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:
MARCH 31, 2001
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ________ to ________.
Commission File Number 0-6983
[GRAPHIC OMITTED - LOGO]
COMCAST CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1709202
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Market Street, Philadelphia, PA 19102-2148
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(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 March 31, 2001, there were 913,736,892 shares of Class A Special Common
Stock, 21,832,250 shares of Class A Common Stock and 9,444,375 shares of Class B
Common Stock outstanding.
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet as of March 31, 2001
and December 31, 2000 (Unaudited).............................2
Condensed Consolidated Statement of Operations and Retained
Earnings (Accumulated Deficit) for the Three Months Ended
March 31, 2001 and 2000 (Unaudited)...........................3
Condensed Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 2001 and 2000 (Unaudited)........4
Notes to Condensed Consolidated Financial Statements
(Unaudited)..............................................5 - 12
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................13 - 18
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................19
ITEM 6. Exhibits and Reports on Form 8-K.............................19
SIGNATURE............................................................20
-----------------------------------
This Quarterly Report on Form 10-Q is for the three months ended March 31,
2001. This Quarterly Report modifies and supersedes documents filed prior to
this Quarterly Report. The SEC allows us to "incorporate by reference"
information that we file with them, which means that we can disclose important
information to you by referring you directly to those documents. Information
incorporated by reference is considered to be part of this Quarterly Report. In
addition, information that we file with the SEC in the future will automatically
update and supersede information contained in this Quarterly Report. In this
Quarterly Report, "Comcast," "we," "us" and "our" refer to Comcast Corporation
and its subsidiaries.
You should carefully review the information contained in this Quarterly
Report and in other reports or documents that we file from time to time with the
SEC. In this Quarterly Report, we state our beliefs of future events and of our
future financial performance. In some cases, you can identify those so-called
"forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
Factors Affecting Future Operations
We have acquired and we anticipate acquiring cable communications systems
in new communities in which we do not have established relationships with the
franchising authority, community leaders and cable subscribers. Further, a
substantial number of new employees are being and must continue to be integrated
into our business practices and operations. Our results of operations may be
significantly affected by our ability to efficiently and effectively manage
these changes.
In addition, our businesses may be affected by, among other things:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o industry consolidation and mergers,
o franchise related matters,
o market conditions that may adversely affect the availability of debt
and equity financing for working capital, capital expenditures or
other purposes,
o demand for the programming content we distribute or the willingness of
other video program distributors to carry our content, and
o general economic conditions.
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
PART I. FINANCIAL INFORMATION
------- ---------------------
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in millions, except share data)
March 31, December 31,
2001 2000
--------------- -------------
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents.................................................... $668.3 $651.5
Investments.................................................................. 2,950.8 3,059.7
Accounts receivable, less allowance for doubtful accounts of
$142.2 and $141.7.......................................................... 792.5 891.9
Inventories, net............................................................. 448.3 438.5
Other current assets......................................................... 163.3 102.8
--------- -----------
Total current assets..................................................... 5,023.2 5,144.4
--------- -----------
INVESTMENTS..................................................................... 2,893.1 2,661.9
--------- -----------
PROPERTY AND EQUIPMENT.......................................................... 7,347.9 6,799.2
Accumulated depreciation..................................................... (1,683.2) (1,596.5)
--------- -----------
Property and equipment, net.................................................. 5,664.7 5,202.7
--------- -----------
DEFERRED CHARGES................................................................ 28,164.7 26,865.9
Accumulated amortization..................................................... (4,529.5) (4,130.4)
--------- -----------
Deferred charges, net........................................................ 23,635.2 22,735.5
--------- -----------
$37,216.2 $35,744.5
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses........................................ $2,702.3 $2,852.9
Accrued interest............................................................. 172.5 105.5
Deferred income taxes........................................................ 692.5 789.9
Current portion of long-term debt............................................ 523.0 293.9
--------- -----------
Total current liabilities................................................ 4,090.3 4,042.2
--------- -----------
LONG-TERM DEBT, less current portion............................................ 10,263.0 10,517.4
--------- -----------
DEFERRED INCOME TAXES........................................................... 6,285.0 5,786.7
--------- -----------
MINORITY INTEREST AND OTHER..................................................... 1,580.9 1,257.2
--------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
COMMON EQUITY PUT OPTIONS....................................................... 54.6
--------- -----------
STOCKHOLDERS' EQUITY
Preferred stock - authorized, 20,000,000 shares..............................
5.25% series B mandatorily redeemable convertible, $1,000 par value;
issued, zero and 59,450 at redemption value................................ 59.5
Class A special common stock, $1 par value - authorized, 2,500,000,000
shares; issued, 937,061,803 and 931,340,103; outstanding, 913,736,892
and 908,015,192............................................................ 913.7 908.0
Class A common stock, $1 par value - authorized,
200,000,000 shares; issued, 21,832,250..................................... 21.8 21.8
Class B common stock, $1 par value - authorized,
50,000,000 shares; issued, 9,444,375....................................... 9.4 9.4
Additional capital........................................................... 11,738.8 11,598.8
Retained earnings............................................................ 2,040.6 1,056.5
Accumulated other comprehensive income....................................... 272.7 432.4
--------- -----------
Total stockholders' equity............................................... 14,997.0 14,086.4
--------- -----------
$37,216.2 $35,744.5
========= ===========
See notes to condensed consolidated financial statements.
2
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND
RETAINED EARNINGS (ACCUMULATED DEFICIT)
(Unaudited)
(Amounts in millions, except per share data)
Three Months Ended March 31,
2001 2000
--------- ---------
REVENUES
Service income........................................................... $1,312.1 $1,117.9
Net sales from electronic retailing...................................... 884.0 821.0
--------- ---------
2,196.1 1,938.9
--------- ---------
COSTS AND EXPENSES
Operating................................................................ 640.3 548.9
Cost of goods sold from electronic retailing............................. 556.6 527.1
Selling, general and administrative...................................... 358.3 276.0
Depreciation............................................................. 221.3 171.9
Amortization............................................................. 520.1 373.8
--------- ---------
2,296.6 1,897.7
--------- ---------
OPERATING (LOSS) INCOME...................................................... (100.5) 41.2
OTHER INCOME (EXPENSE)
Interest expense......................................................... (182.3) (168.6)
Investment income........................................................ 214.7 644.6
Expense related to indexed debt.......................................... (687.5)
Equity in net income (losses) of affiliates.............................. 2.9 (2.9)
Other income (expense)................................................... 1,194.2 (10.8)
--------- ---------
1,229.5 (225.2)
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST,
EXTRAORDINARY ITEMS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE.............................................. 1,129.0 (184.0)
INCOME TAX (EXPENSE) BENEFIT................................................. (485.6) 31.8
--------- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST,
EXTRAORDINARY ITEMS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE.............................................. 643.4 (152.2)
MINORITY INTEREST............................................................ (26.7) (34.2)
--------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE.............................................. 616.7 (186.4)
EXTRAORDINARY ITEMS.......................................................... (5.1)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE....................................... 384.5
--------- ---------
NET INCOME (LOSS)............................................................ 1,001.2 (191.5)
PREFERRED DIVIDENDS.......................................................... (7.5)
--------- ---------
NET INCOME (LOSS) FOR COMMON STOCKHOLDERS.................................... $1,001.2 ($199.0)
========= =========
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Beginning of period...................................................... $1,056.5 ($619.8)
Net income (loss)........................................................ 1,001.2 (191.5)
Retirement of common stock............................................... (17.1) (164.6)
--------- ---------
End of period............................................................ $2,040.6 ($975.9)
========= =========
BASIC EARNINGS (LOSS) FOR COMMON STOCKHOLDERS PER COMMON SHARE
Income (loss) before extraordinary items and cumulative effect
of accounting change................................................... $.65 ($.23)
Extraordinary items...................................................... (.01)
Cumulative effect of accounting change................................... .41
--------- ---------
Net income (loss)..................................................... $1.06 ($.24)
========= =========
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING................... 945.3 836.6
========= =========
DILUTED EARNINGS (LOSS) FOR COMMON STOCKHOLDERS PER COMMON SHARE
Income (loss) before extraordinary items and cumulative effect
of accounting change................................................... $.64 ($.23)
Extraordinary items...................................................... (.01)
Cumulative effect of accounting change................................... .40
--------- ---------
Net income (loss)..................................................... $1.04 ($.24)
========= =========
DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING................. 965.0 836.6
========= =========
See notes to condensed consolidated financial statements.
3
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in millions)
Three Months Ended March 31,
2001 2000
--------- --------
OPERATING ACTIVITIES
Net income (loss)................................................................ $1,001.2 ($191.5)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation................................................................... 221.3 171.9
Amortization................................................................... 520.1 373.8
Non-cash interest expense (income), net........................................ 12.0 (13.3)
Non-cash expense related to indexed debt....................................... 687.5
Equity in net (income) losses of affiliates.................................... (2.9) 2.9
Gains on investments and other income, net..................................... (1,395.8) (590.7)
Minority interest.............................................................. 26.7 34.2
Extraordinary items............................................................ 5.1
Cumulative effect of accounting change......................................... (384.5)
Deferred income taxes and other................................................ 428.9 (253.6)
--------- --------
427.0 226.3
Changes in working capital..................................................... (169.0) (369.8)
--------- --------
Net cash provided by (used in) operating activities...................... 258.0 (143.5)
--------- --------
FINANCING ACTIVITIES
Proceeds from borrowings......................................................... 2,608.2 88.2
Retirements and repayments of debt............................................... (2,219.6) (700.7)
Issuances of common stock and sales of put options on common stock............... 13.5 18.8
Repurchases of common stock...................................................... (127.9)
--------- --------
Net cash provided by (used in) financing activities...................... 402.1 (721.6)
--------- --------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired............................................... (26.4) (75.3)
(Purchases) sales of short-term investments, net................................. (8.7) 663.0
Purchases of investments......................................................... (166.3) (174.9)
Proceeds from sales of investments............................................... 151.7 649.2
Capital expenditures............................................................. (521.9) (289.1)
Additions to deferred charges.................................................... (71.7) (79.4)
--------- --------
Net cash (used in) provided by investing activities...................... (643.3) 693.5
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................... 16.8 (171.6)
CASH AND CASH EQUIVALENTS, beginning of period...................................... $651.5 922.2
--------- --------
CASH AND CASH EQUIVALENTS, end of period............................................ $668.3 $750.6
========= ========
See notes to condensed consolidated financial statements.
4
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The condensed consolidated balance sheet as of December 31, 2000 has been
condensed from the audited consolidated balance sheet as of that date. The
condensed consolidated balance sheet as of March 31, 2001 and the condensed
consolidated statements of operations and retained earnings (accumulated
deficit) and of cash flows for the three months ended March 31, 2001 and
2000 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 March 31, 2001 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, 2000 Annual Report on Form 10-K filed with the Securities and Exchange
Commission. The results of operations for the period ended March 31, 2001
are not necessarily indicative of operating results for the full year.
Reclassifications
Certain reclassifications have been made to the prior year condensed
consolidated financial statements to conform to those classifications used
in 2001.
2. ADOPTION OF NEW ACCOUNTING STANDARD
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards for derivatives and hedging activities.
SFAS No. 133 requires that all derivative instruments be reported on the
balance sheet at their fair values. For derivative instruments designated
and effective as fair value hedges, changes in the fair value of the
derivative instrument will be substantially offset in the statement of
operations by changes in the fair value of the hedged item. For derivative
instruments designated as cash flow hedges, the effective portion of any
change in fair value is reported in other comprehensive income until it is
recognized in earnings during the same period in which the hedged item
affects earnings. The ineffective portion of all hedges will be recognized
in current earnings each period. Changes in the fair value of derivative
instruments that are not designated as a hedge will be recorded each period
in current earnings.
Upon adoption of SFAS No. 133, the Company recognized as income a
cumulative effect of accounting change, net of related income taxes, of
$384.5 million and a cumulative decrease in other comprehensive income, net
of related income taxes, of $127.0 million. The increase in income
consisted of a $400.2 million adjustment to record the debt component of
indexed debt at a discount from its value at maturity (see Note 6) and
$191.3 million principally related to the reclassification of gains
previously recognized as a component of accumulated other comprehensive
income on the Company's equity derivative instruments, net of related
deferred income taxes. The decrease in other comprehensive income consisted
principally of the reclassification of the gains noted above.
3. EARNINGS (LOSS) PER SHARE
Earnings (loss) for common stockholders per common share is computed by
dividing net income (loss), after deduction of preferred stock dividends,
when applicable, by the weighted average number of common shares
outstanding during the period on a basic and diluted basis.
5
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following table reconciles the numerator and denominator of the
computations of diluted earnings (loss) for common stockholders per common
share ("Diluted EPS") for the three months ended March 31, 2001 and 2000,
respectively.
(Amounts in millions, except per share data)
Three Months Ended
March 31,
2001 2000
--------- ---------
Net income (loss) for common stockholders........................ $1,001.2 ($199.0)
Preferred dividends.............................................. 7.5
--------- ---------
Net income (loss) for common stockholders used for
Diluted EPS.................................................... $1,001.2 ($191.5)
========= =========
Basic weighted average number of common shares outstanding....... 945.3 836.6
Dilutive securities:
Series B convertible preferred stock........................... 4.2
Stock option and restricted stock plans........................ 15.5
--------- ---------
Diluted weighted average number of common shares
outstanding.................................................... 965.0 836.6
========= =========
Diluted earnings (loss) for common stockholders
per common share............................................... $1.04 ($.24)
========= =========
Put options sold by the Company on a weighted average 0.8 million shares
and 0.6 million shares, respectively, of its Class A Special Common Stock
(see Note 7) were outstanding during the three months ended March 31, 2001
and 2000, but were not included in the computation of Diluted EPS as the
options' exercise price was less than the average price of the Class A
Special Common Stock during the periods.
In December 2000 and January 2001, the Company issued $1.478 billion
aggregate principal amount at maturity of Zero Coupon Convertible
Debentures due 2020 (the "Zero Coupon Debentures" - see Note 6). Holders
may surrender the Zero Coupon Debentures for conversion at any time prior
to maturity, unless previously redeemed, but only if the closing sale price
of the Company's Class A Special Common Stock is greater than 110% of the
accreted conversion price for at least 20 trading days of the 30 trading
days prior to conversion. As the weighted average closing sale price of the
Company's Class A Special Common Stock was not greater than 110% of the
accreted conversion price during the three months ended March 31, 2001, the
Zero Coupon Debentures have been excluded from Diluted EPS.
4. ACQUISITIONS
Adelphia Cable Systems Exchange
On January 1, 2001, the Company completed its previously announced cable
systems exchange with Adelphia Communications Corporation ("Adelphia")
pursuant to which the Company received cable communications systems serving
approximately 445,000 subscribers from Adelphia. In exchange, Adelphia
received certain of the Company's cable communications systems serving
approximately 440,000 subscribers. In connection with the exchange, the
Company recorded to other income a pre-tax gain of $1.199 billion
representing the difference between the estimated fair value as of the
closing date of the transaction and the Company's cost basis in the systems
exchanged.
6
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Home Team Sports Acquisition
In February 2001, the Company acquired Home Team Sports (now known as
Comcast SportsNet - MidAtlantic), a regional sports programming network
serving approximately 4.8 million homes in the Mid-Atlantic region, from
Viacom, Inc. ("Viacom") and Affiliated Regional Communications, Ltd. (an
affiliate of Fox Cable Network Services, LLC ("Fox")). The Company agreed
to increase the distribution of certain of Viacom's and Fox's programming
networks on certain of the Company's cable communications systems. The
estimated fair value of Home Team Sports as of the closing date of the
acquisition was $240.0 million.
The acquisitions completed by the Company in 2001 were accounted for under
the purchase method of accounting. As such, the operating results of the
acquired businesses have been included in the Company's condensed
consolidated statement of operations and retained earnings (accumulated
deficit) from the acquisition date. The allocation of the purchase price
for the 2001 acquisitions is preliminary pending completion of final
appraisals.
AT&T Cable Systems Acquisition
On April 30, 2001, the Company acquired cable communications systems
serving approximately 595,000 subscribers from AT&T in exchange for
approximately 63.9 million shares of AT&T common stock then held by the
Company. The market value of the shares of AT&T common stock delivered in
connection with the exchange was approximately $1.423 billion, based on the
closing price of the AT&T common stock on the closing date of the
transaction. Pursuant to the terms of the agreement between the Company and
AT&T, however, approximately 39.6 million shares of the AT&T common stock
included in the exchange were valued at $54.41 per share for purposes of
the exchange. The transaction will be accounted for as a purchase and is
expected to qualify as tax-free to both the Company and to AT&T.
Baltimore, Maryland System Acquisition
On May 7, 2001, the Company and AT&T entered into an agreement pursuant to
which the Company will acquire the cable communications system serving
approximately 110,000 subscribers in Baltimore, Maryland for approximately
$500 million in cash, subject to adjustment. The transaction is subject to
customary closing conditions and regulatory approvals and is expected to
close by the end of the second quarter of 2001.
Unaudited Pro Forma Information
The following unaudited pro forma information for the three months ended
March 31, 2000 has been presented as if the Adelphia cable systems
exchange, the AT&T cable systems exchange (which occurred in December
2000), the acquisition of Prime Communications LLC (which occurred in
August 2000), the merger of Jones Intercable, Inc. into a wholly owned
subsidiary of the Company (which occurred in March 2000) and the
acquisition of the minority interest in Comcast MHCP Holdings, L.L.C.
(which occurred in February 2000) each occurred on January 1, 2000. 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 the
cable systems acquired since January 1, 2000.
(Amounts in millions,
except per share data)
Three Months Ended
March 31,
2000
--------
Revenues............................................. $2,022.2
Loss before extraordinary items and
cumulative effect of accounting change............. ($323.6)
Net loss............................................. ($328.7)
Diluted EPS.......................................... ($.38)
7
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
5. INVESTMENTS
March 31, December 31,
2001 2000
----------- ----------
(Dollars in millions)
Fair value method
AT&T Corp................................. $1,450.0 $1,174.3
Excite@Home Corporation................... 1,482.7 1,479.1
Sprint Corp. PCS Group.................... 2,083.6 2,149.8
Other..................................... 256.7 393.9
----------- ----------
5,273.0 5,197.1
Cost method...................................... 170.4 128.4
Equity method.................................... 400.5 396.1
----------- ----------
Total investments......................... 5,843.9 5,721.6
Less, current investments........................ 2,950.8 3,059.7
----------- ----------
Non-current investments.......................... $2,893.1 $2,661.9
=========== ==========
Fair Value Method
The Company holds unrestricted equity investments in certain publicly
traded companies which it accounts for as available for sale or trading
securities. The unrealized pre-tax gains on available for sale investments
as of March 31, 2001 and December 31, 2000 of $456.1 million and $707.1
million, respectively, have been reported in the Company's condensed
consolidated balance sheet principally as a component of accumulated other
comprehensive income, net of related deferred income taxes of $159.6
million and $240.0 million, respectively.
Excite@Home. As of March 31, 2001 and December 31, 2000, the Company holds
approximately 29.1 million shares of Excite@Home common stock and has
earned warrants to purchase an additional 2.1 million shares of Excite@Home
common stock. In January 2001, the Company exercised its right to exchange
the aggregate 31.2 million Excite@Home shares and warrants held by the
Company for shares of AT&T common stock (the "Share Exchange Agreement").
The Company and AT&T are currently in discussions to renegotiate the terms
of the transaction, which may or may not result in a change to the number
of shares of AT&T common stock that the Company will receive, as well as
the number of Excite@Home shares, if any, the Company transfers to AT&T. As
of March 31, 2001 and December 31, 2000, the Company has recorded the
Excite@Home common stock, warrants and its right under the Share Exchange
Agreement at their estimated fair value.
Derivatives
The Company employs derivative financial instruments to manage its exposure
to fluctuations in interest rates and securities prices.
The Company accounts for its rights under the Share Exchange Agreement as a
fair value hedge of the Company's investment in Excite@Home with changes in
fair value between measurement dates of both the hedge and the investment
recorded to investment income. During the three months ended March 31,
2001, the increase in the fair value of the Company's rights under the
Share Exchange Agreement substantially offset the decrease in the fair
value of the Company's investment in Excite@Home.
The unrealized pre-tax losses on cash flow hedges as of March 31, 2001 of
$1.8 million have been reported in the Company's condensed consolidated
balance sheet as a component of accumulated other comprehensive income, net
of related deferred income taxes of $0.6 million.
8
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Investment Income (Expense)
Investment income (expense) for the three months ended March 31, 2001 and
2000 is comprised of the following (in millions):
Three Months Ended
March 31,
2001 2000
-------- -------
Interest and dividend income.................................... $17.6 $60.1
Gains on sales and exchanges of investments..................... 11.6 589.4
Investment impairment losses.................................... (894.1) (4.9)
Reclassification of unrealized gains............................ 1,092.4
Unrealized loss on trading securities........................... (126.8)
Mark to market adjustments on derivatives and hedged items...... 114.0
-------- -------
Investment income.......................................... $214.7 $644.6
======== =======
The Company records losses on its investments for which the Company has
determined that a decline in value of the investment was considered other
than temporary. The loss for the three months ended March 31, 2001 relates
principally to the Company's investment in AT&T, a portion of which was
exchanged on April 30, 2001 (see Note 4).
In connection with the adoption of SFAS No. 133, the Company reclassified
its investment in Sprint PCS from an available for sale security to a
trading security. In connection with this reclassification, the Company
recorded pre-tax investment income of $1.092 billion, representing the
accumulated unrealized gain on the Company's investment in Sprint PCS
previously recorded as a component of accumulated other comprehensive
income.
6. LONG-TERM DEBT
Senior Notes Offerings
In January 2001, Comcast Cable Communications, Inc. ("Comcast Cable"), an
indirect wholly owned subsidiary of the Company, sold an aggregate of $1.5
billion of public debt consisting of $500.0 million of 6.375% Senior Notes
due 2006 and $1.0 billion of 6.75% Senior Notes due 2011. Comcast Cable
used substantially all of the net proceeds from the offerings to repay a
portion of the amounts outstanding under its commercial paper program and
bank credit facility.
Zero Coupon Convertible Debentures
In December 2000, the Company issued $1.285 billion principal amount at
maturity of Zero Coupon Debentures for proceeds of $1.002 billion. In
January 2001, the Company issued an additional $192.8 million principal
amount at maturity of Zero Coupon Debentures for proceeds of $150.3
million. The Company used substantially all of the net proceeds from the
offering to repay a portion of the amounts outstanding under Comcast
Cable's commercial paper program and bank credit facility.
ZONES
At maturity, holders of the Company's 2.0% Exchangeable Subordinated
Debentures due 2029 (the "ZONES") are entitled to receive in cash an amount
equal to the higher of (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. As of March 31, 2001, the number of
Sprint PCS shares held by the Company exceeded the number of ZONES
outstanding.
9
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
As of March 31, 2001 and December 31, 2000, long-term debt includes $1.343
billion and $1.807 billion, respectively, of ZONES. Upon adoption of SFAS
No. 133, the Company split the ZONES into their derivative and debt
components. In connection with the adoption of SFAS No. 133, the Company
recorded the debt component of the ZONES at a discount from its value at
maturity resulting in a reduction in the outstanding balance of the ZONES
of $400.2 million (see Note 2). During the three months ended March 31,
2001, the Company recorded the decrease in the fair value of the derivative
component of the ZONES of $69.4 million to investment income (see Note 5)
and the increase in the carrying value of the debt component of the ZONES
of $5.4 million to interest expense.
Extraordinary Items
Extraordinary items during the three months ended March 31, 2000 of $5.1
million consist of unamortized debt issue costs and debt extinguishment
costs, net of related tax benefits, expensed principally in connection with
the redemption and retirement of certain indebtedness.
Interest Rates
As of March 31, 2001 and December 31, 2000, the Company's effective
weighted average interest rate on its long-term debt outstanding was 6.15%
and 6.30%, respectively.
Lines and Letters of Credit
As of March 31, 2001, certain subsidiaries of the Company had unused lines
of credit of $3.389 billion under their respective credit facilities.
As of March 31, 2001, the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totaling $138.7 million to
cover potential fundings under various agreements.
7. STOCKHOLDERS' EQUITY
Repurchase Programs
Based on the trade date for stock repurchases, during the three months
ended March 31, 2000, the Company repurchased approximately 3.3 million
shares of its common stock for aggregate consideration of $127.9 million
pursuant to its Board-authorized repurchase programs.
As part of the repurchase programs, during the three months ended March 31,
2000, the Company sold put options on 2.0 million shares of its Class A
Special Common Stock. Put options on 0.7 million shares expired unexercised
during the fourth quarter of 2000 while the remaining put options on 1.3
million shares expired unexercised during the three months ended March 31,
2001. Upon expiration of the put options during the three months ended
March 31, 2001, the Company reclassified $54.6 million, the amount it would
have been obligated to pay to repurchase such shares had the put options
been exercised, from common equity put options to additional capital in the
Company's March 31, 2001 condensed consolidated balance sheet.
Conversion of Series B Preferred Stock
In March 2001, the Company issued approximately 4.2 million shares of its
Class A Special Common Stock to the holder of the Company's Series B
Preferred Stock in connection with the holder's election to convert the
remaining $59.5 million at redemption value of Series B Preferred Stock.
Comprehensive Income (Loss)
Total comprehensive income (loss) for the three months ended March 31, 2001
and 2000 was $841.5 million and ($1.183) billion, respectively. Total
comprehensive income (loss) includes net income (loss), unrealized gains
(losses) on marketable securities, unrealized gains (losses) on the
effective portion of cash flow hedges, and foreign currency translation
gains (losses) for the periods presented.
10
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
8. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
During the three months ended March 31, 2001, the Company completed its
cable systems exchange with Adelphia and acquired Home Team Sports (see
Note 4). The fair values of the assets and liabilities acquired by the
Company during the three months ended March 31, 2001 are presented as
follows (in millions):
Current assets............................... $37.7
Property, plant & equipment.................. 146.4
Deferred charges............................. 1,289.4
Current liabilities.......................... (34.9)
--------
Net assets acquired................. $1,438.6
========
The Company made cash payments for interest of $103.2 million and $126.8
million during the three months ended March 31, 2001 and 2000,
respectively.
The Company made cash payments for income taxes of $15.1 million and $456.0
million during the three months ended March 31, 2001 and 2000,
respectively.
9. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to such actions is not expected to
materially affect the financial position, results of operations or
liquidity of the Company.
In connection with a license awarded to an affiliate, the Company is
contingently liable in the event of nonperformance by the affiliate to
reimburse a bank which has provided a performance guarantee. The amount of
the performance guarantee is approximately $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.
11
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
10. FINANCIAL DATA BY BUSINESS SEGMENT
The following represents the Company's significant business segments,
"Cable" and "Commerce." The components of net income (loss) below operating
income (loss) are not separately evaluated by the Company's management on a
segment basis (see the Company's condensed consolidated statement of
operations and retained earnings (accumulated deficit)) (dollars in
millions).
Corporate and
Cable Commerce Other (1) Total
----- -------- --------- -----
Three Months Ended March 31, 2001
---------------------------------
Revenues................................ $1,139.5 $884.0 $172.6 $2,196.1
Operating income (loss) before
depreciation and amortization (2)..... 488.0 172.7 (19.8) 640.9
Depreciation and amortization........... 676.3 34.6 30.5 741.4
Operating (loss) income................. (188.3) 138.1 (50.3) (100.5)
Interest expense........................ 132.8 8.0 41.5 182.3
Capital expenditures.................... 437.7 26.1 58.1 521.9
As of March 31, 2001
--------------------
Assets.................................. $27,232.8 $2,439.0 $7,544.4 $37,216.2
Long-term debt, less current portion.... 6,839.8 246.2 3,177.0 10,263.0
Three Months Ended March 31, 2000
---------------------------------
Revenues................................ $976.3 $821.0 $141.6 $1,938.9
Operating income before depreciation
and amortization (2).................. 436.8 144.8 5.3 586.9
Depreciation and amortization........... 502.5 29.5 13.7 545.7
Operating (loss) income................. (65.7) 115.3 (8.4) 41.2
Interest expense........................ 127.6 9.0 32.0 168.6
Capital expenditures.................... 228.5 34.7 25.9 289.1
---------------
(1) Other includes segments not meeting certain quantitative guidelines for
reporting. Other includes the Company's content and business communications
operations and elimination entries related to the segments presented.
Corporate and other assets consist primarily of the Company's investments
(see Note 5).
(2) Operating income (loss) before depreciation and amortization is commonly
referred to in the Company's businesses as "operating cash flow (deficit)."
Operating cash flow is a measure of a company's ability to generate cash to
service its obligations, including debt service obligations, and to finance
capital and other expenditures. In part due to the capital intensive nature
of the Company's businesses and the resulting significant level of non-cash
depreciation and amortization expense, operating cash flow is frequently
used as one of the bases for comparing businesses in the Company's
industries, although the Company's measure of operating cash flow may not
be comparable to similarly titled measures of other companies. Operating
cash flow is the primary basis used by the Company's management to measure
the operating performance of its businesses. Operating cash flow does not
purport to represent net income or net cash provided by operating
activities, as those terms are defined under generally accepted accounting
principles, and should not be considered as an alternative to such
measurements as an indicator of the Company's performance.
12
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
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 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.
General Developments of Business
See Note 4 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, through our cash flows from
operating activities, existing cash, cash equivalents and investments, and
through available borrowings under our existing credit facilities.
In the event that holders of our Zero Coupon Debentures (see Note 6 to our
condensed consolidated financial statements included in Item 1) exercise their
rights to require us to repurchase the Zero Coupon Debentures in December 2001,
we have both the ability and intent to redeem the Zero Coupon Debentures with
amounts available under subsidiary credit facilities. As of March 31, 2001,
certain of our subsidiaries had unused lines of credit of $3.389 billion under
their respective credit facilities.
See Note 9 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 March 31,
2001 were $3.619 billion, substantially all of which is unrestricted.
Investments
See Note 5 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 6 and 7 to our condensed consolidated financial statements
included in Item 1.
As of March 31, 2001 and December 31, 2000, our long-term debt, including
current portion, was $10.786 billion and $10.811 billion, respectively.
Excluding the effects of interest rate risk management instruments, 17.0% and
28.5% of our long-term debt as of March 31, 2001 and December 31, 2000,
respectively, was at variable rates. The decrease from December 31, 2000 to
March 31, 2001 in the percentage of our variable rate debt was due principally
to the effects of the January 2001 financings described below.
13
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
In January 2001, our indirect wholly owned subsidiary, Comcast Cable
Communications, Inc. ("Comcast Cable") sold an aggregate of $1.5 billion of
public debt consisting of $500.0 million of 6.375% Senior Notes due 2006 and
$1.0 billion of 6.75% Senior Notes due 2011. In January 2001, we issued an
additional $192.8 million principal amount at maturity of our Zero Coupon
Debentures. We used substantially all of the net proceeds from the offerings to
repay a portion of the amounts outstanding under Comcast Cable's commercial
paper program and bank credit facility.
The $25.3 million decrease in our long-term debt, including current
portion, results principally from the $464.2 million aggregate reduction to the
carrying value of our 2.0% Exchangeable Subordinated Debentures due 2029 (the
"ZONES") during the three months ended March 31, 2001 (see Notes 2 and 6 to our
condensed consolidated financial statements included in Item 1), offset by the
effects of our net borrowings.
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
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 were also
marked to market through accumulated other comprehensive income in our condensed
consolidated balance sheet through December 31, 2000.
In connection with the adoption of Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended ("SFAS No. 133") on January 1, 2001, we reclassified our
investment in Sprint PCS from an available for sale security to a trading
security. During the three months ended March 31, 2001, the decrease in the fair
value of our investment in Sprint PCS of approximately $142.5 million was
substantially offset by the increase in the fair value of the Equity Collars and
the decrease in the fair value of the derivative component of the ZONES.
Interest Rate Risk
During the three months ended March 31, 2001, interest rate exchange
agreements ("Swaps") with an aggregate notional amount of $27.0 million were
either terminated or expired. As of March 31, 2001, we have Swaps with an
aggregate notional amount of $800.7 million having an average pay rate of 6.29%
and an average receive rate of 7.00%.
-----------------------
Statement of Cash Flows
Cash and cash equivalents increased $16.8 million as of March 31, 2001 from
December 31, 2000. The increase in cash and cash equivalents resulted from cash
flows from operating, financing and investing activities which are explained
below.
Net cash provided by operating activities amounted to $258.0 million for
the three months ended March 31, 2001, due principally to 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 and the effects of net interest and current income tax expense.
Net cash provided by financing activities, which includes borrowings and
repayments of debt, as well as the issuances and repurchases of our equity
securities, was $402.1 million for the three months ended March 31, 2001. During
the three months ended March 31, 2001, we borrowed $2.608 billion, consisting of
$1.491 billion of proceeds from Comcast Cable's senior notes offering, $754.3
million of borrowings under Comcast Cable's commercial paper program, $212.3
million of borrowings under subsidiary revolving lines of credit and $150.3
million of proceeds from our Zero Coupon Debentures offering. During the three
months ended March 31, 2001, we repaid $2.220 billion of our long-term debt,
consisting
14
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
primarily of $1.375 billion of repayments on certain of our revolving credit
facilities and $833.5 million of repayments under Comcast Cable's commercial
paper program. In addition, during the three months ended March 31, 2001, we
received proceeds of $13.5 million related to issuances of our common stock.
Net cash used in investing activities was $643.3 million for the three
months ended March 31, 2001. Net cash used in investing activities includes the
effects of acquisitions, net of cash acquired, of $26.4 million, consisting
primarily of our acquisitions of cable communications systems, investments of
$175.0 million, capital expenditures of $521.9 million and additions to deferred
charges of $71.7 million, offset by proceeds from sales of investments of $151.7
million.
Results of Operations
Our summarized consolidated financial information for the three months
ended March 31, 2001 and 2000 is as follows (dollars in millions, "NM" denotes
percentage is not meaningful):
Three Months Ended
March 31, Increase / (Decrease)
2001 2000 $ %
--------- --------- --------- ---------
Revenues..................................................... $2,196.1 $1,938.9 $257.2 13.3%
Cost of goods sold from electronic retailing................. 556.6 527.1 29.5 5.6
Operating, selling, general and administrative expenses...... 998.6 824.9 173.7 21.1
--------- --------- ---------
Operating income before depreciation and
amortization (1) ......................................... 640.9 586.9 54.0 9.2
Depreciation................................................. 221.3 171.9 49.4 28.7
Amortization................................................. 520.1 373.8 146.3 39.1
--------- ---------
Operating (loss) income...................................... (100.5) 41.2 (141.7) NM
--------- ---------
Interest expense............................................. (182.3) (168.6) 13.7 8.1
Investment income............................................ 214.7 644.6 (429.9) (66.7)
Expense related to indexed debt.............................. (687.5) (687.5) NM
Equity in net income (losses) of affiliates.................. 2.9 (2.9) 5.8 NM
Other income (expense)....................................... 1,194.2 (10.8) 1,205.0 NM
Income tax (expense) benefit................................. (485.6) 31.8 (517.4) NM
Minority interest............................................ (26.7) (34.2) (7.5) (21.9)
--------- ---------
Income (loss) before extraordinary items and cumulative
effect of accounting change............................... $616.7 ($186.4) $803.1 NM
========= =========
------------
(1) Operating income before depreciation and amortization is commonly referred
to in our businesses as "operating cash flow." Operating cash flow is a
measure of a company's ability to generate cash to service its obligations,
including debt service obligations, and to finance capital and other
expenditures. In part due to the capital intensive nature of our businesses
and the resulting significant level of non-cash depreciation expense and
amortization expense, operating cash flow is frequently used as one of the
bases for comparing businesses in our industries, although our measure of
operating cash flow may not be comparable to similarly titled measures of
other companies. Operating cash flow is the primary basis used by our
management to measure the operating performance of our businesses.
Operating cash flow does not purport to represent net income or net cash
provided by operating activities, as those terms are defined under
generally accepted accounting principles, and should not be considered as
an alternative to such measurements as an indicator of our performance. See
"Statement of Cash Flows" above for a discussion of net cash provided by
operating activities.
15
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
Operating Results by Business Segment
The following represent the operating results of our significant business
segments, "Cable" and "Commerce." The remaining components of our operations are
not independently significant to our consolidated financial position or results
of operations (see Note 10 to our condensed consolidated financial statements
included in Item 1).
Cable
The following table presents the operating results of our cable segment
(dollars in millions):
Three Months Ended
March 31, Increase
2001 2000 $ %
--------- --------- --------- --------
Analog video................................................. $938.6 $844.8 $93.8 11.1%
Digital video................................................ 46.2 20.6 25.6 NM
Cable modem.................................................. 54.5 20.7 33.8 NM
Advertising sales............................................ 66.2 58.2 8.0 13.7
Other........................................................ 34.0 32.0 2.0 6.3
--------- --------- ---------
Service income.......................................... 1,139.5 976.3 163.2 16.7
Operating, selling, general and
administrative expenses................................. 651.5 539.5 112.0 20.8
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $488.0 $436.8 $51.2 11.7%
========= ========= ========= ========
---------------
(a) See footnote (1) on page 15.
Of the $93.8 million increase for the three month period from 2000 to 2001
in analog video service income, which consists of our basic, expanded basic,
premium and pay-per-view services, $57.7 million is attributable to the effects
of our acquisition of Prime and the AT&T and Adelphia cable system exchanges in
August 2000, December 2000 and January 2001, respectively, and $36.1 million
relates principally to changes in rates and subscriber growth in our historical
operations. The increase from 2000 to 2001 in digital video service income is
due primarily to the addition of approximately 201,000 digital subscriptions
during the quarter ended March 31, 2001 and, to a lesser extent, to the effects
of a new, higher-priced digital service offering made in the second half of
2000. The increase from 2000 to 2001 in cable modem service income is primarily
due to the addition of approximately 142,000 cable modem subscribers during the
quarter ended March 31, 2001. The increase from 2000 to 2001 in advertising
sales revenue is attributable to the effects of new advertising contracts,
market-wide fiber interconnects and the continued leveraging of our existing
fiber networks. The increase from 2000 to 2001 in other service income, which
includes installation revenues, guide revenues, commissions from electronic
retailing and other product offerings, is primarily attributable to our
acquisition of Prime and the AT&T and Adelphia cable systems exchanges.
The increases in operating, selling, general and administrative expenses
for the three month period from 2000 to 2001 is primarily due to the effects of
increases in the costs of cable programming as a result of changes in rates,
subscriber growth and additional channel offerings, our acquisition of Prime and
the AT&T and Adelphia cable system exchanges, the effects of cable modem
subscriber growth, and, to a lesser extent, to increases in labor costs and
other volume related expenses in our historical operations. We anticipate the
cost of cable programming will increase in the future as cable programming rates
increase and additional sources of cable programming become available.
16
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
Commerce
The following presents the operating results of our commerce segment, which
consists of QVC, Inc. and its subsidiaries (dollars in millions).
Three Months Ended
March 31, Increase
2001 2000 $ %
--------- --------- --------- --------
Net sales from electronic retailing.......................... $884.0 $821.0 $63.0 7.7%
Cost of goods sold from electronic retailing................. 556.6 527.1 29.5 5.6
Operating, selling, general and administrative
expenses................................................... 154.7 149.1 5.6 3.8
--------- --------- --------- --------
Operating income before depreciation
and amortization (a)....................................... $172.7 $144.8 $27.9 19.3%
--------- --------- --------- --------
Gross margin................................................. 37.0% 35.8%
========= =========
---------------
(a) See footnote (1) on page 15.
The increase in net sales from electronic retailing for the three month
period from 2000 to 2001 is primarily attributable to the effects of 4.5%, 8.7%
and 13.1% increases in the average number of homes receiving QVC services in the
United States ("US"), United Kingdom ("UK") and Germany, respectively; increases
of 3.7% and 25.6% in net sales per home in the US and Germany (in
Deutschemarks), respectively, and a 9.6% 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 increases in cost of goods sold for the three month period from 2000 to
2001 is primarily related to the growth in net sales. The increase in gross
margin is primarily due to the effects of increases in product margins across
all product categories, as well as to the effects of a shift in sales mix.
The increase in operating, selling, general and administrative expenses for
the three month period from 2000 to 2001 is primarily attributable to higher
variable costs and personnel costs associated with the increase in sales volume.
-----------------------
Consolidated Analysis
The effects of our recent acquisitions were to increase our revenues and
expenses, resulting in increases in our operating income before depreciation and
amortization. The increases in our property and equipment and deferred charges
(see Note 8 to our condensed consolidated financial statements included in Item
1) and the corresponding increases in depreciation expense and amortization
expense for the three month period from 2000 to 2001 are primarily due to the
effects of our acquisition of Prime in August 2000, our cable system exchanges
with AT&T and Adelphia in December 2000 and January 2001, as well as our
increased levels of capital expenditures.
Interest Expense
The $13.7 million increase in interest expense for the three month period
from 2000 to 2001 is primarily due to the effects of our offerings of our Zero
Coupon Debentures in December 2000 and of Comcast Cable's senior notes in
January 2001, 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.
17
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
Investment Income
During the three months ended March 31, 2001 and 2000, we recognized
pre-tax gains of $11.6 million and $589.4 million, respectively, on sales and
exchanges of certain of our investments.
During the three months ended March 31, 2001 and 2000, we recorded losses
of $894.1 million and $4.9 million, respectively, on certain of our investments
based on a decline in value that was considered other than temporary. The loss
for the three months ended March 31, 2001 relates principally to our investment
in AT&T common stock, a portion of which was exchanged on April 30, 2001 (see
Note 4 to our condensed consolidated financial statements included in Item 1).
In connection with our adoption of SFAS No. 133 on January 1, 2001, we
reclassified our investment in Sprint PCS from an available for sale security to
a trading security. In connection with this reclassification, we recorded
pre-tax investment income of $1.092 billion, representing the accumulated
unrealized gain on our investment in Sprint PCS previously recorded as a
component of accumulated other comprehensive income.
During the three months ended March 31, 2001, we recorded an unrealized
loss on trading securities of $126.8 million and pre-tax investment income of
$114.0 million related to the mark to market adjustments on our derivatives and
hedged items.
Expense Related to Indexed Debt
Through December 31, 2000, the ZONES were accounted for as an indexed debt
instrument since the maturity value is dependent upon the fair value of Sprint
PCS stock. During the three months ended March 31, 2000, we recorded expense
related to indexed debt of $687.5 million to reflect fair value of the
underlying Sprint PCS stock.
Other Income (Expense)
On January 1, 2001, in connection with our cable systems exchange with
Adelphia pursuant to which we received cable communications systems serving
approximately 445,000 subscribers from Adelphia in exchange for certain of our
cable communications systems serving approximately 440,000 subscribers, we
recorded a pre-tax gain of $1.199 billion, representing the difference between
the estimated fair value as of the closing date of the transaction and our cost
basis in the systems exchanged.
Income Tax (Expense) Benefit
The changes in income tax (expense) benefit for the three month period from
2000 to 2001 are primarily the result of the effects of changes in our income
(loss) before taxes and minority interest, and non-deductible goodwill
amortization.
Minority Interest
The changes in minority interest for the three month period from 2000 to
2001 are attributable to the effects of changes in the net income or loss of our
less than 100% owned consolidated subsidiaries.
Extraordinary Items
During the three months ended March 31, 2000, we incurred debt
extinguishment costs and wrote off unamortized debt issue costs principally in
connection with the redemption and retirement of certain indebtedness, resulting
in extraordinary losses, net of tax, of $5.1 million.
Cumulative Effect of Accounting Change
In connection with the adoption of SFAS No. 133, we recognized as income a
cumulative effect of accounting change, net of related income taxes, of $384.5
million during the three months ended March 31, 2001. The income consisted of a
$400.2 million adjustment to record the debt component of our ZONES at a
discount from its value at maturity and $191.3 million principally related to
the reclassification of gains previously recognized as a component of
accumulated other comprehensive income on our equity derivative instruments, net
of related deferred income taxes.
We believe that our operations are not materially affected by inflation.
18
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
PART II. OTHER INFORMATION
-------- -----------------
ITEM 1. LEGAL PROCEEDINGS
We are subject to legal proceedings and claims which arise in the ordinary
course of our business. In the opinion of our management, the amount of
ultimate liability with respect to such actions is not expected to
materially affect our financial position, results of operations or
liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
None.
(b) Reports on Form 8-K:
(i) We filed a Current Report on Form 8-K under Item 5 on January 4,
2001 relating to our announcement that we had completed our cable
systems exchanges with AT&T Corporation and Adelphia
Communications Corporation.
19
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMCAST CORPORATION
----------------------------------------
/S/ LAWRENCE J. SALVA
----------------------------------------
Lawrence J. Salva
Senior Vice President
(Principal Accounting Officer)
Date: May 8, 2001
20