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, 2000
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ________ to ________.
Commission File Number 0-6983
[GRAPHIC OMITTED - LOGO]
COMCAST CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1709202
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Market Street, Philadelphia, PA 19102-2148
--------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes X No
----- -----
--------------------------
As of September 30, 2000, there were 871,444,604 shares of Class A Special
Common Stock, 21,932,580 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, 2000
TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet as of
September 30, 2000 and December 31, 1999 (Unaudited)..........2
Condensed Consolidated Statement of Operations and
Retained Earnings (Accumulated Deficit) for the Nine
and Three Months Ended September 30, 2000 and 1999
(Unaudited)...................................................3
Condensed Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999 (Unaudited).....4
Notes to Condensed Consolidated Financial Statements
(Unaudited)..............................................5 - 17
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................18 - 24
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................25
ITEM 6. Exhibits and Reports on Form 8-K.............................26
SIGNATURE............................................................27
-----------------------------------
This Quarterly Report on Form 10-Q is for the three months ended September
30, 2000. This Quarterly Report modifies and supersedes documents filed prior to
this Quarterly Report. The SEC allows us to "incorporate by reference"
information that we file with them, which means that we can disclose important
information to you by referring you directly to those documents. Information
incorporated by reference is considered to be part of this Quarterly Report. In
addition, information that we file with the SEC in the future will automatically
update and supersede information contained in this Quarterly Report. In this
Quarterly Report, "Comcast," "we," "us" and "our" refer to Comcast Corporation
and its subsidiaries.
You should carefully review the information contained in this Quarterly
Report and in other reports or documents that we file from time to time with the
SEC. In this Quarterly Report, we state our beliefs of future events and of our
future financial performance. In some cases, you can identify those so-called
"forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
Factors Affecting Future Operations
We have acquired and we anticipate acquiring cable communications systems
in new communities in which we do not have established relationships with the
franchising authority, community leaders and cable subscribers. Further, a
substantial number of new employees are being and must continue to be integrated
into our business practices and operations. Our results of operations may be
significantly affected by our ability to efficiently and effectively manage
these changes.
In addition, 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 distributors to carry our content, and
o general economic conditions.
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
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,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents......................................................... $575.9 $922.2
Investments....................................................................... 3,872.1 7,606.0
Accounts receivable, less allowance for doubtful accounts of $140.8 and $136.6.... 722.0 673.3
Inventories, net.................................................................. 413.5 402.8
Other current assets.............................................................. 137.1 100.1
---------- ----------
Total current assets.......................................................... 5,720.6 9,704.4
---------- ----------
INVESTMENTS.......................................................................... 3,405.2 5,548.8
---------- ----------
PROPERTY AND EQUIPMENT............................................................... 7,066.4 5,153.2
Accumulated depreciation.......................................................... (1,944.8) (1,700.9)
---------- ----------
Property and equipment, net....................................................... 5,121.6 3,452.3
---------- ----------
DEFERRED CHARGES..................................................................... 24,504.4 12,722.1
Accumulated amortization.......................................................... (3,720.2) (2,742.0)
---------- ----------
Deferred charges, net............................................................. 20,784.2 9,980.1
---------- ----------
$35,031.6 $28,685.6
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses............................................. $2,711.4 $2,737.5
Accrued interest.................................................................. 167.3 104.5
Deferred income taxes............................................................. 1,396.1 2,118.6
Current portion of long-term debt................................................. 1,312.5 517.5
---------- ----------
Total current liabilities..................................................... 5,587.3 5,478.1
---------- ----------
LONG-TERM DEBT, less current portion (including adjustment to carrying value of
zero and $666.0).................................................................. 8,611.4 8,707.2
---------- ----------
DEFERRED INCOME TAXES................................................................ 4,918.5 3,150.5
---------- ----------
MINORITY INTEREST AND OTHER.......................................................... 1,210.1 1,008.5
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 8)
COMMON EQUITY PUT OPTIONS............................................................ 82.0
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock - authorized, 20,000,000 shares; 5.25% series B mandatorily
redeemable convertible, $1,000 par value; issued, 592,365 and 569,640 at
redemption value................................................................ 592.3 569.6
Class A special common stock, $1 par value - authorized, 2,500,000,000 shares;
issued, 894,769,515 and 716,442,482; outstanding, 871,444,604 and 716,442,482 .. 871.4 716.4
Class A common stock, $1 par value - authorized,
200,000,000 shares; issued, 21,932,580 and 25,993,380........................... 21.9 26.0
Class B common stock, $1 par value - authorized,
50,000,000 shares; issued, 9,444,375............................................ 9.4 9.4
Additional capital................................................................ 11,091.4 3,527.0
Retained earnings (accumulated deficit)........................................... 308.4 (619.8)
Accumulated other comprehensive income............................................ 1,727.5 6,112.7
---------- ----------
Total stockholders' equity.................................................... 14,622.3 10,341.3
---------- ----------
$35,031.6 $28,685.6
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND
RETAINED EARNINGS (ACCUMULATED DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
(Amounts in millions, except per share data)
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Service income......................................................... $3,399.1 $2,418.4 $1,139.7 $848.0
Net sales from electronic retailing.................................... 2,411.9 2,176.7 820.3 751.3
--------- --------- --------- ---------
5,811.0 4,595.1 1,960.0 1,599.3
--------- --------- --------- ---------
COSTS AND EXPENSES
Operating.............................................................. 1,594.4 1,201.6 516.5 412.1
Cost of goods sold from electronic retailing........................... 1,544.4 1,398.6 529.2 486.0
Selling, general and administrative.................................... 876.8 648.6 308.6 237.3
Depreciation........................................................... 599.9 402.7 223.2 148.6
Amortization........................................................... 1,242.3 456.2 438.9 164.1
--------- --------- --------- ---------
5,857.8 4,107.7 2,016.4 1,448.1
--------- --------- --------- ---------
OPERATING (LOSS) INCOME.................................................... (46.8) 487.4 (56.4) 151.2
OTHER (INCOME) EXPENSE
Interest expense....................................................... 507.0 392.8 175.2 138.1
Investment income...................................................... (1,024.8) (229.1) (65.4) (101.1)
Income related to indexed debt......................................... (666.0) (1,064.0)
Equity in net losses (income) of affiliates............................ 7.7 (0.9) 3.7 (2.5)
Other income........................................................... (1,124.5) (1,433.6) (1,133.1) (2.7)
--------- --------- --------- ---------
(2,300.6) (1,270.8) (2,083.6) 31.8
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAX EXPENSE, MINORITY INTEREST AND EXTRAORDINARY ITEMS................. 2,253.8 1,758.2 2,027.2 119.4
INCOME TAX EXPENSE......................................................... 905.6 827.9 752.3 104.2
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE
MINORITY INTEREST AND EXTRAORDINARY ITEMS.............................. 1,348.2 930.3 1,274.9 15.2
MINORITY INTEREST.......................................................... 86.7 (18.2) 25.8 (5.4)
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEMS.................................................... 1,261.5 948.5 1,249.1 20.6
GAIN FROM DISCONTINUED OPERATIONS, net of income tax expense of
$147.7 and $159.6 in 1999.............................................. 335.8 355.9
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEMS.......................................... 1,261.5 1,284.3 1,249.1 376.5
EXTRAORDINARY ITEMS........................................................ (18.5) (44.4) (2.3) (41.4)
--------- --------- --------- ---------
NET INCOME................................................................. 1,243.0 1,239.9 1,246.8 335.1
PREFERRED DIVIDENDS........................................................ (22.7) (22.4) (7.6) (7.3)
--------- --------- --------- ---------
NET INCOME FOR COMMON STOCKHOLDERS......................................... $1,220.3 $1,217.5 $1,239.2 $327.8
========= ========= ========= =========
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Beginning of period.................................................... ($619.8)($1,488.2) ($878.2) ($592.8)
Net income............................................................. 1,243.0 1,239.9 1,246.8 335.1
Retirement of common stock............................................. (314.8) (123.6) (60.2) (114.2)
--------- --------- --------- ---------
End of period.......................................................... $308.4 ($371.9) $308.4 ($371.9)
========= ========= ========= =========
BASIC EARNINGS FOR COMMON STOCKHOLDERS PER COMMON SHARE
Income from continuing operations before extraordinary items........... $1.40 $1.24 $1.37 $.02
Gain from discontinued operations...................................... .45 .47
Extraordinary items.................................................... (.02) (.06) (.05)
--------- --------- --------- ---------
Net income.......................................................... $1.38 $1.63 $1.37 $.44
========= ========= ========= =========
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING................. 885.1 747.0 908.8 755.2
========= ========= ========= =========
DILUTED EARNINGS FOR COMMON STOCKHOLDERS
PER COMMON SHARE
Income from continuing operations before extraordinary items........... $1.34 $1.16 $1.29 $.03
Gain from discontinued operations...................................... .41 .43
Extraordinary items.................................................... (.02) (.05) (.05)
--------- --------- --------- ---------
Net income.......................................................... $1.32 $1.52 $1.29 $.41
========= ========= ========= =========
DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING............... 943.1 815.4 965.6 823.9
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in millions)
Nine Months Ended September 30,
2000 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................... $1,243.0 $1,239.9
Adjustments to reconcile net income to net cash provided
by operating activities from continuing operations:
Depreciation............................................................... 599.9 402.7
Amortization............................................................... 1,242.3 456.2
Non-cash interest income, net.............................................. (29.9) (14.3)
Non-cash income related to indexed debt.................................... (666.0)
Equity in net losses (income) of affiliates................................ 7.7 (0.9)
Gains on investments and other income, net................................. (2,036.8) (136.0)
Minority interest.......................................................... 86.7 (18.2)
Gain from discontinued operations.......................................... (335.8)
Extraordinary items........................................................ 18.5 44.4
Deferred income taxes and other............................................ 558.2 214.9
--------- ---------
1,023.6 1,852.9
Changes in working capital................................................. (208.9) 534.9
--------- ---------
Net cash provided by operating activities from continuing operations. 814.7 2,387.8
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings..................................................... 3,189.3 935.0
Retirements and repayments of debt........................................... (3,991.6) (1,108.8)
Issuances of common stock and sales of put options on common stock........... 23.8 15.3
Repurchases of common stock.................................................. (290.3) (30.7)
Dividends..................................................................... (9.4)
Deferred financing costs..................................................... (34.4) (14.6)
Other........................................................................ (3.0)
--------- ---------
Net cash used in financing activities from continuing operations..... (1,103.2) (216.2)
--------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired........................................... (161.0) (755.2)
Proceeds from sales of (purchases of) short-term investments, net............ 904.6 (206.2)
Purchases of investments..................................................... (353.3) (272.2)
Increase in notes receivable................................................. (50.0) (733.5)
Proceeds from sale of discontinued operations................................ 361.1
Proceeds from sales of investments........................................... 992.8 146.7
Capital expenditures......................................................... (1,056.0) (545.3)
Additions to deferred charges................................................ (334.9) (155.8)
--------- ---------
Net cash used in investing activities from continuing operations..... (57.8) (2,160.4)
--------- ---------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS - CONTINUING OPERATIONS........................................... (346.3) 11.2
CASH AND CASH EQUIVALENTS, beginning of period.................................. 922.2 870.7
--------- ---------
CASH AND CASH EQUIVALENTS, end of period........................................ $575.9 $881.9
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The condensed consolidated balance sheet as of December 31, 1999 has been
condensed from the audited consolidated balance sheet as of that date. The
condensed consolidated balance sheet as of September 30, 2000, the
condensed consolidated statement of operations and retained earnings
(accumulated deficit) for the nine and three months ended September 30,
2000 and 1999, and the condensed consolidated statement of cash flows for
the nine months ended September 30, 2000 and 1999 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, 2000 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, 1999 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, 2000 are not necessarily indicative of operating results for
the full year.
Sale of Comcast Cellular Corporation
In July 1999, the Company sold its indirect wholly owned subsidiary,
Comcast Cellular Corporation ("Comcast Cellular"), to SBC Communications,
Inc. The results of operations of Comcast Cellular for the nine and three
months ended September 30, 1999 have been presented as a discontinued
operation in accordance with Accounting Principles Board 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."
Reclassifications
Certain reclassifications have been made to the prior years' condensed
consolidated financial statements to conform to those classifications used
in 2000 (see Note 2).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SFAS No. 133, as Amended
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 and June
2000, the FASB issued SFAS No. 137 and SFAS No. 138 which deferred the
effective date for implementation of SFAS No. 133 to fiscal years beginning
after June 15, 2000 and which addressed certain issues causing
implementation difficulties for entities that apply SFAS No. 133,
respectively.
As of September 30, 2000, the Company has entered into certain transactions
which may be accounted for as derivatives upon adoption of SFAS No. 133, as
amended, including indexed debt instruments, interest rate exchange
agreements, equity warrant and option agreements, and equity collar
agreements. The Company will adopt SFAS No. 133, as amended, on January 1,
2001. The transition adjustment upon adoption will be recorded to the
Company's consolidated statement of operations as a cumulative effect of
change in accounting principle, net of tax. Subsequent changes in the fair
value of the Company's derivatives will be recorded either through
accumulated other comprehensive income or through the Company's
consolidated statement of operations based upon the Company's designation
of the derivative and the Company's hedging strategy. The Company, while
continuing to evaluate the impact the adoption of SFAS No. 133, as amended,
will have on its financial position and results of
5
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
operations, is currently unable to estimate such impact due to the
uncertainty of the derivatives that will be held by the Company as of
December 31, 2000 and their respective fair values at that time.
SFAS No. 140
In September 2000, The FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS
No. 140 replaces SFAS No. 125 and addresses certain issues not previously
addressed in SFAS No. 125. SFAS 140 is effective for transfers and
servicing occurring after March 31, 2001. SFAS No. 140 is effective for
disclosures about securitizations and collateral and for the recognition
and reclassification of collateral for fiscal years ending after December
15, 2000. While the Company is currently evaluating the impact the adoption
of SFAS No. 140 will have on its financial position and results of
operations, it does not expect such impact to be material.
SAB No. 101, as Amended
In December 1999, the staff of the SEC issued Staff Accounting Bulletin
("SAB") No. 101, "Revenue Recognition in Financial Statements," which
provides guidance in applying generally accepted accounting principles to
selected revenue recognition issues. In March 2000 and June 2000, the staff
of the SEC amended SAB No. 101 to delay the required implementation date of
SAB No. 101 to the fourth quarter of fiscal years beginning after December
15, 1999. The Company adopted SAB No. 101, as amended, on October 1, 2000.
The adoption of SAB No. 101, as amended, has not and is not expected to
have a material impact on the Company's results of operations.
EITF 00-10
In May, July and September 2000, the Emerging Issues Task Force (the
"EITF") reached a consensus on EITF Issue No. 00-10, "Accounting for
Shipping and Handling Fees and Costs." EITF No. 00-10 requires that all
amounts billed to a customer in a sale transaction for shipping and
handling be classified as revenue. The Company's majority-owned subsidiary,
QVC, Inc. previously classified shipping and handling revenue as an offset
to cost of goods sold from electronic retailing. The Company has
reclassified shipping and handling revenue from cost of goods sold from
electronic retailing to net sales from electronic retailing for all periods
presented in the accompanying condensed consolidated statement of
operations and retained earnings (accumulated deficit).
Securities Lending Transactions
The Company may enter into securities lending transactions pursuant to
which the Company requires the borrower to provide cash collateral equal to
the value of the loaned securities, as adjusted for any changes in the
value of the underlying loaned securities. Loaned securities for which the
Company maintains effective control are included in investments in the
Company's condensed consolidated balance sheet.
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.
6
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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, 2000 and
1999, respectively.
<TABLE>
<CAPTION>
(Amounts in millions, except per share data)
Nine Months Three Months
Ended Ended
September 30, September 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income for common stockholders..................... $1,220.3 $1,217.5 $1,239.2 $327.8
Preferred dividends.................................... 22.7 22.4 7.6 7.3
--------- --------- --------- ---------
Net income for common stockholders used
for Diluted EPS...................................... $1,243.0 $1,239.9 $1,246.8 $335.1
========= ========= ========= =========
Basic weighted average number of common shares
outstanding.......................................... 885.1 747.0 908.8 755.2
Dilutive securities:
Series A and B convertible preferred stock........... 42.5 44.6 42.5 43.4
Stock option and restricted stock plans.............. 15.4 23.8 14.0 25.3
Put options on Class A Special Common Stock.......... 0.1 0.3
--------- --------- --------- ---------
Diluted weighted average number of common shares
outstanding.......................................... 943.1 815.4 965.6 823.9
========= ========= ========= =========
Diluted earnings for common stockholders
per common share..................................... $1.32 $1.52 $1.29 $.41
========= ========= ========= =========
</TABLE>
Put options sold by the Company on a weighted average 1.5 million shares,
3.6 million shares, 2.0 million shares and 1.2 million shares,
respectively, of its Class A Special Common Stock (see Note 6) were
outstanding during the nine months ended September 30, 2000 and 1999 and
during the three months ended September 30, 2000 and 1999, respectively.
For the nine and three months ended September 30, 1999 such put options
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.
3. SIGNIFICANT EVENTS
Acquisition of Lenfest Communications, Inc.
In January 2000, the Company acquired Lenfest Communications, Inc.
("Lenfest"), a cable communications company serving subscribers primarily
in the Philadelphia area from AT&T Corp. ("AT&T") and the other Lenfest
stockholders for approximately 121.4 million shares of the Company's Class
A Special Common Stock, subject to adjustment, with a value of $6.077
billion (the "Lenfest Acquisition"). In connection with the Lenfest
Acquisition, the Company assumed approximately $1.326 billion of debt (see
Note 5).
Consolidation of Comcast Cablevision of Garden State, L.P.
Comcast Cablevision of Garden State, L.P. ("Garden State Cable") (formerly
Garden State Cablevision L.P.), a cable communications company serving
subscribers in New Jersey, is a partnership which was owned 50% by Lenfest
and 50% by the Company. The Company had accounted for its interest in
Garden State Cable under the equity method (see Note 4). As a result of the
Lenfest Acquisition, the Company now owns 100% of Garden State Cable. As
such, the operating results of Garden State Cable have been included in the
Company's condensed
7
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
consolidated statement of operations and retained earnings (accumulated
deficit) from the date of the Lenfest Acquisition.
Acquisition of CalPERS' Interest in Jointly Owned Cable Properties
In February 2000, the Company acquired the California Public Employees
Retirement System's ("CalPERS") 45% interest in Comcast MHCP Holdings,
L.L.C. ("Comcast MHCP"), formerly a 55% owned consolidated subsidiary of
the Company which serves subscribers in Michigan, New Jersey and Florida.
As a result, the Company now owns 100% of Comcast MHCP. The consideration
was $750.0 million in cash.
Acquisition of Jones Intercable, Inc.
In April 1999, the Company acquired a controlling interest in Jones
Intercable, Inc. ("Jones Intercable"), a cable communications company, for
aggregate consideration of $706.3 million in cash. The acquisition was
accounted for under the purchase method of accounting. As such, the
operating results of Jones Intercable have been included in the Company's
condensed consolidated statement of operations and retained earnings
(accumulated deficit) from the acquisition date. In June 1999, the Company
purchased an additional 1.0 million shares of Jones Intercable Class A
Common Stock for $50.0 million in cash in a private transaction. The
Company contributed its interest in Jones Intercable to Comcast Cable
Communications, Inc. ("Comcast Cable"), an indirect wholly owned subsidiary
of the Company.
In March 2000, the Jones Intercable shareholders approved a merger
agreement pursuant to which the Jones Intercable shareholders, including
Comcast Cable, received 1.4 shares of the Company's Class A Special Common
Stock in exchange for each share of Jones Intercable Class A Common Stock
and Common Stock (the "Jones Merger") and Jones Intercable was merged with
and into a wholly owned subsidiary of the Company. In connection with the
closing of the Jones Merger, the Company issued approximately 58.9 million
shares of its Class A Special Common Stock to the Jones Intercable
shareholders, including approximately 23.3 million shares to a subsidiary
of the Company and 35.6 million shares with a value of $1.727 billion to
the public shareholders. As required under generally accepted accounting
principles, the shares held by the subsidiary of the Company are presented
as issued but not outstanding (held in treasury) in the Company's September
30, 2000 condensed consolidated balance sheet.
Acquisition of Prime Communications LLC
In December 1998, the Company agreed to invest in Prime Communications LLC
("Prime"), a cable communications company. Pursuant to the terms of this
agreement, in December 1998 the Company acquired from Prime a $50.0 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, convertible into 90% of the equity of Prime. Since that time, the
Company made an additional $70.0 million in loans to Prime (on the same
terms as the original loan). On August 1, 2000, the note, plus accrued
interest of $51.7 million on the note and the loans, was converted and the
owners of Prime sold their remaining 10% equity interest in Prime to the
Company for $87.7 million. As a result, the Company now owns 100% of Prime
and has assumed management control of Prime's operations (the "Prime
Acquisition"). Upon closing, the Company assumed and repaid $532.0 million
of Prime's debt with proceeds from borrowings under existing credit
facilities.
The acquisitions completed by the Company during the nine months ended
September 30, 2000 were accounted for under the purchase method of
accounting. As such, the operating results of the acquired systems have
been included in the Company's condensed consolidated statement of
operations and retained earnings (accumulated deficit) from the acquisition
date. The Company adjusted the purchase price allocation related to the
Company's acquisitions of CalPERS' interest in Comcast MHCP and of the
public shareholders' interest in Jones Intercable during the second quarter
of 2000. The allocation of the purchase price for the acquisitions
completed during the nine months ended September 30, 2000 is preliminary
pending completion of final appraisals. As the consideration given in
exchange for Jones Intercable, Lenfest and the additional 50% interest in
Garden State Cable was shares of the Company's Class A Special Common
Stock, and in the case of Prime was primarily the conversion of
8
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
convertible notes, the acquisitions of such interests had no significant
impact on the Company's condensed consolidated statement of cash flows
during the nine months ended September 30, 2000 (see Note 7).
Unaudited Pro Forma Information
The following unaudited pro forma information for the nine months ended
September 30, 2000 and 1999 has been presented as if the acquisitions of
Jones Intercable, Lenfest and Prime, and the consolidation of Garden State
Cable each occurred on January 1, 1999. This information is based on
historical results of operations, adjusted for acquisition costs, and, in
the opinion of management, is not necessarily indicative of what the
results would have been had the Company operated Jones Intercable, Lenfest,
Garden State Cable and Prime since January 1, 1999.
(Amounts in millions,
except per share data)
Nine Months Ended
September 30,
2000 1999
---------- ----------
Revenues................................ $5,945.9 $5,362.7
Net income.............................. $1,148.0 $769.9
Diluted EPS............................. $1.19 $0.81
AT&T Agreement
As of August 11, 2000, the Company entered into a revised agreement with
AT&T to exchange various cable communications systems. Under the terms of
the agreement, the Company will receive cable communications systems
serving approximately 770,000 subscribers. In exchange, AT&T will receive
systems that the Company currently owns serving approximately 670,000
subscribers. At closing, the Company will pay AT&T an equalizing payment of
approximately $12 million, reflecting the agreed upon difference in fair
value of the AT&T cable communications systems and the Company's cable
communications systems to be exchanged (subject to adjustment based on the
actual number of net subscribers acquired and the per subscriber price of
certain subscribers). The transaction is subject to customary closing
conditions and regulatory approvals and is expected to close in the fourth
quarter of 2000 or the first quarter of 2001.
Other Income
In August 2000, the Company obtained the right to sell its Excite@Home
Corporation ("Excite@Home") Series A Common Stock (the "Excite@Home Stock")
to AT&T and waived certain of its Excite@Home Board level and shareholder
rights under a stockholders agreement. The Company also agreed to cause its
existing appointee to the Excite@Home Board of Directors to resign (see
Note 4). In connection with the transaction, the Company recorded a pre-tax
gain of $1.045 billion, representing the estimated fair value of the
investment as of the Closing Date.
In 1997, the Company obtained certain wireless licenses but never deployed
the spectrum in its operations. In August 2000, the Company exchanged all
of the capital stock of a wholly owned subsidiary which held eighteen of
those wireless licenses for approximately 3.2 million shares of AT&T common
stock with a fair value of $100.0 million. In connection with the exchange,
the Company recognized a pre-tax gain of $98.1 million, representing the
difference between the fair value of the AT&T shares received and the
Company's cost basis in the subsidiary.
Such gains were recorded to other income in the Company's condensed
consolidated statement of operations and retained earnings (accumulated
deficit) during the nine and three months ended September 30, 2000.
During the nine months ended September 30, 1999, the Company received a
$1.5 billion termination fee from MediaOne Group, Inc. ("MediaOne") as a
result of MediaOne's termination of its Agreement and Plan of Merger with
the Company dated March 1999. The termination fee, net of transaction
costs, was recorded to other income in the Company's condensed consolidated
statement of operations and retained earnings (accumulated deficit).
9
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
4. INVESTMENTS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- --------------
(Dollars in millions)
<S> <C> <C>
Fair value method........................................... $6,686.6 $11,972.1
Cost method................................................. 314.8 1,134.6
Equity method............................................... 275.9 48.1
----------- ------------
Total investments.................................... 7,277.3 13,154.8
Less, current investments................................... 3,872.1 7,606.0
----------- ------------
Non-current investments..................................... $3,405.2 $5,548.8
=========== ============
</TABLE>
Fair Value Method
The Company holds unrestricted equity investments in certain publicly
traded companies, with an historical cost (including $2.152 billion and
$2.033 billion of aggregate pre-tax gains recognized through September 30,
2000 and December 31, 1999, respectively) of $3.942 billion and $2.558
billion as of September 30, 2000 and December 31, 1999, respectively. The
unrealized pre-tax gains as of September 30, 2000 and December 31, 1999 of
$2.745 billion and $9.414 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 $960.8 million and $3.294 billion, respectively.
Sprint PCS. As of September 30, 2000 and December 31, 1999, as adjusted for
Sprint PCS' 2-for-1 stock split in February 2000, the Company holds
approximately 88.2 million shares and 93.8 million shares of unregistered
Series 2 Sprint PCS common stock, 123,452 shares of Sprint PCS convertible
preferred stock (convertible into approximately 4.0 million shares of
unregistered Series 2 Sprint PCS common stock) and a warrant to purchase
approximately 6.0 million shares of unregistered Series 2 Sprint PCS common
stock at $12.01 per share (the "Sprint PCS Stock"). The Company has
registration rights, subject to customary restrictions, which will allow
the Company to sell its Sprint PCS Stock. During the nine months ended
September 30, 2000, the Company sold approximately 5.6 million of its
shares of Sprint PCS common stock for proceeds of $312.0 million and
recognized a pre-tax gain of $265.3 million. Such gain was recorded as a
reclassification from accumulated other comprehensive income to investment
income. As of September 30, 2000 and December 31, 1999, the Company has
recorded its investment in Sprint PCS at its estimated fair value of $3.092
billion and $4.234 billion, respectively (see Note 5).
AT&T. As of September 30, 2000 and December 31, 1999, the Company holds
approximately 43.1 million shares and 39.9 million shares of AT&T common
stock. As of September 30, 2000 and December 31, 1999, the Company has
recorded its investment in AT&T at its fair value of $1.266 billion and
$2.026 billion, respectively.
As of August 11, 2000, the Company entered into another agreement with AT&T
to acquire cable communications systems serving up to 700,000 subscribers
from AT&T in exchange for AT&T common stock that the Company currently owns
or may acquire, in a transaction intended to qualify as tax-free to both
the Company and to AT&T. Pursuant to the agreement, the agreed upon value
of the cable communications systems to be acquired by the Company from AT&T
is up to $3.2 billion (subject to adjustment based on the actual number of
subscribers acquired). Also pursuant to the agreement, approximately 39.6
million shares of the AT&T common stock currently owned by the Company will
be valued at $54.41 per share in the exchange. The transaction is subject
to customary closing conditions and regulatory approvals and is expected to
close in the first or second quarter of 2001.
Internet Capital Group. In August 1999, Internet Capital Group ("ICG"), an
investee of the Company previously accounted for under the cost method,
completed an initial public offering of its common stock. ICG is an
Internet holding company engaged in managing and operating a network of
business-to-business e-commerce companies. During the nine months ended
September 30, 2000, the Company sold approximately 2.3 million shares of
its ICG common stock for proceeds of $327.1 million and recognized a
pre-tax gain of $325.9 million. Such gain was
10
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
recorded as a reclassification from accumulated other comprehensive income
to investment income. As of September 30, 2000 and December 31, 1999, the
Company holds approximately 21.4 million shares and 23.7 million shares of
ICG common stock and warrants and options to purchase approximately 0.6
million shares of ICG common stock, respectively. As of September 30, 2000
and December 31, 1999, the Company has recorded its investment in ICG at
its estimated fair value of $382.2 million and $4.127 billion,
respectively.
Excite@Home. Excite@Home provides Internet services to subscribers and
businesses over the cable communications infrastructure in a limited number
of cities in the United States. The Company holds approximately 29.1
million shares of Excite@Home Stock and, as of September 30, 2000 and
December 31, 1999, has earned warrants to purchase an additional 2.1
million shares and 0.6 million shares, respectively, of Excite@Home Stock.
As of September 30, 2000 and December 31, 1999, 10% and 30% of the
Excite@Home shares held by the Company were contractually restricted shares
(the "Restricted Shares") and 90% and 70% of the Excite@Home shares held by
the Company were unrestricted shares (the "Unrestricted Shares"). The
Company has recorded the Restricted Shares at their historical cost of $0.3
million and $0.6 million and the Unrestricted Shares and warrants, which
are classified as available for sale, at their estimated fair value of
$437.9 million and $918.0 million, respectively, as of September 30, 2000
and December 31, 1999. The Company has reclassified its investment in the
Excite@Home Stock from noncurrent investments to current investments as of
September 30, 2000 (see below).
On March 28, 2000 (the "Announcement Date"), Excite@Home and its principal
cable partners, including the Company (the "Founding Cable Stockholders"),
entered into an agreement (the "Letter Agreement") pursuant to which
Excite@Home and the Founding Cable Stockholders agreed to enter into
certain transactions which were completed on August 28, 2000 (the "Closing
Date").
AT&T granted the Company the right to sell its Excite@Home Stock to AT&T at
any time between January 1, 2001 and June 4, 2002 at a price equal to the
higher of $48 per share or the average per share trading price for a 30-day
trading period (as defined). The aggregate value of the Excite @Home Stock
that AT&T would be required to purchase from the Company is limited to
approximately $1.5 billion. The Company has the right to elect payment in
the form of cash or in shares of AT&T common stock. The Company accounts
for this right as an investment, classified as available for sale, at its
estimated fair value with unrealized gains or losses resulting from changes
between measurement dates recorded as a component of accumulated other
comprehensive income. As of September 30, 2000, the Company has recorded
this investment, which is included in current investments in the Company's
condensed consolidated balance sheet, at its estimated fair value of $1.043
billion.
The Company agreed to enter into a new non-exclusive distribution agreement
with Excite@Home for the period from June 2002 through June 2006. The
Company may elect to terminate its existing exclusive distribution
agreement with Excite@Home (which would otherwise expire in June 2002) or
the new distribution agreement at any time beginning June 2001 on at least
six months notice. In addition, unearned warrants previously held by the
Company were amended to eliminate any previous performance vesting
conditions and the Company received additional new warrants with an
exercise price of $29.54 per share to purchase two shares of Excite@Home
Stock for each home passed by the Company's cable communications systems at
the Announcement Date. The new warrants and the unearned previously held
warrants vest in installments every six months beginning in June 2001 and
will be fully vested in June 2006 provided that the Company has not elected
to earlier terminate its existing or the new distribution agreement. The
new warrants include customary registration rights and will expire in March
2015. The Company's right to sell its Excite@Home Stock to AT&T is not
dependent upon its election to either continue or terminate its existing or
the new distribution agreement.
Sales of NTL Incorporated Common Stock
During the three months ended September 30, 1999, the Company sold
approximately 0.9 million shares of NTL Incorporated common stock for
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 retained earnings (accumulated
deficit) for the nine and three months ended September 30, 1999.
11
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Gains on Exchanges of Fair Value Method Investments
During the nine months ended September 30, 2000 and 1999 and during the
three months ended September 30, 2000, in connection with certain mergers
of publicly traded companies held by the Company accounted for as
investments available for sale, the Company recognized pre-tax gains of
$62.1 million, $187.6 million and $29.1 million, respectively, representing
the difference between the fair value of the securities received by the
Company and the Company's cost basis in the securities exchanged. Such
gains were recorded as a reclassification from accumulated other
comprehensive income to investment income.
Impairment Losses
During the nine months ended September 30, 2000 and 1999, the Company
recorded pre-tax losses of $7.4 million and $35.5 million, respectively, 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 retained
earnings (accumulated deficit).
Investment Expense (Income) Related to Call Options
During the nine and three months ended September 30, 1999, the Company
recorded $93.0 million and ($7.8) million, respectively, of investment
expense (income) related to changes in the value of and the settlement of
call options on certain of the Company's fair value method investments, all
of which expired by November 1999.
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 $184.9 million as of September 30, 2000 (related
to the Company's investment in The Golf Channel). Such excess is being
amortized to equity in net income or loss, over a period of twenty years,
which is consistent with the estimated lives of the underlying assets. The
original cost of investments accounted for under the equity method totaled
$367.8 million and $235.6 million as of September 30, 2000 and December 31,
1999, respectively.
During the nine months ended September 30, 2000, the Company exercised a
call option to purchase shares held by certain founding members and members
of management and purchased shares held by other minority shareholders of
The Golf Channel for aggregate consideration of $137.8 million. The
Company's current ownership after these transactions is 60.3%. The Company
will continue to record its investment in The Golf Channel under the equity
method due to certain veto rights that are held by one of the remaining
minority partners.
As a result of the Lenfest Acquisition (see Note 3), the Company has
consolidated the results of Garden State Cable, previously accounted for
under the equity method, effective January 2000.
Sales of Other Investments
During the nine months ended September 30, 2000 and 1999 and during the
three months ended September 30, 2000 and 1999, the Company recognized
pre-tax (gains) losses to investment income of ($235.8) million, ($17.7)
million, $1.6 million and ($2.8) million, respectively, on sales of certain
of its other investments.
12
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
5. LONG-TERM DEBT
Comcast Cable Refinancing
In August 2000, the Company repaid and retired all amounts outstanding
under the existing bank credit facilities of its cable communications
subsidiaries, totaling approximately $2.4 billion, with the proceeds from a
new senior bank credit facility and new commercial paper program. The
Company's new senior bank credit facility consists of a $2.25 billion,
five-year revolving credit facility and a $2.25 billion, 364-day revolving
credit facility. The 364-day revolving credit facility supports the
Company's new commercial paper program. The Company borrowed $1.4 billion
under the five-year facility and $1.0 billion under the commercial paper
program to repay and retire the subsidiaries' credit facilities.
ZONES
During the fourth quarter of 1999, the Company issued an aggregate of
approximately 48.3 million (as adjusted for Sprint PCS' 2-for-1 stock split
in February 2000) 2.0% Exchangeable Subordinated Debentures due 2029 (the
"ZONES") for aggregate gross 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. 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.
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.
Therefore, the carrying value of the ZONES is marked to market each balance
sheet date to reflect the fair value of the underlying Sprint PCS Stock
with the change included in income related to indexed debt in the Company's
condensed consolidated statement of operations and retained earnings
(accumulated deficit). During the nine and three months ended September 30,
2000, the Company recorded income related to indexed debt of $666.0 million
and $1.064 billion, respectively. The Company's investment in Sprint PCS is
accounted for as available for sale, with changes in fair value being
reflected in accumulated other comprehensive income (see Note 4).
Debt Assumed
In connection with the Lenfest Acquisition, the consolidation of Garden
State Cable and the Prime Acquisition (see Note 3), the Company assumed
aggregate debt of $2.146 billion with interest rates ranging between 6.95%
and 10.5%, and maturities between 2001 and 2008.
Extraordinary Items
Extraordinary items during the nine months ended September 30, 2000 and
1999 and during the three months ended September 30, 2000 and 1999 of $18.5
million, $44.4 million, $2.3 million and $41.4 million, respectively,
consist of unamortized debt issue costs and debt extinguishment costs, net
of related tax benefits, expensed principally in connection with the
redemption and retirement of certain indebtedness. During the nine and
three months ended September 30, 2000, extraordinary items include $3.8
million of gains, net of related tax expense, recognized on the termination
of related interest rate exchange agreements.
Interest Rates
As of September 30, 2000 and December 31, 1999, the Company's effective
weighted average interest rate on its long-term debt outstanding was 6.76%
and 6.55%, respectively. The Company's effective weighted average interest
rate excludes the effects of the ZONES mark to market adjustments for both
dates presented.
Lines of Credit
As of September 30, 2000, certain subsidiaries of the Company had unused
lines of credit of $2.344 billion under their respective credit facilities.
13
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
6. STOCKHOLDERS' EQUITY
Repurchase Programs
Based on the trade date for stock repurchases, during the nine months ended
September 30, 2000 and 1999 and during the three months ended September 30,
2000 and 1999, the Company repurchased approximately 8.1 million shares,
1.0 million shares, 2.1 million shares and 0.6 million shares,
respectively, of its common stock for aggregate consideration of $290.3
million, $30.7 million, $70.7 million and $19.2 million, respectively,
pursuant to its Board-authorized repurchase programs.
As part of the repurchase program, during the nine months ended September
30, 2000, the Company sold put options on 2.0 million shares of its Class A
Special Common Stock. The put options mature on specific dates during the
fourth quarter of 2000. The amount the Company would be obligated to pay to
repurchase such shares upon exercise of the put options, totaling $82.0
million, was reclassified from additional capital to common equity put
options in the Company's September 30, 2000 condensed consolidated balance
sheet.
Share Exchanges
During the nine months ended September 30, 2000 and 1999, the Company
issued approximately 1.0 million shares and 3.5 million shares of its Class
A Special Common Stock in exchange for approximately 1.1 million shares and
3.7 million shares of its Class A Common Stock, respectively. The Class A
Common Stock was subsequently retired.
Comprehensive (Loss) Income
Total comprehensive (loss) income for the nine months ended September 30,
2000 and 1999 and for the three months ended September 30, 2000 and 1999
was ($3.142) billion, $3.436 billion, ($74.7) million and $862.8 million,
respectively. Total comprehensive (loss) income includes net income,
unrealized gains (losses) on marketable securities and foreign currency
translation gains (losses) for the periods presented.
14
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
7. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
During the nine months ended September 30, 2000, the Company acquired all
of the capital stock and/or partnership interests not previously owned by
the Company of Lenfest, Garden State Cable, Jones Intercable, Prime and
Comcast MHCP, principally through the issuance of the Company's Class A
Special Common Stock and the conversion of convertible notes (see Note 3).
The fair values of the assets and liabilities acquired by the Company
during the nine months ended September 30, 2000 are presented as follows
(in millions):
Current assets..................................... $293.7
Investments........................................ 147.6
Property, plant & equipment........................ 1,288.9
Deferred charges................................... 12,394.0
Current liabilities................................ (282.9)
Long-term debt..................................... (2,146.5)
Deferred incomes taxes............................. (2,854.3)
---------
Net assets acquired....................... $8,840.5
=========
The Company made cash payments for interest of $454.8 million, $349.5
million, $96.4 million and $94.3 million during the nine months ended
September 30, 2000 and 1999 and during the three months ended September 30,
2000 and 1999, respectively.
The Company made cash payments for income taxes of $660.8 million, $143.7
million, $63.9 million and $31.2 million during the nine months ended
September 30, 2000 and 1999 and during the three months ended September 30,
2000 and 1999, 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.
In connection with a license awarded to an affiliate, the Company is
contingently liable in the event of nonperformance by the affiliate to
reimburse a bank which has provided a performance guarantee. The amount of
the performance guarantee is approximately $500 million; however the
Company's current estimate of the amount of expenditures (principally in
the form of capital expenditures) that will be made by the affiliate
necessary to comply with the performance requirements will not exceed $150
million.
15
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
9. FINANCIAL DATA BY BUSINESS SEGMENT
The following represents the Company's significant business segments,
"Cable" and "Commerce." The components of net income below operating income
(loss) are not separately evaluated by the Company's management on a
segment basis (see the Company's condensed consolidated statement of
operations and retained earnings (accumulated deficit)) (dollars in
millions).
<TABLE>
<CAPTION>
Corporate
Cable and
Communications Commerce Other (1) Total
-------------- -------- --------- -----
<S> <C> <C> <C> <C>
Nine Months Ended September 30, 2000
------------------------------------
Revenues, net..................................................... $3,056.9 $2,411.9 $342.2 $5,811.0
Operating income (loss) before depreciation and amortization (2).. 1,394.4 418.0 (17.0) 1,795.4
Depreciation and amortization..................................... 1,674.8 91.0 76.4 1,842.2
Operating (loss) income........................................... (280.4) 327.0 (93.4) (46.8)
Interest expense.................................................. 372.4 26.7 107.9 507.0
Capital expenditures.............................................. 849.6 129.2 77.2 1,056.0
Three Months Ended September 30, 2000
-------------------------------------
Revenues, net..................................................... $1,058.6 $820.3 $81.1 $1,960.0
Operating income (loss) before depreciation and amortization (2).. 490.1 139.3 (23.7) 605.7
Depreciation and amortization..................................... 602.7 32.0 27.4 662.1
Operating (loss) income........................................... (112.6) 107.3 (51.1) (56.4)
Interest expense.................................................. 129.4 8.7 37.1 175.2
Capital expenditures.............................................. 358.0 51.3 35.6 444.9
As of September 30, 2000
------------------------
Assets............................................................ $23,840.9 $2,343.0 $8,847.7 $35,031.6
Long-term debt, less current portion.............................. 5,661.9 357.9 2,591.6 8,611.4
Nine Months Ended September 30, 1999
------------------------------------
Revenues, net..................................................... $2,127.1 $2,176.7 $291.3 $4,595.1
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 $751.3 $74.5 $1,599.3
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
<FN>
---------------
(1) Other includes segments not meeting certain quantitative guidelines for
reporting. Other includes certain other operating businesses, such as
Comcast-Spectacor, L.P., E! Entertainment Television, Inc., the Company's
domestic wireline telecommunications business, the Company's international
wireless operations and elimination entries related to the segments
presented. Corporate and other assets consist primarily of the Company's
investments (see Note 4).
(2) Operating income (loss) before depreciation and amortization is commonly
referred to in the Company's businesses as "operating cash flow (deficit)."
Operating cash flow is a measure of a company's ability to generate cash to
service its obligations, including debt service obligations, and to finance
capital and other expenditures. In part due to the capital intensive nature
of the Company's businesses and the resulting significant level of non-cash
16
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
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.
</FN>
</TABLE>
17
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
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.
We have acquired and we anticipate acquiring cable communications systems
in new communities in which we do not have established relationships with the
franchising authority, community leaders and cable subscribers. Further, a
substantial number of new employees are being and must continue to be integrated
into our business practices and operations. Our previously announced cable
system exchanges with Adelphia Communications and AT&T Corp. ("AT&T") are
subject to closing conditions and regulatory approvals and are expected to close
between the fourth quarter of 2000 and the second quarter of 2001. Our results
of operations may be significantly affected by our ability to efficiently and
effectively manage these changes.
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
investments.
See Note 8 to our condensed consolidated financial statements included in
Item 1.
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, 2000 were $4.448 billion, substantially all of which is unrestricted.
Investments
See Note 4 to our condensed consolidated financial statements included in
Item 1. A significant portion of our investments are in publicly traded
companies and are reflected at fair value which fluctuates with market changes.
We do not have any significant contractual funding commitments with respect
to any of our investments. However, to the extent we do not fund our investees'
non-binding capital calls, we are subject 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, 2000 and December 31, 1999, our long-term debt,
including current portion, was $9.924 billion and $9.225 billion, respectively.
Excluding the effects of interest rate risk management instruments, 30.8% and
25.4% of our long-term debt as of September 30, 2000 and December 31, 1999,
respectively, was at variable rates.
The $699.2 million increase in our long-term debt, including current
portion, results principally from the $1.326 billion of Lenfest Communications,
Inc. ("Lenfest") debt and $534.7 million of Prime Communications LLC ("Prime")
debt that we assumed, and the $286.0 million of Comcast Cablevision of Garden
State, L.P. ("Garden State Cable") (formerly Garden State Cablevision L.P.) debt
that we consolidated in connection with the acquisitions of Lenfest in January
2000 and Prime in August 2000 (see Notes 3 and 5 to our condensed consolidated
financial statements included in Item 1), and $3.189 billion of borrowings. Such
increases were offset in part by retirements and repayments of our long-term
debt of $3.992 billion and the $666.0 million
18
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
non-cash, non-interest bearing reduction to the carrying value of the Company's
2.0% Exchangeable Subordinated Debentures due 2029 (the "ZONES") during the nine
months ended September 30, 2000 (see Note 5 to our condensed consolidated
financial statements included in Item 1).
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
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 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 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, 2000, in connection with our
acquisition of Lenfest (see Note 3 to our condensed consolidated financial
statements included in Item 1), we acquired interest rate exchange agreements
("Swaps") with an aggregate notional amount of $275.0 million. Swaps with an
aggregate notional amount of $1.215 billion were either terminated or expired
during the nine months ended September 30, 2000. As of September 30, 2000, we
have Swaps with an aggregate notional amount of $784.8 million having an average
pay rate of 6.88% an average receive rate of 7.56%.
-----------------------
Statement of Cash Flows
Cash and cash equivalents decreased $346.3 million as of September 30, 2000
from December 31, 1999. The decrease 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 $814.7 million for the nine months ended September 30, 2000, due
principally to the effects of our acquisition of Lenfest in January 2000 and
Prime in August 2000 (see Note 3 to our condensed consolidated financial
statements included in Item 1) and increases in our operating income before
depreciation and amortization (see "Results of Operations"), offset by 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 $1.103 billion for the nine months
ended September 30, 2000. During the nine months ended September 30, 2000, we
borrowed $3.189 billion, consisting primarily of borrowings under subsidiary
revolving lines of credit and a subsidiary commercial paper program. During the
nine months ended September 30, 2000, we repaid $3.992 billion of our long-term
debt, consisting primarily of $3.479 billion of repayments on certain of our
revolving credit facilities and $471.0 million of aggregate repurchases of
various of our senior notes and of our senior subordinated debentures. In
addition, during the nine months ended September 30, 2000, we received proceeds
of $23.8 million related to issuances of our common stock and the sale of put
options on our common stock, we repurchased $290.3 million of our common stock,
and we incurred $34.4 million of deferred financing costs.
Net cash used in investing activities from continuing operations was $57.8
million for the nine months ended September 30, 2000. Net cash used in investing
activities includes the effects of acquisitions, net of cash acquired, of $161.0
million, consisting of our acquisition of certain cable communications systems,
investments of $353.3 million, an increase in notes receivable of $50.0 million,
capital expenditures of $1.056 billion and additions to deferred charges of
$334.9 million, offset by net proceeds from sales of short-term investments of
$904.6 million and proceeds from sales of investments of $992.8 million.
19
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
Results of Operations
Our summarized consolidated financial information for the nine and three
months ended September 30, 2000 and 1999 is as follows (dollars in millions,
"NM" denotes percentage is not meaningful):
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Increase / (Decrease)
2000 1999 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues..................................................... $5,811.0 $4,595.1 $1,215.9 26.5%
Cost of goods sold from electronic retailing................. 1,544.4 1,398.6 145.8 10.4
Operating, selling, general and administrative expenses...... 2,471.2 1,850.2 621.0 33.6
--------- ---------
Operating income before depreciation and amortization (1).... 1,795.4 1,346.3 449.1 33.4
Depreciation................................................. 599.9 402.7 197.2 49.0
Amortization................................................. 1,242.3 456.2 786.1 NM
--------- ---------
Operating (loss) income...................................... (46.8) 487.4 (534.2) NM
--------- ---------
Interest expense............................................. 507.0 392.8 114.2 29.1
Investment income............................................ (1,024.8) (229.1) 795.7 NM
Income related to indexed debt............................... (666.0) 666.0 NM
Equity in net losses (income) of affiliates.................. 7.7 (0.9) 8.6 NM
Other income................................................. (1,124.5) (1,433.6) (309.1) (21.6)
Income tax expense........................................... 905.6 827.9 77.7 9.4
Minority interest............................................ 86.7 (18.2) (104.9) NM
--------- ---------
Income from continuing operations before
extraordinary items....................................... $1,261.5 $948.5 $313.0 33.0%
========= =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30, Increase / (Decrease)
2000 1999 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues..................................................... $1,960.0 $1,599.3 $360.7 22.6%
Cost of goods sold from electronic retailing................. 529.2 486.0 43.2 8.9
Operating, selling, general and administrative expenses...... 825.1 649.4 175.7 27.1
--------- ---------
Operating income before depreciation and amortization (1).... 605.7 463.9 141.8 30.6
Depreciation................................................. 223.2 148.6 74.6 50.2
Amortization................................................. 438.9 164.1 274.8 NM
--------- ---------
Operating (loss) income...................................... (56.4) 151.2 (207.6) NM
--------- ---------
Interest expense............................................. 175.2 138.1 37.1 26.9
Investment income............................................ (65.4) (101.1) (35.7) (35.3)
Income related to indexed debt............................... (1,064.0) 1,064.0 NM
Equity in net losses (income) of affiliates.................. 3.7 (2.5) 6.2 NM
Other income................................................. (1,133.1) (2.7) 1,130.4 NM
Income tax expense........................................... 752.3 104.2 648.1 NM
Minority interest............................................ 25.8 (5.4) (31.2) NM
--------- ---------
Income from continuing operations before
extraordinary items....................................... $1,249.1 $20.6 $1,228.5 NM
========= =========
<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
20
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
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 "Commerce." 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
2000 1999 $ %
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Service income............................................... $3,056.9 $2,127.1 $929.8 43.7%
Operating, selling, general and
administrative expenses................................. 1,662.5 1,146.4 516.1 45.0
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $1,394.4 $980.7 $413.7 42.2%
========= ========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30, Increase
2000 1999 $ %
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Service income............................................... $1,058.6 $773.5 $285.1 36.9%
Operating, selling, general and
administrative expenses................................. 568.5 416.7 151.8 36.4
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $490.1 $356.8 $133.3 37.4%
========= ========= ========= ========
<FN>
---------------
(a) See footnote (1) on page 20.
</FN>
</TABLE>
Of the respective $929.8 million and $285.1 million increases in service
income for the nine and three month periods from 1999 to 2000, $771.4 million
and $237.9 million are due to the effects of our acquisitions of cable
communications systems and $158.4 million and $47.2 million are due to growth in
our historical operations. Of the respective $158.4 million and $47.2 million
increases related to our historical operations, $66.5 million and $19.3 million
are due principally to subscriber growth in digital cable and cable modem
Internet access service, $17.5 million and $4.6 million are due to subscriber
growth in analog cable service, $60.2 million and $19.3 million are related to
changes in rates, $14.8 million and $4.9 million are attributable to growth in
cable advertising sales and ($0.4) million and ($0.7) million are related to
decreases in pay per view revenue as a result of fewer events.
Of the respective $516.1 million and $151.8 million increases in operating,
selling, general, and administrative expenses for the nine and three month
periods from 1999 to 2000, $399.1 million and $118.9 million are due to the
effects of our acquisitions of cable communications systems and $117.0 million
and $32.9 million are due to growth in our historical operations. Of the $117.0
million and $32.9 million increases related to our historical operations, $48.4
million and $16.4 million are due to increases in the costs of cable programming
as a result of changes in rates, subscriber growth and additional channel
offerings, $33.4 million and $9.4 million are due principally to subscriber
growth in cable modem Internet access service and $35.2 million and $7.1 million
result from increases in labor costs and other volume related expenses.
21
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
Commerce
The following presents the operating results of our commerce 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
2000 1999 $ %
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net sales from electronic retailing.......................... $2,411.9 $2,176.7 $235.2 10.8%
Cost of goods sold from electronic retailing................. 1,544.4 1,398.6 145.8 10.4
Operating, selling, general and administrative
expenses................................................ 449.5 401.0 48.5 12.1
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $418.0 $377.1 $40.9 10.8%
========= ========= ========= ========
Gross margin................................................. 36.0% 35.7%
========= =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30, Increase
2000 1999 $ %
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net sales from electronic retailing.......................... $820.3 $751.3 $69.0 9.2%
Cost of goods sold from electronic retailing................. 529.2 486.0 43.2 8.9
Operating, selling, general and administrative
expenses................................................ 151.8 140.5 11.3 8.0
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $139.3 $124.8 $14.5 11.6%
========= ========= ========= ========
Gross margin................................................. 35.5% 35.3%
========= =========
<FN>
---------------
(a) See footnote (1) on page 20.
</FN>
</TABLE>
The increase in net sales from electronic retailing of $235.2 million for
the nine month period from 1999 to 2000 is due to following: an increase of
4.5%, 10.1% and 43.3% in the average number of homes receiving QVC services in
the United States ("US"), United Kingdom ("UK") and Germany, respectively; an
increase of 3.9% and 16.5% in net sales per home in the US and Germany (in
Deutschemarks), respectively, and a 7.3% decrease in net sales per home in the
UK (in British pounds); and the negative effects of fluctuations in foreign
currency exchange rates during the period.
The increase in net sales from electronic retailing of $69.0 million for
the three month period from 1999 to 2000 is due to the following: an increase of
5.1%, 9.3% and 47.3% in the average number of homes receiving QVC services in
the US, UK and Germany, respectively; an increase of 2.6% and 10.4% in net sales
per home in the US and Germany (in Deutschemarks), and a 12.0% decrease in net
sales per home in the UK (in British pounds), respectively; and the negative
effects of fluctuations in foreign currency exchange rates during the period.
The increases in cost of goods sold for the nine and three month periods
from 1999 to 2000 are primarily related to the growth in net sales. The
increases in gross margin are a result of a shift in sales mix.
In connection with new accounting guidance issued in May, July and
September 2000 (see discussion of EITF 00-10 at Note 2 to our condensed
consolidated financial statements included in Item 1), QVC reclassified shipping
and handling revenue from cost of goods sold from electronic retailing to net
sales from electronic retailing for all periods presented. This reclassification
had no effect on QVC's reported operating income before depreciation and
amortization and no significant effect on growth in net sales from electronic
retailing. The effect of the reclassification was to increase QVC's net sales
from electronic retailing by approximately 11% and to decrease gross margin by
approximately four percentage points, respectively, for all periods presented as
compared to the amounts previously reported.
Of the respective $48.5 million and $11.3 million increases in operating,
selling, general and administrative
22
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
expenses for the nine and three month periods from 1999 to 2000, $21.7 million
and $4.9 million are attributable to higher variable costs associated with the
increase in sales volume. In addition, for the nine month period from 1999 to
2000, $3.1 million is attributable to certain lease termination costs incurred
in the UK during the second quarter of 2000. The remaining increases are
primarily attributable to higher personnel costs to support the increased sales
volume in the US and Germany.
-----------------------
Consolidated Analysis
The effects of our recent acquisitions were to increase our revenues and
expenses, resulting in increases in our operating income before depreciation and
amortization. The increases in our property and equipment, deferred charges and
long-term debt (see Note 7 to our condensed consolidated financial statements
included in Item 1) and the corresponding increases in depreciation expense,
amortization expense and interest expense for the nine and three month periods
from 1999 to 2000 are primarily due to the effects of our acquisition of Lenfest
in January 2000, our acquisition of a controlling interest in Jones Intercable,
Inc. ("Jones Intercable") in April 1999, our acquisition of Prime in August
2000, as well as our increased levels of capital expenditures.
Interest Expense
The $114.2 million and $37.1 million increases in interest expense for the
nine and three month periods from 1999 to 2000 are primarily due to the effects
of our acquisition of Lenfest in January 2000, our acquisition of a controlling
interest in Jones Intercable in April 1999 and the issuance of the ZONES in
October and November 1999, offset, in part, by the effects of our repayments and
retirement of debt.
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 nine months ended September 30, 2000 and 1999 and during the
three months ended September 30, 2000 and 1999, we recognized pre-tax (gains)
losses of ($827.0) million, ($67.7) million, $1.6 million and ($52.8) million,
respectively, on sales of certain of our investments.
During the nine months ended September 30, 2000 and 1999 and during the
three months ended September 30, 2000, in connection with certain mergers of
publicly traded companies held by us and accounted for as investments available
for sale, we recognized pre-tax gains of $62.1 million, $187.6 million and $29.1
million, respectively, representing the difference between the fair value of the
securities received by us and our basis in the securities exchanged. Such gains
were recorded as reclassifications from accumulated other comprehensive income
to investment income.
During the nine and three months ended September 30, 1999, we recorded
investment expense (income) of $93.0 million and ($7.8) million, respectively,
related to changes in the value of and the settlement of call options on certain
of our unrestricted equity investments, all of which expired by November 1999.
During the nine months ended September 30, 2000 and 1999, we recorded
pre-tax losses of $7.4 million and $35.5 million, respectively, on certain of
our investments based on a decline in value that was considered other than
temporary.
Income Related to Indexed Debt
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 and three months ended September 30, 2000, we recorded income related to
indexed debt of $666.0 million and $1.064 billion, respectively, to reflect the
decline in fair value of the underlying Sprint PCS stock.
Other Income
In August 2000, we obtained the right to sell our Excite@Home Series A
Common Stock to AT&T and we
23
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
waived certain of our Excite@Home Board level and shareholder rights under a
stockholders agreement (see Note 4 to our condensed consolidated financial
statements included in Item 1). In connection with the transaction, we recorded
a pre-tax gain of $1.045 billion, representing the estimated fair value of the
investment as of the closing date of the transaction.
In 1997, we obtained certain wireless licenses but never deployed the
spectrum in our operations. In August 2000, we exchanged all of the capital
stock in a wholly owned subsidiary which held eighteen of those wireless
licenses for approximately 3.2 million shares of AT&T common stock with a fair
value of $100.0 million. In connection with the exchange, we recognized a
pre-tax gain of $98.1 million, representing the difference between the fair
value of the AT&T shares received and our cost basis in the subsidiary.
Other income for the nine months ended September 30, 1999 is primarily
attributable to the receipt of the $1.5 billion termination fee from MediaOne
Group, Inc. ("MediaOne"), net of transaction costs, in May 1999 as a result of
MediaOne's termination of its Agreement and Plan of Merger with us dated March
1999.
Income Tax Expense
The changes in income tax expense for the nine and three month periods from
1999 to 2000 are primarily the result of the effects of changes in our income
before taxes and minority interest, and non-deductible goodwill amortization.
Minority Interest
The changes in minority interest for the nine and three month periods from
1999 to 2000 are attributable to the effects of our acquisition of a controlling
interest in Jones Intercable in April 1999, our acquisition of the California
Public Employees Retirement System's 45% interest in Comcast MHCP Holdings
L.L.C. in February 2000 and to changes in the net income or loss of our other
less than 100% owned consolidated subsidiaries.
Extraordinary Items
During the nine months ended September 30, 2000 and 1999 and during the
three months ended September 30, 2000 and 1999, we incurred debt extinguishment
costs and wrote off unamortized debt issue costs principally in connection with
the redemption and retirement of certain indebtedness, resulting in
extraordinary losses, net of related tax benefits, of $18.5 million, $44.4
million, $2.3 million and $41.4 million, respectively. During the nine and three
months ended September 30, 2000, extraordinary items include $3.8 million of
gains, net of related tax expense, recognized on the termination of related
Swaps.
We believe that our operations are not materially affected by inflation.
24
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
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.
On March 28, 2000, Excite@Home and its principal cable partners, including
the Company entered into an agreement (the "Letter Agreement") which was
completed on August 28, 2000. In June 2000 Cablevision Systems Corporation
("Cablevision"), a warrant holder in Excite@Home and also a party to
various agreements with Excite@Home and its principal cable partners,
brought an action in Delaware Chancery Court against Excite@Home and its
principal cable partners seeking to enjoin the closing and alleging that
the Letter Agreement breached certain contractual rights of Cablevision. In
August 2000, Cablevision dismissed the claims against Excite@Home and its
principal cable partners. Cablevision also consented to the completion of
the Letter Agreement.
25
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
10.1 Asset Exchange Agreement, dated as of August 11, 2000, among AT&T
Corp. and Comcast Corporation.
10.2 Agreement and Plan of Reorganization, dated as of August 11,
2000, among Comcast Corporation, Comcast Cable Communications,
Inc., Comcast CCCI II, LLC, Comcast Teleport, Inc., Comcast
Heritage, Inc., Comcast Communications Properties, Inc., and AT&T
Corp.
10.3 Five-Year Revolving Credit Agreement, dated as of August 24,
2000, among Comcast Cable Communications, Inc. and the Financial
Institutions Party Hereto, Banc of America Securities LLC and
Chase Securities Inc., as Joint Lead Arrangers and Joint Book
Managers, BNY Capital Markets, Inc. and Salomon Smith Barney
Inc., as Co-Arrangers, Bank of America, N.A., as Administrative
Agent, Swing Line Lender and Letter of Credit Issuing Lender,
Chase Securities Inc., as Syndication Agent and Citibank, N.A.
and The Bank of New York, as Co-Documentation Agents
(incorporated by reference to Exhibit 10.4 to the Comcast Cable
Communications, Inc. Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2000).
10.4 364-Day Revolving Credit Agreement, dated as of August 24, 2000,
among Comcast Cable Communications, Inc. and the Financial
Institutions Party Hereto, Banc of America Securities LLC and
Chase Securities Inc., as Joint Lead Arrangers and Joint Book
Managers, BNY Capital Markets, Inc. and Salomon Smith Barney
Inc., as Co-Arrangers, Bank of America, N.A., as Administrative
Agent, Chase Securities Inc., as Syndication Agent and Citibank,
N.A. and The Bank of New York, as Co-Documentation Agents
(incorporated by reference to Exhibit 10.5 to the Comcast Cable
Communications, Inc. Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2000).
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
26
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMCAST CORPORATION
------------------------------
/S/ LAWRENCE J. SALVA
------------------------------
Lawrence J. Salva
Senior Vice President
(Principal Accounting Officer)
Date: November 14, 2000
27
