IRS NUMBER: 231709202
STATE OF INCORPORATION: PA
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-15471
FILM NUMBER: 1774045
BUSINESS ADDRESS:
STREET 1: 1500 MARKET STREET
CITY: PHILADELPHIA
STATE: PA
ZIP: 19102-2148
BUSINESS PHONE: 2156651700
MAIL ADDRESS:
STREET 1: 1500 MARKET STREET
CITY: PHILADELPHIA
STATE: PA
ZIP: 19102-2148
10-Q
1
comc10q9-01.txt
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:
SEPTEMBER 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 September 30, 2001, there were 913,655,155 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 SEPTEMBER 30, 2001
TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30,
2001 and December 31, 2000 (Unaudited)........................2
Condensed Consolidated Statement of Operations and Retained
Earnings (Accumulated Deficit) for the Three and Nine Months
Ended September 30, 2001 and 2000 (Unaudited).................3
Condensed Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 2001 and 2000 (Unaudited).....4
Notes to Condensed Consolidated Financial Statements
(Unaudited)..............................................5 - 16
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................17 - 24
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................25
ITEM 6. Exhibits and Reports on Form 8-K.............................25
SIGNATURE............................................................26
___________________________________
This Quarterly Report on Form 10-Q is for the three months ended September
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.
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
PART I. FINANCIAL INFORMATION
------- ---------------------
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in millions, except share data)
September 30, December 31,
2001 2000
--------------- -------------
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents.................................................... $658.4 $651.5
Investments.................................................................. 1,271.9 3,059.7
Accounts receivable, less allowance for doubtful accounts of
$152.1 and $141.7.......................................................... 829.7 891.9
Inventories, net............................................................. 504.3 438.5
Other current assets......................................................... 165.5 102.8
--------- ---------
Total current assets..................................................... 3,429.8 5,144.4
--------- ---------
INVESTMENTS..................................................................... 3,302.3 2,661.9
--------- ---------
PROPERTY AND EQUIPMENT.......................................................... 8,989.6 6,799.2
Accumulated depreciation..................................................... (2,207.5) (1,596.5)
--------- ---------
Property and equipment, net.................................................. 6,782.1 5,202.7
--------- ---------
DEFERRED CHARGES AND OTHER ASSETS............................................... 30,919.3 26,865.9
Accumulated amortization..................................................... (5,652.1) (4,130.4)
--------- ---------
Deferred charges and other assets, net....................................... 25,267.2 22,735.5
--------- ---------
$38,781.4 $35,744.5
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses........................................ $3,294.0 $2,852.9
Accrued interest............................................................. 191.5 105.5
Deferred income taxes........................................................ 194.6 789.9
Current portion of long-term debt............................................ 554.4 293.9
--------- ---------
Total current liabilities................................................ 4,234.5 4,042.2
--------- ---------
LONG-TERM DEBT, less current portion............................................ 11,494.8 10,517.4
--------- ---------
DEFERRED INCOME TAXES........................................................... 6,453.1 5,786.7
--------- ---------
MINORITY INTEREST AND OTHER..................................................... 1,760.2 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, 936,980,066 and 931,340,103; outstanding, 913,655,155
and 908,015,192............................................................ 913.7 908.0
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........................................................... 11,742.6 11,598.8
Retained earnings............................................................ 1,952.0 1,056.5
Accumulated other comprehensive income....................................... 199.3 432.4
--------- ---------
Total stockholders' equity............................................... 14,838.8 14,086.4
--------- ---------
$38,781.4 $35,744.5
========= =========
See notes to condensed consolidated financial statements.
2
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND
RETAINED EARNINGS (ACCUMULATED DEFICIT)
(Unaudited)
(Amounts in millions, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
--------- --------- --------- ---------
REVENUES
Service revenues....................................................... $1,460.4 $1,139.7 $4,195.0 $3,399.1
Net sales from electronic retailing.................................... 895.1 820.3 2,655.1 2,411.9
--------- --------- --------- ---------
2,355.5 1,960.0 6,850.1 5,811.0
--------- --------- --------- ---------
COSTS AND EXPENSES
Operating.............................................................. 679.1 516.5 1,991.6 1,594.4
Cost of goods sold from electronic retailing........................... 573.8 529.2 1,685.6 1,544.4
Selling, general and administrative.................................... 396.8 308.6 1,125.8 876.8
Depreciation........................................................... 288.2 223.2 760.4 599.9
Amortization........................................................... 595.8 438.9 1,698.7 1,242.3
--------- --------- --------- ---------
2,533.7 2,016.4 7,262.1 5,857.8
--------- --------- --------- ---------
OPERATING LOSS............................................................. (178.2) (56.4) (412.0) (46.8)
OTHER INCOME (EXPENSE)
Interest expense....................................................... (190.7) (175.2) (549.2) (507.0)
Investment income...................................................... 328.3 65.4 1,045.7 1,024.8
Income related to indexed debt......................................... 1,064.0 666.0
Equity in net losses of affiliates..................................... (19.5) (3.7) (26.1) (7.7)
Other income (expense)................................................. (7.0) 1,133.1 1,180.9 1,124.5
--------- --------- --------- ---------
111.1 2,083.6 1,651.3 2,300.6
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST, EXTRAORDINARY
ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE....................... (67.1) 2,027.2 1,239.3 2,253.8
INCOME TAX EXPENSE......................................................... (13.5) (752.3) (602.9) (905.6)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST, EXTRAORDINARY ITEMS AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE................................. (80.6) 1,274.9 636.4 1,348.2
MINORITY INTEREST.......................................................... (26.2) (25.8) (89.8) (86.7)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE................................................... (106.8) 1,249.1 546.6 1,261.5
EXTRAORDINARY ITEMS........................................................ (2.3) (1.5) (18.5)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE..................................... 384.5
--------- --------- --------- ---------
NET INCOME (LOSS).......................................................... (106.8) 1,246.8 929.6 1,243.0
PREFERRED DIVIDENDS........................................................ (7.6) (22.7)
--------- --------- --------- ---------
NET INCOME (LOSS) FOR COMMON STOCKHOLDERS.................................. ($106.8) $1,239.2 $929.6 $1,220.3
========= ========= ========= =========
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Beginning of period.................................................... $2,075.8 ($878.2) $1,056.5 ($619.8)
Net income (loss)...................................................... (106.8) 1,246.8 929.6 1,243.0
Retirement of common stock............................................. (17.0) (60.2) (34.1) (314.8)
--------- --------- --------- ---------
End of period.......................................................... $1,952.0 $308.4 $1,952.0 $308.4
========= ========= ========= =========
BASIC EARNINGS (LOSS) FOR COMMON STOCKHOLDERS PER COMMON SHARE
Income (loss) before extraordinary items and cumulative effect
of accounting change................................................ ($0.11) $1.37 $0.58 $1.40
Extraordinary items.................................................... (0.02)
Cumulative effect of accounting change................................. 0.40
--------- --------- --------- ---------
Net income (loss)................................................... ($0.11) $1.37 $0.98 $1.38
========= ========= ========= =========
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING................. 951.5 908.8 949.3 885.1
========= ========= ========= =========
DILUTED EARNINGS (LOSS) FOR COMMON STOCKHOLDERS PER COMMON SHARE
Income (loss) before extraordinary items and cumulative effect
of accounting change ($0.11) $1.29 $0.56 $1.34
Extraordinary items.................................................... (0.02)
Cumulative effect of accounting change................................. 0.40
--------- --------- --------- ---------
Net income (loss)................................................... ($0.11) $1.29 $0.96 $1.32
========= ========= ========= =========
DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING............... 951.5 965.6 964.7 943.1
========= ========= ========= =========
See notes to condensed consolidated financial statements.
3
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in millions)
Nine Months Ended September 30,
2001 2000
--------- ---------
OPERATING ACTIVITIES
Net income................................................................... $929.6 $1,243.0
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................................... 760.4 599.9
Amortization............................................................... 1,698.7 1,242.3
Non-cash interest expense (income), net.................................... 31.2 (29.9)
Non-cash income related to indexed debt.................................... (666.0)
Equity in net losses of affiliates......................................... 26.1 7.7
Gains on investments and other income, net................................. (2,172.8) (2,036.8)
Minority interest.......................................................... 89.8 86.7
Extraordinary items........................................................ 1.5 18.5
Cumulative effect of accounting change..................................... (384.5)
Deferred income taxes and other............................................ (128.7) 558.2
--------- ---------
851.3 1,023.6
Changes in working capital................................................. 403.4 (208.9)
--------- ---------
Net cash provided by operating activities............................ 1,254.7 814.7
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings..................................................... 5,030.9 3,189.3
Retirements and repayments of debt........................................... (3,791.1) (3,991.6)
Issuances of common stock and sales of put options on common stock........... 23.2 23.8
Repurchases of common stock.................................................. (27.1) (290.3)
Deferred financing costs..................................................... (22.5) (34.4)
--------- ---------
Net cash provided by (used in) financing activities.................. 1,213.4 (1,103.2)
--------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired........................................... (917.5) (161.0)
Proceeds from sales of (purchases of) short-term investments, net............ (173.3) 904.6
Purchases of investments..................................................... (238.7) (353.3)
Increase in notes receivable................................................. (400.0) (50.0)
Proceeds from sales of investments........................................... 1,151.5 992.8
Capital expenditures......................................................... (1,691.2) (1,056.0)
Additions to deferred charges................................................ (192.0) (334.9)
--------- ---------
Net cash used in investing activities................................ (2,461.2) (57.8)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................... 6.9 (346.3)
CASH AND CASH EQUIVALENTS, beginning of period.................................. 651.5 922.2
--------- ---------
CASH AND CASH EQUIVALENTS, end of period........................................ $658.4 $575.9
========= =========
See notes to condensed consolidated financial statements.
4
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 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. RECENT ACCOUNTING PRONOUNCEMENTS
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.
SFAS No's. 141 and 142
The Financial Accounting Standards Board ("FASB") 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.
The Company adopted SFAS No. 141 on July 1, 2001, as required by the new
statement. The Company does not expect the adoption of SFAS No. 141 to have
a material impact on its financial position or its results of operations.
5
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The Company will adopt SFAS No. 142 on January 1, 2002, as required by the
new statement. Upon adoption, the Company will no longer amortize goodwill
and other indefinite lived intangible assets, which consist primarily of
cable franchise operating rights. The Company will be required to test its
goodwill and intangible assets that are determined to have an indefinite
life for impairment at least annually. Other than in those periods in which
the Company may record an asset impairment, the Company expects that the
adoption of SFAS No. 142 will result in increased income as a result of
reduced amortization expense.
Based on the Company's preliminary evaluation, the estimated pro forma
effect of adoption of SFAS No. 142 would be to decrease amortization
expense by approximately $1.5 billion for the nine months ended September
30, 2001 and $2.0 billion for the year ended December 31, 2001.
SFAS No. 143
The FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," in June 2001. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS No. 143
is effective for fiscal years beginning after June 15, 2002. While the
Company is currently evaluating the impact the adoption of SFAS No. 143
will have on its financial position and results of operations, it does not
expect such impact to be material.
SFAS No. 144
The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," in August 2001. SFAS No. 144, which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of, supercedes SFAS No. 121 and is
effective for fiscal years beginning after December 15, 2001. While the
Company is currently evaluating the impact the adoption of SFAS No. 144
will have on its financial position and results of operations, it does not
expect such impact to be material.
EITF 00-25
In April 2001, the Emerging Issues Task Force ("EITF") of the FASB reached
a consensus on EITF 00-25, "Vendor Income Statement Characterization of
Consideration Paid to a Reseller of the Vendor's Products." EITF 00-25
requires that consideration paid to customers should be classified as a
reduction of revenue unless certain criteria are met. Certain of the
Company's programming networks have paid or may pay distribution fees to
cable television and satellite broadcast systems for carriage of their
programming. The Company currently classifies these distribution fees as
expense in its statement of operations. Upon adoption of EITF 00-25, the
Company will reclassify certain of these distribution fees from expense to
a revenue reduction for all periods presented in its statement of
operations. The change in classification will have no impact on the
Company's reported operating loss or financial position. The Company will
adopt EITF 00-25 on January 1, 2002. The effect of the reclassification of
cable television and satellite broadcast distribution fees from expense to
a reduction of revenue is to decrease the amounts reported in the Company's
statement of operations as follows (in millions):
Three Months Nine Months
Ended Ended Year Ended
September 30, September 30, December 31,
2001 2000 2001 2000 2000 1999
------ ------ ------- ------- ------- -------
Service revenues...................... $6.5 $5.8 $23.1 $11.5 $17.3 $4.6
Selling, general and administrative
expense............................ $1.1 $1.4 $3.6 $4.3 $5.3 $4.2
Amortization expense.................. $5.4 $4.4 $19.5 $7.2 $12.0 $0.4
6
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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.
(Amounts in millions, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Net income (loss) for common stockholders............ ($106.8) $1,239.2 $929.6 $1,220.3
Preferred dividends.................................. 7.6 22.7
--------- --------- --------- ---------
Net income (loss) for common stockholders used
for Diluted EPS.................................... ($106.8) $1,246.8 $929.6 $1,243.0
========= ========= ========= =========
Basic weighted average number of common shares
outstanding........................................ 951.5 908.8 949.3 885.1
Dilutive securities:
Series B convertible preferred stock............... 42.5 1.4 42.5
Stock option and restricted stock plans............ 14.0 14.0 15.4
Put options on Class A Special Common Stock........ 0.3 0.1
--------- --------- --------- ---------
Diluted weighted average number of common shares
outstanding........................................ 951.5 965.6 964.7 943.1
========= ========= ========= =========
Diluted earnings (loss) for common stockholders
per common share................................... ($0.11) $1.29 $0.96 $1.32
========= ========= ========= =========
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 stock options and
restricted stock plans were excluded from the computation of Diluted EPS
for the three months ended September 30, 2001 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
7
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
between the estimated fair value as of the closing date of the transaction
and the Company's cost basis in the systems exchanged.
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
During the third quarter of 2001, the Company exercised its option to
acquire from Fox Entertainment the approximate 83.2% interest in Outdoor
Life Network ("OLN") not previously owned by the Company. Upon closing of
the acquisition on October 30, 2001, the Company exchanged its 14.5%
interest in the Speedvision Network ("SVN"), together with a previously
made loan, with Fox Entertainment for Fox Entertainment's interest in OLN.
The Company no longer owns any interest in SVN and now owns 100% of OLN.
The Company will consolidate OLN beginning in the fourth quarter of 2001.
Offer to Acquire AT&T Broadband
On July 8, 2001, the Company made an unsolicited proposal to acquire the
core broadband assets of AT&T ("AT&T Broadband") by issuing 1.0525 billion
shares of the Company's common stock and assuming $13.5 billion of AT&T
debt. On July 18, 2001, AT&T announced that it had rejected the Company's
proposal and authorized the exploration of financial and strategic
alternatives relating to AT&T Broadband. On September 28, 2001, the Company
entered into a reciprocal confidentiality agreement with AT&T that will
permit the exchange of
8
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
information between the two companies. There can be no assurance that any
transaction relating to AT&T Broadband will occur, or, if a transaction
does occur, what the terms of the transaction would be.
Excite@Home Services
On September 28, 2001, Excite@Home Corporation ("Excite@Home"), the
Company's provider of high-speed Internet access services, filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. Subsequent to this
filing, the Company and Excite@Home entered into an amendment to the
Company's distribution agreement under which Excite@Home agreed to continue
to provide high-speed Internet access services to existing and new
customers through November 30, 2001. While there can be no assurance that
further developments in this bankruptcy proceeding will not adversely
affect the Company's ability to provide high-speed Internet access, the
Company believes that it will be able to continue to provide such services
to existing and new customers through and following November 30, 2001.
Further, while there can be no assurance that future developments will not
result in additional short-term costs for the Company, the Company believes
that such costs will not have a material adverse effect on the Company's
financial results.
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.
(Amounts in millions,
except per share data)
Nine Months Ended September 30,
2001 2000
------------ -----------
Revenues............................................. $7,043.6 $6,402.4
Income before extraordinary items and
cumulative effect of accounting change............. $535.6 $1,036.7
Net income........................................... $918.6 $1,018.2
Diluted EPS.......................................... $0.95 $1.07
Other Income
In August 2000, the Company obtained the right to exchange its Excite@Home
Series A Common Stock (the "Excite@Home Stock") with AT&T and waived
certain of its Excite@Home Board level and shareholder rights under a
stockholders agreement (the "Share Exchange Agreement"- see Note 5). The
Company also agreed to cause its existing appointee to the Excite@Home
Board of Directors to resign. In connection with the transaction, the
Company recorded to other income a pre-tax gain of $1.045 billion,
representing the estimated fair value of the investment as of the closing
date.
In August 2000, the Company exchanged all of the capital stock of a wholly
owned subsidiary which held certain wireless licenses for approximately 3.2
million shares of AT&T common stock. In connection with the exchange, the
Company recorded to other income a pre-tax gain of $98.1 million,
representing the difference between the fair value of the AT&T shares
received of $100.0 million and the Company's cost basis in the subsidiary.
9
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
5. INVESTMENTS
September 30, December 31,
2001 2000
--------------- --------------
(Dollars in millions)
Fair value method
AT&T Corp............................................ $1,611.8 $1,174.3
Sprint Corp. PCS Group............................... 2,216.3 2,149.8
Other................................................ 172.5 1,873.0
-------------- -------------
4,000.6 5,197.1
Cost method................................................. 345.1 128.4
Equity method............................................... 228.5 396.1
-------------- -------------
Total investments.................................... 4,574.2 5,721.6
Less, current investments................................... 1,271.9 3,059.7
-------------- -------------
Non-current investments..................................... $3,302.3 $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 September 30, 2001 and December 31, 2000 of $341.5 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 $119.5 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 the Share Exchange
Agreement (see Note 4 - Other Income) 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 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.
In August 2001, the Company entered into a ten year prepaid forward sale
(the "Prepaid Forward") of 4.0 million shares of Sprint PCS common stock
held by the Company with a fair value of approximately $98 million and the
Company received $78.3 million in cash. At maturity, the counterparty is
entitled to receive between 2.5 million and 4.0 million shares of Sprint
PCS common stock, or an equivalent amount of cash at the Company's option,
based upon the market value of Sprint PCS common stock at that time. The
Company split the Prepaid Forward into its liability and derivative
components and recorded the Prepaid Forward obligation in other long-term
liabilities.
The unrealized pre-tax losses on cash flow hedges as of September 30, 2001
of $4.7 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 $1.6 million.
10
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Investment Income
Investment income for the interim periods includes the following (in
millions):
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
-------- -------- --------- ---------
Interest and dividend income.............................. $25.6 $37.9 $60.6 $143.1
Gains on sales and exchanges of investments............... 17.2 27.5 476.8 889.1
Investment impairment losses.............................. (15.7) (954.8) (7.4)
Reclassification of unrealized gains...................... 237.9 1,330.3
Unrealized gain on Sprint PCS common stock................ 154.5 420.1
Mark to market adjustments on derivatives related
to Sprint PCS common stock........................... (120.2) (311.7)
Mark to market adjustments on derivatives and
hedged items......................................... 29.0 24.4
-------- -------- --------- ---------
Investment income.................................... $328.3 $65.4 $1,045.7 $1,024.8
======== ======== ========= =========
The investment impairment loss for the nine months ended September 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 - AT&T Cable Systems Acquisition).
During the three months ended September 30, 2001, the Company wrote-off its
investment in Excite@Home common stock based upon a decline in the
investment that was considered other than temporary. In connection with the
realization of this impairment loss, the Company reclassified to investment
income the accumulated unrealized gain of $237.9 million on the Company's
investment in Excite@Home common stock which was previously recorded as a
component of accumulated other comprehensive income. The Company recorded
this accumulated unrealized gain prior to the Company's designation of its
right under the Share Exchange Agreement as a hedge of the Company's
investment in the Excite@Home common stock (see Note 4 - Other Income).
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. As a result, the Company reclassified 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 nine months ended September 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
------------
11
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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.
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
September 30, 2001, the number of Sprint PCS shares held by the Company
exceeded the number of ZONES outstanding.
As of September 30, 2001 and December 31, 2000, long-term debt includes
$1.697 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 Nine Months
Ended Ended
September 30, 2001 September 30, 2001
---------------------- --------------------
Increase in derivative component to investment income......... $98.5 $274.1
Increase in debt component to interest expense................ $5.6 $16.6
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 September 30, 2001 and December 31, 2000, the Company's effective
weighted average interest rate on its long-term debt outstanding was 5.73%
and 6.30%, respectively.
Interest Rate Risk Management
During the nine months ended September 30, 2001, the Company entered into
$500.0 million aggregate notional amount of fixed to variable interest rate
exchange agreements ("Swaps") which mature between 2006 and 2008. During
the nine months ended September 30, 2001, $94.0 million aggregate notional
amount of the Company's variable to fixed Swaps were either terminated or
expired. As of September 30, 2001, the Company has Swaps with an aggregate
notional amount of $1.234 billion.
12
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Lines and Letters of Credit
As of September 30, 2001, certain subsidiaries of the Company had unused
lines of credit of $3.943 billion under their respective credit facilities.
As of September 30, 2001, the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totaling $115.8 million to
cover potential fundings under various agreements.
7. STOCKHOLDERS' EQUITY
Board-Authorized Repurchase Programs
The Company repurchased shares of its common stock during the interim
periods as follows (shares and dollars in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
--------- ---------- --------- ----------
Shares repurchased................................... 0.8 2.1 0.8 8.1
Aggregate consideration.............................. $27.1 $70.7 $27.1 $290.3
Common Equity Put Options
The Company sold put options on 2.0 million shares of its Class A Special
Common Stock during the nine months ended September 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 nine
months ended September 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 Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
--------- ---------- --------- ----------
Net income (loss).................................... ($106.8) $1,246.8 $929.6 $1,243.0
Unrealized losses on marketable securities........... (88.4) (1,316.7) (220.6) (4,376.1)
Unrealized losses on the effective portion
of cash flow hedges................................ (1.4) (3.1)
Foreign currency translation losses.................. (2.7) (4.8) (9.4) (9.1)
--------- ---------- --------- ----------
Comprehensive income (loss).......................... ($199.3) ($74.7) $696.5 ($3,142.2)
========= ========== ========= ==========
13
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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
===========
The Company made cash payments for interest and income taxes during the
interim periods as follows (in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
-------- -------- -------- --------
Interest...................................... $129.8 $96.4 $426.5 $454.8
Income taxes.................................. $10.4 $63.9 $136.8 $660.8
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.
14
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 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 September 30, 2001
-------------------------------------
Revenues............................................. $1,309.4 $895.1 $151.0 $2,355.5
Operating income (loss) before depreciation
and amortization (2)............................ 572.3 153.7 (20.2) 705.8
Depreciation and amortization........................ 765.7 35.2 83.1 884.0
Operating income (loss).............................. (193.4) 118.5 (103.3) (178.2)
Interest expense..................................... 143.9 6.7 40.1 190.7
Capital expenditures................................. 449.6 39.4 43.3 532.3
Nine Months Ended September 30, 2001
------------------------------------
Revenues............................................. $3,704.4 $2,655.1 $490.6 $6,850.1
Operating income (loss) before depreciation
and amortization (2)............................ 1,610.0 486.2 (49.1) 2,047.1
Depreciation and amortization........................ 2,175.0 106.6 177.5 2,459.1
Operating income (loss).............................. (565.0) 379.6 (226.6) (412.0)
Interest expense..................................... 405.4 21.8 122.0 549.2
Capital expenditures................................. 1,398.9 107.4 184.9 1,691.2
Three Months Ended September 30, 2000
-------------------------------------
Revenues............................................. $1,058.6 $820.3 $81.1 $1,960.0
Operating income (loss) before depreciation
and amortization (2)............................ 490.1 139.3 (23.7) 605.7
Depreciation and amortization........................ 602.7 32.0 27.4 662.1
Operating income (loss).............................. (112.6) 107.3 (51.1) (56.4)
Interest expense..................................... 129.4 8.7 37.1 175.2
Capital expenditures................................. 358.0 51.3 35.6 444.9
Nine Months Ended September 30, 2000
------------------------------------
Revenues............................................. $3,056.9 $2,411.9 $342.2 $5,811.0
Operating income (loss) before depreciation
and amortization (2)............................ 1,394.4 418.0 (17.0) 1,795.4
Depreciation and amortization........................ 1,674.8 91.0 76.4 1,842.2
Operating income (loss).............................. (280.4) 327.0 (93.4) (46.8)
Interest expense..................................... 372.4 26.7 107.9 507.0
Capital expenditures................................. 849.6 129.2 77.2 1,056.0
As of September 30, 2001
------------------------
Assets............................................... 29,114.1 2,545.4 7,121.9 $38,781.4
Long-term debt, less current portion................. 7,874.6 123.8 3,496.4 11,494.8
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
_______________
15
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 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.
16
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 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 September 30, 2001, certain of our subsidiaries had unused lines of
credit of $3.943 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 September
30, 2001 were $1.930 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
As previously disclosed, we have accelerated our cable system rebuild
program and have increased deployment of cable modems and digital converters to
our customers. Additionally, our cable operations are accelerating our plans for
the migration of our high-speed Internet access customers from Excite@Home's
national network to our own broadband communications network. As a result, we
currently expect to invest $2.025 billion in capital expenditures for our cable,
commerce and content businesses in 2001, up from our previous estimate of $1.95
billion. We expect our consolidated capital expenditures for 2001 to be between
$2.2 billion and $2.3 billion, consistent with our previous estimates.
17
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
Financing
As of September 30, 2001 and December 31, 2000, our long-term debt,
including current portion, was $12.049 billion and $10.811 billion,
respectively.
The $1.238 billion increase from December 31, 2000 to September 30, 2001
results principally from the effects of our net borrowings, offset by the $109.5
million aggregate reduction to the carrying value of our ZONES during 2001.
Excluding the effects of interest rate risk management instruments, 10.0%
and 28.5% of our long-term debt as of September 30, 2001 and December 31, 2000,
respectively, was at variable rates. The decrease from December 31, 2000 to
September 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 and nine months ended September 30, 2001, $193.5 million and $483.7
million, respectively, notional amount of Equity Collars matured and we sold or
entered into prepaid forward sales of the related Sprint PCS common stock. Refer
to Note 5 (see Derivatives) to our financial statements included in Item 1 for a
discussion of our prepaid forward sales of Sprint PCS common stock. The
remaining $881.0 million notional amount of Equity Collars mature between 2002
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 nine months ended September 30, 2001, the increase in the fair value
of our investment in Sprint PCS common stock of $154.5 million and $420.1
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
components of the ZONES and prepaid forward sales. See "Results of Operations -
Investment Income" below.
Interest Rate Risk
During the nine months ended September 30, 2001, we entered into $500.0
million aggregate notional amount of fixed to variable interest rate exchange
agreements ("Swaps") which mature between 2006 and 2008. During the nine months
ended September 30, 2001, $94.0 million aggregate notional amount of our
variable to fixed Swaps were either terminated or expired. As of September 30,
2001, the Company has $283.7 million aggregate notional amount of variable to
fixed Swaps with an average pay rate of 5.3% and an average receive rate of 3.7%
and $950.0 million aggregate notional amount of fixed to variable Swaps with an
average pay rate of 5.1% and an average receive rate of 7.5%.
_______________________
Statement of Cash Flows
Cash and cash equivalents increased $6.9 million as of September 30, 2001
from December 31, 2000. The increase in cash and cash equivalents resulted from
cash flows from operating, financing and investing activities
18
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
which are explained below.
Net cash provided by operating activities amounted to $1.255 billion for
the nine months ended September 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 $1.213 billion for the
nine months ended September 30, 2001. During the nine months ended September 30,
2001, we borrowed $5.031 billion, consisting primarily of:
o $2.991 billion from Comcast Cable's senior
notes offerings,
o $150.3 million from our Zero Coupon
Debentures offering,
o $1.369 billion under Comcast Cable's
commercial paper program, and
o $517.7 million under revolving credit facilities.
During the nine months ended September 30, 2001, we repaid $3.791 billion
of our long-term debt, consisting primarily of:
o $2.256 billion under Comcast Cable's
commercial paper program, and
o $1.520 billion on certain of our revolving credit
facilities.
In addition, during the nine months ended September 30, 2001, we received
proceeds of $23.2 million related to issuances of our common stock, we
repurchased $27.1 million of our common stock, and we 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, increases
in notes receivable and additions to deferred charges, offset by proceeds from
sales of investments. Net cash used in investing activities was $2.461 billion
for the nine months ended September 30, 2001.
During the nine months ended September 30, 2001, acquisitions, net of cash
acquired, amounted to $917.5 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
September 30, Increase / (Decrease)
2001 2000 $ %
--------- --------- ---------- ---------
Revenues..................................................... $2,355.5 $1,960.0 $395.5 20.2%
Cost of goods sold from electronic retailing................. 573.8 529.2 44.6 8.4
Operating, selling, general and administrative expenses...... 1,075.9 825.1 250.8 30.4
--------- --------- ---------- ---------
Operating income before depreciation and amortization (1).... 705.8 605.7 100.1 16.6
Depreciation................................................. 288.2 223.2 65.0 29.1
Amortization................................................. 595.8 438.9 156.9 35.7
--------- --------- ---------- ---------
Operating loss............................................... (178.2) (56.4) 121.8 216.0
--------- --------- ---------- ---------
Interest expense............................................. (190.7) (175.2) 15.5 8.8
Investment income............................................ 328.3 65.4 262.9 402.0
Income related to indexed debt............................... 1,064.0 (1,064.0) NM
Equity in net losses of affiliates........................... (19.5) (3.7) 15.8 427.0
Other income (expense)....................................... (7.0) 1,133.1 (1,140.1) NM
Income tax expense........................................... (13.5) (752.3) (738.8) (98.2)
Minority interest............................................ (26.2) (25.8) 0.4 1.6
--------- --------- ---------- ---------
Income (loss) before extraordinary items and cumulative
effect of accounting change............................... ($106.8) $1,249.1 ($1,355.9) NM
========= ========= ========== =========
19
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
Nine Months Ended
September 30, Increase / (Decrease)
2001 2000 $ %
--------- --------- --------- ---------
Revenues..................................................... $6,850.1 $5,811.0 $1,039.1 17.9%
Cost of goods sold from electronic retailing................. 1,685.6 1,544.4 141.2 9.1
Operating, selling, general and administrative expenses...... 3,117.4 2,471.2 646.2 26.1
--------- --------- --------- ---------
Operating income before depreciation and amortization (1).... 2,047.1 1,795.4 251.7 14.0
Depreciation................................................. 760.4 599.9 160.5 26.8
Amortization................................................. 1,698.7 1,242.3 456.4 36.7
--------- --------- --------- ---------
Operating loss............................................... (412.0) (46.8) 365.2 780.3
--------- --------- --------- ---------
Interest expense............................................. (549.2) (507.0) 42.2 8.3
Investment income............................................ 1,045.7 1,024.8 20.9 2.0
Income related to indexed debt............................... 666.0 (666.0) NM
Equity in net losses of affiliates........................... (26.1) (7.7) 18.4 239.0
Other income................................................. 1,180.9 1,124.5 56.4 5.0
Income tax expense........................................... (602.9) (905.6) (302.7) (33.4)
Minority interest............................................ (89.8) (86.7) 3.1 3.6
--------- --------- --------- ---------
Income before extraordinary items and cumulative
effect of accounting change............................... $546.6 $1,261.5 ($714.9) (56.7%)
========= ========= ========= =========
____________
(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.
20
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 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
September 30, Increase / (Decrease)
2001 2000 $ %
--------- --------- --------- --------
Video....................................................... $1,110.2 $926.0 $184.2 19.9%
Cable modem................................................. 83.4 30.0 53.4 178.0
Advertising sales........................................... 83.3 69.2 14.1 20.4
Other....................................................... 32.5 33.4 (0.9) (2.7)
--------- --------- --------- --------
Revenues................................................ 1,309.4 1,058.6 250.8 23.7
Operating, selling, general and administrative expenses...... 737.1 568.5 168.6 29.7
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $572.3 $490.1 $82.2 16.8%
========= ========= ========= ========
Nine Months Ended
September 30, Increase
2001 2000 $ %
--------- --------- --------- --------
Video....................................................... $3,154.5 $2,683.4 $471.1 17.6%
Cable modem................................................. 202.7 77.0 125.7 163.2
Advertising sales........................................... 235.2 199.2 36.0 18.1
Other....................................................... 112.0 97.3 14.7 15.1
--------- --------- --------- --------
Revenues................................................ 3,704.4 3,056.9 647.5 21.2
Operating, selling, general and administrative expenses...... 2,094.4 1,662.5 431.9 26.0
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $1,610.0 $1,394.4 $215.6 15.5%
========= ========= ========= ========
_______________
(a) See footnote (1) on page 20.
Video revenue consists of our basic, expanded basic, premium, pay-per-view
and digital subscriptions. Of the $184.2 million and $471.1 million increases in
video revenues for the interim periods from 2000 to 2001, $73.2 million and
$244.6 million are attributable to the effects of our acquisitions and exchanges
of cable systems and $111.0 million and $226.5 million relate to changes in
rates and subscriber growth in our historical operations, driven principally by
growth in digital subscriptions. During the three and nine months ended
September 30, 2001 through acquisitions and normal operations we added
approximately 282,000 and 768,000 digital subscriptions, respectively.
The increases in cable modem revenue are primarily due to the addition of
approximately 117,000 and 393,000 cable modem customers during the three and
nine months ended September 30, 2001, respectively. On September 28, 2001,
Excite@Home Corporation ("Excite@Home"), our provider of high-speed Internet
access services, filed for protection under Chapter 11 of the U.S. Bankruptcy
Code. Subsequent to this filing, we and Excite@Home entered into an amendment to
our distribution agreement under which Excite@Home agreed to continue to provide
high-speed Internet access services to our existing and new customers through
November 30, 2001. While there can be no assurance that further developments in
this bankruptcy proceeding will not adversely affect our ability to provide
high-speed Internet access, we believe that we will be able to continue to
provide such services to our existing and new customers through and following
November 30, 2001. Further, while there can be no assurance that future
developments will not result in additional short-term costs for us, we believe
that such costs will not have a material adverse effect on our financial
results.
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, as well as to the effects of an
additional broadcast week in the third quarter of 2001, helping to offset an
otherwise weak advertising environment.
21
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
Other revenue includes installation revenues, guide revenues, commissions
from electronic retailing and other product offerings. The increase for the nine
month period is primarily attributable to growth in our historical operations.
The increases in operating, selling, general and administrative expenses
are primarily due to the effects of our acquisitions and exchanges of cable
systems, as well as 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 and
exchanges 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.
Commerce (QVC, Inc. and Subsidiaries) Three Months Ended
September 30, Increase
2001 2000 $ %
--------- --------- --------- --------
Net sales from electronic retailing.......................... $895.1 $820.3 $74.8 9.1%
Cost of goods sold from electronic retailing................. 573.8 529.2 44.6 8.4
Operating, selling, general and administrative
expenses................................................ 167.6 151.8 15.8 10.4
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $153.7 $139.3 $14.4 10.3%
========= ========= ========= ========
Gross margin................................................. 35.9% 35.5%
========= =========
Nine Months Ended
September 30, Increase
2001 2000 $ %
--------- --------- --------- --------
Net sales from electronic retailing.......................... $2,655.1 $2,411.9 $243.2 10.1%
Cost of goods sold from electronic retailing................. 1,685.6 1,544.4 141.2 9.1
Operating, selling, general and administrative
expenses................................................ 483.3 449.5 33.8 7.5
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $486.2 $418.0 $68.2 16.3%
========= ========= ========= ========
Gross margin................................................. 36.5% 36.0%
========= =========
_______________
(a) See footnote (1) on page 20.
Of the $74.8 million and $243.2 million increases in net sales from
electronic retailing for the interim periods, $62.8 million and $220.0 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 Nine Months
Ended Ended
September 30, 2001 September 30, 2001
------------------ ------------------
Increase in average number of homes........................... 3.3% 3.8%
Increase in net sales per home................................ 5.4% 6.6%
The remaining increases of $12.0 million and $23.2 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
22
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
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 increases in gross margin are 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.
_____________________
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 Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
-------- --------- --------- ---------
Interest and dividend income........................... $25.6 $37.9 $60.6 $143.1
Gains on sales and exchanges of investments............ 17.2 27.5 476.8 889.1
Investment impairment losses........................... (15.7) (954.8) (7.4)
Reclassification of unrealized gains................... 237.9 1,330.3
Unrealized gain on Sprint PCS common stock............. 154.5 420.1
Mark to market adjustments on derivatives
related to Sprint PCS common stock................ (120.2) (311.7)
Mark to market adjustments on derivatives and
hedged items...................................... 29.0 24.4
-------- --------- --------- ---------
Investment income................................. $328.3 $65.4 $1,045.7 $1,024.8
======== ========= ========= =========
The investment impairment loss for the nine months ended September 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.
During the three months ended September 30, 2001, we wrote-off our
investment in Excite@Home common stock based upon a decline in the investment
that was considered other than temporary. In connection with the realization of
this impairment loss, we reclassified to investment income the accumulated
unrealized gain of $237.9 million on our investment in Excite@Home
23
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
common stock which was previously recorded as a component of accumulated other
comprehensive income. We recorded this accumulated unrealized gain prior to our
designation of our right under a stockholders agreement as a hedge of our
investment in the Excite@Home common stock.
In connection with the reclassification of our investment in Sprint PCS
from an available for sale security to a trading security, we reclassified 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.
_____________________
Income 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 related to
indexed debt of $1.064 billion and $666.0 million, respectively, to reflect fair
value of the underlying Sprint PCS common stock.
Equity in Net Losses of Affiliates
The increases in equity in net losses of affiliates for the interim periods
from 2000 to 2001 are primarily attributable to effects of our additional
investments, as well as the effects of changes in the net income or loss of our
equity method investees.
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.
In August 2000, we obtained the right to exchange our Excite@Home Series A
Common Stock with AT&T and we waived certain of our Excite@Home Board level and
shareholder rights under a stockholders agreement. In connection with the
transaction, we recorded a pre-tax gain of $1.045 billion, representing the
estimated fair value of the investment as of the closing date.
In August 2000, we exchanged all of the capital stock of a wholly owned
subsidiary which held certain wireless licenses for approximately 3.2 million
shares of AT&T common stock. In connection with the exchange, we recognized a
pre-tax gain of $98.1 million, representing the difference between the fair
value of the AT&T shares received of $100.0 million and our cost basis in the
subsidiary.
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
nine months ended September 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.
24
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
None.
(b) Reports on Form 8-K:
(i) We filed a Current Report on Form 8-K under Items 5 and 7(c) on
July 9, 2001 relating to our announcement that we had made an
unsolicited proposal to acquire the core broadband assets of AT&T
Corp.
25
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 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: November 2, 2001
26