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, 1999
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ________ to ________.
Commission File Number 0-6983
COMCAST CORPORATION
[GRAPHIC OMITTED - LOGO]
(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, 1999, there were 715,051,949 shares of Class A Special
Common Stock, 27,193,380 shares of Class A Common Stock and 9,444,375 shares of
Class B Common Stock outstanding.
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet as of
September 30, 1999 and December 31, 1998 (Unaudited).......2
Condensed Consolidated Statement of
Operations and Accumulated Deficit for
the Nine and Three Months Ended September 30,
1999 and 1998 (Unaudited)..................................3
Condensed Consolidated Statement of Cash
Flows for the Nine Months Ended September 30,
1999 and 1998 (Unaudited)..................................4
Notes to Condensed Consolidated
Financial Statements (Unaudited)......................5 - 15
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations...........................................16 - 23
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.........................................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 September
30, 1999. This Quarterly Report modifies and supersedes documents filed prior to
this Quarterly Report. The SEC allows us to "incorporate by reference"
information that we file with them, which means that we can disclose important
information to you by referring you directly to those documents. Information
incorporated by reference is considered to be part of this Quarterly Report. In
addition, information we file with the SEC in the future will automatically
update and supersede information contained in this Quarterly Report. In this
Quarterly Report, "Comcast," "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
The cable communications industry and the provision of programming content
may be affected by, among other things:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o franchise related matters,
o market conditions that may adversely affect the availability of debt
and equity financing for working capital, capital expenditures or
other purposes,
o demand for the programming content we distribute or the willingness of
other video program providers to carry our content,
o general economic conditions.
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in millions, except share data)
September 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................................................. $881.9 $870.7
Investments ................................................................ 5,354.1 3,653.4
Accounts receivable, less allowance for doubtful
accounts of $133.2 and $120.7 ........................................... 541.6 549.3
Inventories, net ........................................................... 468.4 343.8
Other current assets ....................................................... 95.3 100.2
----------- -----------
Total current assets ................................................. 7,341.3 5,517.4
----------- -----------
INVESTMENTS ................................................................... 2,683.2 602.4
----------- -----------
PROPERTY AND EQUIPMENT ........................................................ 4,832.3 3,886.7
Accumulated depreciation ................................................... (1,622.5) (1,362.3)
----------- -----------
Property and equipment, net ................................................ 3,209.8 2,524.4
----------- -----------
DEFERRED CHARGES .............................................................. 11,496.6 8,214.5
Accumulated amortization ................................................... (2,466.0) (2,148.2)
----------- -----------
Deferred charges, net ...................................................... 9,030.6 6,066.3
----------- -----------
$22,264.9 $14,710.5
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses ...................................... $2,197.3 $1,600.3
Accrued interest ........................................................... 140.9 73.5
Net liabilities of discontinued operations ................................. 165.2
Deferred income taxes ...................................................... 1,575.3 1,033.2
Current portion of long-term debt .......................................... 178.4 113.5
----------- -----------
Total current liabilities ............................................ 4,091.9 2,985.7
----------- -----------
LONG-TERM DEBT, less current portion .......................................... 6,778.0 5,464.2
----------- -----------
DEFERRED INCOME TAXES ......................................................... 2,883.7 1,500.1
----------- -----------
MINORITY INTEREST AND OTHER ................................................... 875.4 834.0
----------- -----------
COMMITMENTS AND CONTINGENCIES
COMMON EQUITY PUT OPTIONS ..................................................... 111.2
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock - authorized, 20,000,000 shares; 5% series A convertible,
no par value, issued, zero and 6,370 at redemption value ................ 31.9
5.25% series B mandatorily redeemable convertible, $1,000 par value,
issued, 562,260 and 540,690 at redemption value ......................... 562.3 540.7
Class A special common stock, $1 par value - authorized,
2,500,000,000 shares; issued, 715,051,949 and 698,395,170 ............... 715.1 698.4
Class A common stock, $1 par value - authorized,
200,000,000 shares; issued, 27,193,380 and 31,690,063 ................... 27.2 31.7
Class B common stock, $1 par value - authorized,
50,000,000 shares; issued, 9,444,375 .................................... 9.4 9.4
Additional capital ......................................................... 3,448.2 2,941.7
Accumulated deficit ........................................................ (371.9) (1,488.2)
Accumulated other comprehensive income ..................................... 3,245.6 1,049.7
----------- -----------
Total stockholders' equity ........................................... 7,635.9 3,815.3
----------- -----------
$22,264.9 $14,710.5
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
(Amounts in millions, except per share data)
Nine Months Ended Three Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Service income .................................................. $2,418.4 $2,049.8 $848.0 $664.3
Net sales from electronic retailing ............................. 1,959.2 1,648.5 677.1 573.9
----------- ----------- ----------- -----------
4,377.6 3,698.3 1,525.1 1,238.2
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Operating ....................................................... 1,201.6 1,048.4 412.1 307.4
Cost of goods sold from electronic retailing .................... 1,181.1 997.6 411.8 345.2
Selling, general and administrative ............................. 648.6 577.1 237.3 212.3
Depreciation .................................................... 402.7 344.8 148.6 117.1
Amortization .................................................... 456.2 364.1 164.1 123.2
----------- ----------- ----------- -----------
3,890.2 3,332.0 1,373.9 1,105.2
----------- ----------- ----------- -----------
OPERATING INCOME ..................................................... 487.4 366.3 151.2 133.0
OTHER (INCOME) EXPENSE
Interest expense ................................................ 392.8 354.9 138.1 117.7
Investment income ............................................... (229.1) (1,021.0) (101.1) (1,022.9)
Equity in net (income) losses of affiliates ..................... (0.9) 345.4 (2.5) 108.6
Gain from equity offering of affiliate .......................... (157.8) (98.1)
Other income .................................................... (1,433.6) (8.1) (2.7) (3.9)
----------- ----------- ----------- -----------
(1,270.8) (486.6) 31.8 (898.6)
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAX EXPENSE, MINORITY INTEREST AND EXTRAORDINARY ITEMS .......... 1,758.2 852.9 119.4 1,031.6
INCOME TAX EXPENSE ................................................... 827.9 322.6 104.2 313.2
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE
MINORITY INTEREST AND EXTRAORDINARY ITEMS ....................... 930.3 530.3 15.2 718.4
MINORITY INTEREST INCOME ............................................. (18.2) (44.4) (5.4) (5.2)
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEMS ............................................. 948.5 574.7 20.6 723.6
(GAIN) LOSS FROM DISCONTINUED OPERATIONS, net of income tax expense
(benefit) of $147.7, ($13.2), $159.6 and ($4.2) ................. (335.8) 21.4 (355.9) 6.6
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEMS .................................... 1,284.3 553.3 376.5 717.0
EXTRAORDINARY ITEMS .................................................. (44.4) (3.0) (41.4) (3.0)
----------- ----------- ----------- -----------
NET INCOME ........................................................... 1,239.9 550.3 335.1 714.0
PREFERRED DIVIDENDS .................................................. (22.4) (21.7) (7.3) (7.4)
----------- ----------- ----------- -----------
NET INCOME FOR COMMON STOCKHOLDERS ................................... $1,217.5 $528.6 $327.8 $706.6
=========== =========== =========== ===========
ACCUMULATED DEFICIT
Beginning of period ............................................. ($1,488.2) ($2,415.9) ($592.8) ($2,596.7)
Net income ...................................................... 1,239.9 550.3 335.1 714.0
Common dividends - $.035 and $.012 per share in 1998 ............ (25.8) (8.7)
Retirement of common stock ...................................... (123.6) (7.3) (114.2) (7.3)
----------- ----------- ----------- -----------
End of period ................................................... ($371.9) ($1,898.7) ($371.9) ($1,898.7)
=========== =========== =========== ===========
BASIC EARNINGS FOR COMMON STOCKHOLDERS PER COMMON SHARE
Income from continuing operations before extraordinary items .... $1.24 $.75 $.02 $.97
Discontinued operations ......................................... .45 (.03) .47 (.01)
Extraordinary items ............................................. (.06) (.05)
----------- ----------- ----------- -----------
Net income ................................................... $1.63 $.72 $.44 $.96
=========== =========== =========== ===========
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ........... 747.0 731.0 755.2 738.6
=========== =========== =========== ===========
DILUTED EARNINGS FOR COMMON STOCKHOLDERS
PER COMMON SHARE
Income from continuing operations before extraordinary items .... $1.16 $.72 $.03 $.89
Discontinued operations ......................................... .41 (.03) .43 (.01)
Extraordinary items ............................................. (.05) (.05)
----------- ----------- ----------- -----------
Net income ................................................... $1.52 $.69 $.41 $.88
=========== =========== =========== ===========
DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ......... 815.4 804.2 823.9 808.6
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in millions)
Nine Months Ended September 30,
1999 1998
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income .......................................................................... $1,239.9 $550.3
Adjustments to reconcile net income to net cash provided
by operating activities from continuing operations:
Depreciation ..................................................................... 402.7 344.8
Amortization ..................................................................... 456.2 364.1
Non-cash interest (income) expense, net .......................................... (14.3) 30.4
Equity in net (income) losses of affiliates ...................................... (0.9) 345.4
Gain from equity offering of affiliate ........................................... (157.8)
Non-cash investment income, net .................................................. (136.0) (976.6)
Minority interest income ......................................................... (18.2) (44.4)
Discontinued operations .......................................................... (335.8) 21.4
Extraordinary items .............................................................. 44.4 3.0
Deferred income taxes and other .................................................. 214.9 205.8
---------- ----------
1,852.9 686.4
Changes in working capital ....................................................... 534.9 90.2
---------- ----------
Net cash provided by operating activities from continuing operations .... 2,387.8 776.6
---------- ----------
FINANCING ACTIVITIES
Proceeds from borrowings ............................................................ 935.0 1,023.3
Retirement and repayment of debt .................................................... (1,108.8) (897.2)
(Repurchases) issuances of common stock, net ........................................ (15.4) 14.3
Issuances of common equity put options .............................................. 11.4
Dividends ........................................................................... (9.4) (27.1)
Deferred financing costs ............................................................ (14.6) (4.8)
Other ............................................................................... (3.0) 4.6
---------- ----------
Net cash (used in) provided by financing activities from
continuing operations ................................................ (216.2) 124.5
---------- ----------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired .................................................. (755.2) (269.4)
(Purchases of) proceeds from sales of short-term investments, net ................... (206.2) 125.2
Investments ......................................................................... (272.2) (137.6)
Increase in notes receivable ........................................................ (733.5)
Proceeds from sale of discontinued operations ....................................... 361.1
Proceeds from sales of and distributions from investments ........................... 146.7 0.7
Proceeds from investee's repayment of loan .......................................... 74.7
Proceeds from sales of call options ................................................. 20.7
Capital expenditures ................................................................ (545.3) (643.1)
Additions to deferred charges ....................................................... (155.8) (46.6)
Other ............................................................................... (14.0)
---------- ----------
Net cash used in investing activities from continuing operations ........ (2,160.4) (889.4)
---------- ----------
INCREASE IN CASH AND CASH
EQUIVALENTS - CONTINUING OPERATIONS .................................................. 11.2 11.7
CASH AND CASH EQUIVALENTS, beginning of period ......................................... 870.7 409.1
---------- ----------
CASH AND CASH EQUIVALENTS, end of period ............................................... $881.9 $420.8
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The condensed consolidated balance sheet as of December 31, 1998 has been
condensed from the audited consolidated balance sheet as of that date. The
condensed consolidated balance sheet as of September 30, 1999, the
condensed consolidated statement of operations and accumulated deficit for
the nine and three months ended September 30, 1999 and 1998 and the
condensed consolidated statement of cash flows for the nine months ended
September 30, 1999 and 1998 have been prepared by Comcast Corporation (the
"Company") and have not been audited by the Company's independent auditors.
In the opinion of management, all adjustments necessary to present fairly
the financial position, results of operations and cash flows as of
September 30, 1999 and for all periods presented have been made.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's December
31, 1998 Annual Report on Form 10-K filed with the Securities and Exchange
Commission (the "SEC"). The results of operations for the periods ended
September 30, 1999 are not necessarily indicative of operating results for
the full year.
The results of operations of Comcast Cellular Corporation ("Comcast
Cellular"), an indirect wholly owned subsidiary of the Company, have been
presented as a discontinued operation in accordance with Accounting
Principles Board ("APB") Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" (see Note 3).
Stock Split
On March 3, 1999, the Company's board of directors authorized an increase
in the number of authorized shares of the Company's Class A Special Common
Stock from 500 million shares to 2.5 billion shares. On that date, the
Company's board of directors also authorized a two-for-one stock split in
the form of a 100% stock dividend (the "Stock Split") payable on May 5,
1999 to shareholders of record on April 20, 1999, subject to shareholder
approval of the increase in authorized shares (which was obtained on April
20, 1999). The dividend was paid in Class A Special Common Stock to the
holders of Class A Common, Class A Special Common and Class B Common Stock.
The average number of shares outstanding and related prices, per share
amounts, share conversions and stock option data have been retroactively
restated to reflect the Stock Split. The Company's board of directors also
eliminated the quarterly cash dividend of $.012 per share on all classes of
its Common Stock. The last quarterly cash dividend was paid on March 25,
1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This statement
establishes the accounting and reporting standards for derivatives and
hedging activity. Upon the adoption of SFAS No. 133, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In July 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - an
amendment of FASB Statement No. 133" deferring the effective date for
implementation of SFAS No. 133 to fiscal years beginning after June 15,
2000. The Company is currently evaluating the impact the adoption of SFAS
No. 133 will have on its financial position and results of operations.
5
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Earnings for Common Stockholders Per Common Share
Earnings for common stockholders per common share is computed by dividing
net income, 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 for common stockholders per common share
("Diluted EPS") for the nine and three months ended September 30, 1999 and
1998, respectively.
<TABLE>
<CAPTION>
(Amounts in millions, except per share data)
Nine Months Ended Three Months Ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net income for common stockholders.............. $1,217.5 $528.6 $327.8 $706.6
Dilutive securities effect on net income
for common stockholders....................... 1.0
Preferred dividends............................. 22.4 21.7 7.3 7.4
-------- -------- --------- ---------
Net income for common stockholders
used for Diluted EPS.......................... $1,239.9 $551.3 $335.1 $714.0
======== ======== ========= =========
Basic weighted average number of common
shares outstanding............................ 747.0 731.0 755.2 738.6
Dilutive securities: (see Note 6)
1 1/8% discount convertible subordinated
debentures, redeemed March 1998............ 6.8
Series A and B convertible preferred stock 44.6 45.2 43.4 45.2
Stock option and restricted stock plans 23.8 21.2 25.3 24.8
-------- -------- --------- ---------
Diluted weighted average number of common
shares outstanding............................ 815.4 804.2 823.9 808.6
======== ======== ========= =========
Diluted earnings for common stockholders
per common share.............................. $1.52 $.69 $.41 $.88
======== ======== ========= =========
</TABLE>
Put options sold by the Company on a weighted average 3.6 million shares,
2.1 million shares, 1.2 million shares and 1.0 million shares,
respectively, of its Class A Special Common stock (see Note 6) were
outstanding during the nine and three months ended September 30, 1999 and
1998 but were not included in the computation of Diluted EPS as the
options' exercise price was less than the average market price of the
Company's Class A Special Common Stock during the periods.
Reclassifications
Certain reclassifications have been made to the prior year condensed
consolidated financial statements to conform to those classifications used
in 1999.
6
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
3. SIGNIFICANT EVENTS
Investment in Prime Communications
In December 1998, the Company agreed to invest in Prime Communications LLC
("Prime"), a cable television operator with cable communications systems
serving approximately 430,000 subscribers. Pursuant to the terms of this
agreement, in December 1998 the Company acquired from Prime a $50 million
12.75% subordinated note due 2008 issued by Prime. In July 1999, the
Company made a loan to Prime in the form of a $733.5 million 6% ten year
note (the "Prime Note"), convertible into 90% of the equity of Prime. In
November 1999, the Company made an additional $20.0 million loan to Prime
(on the same terms as the original loan), and delivered a notice of the
Company's intention to convert the Prime Note. The Prime Note will be
converted upon receipt of required regulatory approvals, which are expected
to be obtained by the end of the second quarter of 2000. The owners of
Prime have agreed that at the time of conversion, they will sell their
remaining 10% equity interest in Prime to the Company, for approximately
$82 million, plus accrued interest from July 1999 at 7% per annum. As a
result, the Company would then own 100% of Prime and assume approximately
$550 million of Prime debt.
Sale of Comcast Cellular
In July 1999, the Company completed the sale of Comcast Cellular to SBC
Communications, Inc. for $361.1 million in cash and the assumption of
$1.315 billion of Comcast Cellular debt, and recognized a gain on the sale
of discontinued operations of $355.9 million, net of income tax expense.
During the nine and three months ended September 30, 1999 and 1998, the
Company recognized losses from discontinued operations of $20.1 million,
$21.4 million, zero and $6.6 million, respectively.
Acquisition of Greater Philadelphia Cablevision
On June 30, 1999, the Company completed the acquisition of Greater
Philadelphia Cablevision, Inc. ("Greater Philadelphia"), a subsidiary of
Greater Media, Inc. that operates a cable system serving approximately
79,000 subscribers in Philadelphia, Pennsylvania, by issuing approximately
8.5 million shares of its Class A Special Common Stock with a value of
$291.7 million based upon the average closing price of the Company's Class
A Special Common Stock for a ten-day period before and after the
announcement of the transaction in February 1999. The acquisition was
accounted for under the purchase method of accounting. As such, the
operating results of Greater Philadelphia have been included in the
accompanying condensed consolidated statement of operations and accumulated
deficit from the acquisition date. The allocation of the purchase price to
the assets and liabilities of Greater Philadelphia is preliminary pending a
final appraisal. As the consideration given in exchange for Greater
Philadelphia was shares of the Company's Class A Special Common Stock, the
Greater Philadelphia acquisition had no significant impact on the Company's
condensed consolidated statement of cash flows.
Adelphia Agreement
In May 1999, the Company and Jones Intercable, Inc., a consolidated
subsidiary of the Company, ("Jones Intercable" - see "Acquisition of a
Controlling Interest in Jones Intercable" below) entered into an agreement
(the "Adelphia Agreement") to exchange certain cable systems with Adelphia
Communications ("Adelphia"). Under the terms of the Adelphia Agreement, the
Company and Jones Intercable, in the aggregate, will receive approximately
464,000 cable subscribers from Adelphia. In exchange, Adelphia will receive
current systems owned by the Company and Jones Intercable serving, in the
aggregate, approximately 440,000 subscribers. All of the systems involved
in the transactions will be valued based upon independent appraisals with
any difference in relative value to be funded with cash or additional cable
systems. The system exchanges are subject to customary closing and
regulatory approvals and are expected to close by mid-2000.
AT&T Agreement
In May 1999, the Company and AT&T Corp. ("AT&T") entered into an agreement
(the "AT&T Agreement") to exchange various cable systems (the "AT&T System
Exchanges"). Under the terms of the AT&T Agreement, the Company will pay
AT&T approximately $3.4 billion (subject to adjustment based on the actual
number of net
7
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
subscribers acquired and the per subscriber price of certain subscribers)
for the approximately 750,000 net subscribers to be acquired as a result of
the AT&T System Exchanges. The Company will pay for the net subscribers
acquired in connection with the AT&T System Exchanges with shares of AT&T
common stock currently owned or subsequently acquired by the Company and
other securities or assets which would permit the AT&T System Exchanges to
be tax-free to the extent possible. The value of any currently owned AT&T
common stock to be exchanged will be $54.41 per share, based upon the
average trading price during the 20-day trading period beginning June 3,
1999.
Under the terms of the AT&T Agreement, the Company also has an option to
acquire from AT&T, following approximately three years, additional cable
systems with a total of between 1.0 million and 1.4 million subscribers for
approximately $4.8 billion to $6.7 billion (subject to reduction for any
long-term debt and other liabilities of the acquired cable systems). The
Company will pay for these cable systems with shares of the Company's Class
A Special Common Stock (valued on the same basis as described in the prior
paragraph) and other securities or assets which would permit the
acquisition to be tax-free (or if such result can not be obtained, with
cash).
Under the terms of the AT&T Agreement, the Company has also agreed to offer
AT&T-branded residential wireline telephony in its cable system markets,
provided AT&T has concluded separate residential telephony agreements with
at least two other non-AT&T affiliated multi-system cable operators. AT&T
has agreed to grant the Company the most favorable terms AT&T has reached
with any of those or other multi-system cable operators.
The majority of the AT&T System Exchanges and the exercise of the Company's
option to acquire the additional cable systems are contingent upon the
completion of AT&T's acquisition of MediaOne (see Proposed Acquisition of
MediaOne Group, Inc. below), which is expected to close in 2000, subject to
receipt of necessary regulatory and other approvals. There can be no
assurance, however, that such acquisition will be consummated.
Proposed Acquisition of MediaOne Group, Inc.
In March 1999, the Company and MediaOne Group, Inc. ("MediaOne"), entered
into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to
which MediaOne was to be merged with and into the Company. Under the terms
of the Merger Agreement, MediaOne could terminate the Merger Agreement
under certain conditions, provided that it pay a termination fee of $1.5
billion in cash to the Company. In April 1999, AT&T submitted an offer to
purchase MediaOne. On May 1, 1999, the MediaOne board of directors notified
the Company that it had determined that the AT&T offer was superior to the
Company's offer. On May 6, 1999, MediaOne terminated the Merger Agreement
and MediaOne paid the Company the termination fee. The termination fee was
recorded to other income in the Company's condensed consolidated statement
of operations and accumulated deficit, net of transaction costs, for the
nine months ended September 30, 1999.
Acquisition of a Controlling Interest in Jones Intercable
In May 1998, the Company agreed to purchase from BCI Telecom Holding
("BTH") 6.4 million Class A Common Shares in Jones Intercable, and a 49%
interest in the BTH subsidiaries which were to continue to own BTH's
remaining 6.4 million shares of Jones Intercable Class A Common Stock. At
the same time, the Company agreed to acquire approximately 2.9 million
shares of Common Stock of Jones Intercable (the "Control Shares"), if and
when acquired by BTH from affiliates of Jones Intercable's controlling
shareholder under an existing option (the "Control Option") to acquire such
shares (which absent extraordinary circumstances would not have been
exercisable until December 2001). The Company was to purchase the remaining
51% of the BTH subsidiaries when the Control Shares were acquired. The
Company, BTH, Jones Intercable and Jones Intercable's controlling
shareholder agreed in August 1998 to accelerate the Control Option to
permit its early exercise and the early closing of the transactions with
BTH. The transaction closed on April 7, 1999. The Company paid $706.3
million in cash to acquire the 12.8 million shares of Jones Intercable
Class A Common Stock and the Control Shares. In June 1999, the Company
purchased an additional 1.0 million shares of Jones Intercable Class A
Common Stock for $50.0 million through a private transaction. As a result,
the Company controls 39.6% of the economic and 48.3% of the voting interest
in Jones Intercable. In addition, the Control Shares represent shares
having the right to elect
8
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
approximately 75% of the Board of Directors of Jones Intercable. The share
acquisitions were funded with available cash and cash equivalents. Jones
Intercable is a public company, which owns cable operations serving
approximately 1.0 million customers. The acquisition was accounted for
under the purchase method of accounting. As such, the operating results of
Jones Intercable have been included in the accompanying condensed
consolidated statement of operations and accumulated deficit from the
acquisition date. The allocation of the purchase price to the assets and
liabilities of Jones Intercable is preliminary pending a final appraisal.
In August 1999, the Company announced its intention to commence an offer to
exchange 1.4 shares of its Class A Special Common Stock for each share of
Class A Common Stock or Common Stock of Jones Intercable for up to 79% of
the combined number of shares of Jones Intercable Class A Common Stock and
Common Stock outstanding (subject to certain terms and conditions to be
contained in the offer documents). The offer would commence upon
registration of the Company's Class A Special Common Stock to be offered in
the exchange offer with the SEC pursuant to an effective registration
statement.
4. INVESTMENTS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ---------
(Dollars in millions)
<S> <C> <C>
Equity method............................................... $46.3 $11.1
Fair value method........................................... 7,711.2 4,170.0
Cost method................................................. 279.8 74.7
------------ ---------
Total investments.................................... 8,037.3 4,255.8
Less current investments.................................... 5,354.1 3,653.4
------------ ---------
Non-current investments..................................... $2,683.2 $602.4
============ =========
</TABLE>
Equity Method
The Company records its proportionate interests in the net income (loss) of
certain of its equity method investees in arrears. The Company's recorded
investments exceed its proportionate interests in the book value of the
investees' net assets by $79.1 million as of September 30, 1999 (primarily
related to the Company's investment in The Golf Channel). Such excess is
being amortized to equity in net income or loss, primarily over a period of
twenty years, which is consistent with the estimated lives of the
underlying assets. The cost basis of investments accounted for under the
equity method totaled $237.2 million and $215.3 million as of September 30,
1999 and December 31, 1998, respectively.
9
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Summarized financial information for the nine and three months ended
September 30, 1998 for the Company's equity method investees is presented
below. Summarized financial information is not presented for Sprint PCS,
Teleport Communications Group Inc. ("Teleport") or Birmingham Cable
Corporation Limited and Cable London, PLC (together, the "UK Investees") as
of or for the nine and three months ended September 30, 1999 as such
investments are no longer accounted for under the equity method (dollars in
millions):
<TABLE>
<CAPTION>
Sprint UK
PCS Teleport Investees Other Combined
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Nine months ended September 30, 1998:
Combined Results of Operations
Revenues, net............................... $477.3 $605.8 $176.5 $584.1 $1,843.7
Operating, selling, general and
administrative expenses................... 1,300.0 558.7 136.0 613.5 2,608.2
Depreciation and amortization............... 389.8 163.4 61.9 55.1 670.2
Operating loss.............................. (1,212.5) (116.3) (21.4) (84.5) (1,434.7)
Net loss (1)................................ (1,600.2) (190.6) (70.6) (123.2) (1,984.6)
Company's Equity in Net Loss
Equity in current period net loss........... ($240.0) ($27.2) ($25.9) ($47.2) ($340.3)
Amortization expense........................ (2.3) (0.5) (2.3) (5.1)
--------- --------- -------- -------- --------
Total equity in net loss.................. ($242.3) ($27.2) ($26.4) ($49.5) ($345.4)
========= ========= ======== ======== ========
Three months ended September 30, 1998:
Combined Results of Operations
Revenues, net............................... $192.3 $295.3 $60.4 $48.8 $596.8
Operating, selling, general and
administrative expenses................... 428.5 257.4 45.8 37.2 768.9
Depreciation and amortization............... 151.4 66.3 21.1 11.6 250.4
Operating loss.............................. (387.6) (28.4) (6.5) (422.5)
Net loss (1)................................ (542.2) (55.9) (20.0) (9.3) (627.4)
Company's Equity in Net Loss
Equity in current period net loss........... ($81.3) ($7.5) ($7.7) ($10.1) ($106.6)
Amortization expense........................ (0.8) (0.2) (1.0) (2.0)
--------- --------- -------- -------- --------
Total equity in net loss.................. ($82.1) ($7.5) ($7.9) ($11.1) ($108.6)
========= ========= ======== ======== ========
<FN>
--------
(1) Net loss also represents loss from continuing operations before
extraordinary items and cumulative effect of changes in accounting
principles.
</FN>
</TABLE>
Sprint PCS. Effective November 1998, in connection with the restructuring
of Sprint PCS, the Company accounts for its investment in Sprint PCS under
the fair value method.
Teleport. In April 1998 and November 1997, Teleport issued shares of its
Class A Common Stock. As a result of the share issuances, the Company
recognized a $157.8 million and $98.1 million increase in its proportionate
share of Teleport's net assets as a gain from equity offering of affiliate
for the nine and three months ended September 30, 1998, respectively. The
Company recorded its proportionate share of Teleport's net assets one
quarter in arrears. In July 1998, AT&T completed its merger with Teleport.
Upon closing of the merger, the Company received 24.2 million shares of
AT&T common stock in exchange (the "Exchange") for the 25.6 million shares
of Teleport Class B Common Stock held by the Company. As a result of the
Exchange, the Company recognized a pre-tax gain of $1.092 billion during
the nine and three months ended September 30, 1998, representing the
difference between
10
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
the fair value of the AT&T stock received and the Company's basis in
Teleport. Such gain is included in investment income in the Company's
condensed consolidated statement of operations and accumulated deficit. As
of December 31, 1998, the Company has recorded its investment in AT&T at
its estimated fair value.
UK Investees. In October 1998, the Company exchanged its interest in
Comcast UK Cable Partners Limited ("Comcast UK Cable") for shares of NTL
Incorporated ("NTL") common stock. As of December 31, 1998, the Company has
recorded its investment in NTL at its estimated fair value.
Other. The Company's other equity investees include investments in cable
communications and content providers. The Company does not consider these
other equity method investments to be individually significant to its
consolidated financial position, results of operations or liquidity.
Fair Value Method
The Company holds unrestricted equity investments in certain publicly
traded companies, with an historical cost (including $1.999 billion of
pre-tax gains recognized during 1998) of $2.714 billion and $2.555 billion
as of September 30, 1999 and December 31, 1998, respectively. The Company
has recorded these investments, which are classified as available for sale,
at their estimated fair values of $7.711 billion and $4.170 billion as of
September 30, 1999 and December 31, 1998, respectively. The unrealized
pre-tax gains as of September 30, 1999 and December 31, 1998 of $4.997
billion and $1.615 billion, respectively, have been reported in the
Company's condensed consolidated balance sheet as a component of
accumulated other comprehensive income, net of related deferred income tax
expense of $1.749 billion and $565.1 million, respectively.
Sales of NTL Common Stock
During the three months ended September 30, 1999, the Company sold
approximately 0.9 million shares of NTL common stock for total proceeds of
$89.8 million and recognized a pre-tax gain of $50.1 million. Such gain is
included in investment income in the Company's condensed consolidated
statement of operations and accumulated deficit for the nine and three
months ended September 30, 1999. In October and November 1999, the Company
sold all of its remaining 4.9 million shares (as adjusted for NTL's 5-for-4
stock split in October 1999) of NTL common stock for total proceeds of
$408.5 million. The Company expects to recognize a pre-tax gain of
approximately $234.1 million on the October and November 1999 sales of NTL
common stock.
AT&T Acquisition of TCI
In March 1999, AT&T merged with Tele-Communications, Inc. ("TCI") with AT&T
as the surviving corporation (the "AT&T/TCI Merger"). Upon closing of the
AT&T/TCI Merger, the Company received approximately 3.6 million shares (as
adjusted for AT&T's 3-for-2 stock split in April 1999) of AT&T common stock
in exchange for the approximately 3.1 million shares of TCI Class A Common
Stock held by the Company and the Company received approximately 3.6
million shares of Class A Liberty Media Group ("New Liberty") Tracking
Shares for the approximately 2.3 million shares of TCI Ventures Group, Inc.
("TCI Ventures") common stock and the approximately 2.4 million shares of
Liberty Media Group ("Old Liberty") Class A Common Stock held by the
Company. As a result of the exchange, the Company recognized a pre-tax gain
of $187.6 million during the nine months ended September 30, 1999,
representing the difference between the fair value of the stock received
and the Company's basis in TCI and TCI Ventures. Such gain is included in
investment income in the Company's condensed consolidated statement of
operations and accumulated deficit for the nine months ended September 30,
1999.
In March 1998, the Company sold call options relating to its unrestricted
equity investments in TCI, TCI Ventures and Old Liberty common stock
(together, the "TCI Stock") for $20.7 million. Such call options expire
between March and November 1999. During the nine and three months ended
September 30, 1999 and 1998, the Company recorded investment (expense)
income of ($93.0) million, ($32.1) million, $7.8 million and $8.1 million,
respectively, related to changes in the value of the call options and
settlement of the TCI and TCI Ventures call options.
11
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Impairment Losses
During the nine months ended September 30, 1999, the Company recorded
pre-tax losses of $35.5 million on certain of its investments based on a
decline in value that was considered other than temporary. During the nine
and three months ended September 30, 1998, the Company recorded pre-tax
losses of $91.2 million on certain of its investments based on a decline in
value that was considered other than temporary. Such losses are included in
investment income in the Company's condensed consolidated statement of
operations and accumulated deficit.
5. LONG-TERM DEBT
ZONES
In November 1999, the Company issued approximately 8.1 million 2.0%
Exchangeable Subordinated Debentures due 2029 (the "ZONES II") for gross
proceeds of $657.1 million. In October 1999, the Company issued
approximately 16.1 million 2.0% Exchangeable Subordinated Debentures due
2029 for gross proceeds of $1.15 billion (the "ZONES I", and together with
the ZONES II, the "ZONES") resulting in combined proceeds of $1.807
billion. The ZONES II mature on November 15, 2029.The ZONES I mature on
October 15, 2029. At maturity, holders of the ZONES are entitled to receive
in cash an amount equal to the higher of (a) the principal amount of the
ZONES, or (b) the market value of Sprint PCS 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.
Prior to maturity, the Company may redeem all of the ZONES for cash at the
higher of the original principal amount of ZONES or the then current market
value of the Sprint PCS stock, plus, in either case, a per ZONES premium of
(a) 4.5% if redeemed prior to the first anniversary of the ZONES issuance
date, (b) 3.0% if redeemed prior to the second anniversary of the ZONES
issuance date, (c) 1.5% if redeemed prior to the third anniversary of the
ZONES issuance date, or (d) zero if redeemed on or after the third
anniversary of the ZONES issuance date.
Interest on the ZONES is payable quarterly (subject to deferral at the
Company's option) equal to 2.0% per year of the original principal amount,
plus the amount of the quarterly cash dividend paid on a share of Sprint
PCS stock. The principal amount of the ZONES will be adjusted if Sprint PCS
changes the dividend paid on its stock or if there are special
distributions on or in respect of the Sprint PCS stock.
The ZONES are unsecured, subordinated obligations ranking equally with all
of the Company's existing and future subordinated debt and trade
obligations.
The ZONES are being accounted for as an indexed debt instrument since the
maturity value is dependent upon the fair value of Sprint PCS stock. The
Company's investment in Sprint PCS is accounted for as an "available for
sale" security under SFAS No. 115, with changes in fair value being
reflected in accumulated other comprehensive income (see Note 4).
PHONES
In March 1999, the Company issued 8.7 million 3.35% Exchangeable Extendable
Subordinated Debentures due 2029 (the "PHONES") for gross proceeds of
$718.3 million. At maturity, holders of the PHONES were entitled to receive
in cash an amount equal to the higher of (a) the principal amount of the
PHONES, or (b) the market value of AT&T common stock.
In July 1999, the Company redeemed all $718.3 million principal amount of
the PHONES. The Company redeemed the PHONES due to its transaction with
AT&T in which it intends to use AT&T shares as consideration for the
purchase of cable systems from AT&T in accordance with the AT&T Agreement
(see Note 3). In connection with the PHONES redemption, the Company
incurred debt extinguishment costs of $32.3 million and wrote-off
unamortized debt acquisition costs of $14.9 million, resulting in an
extraordinary loss, net of tax, of $30.7 million during the nine and three
months ended September 30, 1999.
12
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Interest Rates
As of September 30, 1999 and December 31, 1998, the Company's effective
weighted average interest rate on its long-term debt outstanding was 7.56%
and 7.71%, respectively.
Lines of Credit
As of September 30, 1999, certain subsidiaries of the Company had unused
lines of credit of $1.151 billion, $551.0 million of which is restricted by
the covenants of the related debt agreements and to subsidiary general
purposes and dividend declaration.
6. STOCKHOLDERS' EQUITY
Repurchase Program
In September 1998, the Company announced that its board of directors had
authorized a market repurchase program (the "Repurchase Program") pursuant
to which the Company may purchase, in the open market or in private
transactions up to $500.0 million of its outstanding common equity
securities, subject to certain restrictions and market conditions. Based on
the trade date for stock repurchases, during the nine and three months
ended September 30, 1999 and 1998, the Company repurchased 1.0 million, 0.5
million, 0.6 million and 0.5 million shares, respectively, of its common
stock pursuant to the Repurchase Program. As part of the Repurchase
Program, in September 1998, the Company sold put options on 5.5 million
shares of its Class A Special Common Stock. During the nine months ended
September 30, 1999, put options covering all 5.5 million shares expired
unexercised. Upon expiration, the Company reclassified $111.2 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 in the Company's condensed consolidated balance sheet.
Share Exchange
During the three months ended September 30, 1999, the Company issued
approximately 3.5 million shares of its Class A Special Common Stock in
exchange for approximately 3.7 million shares of its Class A Common Stock.
The Class A Common Stock was subsequently retired.
Series A Preferred Stock Conversion
In July 1999, the Company exercised its right to convert all 6,370 shares
of its Series A Preferred Stock into approximately 2.7 million shares of
its Class A Special Common Stock.
Comprehensive Income
Total comprehensive income for the nine and three months ended September
30, 1999 and 1998 was $3.436 billion, $749.5 million, $862.8 million and
$760.0 million, respectively. Total comprehensive income includes net
income, unrealized gains on marketable securities and foreign currency
translation gains (losses) for the periods presented.
7. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of $349.5 million, $274.8
million, $94.3 million and $67.4 million during the nine and three months
ended September 30, 1999 and 1998, respectively.
The Company made cash payments for income taxes of $143.7 million, $104.0
million, $31.2 million and $31.0 million during the nine and three months
ended September 30, 1999 and 1998, respectively.
8. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position, results of operations or liquidity of the
Company.
13
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
9. FINANCIAL DATA BY BUSINESS SEGMENT
(Dollars in millions)
<TABLE>
<CAPTION>
Corporate
Cable Electronic and
Communications Retailing Other (1) Total
-------------- --------- --------- -----
<S> <C> <C> <C> <C>
Nine Months Ended September 30, 1999
Revenues, net..................................................... $2,127.1 $1,959.2 $291.3 $4,377.6
Operating income (loss) before depreciation and amortization (2) 980.7 377.1 (11.5) 1,346.3
Depreciation and amortization..................................... 722.6 86.7 49.6 858.9
Operating income (loss)........................................... 258.1 290.4 (61.1) 487.4
Interest expense.................................................. 254.7 30.3 107.8 392.8
Capital expenditures.............................................. 474.4 48.6 22.3 545.3
Three Months Ended September 30, 1999
Revenues, net..................................................... $773.5 $677.1 $74.5 $1,525.1
Operating income (loss) before depreciation and amortization (2) 356.8 124.8 (17.7) 463.9
Depreciation and amortization..................................... 267.9 29.1 15.7 312.7
Operating income (loss)........................................... 88.9 95.7 (33.4) 151.2
Interest expense.................................................. 95.7 9.7 32.7 138.1
Capital expenditures.............................................. 184.4 23.5 11.0 218.9
As of September 30, 1999
Assets............................................................ $9,573.1 $2,276.7 $10,415.1 $22,264.9
Long-term debt, less current portion.............................. 5,060.9 501.8 1,215.3 6,778.0
Nine Months Ended September 30, 1998
Revenues, net..................................................... $1,681.2 $1,648.5 $368.6 $3,698.3
Operating income (loss) before depreciation and amortization (2) 802.5 291.6 (18.9) 1,075.2
Depreciation and amortization..................................... 495.1 97.0 116.8 708.9
Operating income (loss)........................................... 307.4 194.6 (135.7) 366.3
Interest expense.................................................. 163.0 39.4 152.5 354.9
Capital expenditures.............................................. 488.2 57.3 97.6 643.1
Three Months Ended September 30, 1998
Revenues, net..................................................... $571.7 $573.9 $92.6 $1,238.2
Operating income (loss) before depreciation and amortization (2) 277.2 103.8 (7.7) 373.3
Depreciation and amortization..................................... 171.5 38.7 30.1 240.3
Operating income (loss)........................................... 105.7 65.1 (37.8) 133.0
Interest expense.................................................. 55.1 13.0 49.6 117.7
Capital expenditures.............................................. 194.5 15.6 30.8 240.9
<FN>
- ---------------
(1) Other includes segments not meeting certain quantitative guidelines for
reporting. Other includes certain other operating businesses, including
Comcast-Spectacor, L.P., E! Entertainment Television, Inc., Comcast UK
Cable (prior to October 29, 1998), the Company's DBS operations (prior to
April 1, 1998) and elimination entries related to the segments presented.
Corporate and other assets consist primarily of the Company's investments
(see Note 4).
(2) See note (a) on page 15.
</FN>
</TABLE>
14
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
(a) Operating income before depreciation and amortization is commonly referred
to in the Company's 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 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.
15
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We have experienced significant growth 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. Cash requirements for acquisitions and capital
expenditures have been provided through our financing activities and sales of
investments, as well as our existing cash, cash equivalents and short-term
investments.
In July 1999, we sold Comcast Cellular Corporation ("Comcast Cellular") to
SBC Communications, Inc. for $361.1 million in cash and the assumption of $1.315
billion of Comcast Cellular debt. We recognized a gain in the third quarter of
$355.9 million, net of income tax expense. The gain has been reflected as gain
on disposal of discontinued operations in our condensed consolidated statement
of operations and accumulated deficit.
General Developments of Business
See Note 3 to our condensed consolidated financial statements included in
Item 1.
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.
However, 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, principally through our cash
flows from operating activities, existing cash, cash equivalents and short-term
investments.
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, 1999 were $6.236 billion. As of September 30, 1999, $409.6 million of our
cash, cash equivalents and short-term investments is restricted to use by
subsidiaries under contractual or other arrangements.
Investments
See Notes 3 and 4 to our condensed consolidated financial statements
included in Item 1.
We do not have any significant contractual funding commitments with respect
to any of our investments. However, to the extent we do not fund our investees'
capital calls, we expose ourselves to dilution of our ownership interests. We
continually evaluate our existing investments, as well as new investment
opportunities.
Financing
See Notes 5 and 6 to our condensed consolidated financial statements
included in Item 1.
As of September 30, 1999 and December 31, 1998, our long-term debt,
including current portion, was $6.956 billion and $5.578 billion, respectively,
of which 26.9% and 18.0%, respectively, was at variable rates.
We have and may from time to time 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.
Equity Price Risk
In November 1999, we issued approximately 8.1 million 2.0% Exchangeable
Subordinated Debentures due 2029 (the "ZONES II") for gross proceeds of $657.1
million. In October 1999, we issued approximately 16.1 million 2.0% Exchangeable
Subordinated Debentures due 2029 for gross proceeds of approximately $1.15
billion (the "ZONES I", and together with the ZONES II, the "ZONES") for
combined proceeds of $1.807 billion. At maturity, holders of the ZONES are
entitled to receive in cash an amount equal to the higher of (a) the principal
amount of the ZONES, or (b) the market value of Sprint PCS stock. The ZONES are
being accounted for as an indexed debt instrument since the maturity value is
dependent upon the fair value of Sprint PCS stock.
During the nine months ended September 30, 1999, we entered into cashless
collar agreements (the "Equity Collars") covering $1.365 billion notional amount
of investment securities accounted for at fair value. The
16
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
Equity Collars limit our exposure to and benefits from price fluctuations in the
underlying equity securities. The Equity Collars mature between 2001 and 2003.
As we account for the Equity Collars as a hedge, changes in the value of the
Equity Collars are substantially offset by changes in the value of the
underlying investment securities which are also marked-to-market through
accumulated other comprehensive income in our condensed consolidated balance
sheet.
Interest Rate Risk
During the nine months ended September 30, 1999, we have entered into
interest rate exchange agreements ("Swaps") with an aggregate notional amount of
$300.0 million and as part of our acquisition of a controlling interest in Jones
Intercable, Inc. ("Jones Intercable") (see Note 3 to our condensed consolidated
financial statements included in Item 1), we acquired Swaps with an aggregate
notional amount of $400.0 million. Swaps with an aggregate notional amount of
$350.0 million either were terminated or expired during the nine months ended
September 30, 1999. As of September 30, 1999, we have Swaps with an aggregate
notional amount of $1.412 billion having an average pay rate of 6.30% and an
average receive rate of 5.71%.
Year 2000 Readiness Disclosure
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Certain of our
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000 (the "Year 2000 Issue"). If this
situation occurs, the potential exists for computer system failure or
miscalculations by computer programs, which could cause disruption of
operations. We are in the process of evaluating and addressing the impact of the
Year 2000 Issue on our operations to ensure that our information technology and
business systems recognize calendar Year 2000. We are utilizing both internal
and external resources in implementing our Year 2000 program, which consists of
the following phases:
Assessment Phase. Structured evaluation, including a detailed inventory
outlining the impact that the Year 2000 Issue may have on current operations.
Detailed Planning Phase. Establishment of priorities, development of
specific action steps and allocation of resources to address the issues
identified in the Assessment Phase.
Conversion Phase. Implementation of the necessary system modifications as
outlined in the Detailed Planning Phase.
Testing Phase. Verification that the modifications implemented in the
Conversion Phase will be successful in resolving the Year 2000 Issue so that all
inventory items will function properly, both individually and on an integrated
basis.
Implementation Phase. Final roll-out of fully tested components into an
operational unit.
Based on an inventory conducted in 1997, we identified computer systems
that required modification or replacement so that they will properly utilize
dates beyond December 31, 1999. Many of our critical systems were new and were
already Year 2000 compliant as a result of the recent rebuild of many of our
cable communications systems. In addition, we have communicated with our
significant software suppliers and service bureaus to determine their plans for
remediating the Year 2000 Issue in their software which we use or rely upon.
As of October 31, 1999, we are in the final stages of our Year 2000
program. We believe that all key systems are Year 2000 compliant. Other systems
that required remediation are substantially complete. Further, contingency plans
have been created for our key systems and operations. Additionally, in the
majority of our operations, business continuity preparations are being
implemented to create post-Year 2000 response teams to further mitigate Year
2000 risk.
Through September 30, 1999, we have incurred approximately $13.5 million in
connection with our Year 2000 remediation program. We estimate that we will
incur between approximately $2.5 million to $8.5 million of additional expense
through December 1999 in connection with our Year 2000 remediation program. Our
estimate to complete the remediation plan includes the estimated time associated
with mitigating the Year 2000 Issue for third party software. However, there can
be no guarantee that the systems of other companies on which we rely will be
converted on a timely basis, or that a failure to convert by another company
would not have a material adverse effect on us.
Our management will continue to periodically report the progress of our
Year 2000 remediation program to the Audit Committee of our Board of Directors.
17
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
The costs of the project and the date on which we plan to complete the Year
2000 modifications and replacements are based on our best estimates, which were
derived using assumptions of future events including the continued availability
of resources and the reliability of third party modification plans. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those plans. Specific factors that may
cause such material differences include, but are not limited to, the
availability and cost of personnel with appropriate necessary skills and the
ability to locate and correct all relevant computer code and similar
uncertainties.
We believe that with modifications to existing software and conversions to
new software, the Year 2000 Issue can be mitigated. However, if such
modifications and conversions are not made, or are not completed within an
adequate time frame, the Year 2000 Issue could have a material adverse impact on
our operations.
-----------------------
Statement of Cash Flows
Cash and cash equivalents increased $11.2 million as of September 30, 1999
from December 31, 1998. 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 from continuing operations
amounted to $2.388 billion for the nine months ended September 30, 1999, due
principally to the effects of the receipt of the $1.5 billion termination fee in
May 1999 from MediaOne Group, Inc., our acquisition of a controlling interest in
Jones Intercable in April 1999 (see Note 3 to our condensed consolidated
financial statements included in Item 1), increases in our operating income
before depreciation and amortization (see "Results of Operations") and changes
in working capital as a result of the timing of receipts and disbursements.
Net cash used in financing activities from continuing operations, which
includes borrowings and repayments of debt, as well as the issuances and
repurchases of our equity securities, was $216.2 million for the nine months
ended September 30, 1999. During the nine months ended September 30, 1999, we
borrowed $935.0 million, consisting primarily of $718.3 million of PHONES and
$215.1 million under revolving lines of credit held by our subsidiaries. During
the nine months ended September 30, 1999, we repaid $1.109 billion of our
long-term debt, including $718.3 million of PHONES. In addition, during the nine
months ended September 30, 1999, we had net repurchases of $15.4 million of our
common stock and we paid cash dividends of $9.4 million on our common stock and
Series A Preferred Stock. Deferred financing costs of $14.6 million were
incurred during the nine months ended September 30, 1999 primarily in connection
with the issuance of the PHONES.
Net cash used in investing activities from continuing operations was $2.160
billion for the nine months ended September 30, 1999. Net cash used in investing
activities includes acquisitions, net of cash acquired, of $755.2 million,
consisting primarily of our acquisition of a controlling interest in Jones
Intercable, investments of $272.2 million, a $733.5 million loan in the form of
a 6% ten year convertible note we issued to Prime Communications LLC, capital
expenditures of $545.3 million, additions to deferred charges of $155.8 million
and net purchases of short-term investments of $206.2 million, offset by
proceeds from sales of and distributions from investments of $146.7 million and
the $361.1 million of proceeds from the sale of Comcast Cellular.
18
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
Results of Operations
Our summarized consolidated financial information for the nine and three
months ended September 30, 1999 and 1998 is as follows (dollars in millions,
"NM" denotes percentage is not meaningful):
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Increase / (Decrease)
1999 1998 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues..................................................... $4,377.6 $3,698.3 $679.3 18.4%
Cost of goods sold from electronic retailing................. 1,181.1 997.6 183.5 18.4
Operating, selling, general and administrative expenses 1,850.2 1,625.5 224.7 13.8
--------- ---------
Operating income before depreciation and amortization (1) ... 1,346.3 1,075.2 271.1 25.2
Depreciation................................................. 402.7 344.8 57.9 16.8
Amortization................................................. 456.2 364.1 92.1 25.3
--------- ---------
Operating income............................................. 487.4 366.3 121.1 33.1
--------- ---------
Interest expense............................................. 392.8 354.9 37.9 10.7
Investment income............................................ (229.1) (1,021.0) (791.9) (77.6)
Equity in net (income) losses of affiliates.................. (0.9) 345.4 (346.3) NM
Gain from equity offering of affiliate....................... (157.8) (157.8) NM
Other income................................................. (1,433.6) (8.1) 1,425.5 NM
Income tax expense........................................... 827.9 322.6 505.3 NM
Minority interest income..................................... (18.2) (44.4) (26.2) (59.0)
--------- ---------
Income from continuing operations before
extraordinary items....................................... $948.5 $574.7 $373.8 65.0%
========= =========
Three Months Ended
September 30, Increase / (Decrease)
1999 1998 $ %
--------- --------- --------- ---------
Revenues..................................................... $1,525.1 $1,238.2 $286.9 23.2%
Cost of goods sold from electronic retailing................. 411.8 345.2 66.6 19.3
Operating, selling, general and administrative expenses 649.4 519.7 129.7 25.0
--------- ---------
Operating income before depreciation and amortization (1) ... 463.9 373.3 90.6 24.3
Depreciation................................................. 148.6 117.1 31.5 26.9
Amortization................................................. 164.1 123.2 40.9 33.2
--------- ---------
Operating income............................................. 151.2 133.0 18.2 13.7
--------- ---------
Interest expense............................................. 138.1 117.7 20.4 17.3
Investment income............................................ (101.1) (1,022.9) (921.8) (90.1)
Equity in net (income) losses of affiliates.................. (2.5) 108.6 (111.1) NM
Gain from equity offering of affiliate....................... (98.1) (98.1) NM
Other income................................................. (2.7) (3.9) (1.2) (30.8)
Income tax expense........................................... 104.2 313.2 (209.0) (66.7)
Minority interest income..................................... (5.4) (5.2) 0.2 3.8
--------- ---------
Income from continuing operations before
extraordinary items....................................... $20.6 $723.6 ($703.0) (97.2%)
========= =========
<FN>
- ------------
(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
19
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
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.
</FN>
</TABLE>
Operating Results by Business Segment
The following represent the operating results of our significant business
segments, "Cable Communications" and "Electronic Retailing." The remaining
components of our operations are not independently significant to our
consolidated financial position or results of operations (see Note 9 to our
condensed consolidated financial statements included in Item 1).
Cable Communications
The following table presents the operating results of our cable
communications segment (dollars in millions):
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Increase
1999 1998 $ %
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Service income............................................... $2,127.1 $1,681.2 $445.9 26.5%
Operating, selling, general and
administrative expenses................................. 1,146.4 878.7 267.7 30.5
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $980.7 $802.5 $178.2 22.2%
========= ========= ========= ========
Three Months Ended
September 30, Increase
1999 1998 $ %
--------- --------- --------- --------
Service income............................................... $773.5 $571.7 $201.8 35.3%
Operating, selling, general and
administrative expenses................................. 416.7 294.5 122.2 41.5
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $356.8 $277.2 $79.6 28.7%
========= ========= ========= ========
<FN>
- ---------------
(a) See footnote (1) on page 19.
</FN>
</TABLE>
Of the respective $445.9 million and $201.8 million increases in service
income for the nine and three month periods from 1998 to 1999, $295.3 million
and $149.0 million are attributable to the effects of the acquisitions of cable
communications systems, $18.1 million and $5.6 million are attributable to
subscriber growth, $68.6 million and $21.5 million relate to changes in rates,
$16.2 million and $5.6 million are attributable to growth in cable advertising
sales and $47.7 million and $20.1 million relate to other product offerings
(e.g., digital cable, high speed data services, etc.).
Of the respective $267.7 million and $122.2 million increases in operating,
selling, general and administrative expenses for the nine and three month
periods from 1998 to 1999, $192.6 million and $90.0 million are attributable to
the effects of the acquisitions of cable communications systems, $31.3 million
and $11.0 million are attributable to increases in the costs of cable
programming as a result of changes in rates, subscriber growth and additional
channel offerings, $3.6 million and $1.4 million are attributable to growth in
advertising sales and $40.2 million and $19.8 million result from increases in
the cost of labor, other volume related expenses and costs associated with new
product offerings. We anticipate that the cost of cable programming will
increase in the future as cable programming rates increase and additional
sources of cable programming become available.
20
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
Electronic Retailing
The following presents the operating results of our electronic retailing
segment, consisting of the operations of QVC, Inc. and its subsidiaries ("QVC"),
a majority owned and controlled subsidiary (dollars in millions):
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Increase
1999 1998 $ %
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net sales from electronic retailing.......................... $1,959.2 $1,648.5 $310.7 18.8%
Cost of goods sold from electronic retailing................. 1,181.1 997.6 183.5 18.4
Operating, selling, general and administrative
expenses................................................ 401.0 359.3 41.7 11.6
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $377.1 $291.6 $85.5 29.3%
========= ========= ========= ========
Gross margin................................................. 39.7% 39.5%
========= =========
Three Months Ended
September 30, Increase
1999 1998 $ %
--------- --------- --------- --------
Net sales from electronic retailing.......................... $677.1 $573.9 $103.2 18.0%
Cost of goods sold from electronic retailing................. 411.8 345.2 66.6 19.3
Operating, selling, general and administrative
expenses................................................ 140.5 124.9 15.6 12.5
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $124.8 $103.8 $21.0 20.2%
========= ========= ========= ========
Gross margin................................................. 39.2% 39.9%
========= =========
<FN>
- ---------------
(a) See footnote (1) on page 19.
</FN>
</TABLE>
The increase in net sales from electronic retailing of $310.7 million for
the nine month period from 1998 to 1999 is due to the effects of 4.2%, 11.4% and
37.0% increases in the average number of homes receiving QVC services in the
United States ("US"), United Kingdom ("UK") and Germany, respectively, and 9.0%,
9.9% and 92.2% increases in net sales per home in the US, UK and Germany,
respectively. The increase in net sales from electronic retailing of $103.2
million for the three month period from 1998 to 1999 is due to the effects of
4.8%, 11.6% and 31.4% increases in the average number of homes receiving QVC
services in the US, UK and Germany, respectively, and 7.9%, 6.0% and 81.5%
increases in net sales per home in the US, UK and Germany, respectively.
The increase in cost of goods sold is primarily related to the growth in
net sales. The changes in gross margin are a result of a shift in sales mix.
Of the respective $41.7 million and $15.6 million increases in operating,
selling, general and administrative expenses for the nine and three month
periods from 1998 to 1999, $27.0 million and $9.2 million are attributable to
higher variable costs associated with the increase in sales volume. The
remaining increases are attributable to higher personnel costs to support the
increased sales volume in the US, UK and Germany.
-----------------------
Consolidated Analysis
The effects of our recent acquisitions, as well as increased levels of
capital expenditures, were to increase our revenues and expenses resulting in
increases in our operating income before depreciation and amortization. The
increases in depreciation expense, amortization expense and interest expense for
the nine and three month
21
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
periods from 1998 to 1999 are primarily due to the effects of our acquisition of
a controlling interest in Jones Intercable on April 7, 1999, offset in part by
the effects of the sale of Comcast UK Cable Partners Limited ("Comcast UK
Cable"), a consolidated subsidiary of ours, in October 1998. In addition, our
equity in net losses of affiliates has decreased principally as a result of the
restructuring of Sprint PCS in November 1998.
Interest Expense
The $37.9 million and $20.4 million increases in interest expense for the
nine and three month periods from 1998 to 1999 are primarily due to the effects
of our acquisition of a controlling interest in Jones Intercable and the
issuance of the 6.20% nonrecourse notes issued by Comcast Cable Communications,
Inc. ("Comcast Cable"), a wholly owned subsidiary of ours, in November 1998,
offset in part by the effects of the sale of Comcast UK Cable in October 1998.
We anticipate that, for the foreseeable future, interest expense will be a
significant cost to us and will have a significant adverse effect on our ability
to realize net earnings. We believe we will continue to be able to meet our
obligations through our ability both to generate operating income before
depreciation and amortization and to obtain external financing.
Investment Income
During the three months ended September 30, 1999, we sold approximately 0.9
million shares of NTL common stock for total proceeds of $89.8 million and
recognized a pre-tax gain of $50.1 million. In October and November 1999, we
sold all of our remaining 4.9 million shares (as adjusted for NTL's 5-for-4
stock split in October 1999) of NTL common stock for total proceeds of $408.5
million. As a result of these transactions, we expect to recognize a pre-tax
gain of approximately $234.1 million in the fourth quarter.
In March 1999, AT&T Corp ("AT&T") merged with Tele-Communications, Inc.
("TCI") with AT&T as the surviving corporation (the "AT&T/TCI Merger"). Upon
closing of the AT&T/TCI Merger, we received approximately 3.6 million shares (as
adjusted for AT&T's 3-for-2 stock split in April 1999) of AT&T common stock in
exchange for the approximately 3.1 million shares of TCI Class A Common Stock
held by us and we received approximately 3.6 million shares of Liberty Media
Group ("New Liberty") Class A Tracking Shares for the approximately 2.3 million
shares of TCI Ventures Group, Inc. ("TCI Ventures") common stock and the
approximately 2.4 million shares of Liberty Media Group ("Old Liberty") Class A
Common Stock held by us. As a result of the exchange, we recognized a pre-tax
gain of $187.6 million during the nine months ended September 30, 1999,
representing the difference between the fair value of the AT&T stock received
and our basis in TCI and TCI Ventures.
In March 1998, we sold call options relating to our unrestricted equity
investments in TCI, TCI Ventures and Old Liberty common stock for $20.7 million.
Such call options expire between March and November 1999. During the nine and
three months ended September 30, 1999 and 1998, we recorded investment (expense)
income of ($93.0) million, ($32.1) million, $7.8 million and $8.1 million,
respectively, related to changes in the value of the call options and settlement
of the TCI and TCI Ventures call options.
In July 1998, AT&T completed its merger with Teleport Communications Group,
Inc. ("Teleport"). Upon closing of the merger, we received 24.2 million shares
of AT&T common stock in exchange (the "Exchange") for the 25.6 million shares of
Teleport Class B Common Stock held by us. As a result of the Exchange, we
recognized a pre-tax gain of $1.092 billion during the nine and three months
ended September 30, 1998, representing the difference between the fair value of
the AT&T stock received and our basis in Teleport. Such gain is included in
investment income in our condensed consolidated statement of operations and
accumulated deficit.
During the nine months ended September 30, 1999, we recorded pre-tax losses
of $35.5 million on certain of our investments based on a decline in value that
was considered other than temporary. During the nine and three months ended
September 30, 1998, we recorded pre-tax losses of $91.2 million on certain of
our investments based on a decline in value that was considered other than
temporary.
Gain From Equity Offering of Affiliate
In April 1998 and November 1997, Teleport issued shares of its Class A
Common Stock. As a result of the stock issuances, we recognized a $157.8 million
and $98.1 million increase in our proportionate share of Teleport's net assets
as a gain from equity offering of affiliate for the nine and three months ended
September 30, 1998, respectively. We recorded our
22
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
proportionate share of Teleport's net losses one quarter in arrears.
Other Income
The $1.426 billion increase in other income for the nine month period from
1998 to 1999 is primarily attributable to the receipt of the $1.5 billion
MediaOne termination fee, net of transaction costs, in May 1999.
Income Tax Expense
The $505.3 million increase and $209.0 million decrease in income tax
expense for the nine and three month periods from 1998 to 1999, respectively,
are primarily the result of the effects of changes in our income before taxes
and minority interest, and non-deductible foreign losses and non-deductible
equity in net losses of affiliates.
Minority Interest Income
The $26.2 million decrease and $0.2 million increase in minority interest
income for the nine and three month periods from 1998 to 1999 are attributable
to the effects of our acquisition of a controlling interest in Jones Intercable
in April 1999, the sale of Comcast UK Cable in October 1998 and to changes in
the net income or loss of our other less than 100% owned consolidated
subsidiaries.
For the nine and three months ended September 30, 1999 and 1998, our
earnings from continuing operations (income from continuing operations plus
income tax expense, equity in net losses of affiliates, fixed charges (interest
expense) and extraordinary items) were $2.168 billion, $1.598 billion, $260.4
million and $1.263 billion, respectively. Such earnings were adequate to cover
our fixed charges of $392.8 million, $354.9 million, $138.1 million and $117.7
million for the nine and three months ended September 30, 1999 and 1998,
respectively. Fixed charges include non-cash interest expense of $2.3 million,
$37.3 million, $0.5 million and $11.3 million for the nine and three months
ended September 30, 1999 and 1998, respectively.
We believe that any losses incurred in the future by us will not
significantly affect the performance of our normal business activities because
of our existing cash, cash equivalents and short-term investments, our ability
to generate operating income before depreciation and amortization and our
ability to obtain external financing.
We believe that our operations are not materially affected by inflation.
23
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to legal proceedings and claims which arise in the ordinary
course of our business. In the opinion of our management, the amount of
ultimate liability with respect to these actions will not materially affect
our financial position, results of operations or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
(i) We filed a Current Report on Form 8-K under Item 5 on July 22,
1999 relating to our announcement that we had completed the sale
of our indirect wholly owned subsidiary, Comcast Cellular
Corporation to SBC Communications, Inc.
(ii) We filed a Current Report on Form 8-K under Item 5 on August 11,
1999 relating to our announcement that we plan to commence an
offer to exchange 1.4 shares of our Class A Special Common Stock
for each share of Class A Common Stock or Common Stock of Jones
Intercable, Inc. for up to 79% of the combined number of shares
of Jones Intercable, Inc. Class A Common Stock and Common Stock
outstanding.
24
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
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 S. SMITH
-------------------------------------
Lawrence S. Smith
Executive Vice President
(Principal Accounting Officer)
Date: November 15, 1999
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated statement of operations and condensed consolidated
balance sheet and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000022301
<NAME> COMCAST CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 882
<SECURITIES> 5,354
<RECEIVABLES> 542
<ALLOWANCES> (133)
<INVENTORY> 468
<CURRENT-ASSETS> 7,341
<PP&E> 4,832
<DEPRECIATION> (1,623)
<TOTAL-ASSETS> 22,265
<CURRENT-LIABILITIES> 4,092
<BONDS> 6,778
562
0
<COMMON> 752
<OTHER-SE> 6,322
<TOTAL-LIABILITY-AND-EQUITY> 22,265
<SALES> 4,378
<TOTAL-REVENUES> 4,378
<CGS> (1,181)
<TOTAL-COSTS> (3,890)
<OTHER-EXPENSES> 1,664
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (393)
<INCOME-PRETAX> 1,758<F1>
<INCOME-TAX> (828)
<INCOME-CONTINUING> 930
<DISCONTINUED> 336
<EXTRAORDINARY> (44)
<CHANGES> 0
<NET-INCOME> 1,240
<EPS-BASIC> 1.63
<EPS-DILUTED> 1.52
<FN>
<F1>
Loss before income tax expense and other items excludes the effect of
minority interests, net of tax, of $18.2.
</FN>
</TABLE>
