UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
for the Quarterly Period Ended:
JUNE 30, 2002
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the Transition Period from ________ to ________.
Commission File Number 0-6983
[GRAPHIC OMITTED - LOGO]
COMCAST CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1709202
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Market Street, Philadelphia, PA 19102-2148
--------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
__________________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes X No
--- ----
__________________________
As of June 30, 2002, there were 915,707,981 shares of Class A Special Common
Stock, 21,591,115 shares of Class A Common Stock and 9,444,375 shares of Class B
Common Stock outstanding.
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet as of June 30, 2002
and December 31, 2001 (Unaudited)......................................................2
Condensed Consolidated Statement of Operations and Retained Earnings for
the Three and Six Months Ended June 30, 2002 and 2001 (Unaudited)......................3
Condensed Consolidated Statement of Cash Flows for the Six Months
Ended June 30, 2002 and 2001 (Unaudited)...............................................4
Notes to Condensed Consolidated Financial Statements (Unaudited)..................5 - 18
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................19 - 27
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.....................................................................28
ITEM 4. Submission of Matters to a Vote of Security Holders...................................29
ITEM 6. Exhibits and Reports on Form 8-K......................................................30
SIGNATURE........................................................................................31
___________________________________
This Quarterly Report on Form 10-Q is for the three months ended June 30,
2002. 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
On December 19, 2001, we entered into an Agreement and Plan of Merger with
AT&T Corp. ("AT&T") pursuant to which we agreed to a transaction which will
result in the combination of Comcast and a holding company of AT&T's broadband
business ("AT&T Broadband"). On July 10, 2002, the shareholders of both Comcast
and AT&T approved the transaction. Upon closing of the transaction, which is
subject to regulatory and other approvals, we will own cable systems in new
communities in which we do not have established relationships with the cable
subscribers, franchising authority and community leaders. Further, a substantial
number of new employees must 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 JUNE 30, 2002
PART I. FINANCIAL INFORMATION
------- ---------------------
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in millions, except share data)
June 30, December 31,
2002 2001
---------- -----------
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents.................................................... $557.8 $350.0
Investments.................................................................. 1,057.6 2,623.2
Accounts receivable, less allowance for doubtful accounts of
$166.9 and $153.9.......................................................... 957.0 967.4
Inventories, net............................................................. 414.0 454.5
Deferred income taxes........................................................ 135.9 128.7
Other current assets......................................................... 337.7 153.7
---------- -----------
Total current assets..................................................... 3,460.0 4,677.5
---------- -----------
INVESTMENTS..................................................................... 727.6 1,679.2
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $3,238.2 and $2,725.7 7,023.1 7,011.1
GOODWILL........................................................................ 6,446.3 6,289.4
FRANCHISE RIGHTS................................................................ 16,599.4 16,533.0
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $803.3 and $664.6... 1,471.7 1,686.9
OTHER NONCURRENT ASSETS, net.................................................... 390.7 383.4
---------- -----------
$36,118.8 $38,260.5
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable............................................................. $680.1 $698.2
Accrued expenses and other current liabilities............................... 1,371.7 1,695.5
Deferred income taxes........................................................ 121.8 404.1
Current portion of long-term debt............................................ 206.9 460.2
---------- -----------
Total current liabilities................................................ 2,380.5 3,258.0
---------- -----------
LONG-TERM DEBT, less current portion............................................ 10,543.5 11,741.6
---------- -----------
DEFERRED INCOME TAXES........................................................... 6,755.2 6,375.7
---------- -----------
OTHER NONCURRENT LIABILITIES.................................................... 1,421.1 1,532.0
---------- -----------
MINORITY INTEREST............................................................... 986.7 880.2
---------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY
Class A special common stock, $1 par value - authorized,
2,500,000,000 shares; issued, 915,707,981 and 937,256,465; outstanding,
915,707,981and 913,931,554................................................. 915.7 913.9
Class A common stock, $1 par value - authorized, 200,000,000 shares;
issued, 21,591,115 and 21,829,422.......................................... 21.6 21.8
Class B common stock, $1 par value - authorized, 50,000,000 shares;
issued, 9,444,375.......................................................... 9.4 9.4
Additional capital........................................................... 11,791.5 11,752.0
Retained earnings............................................................ 1,317.3 1,631.5
Accumulated other comprehensive income (loss)................................ (23.7) 144.4
---------- -----------
Total stockholders' equity............................................... 14,031.8 14,473.0
---------- -----------
$36,118.8 $38,260.5
========== ===========
See notes to condensed consolidated financial statements.
2
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND
RETAINED EARNINGS
(Unaudited)
(Amounts in millions, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
--------- --------- --------- ---------
REVENUES
Service revenues....................................................... $1,714.4 $1,462.7 $3,393.4 $2,810.7
Net sales from electronic retailing.................................... 994.5 876.0 1,988.0 1,760.0
--------- --------- --------- ---------
2,708.9 2,338.7 5,381.4 4,570.7
--------- --------- --------- ---------
COSTS AND EXPENSES
Operating (excluding depreciation)..................................... 723.4 671.7 1,469.4 1,311.4
Cost of goods sold from electronic retailing (excluding depreciation).. 628.8 555.2 1,260.0 1,111.8
Selling, general and administrative.................................... 490.1 418.9 977.2 820.4
Depreciation........................................................... 342.8 273.9 676.6 514.7
Amortization........................................................... 45.4 552.3 98.7 1,046.2
--------- --------- --------- ---------
2,230.5 2,472.0 4,481.9 4,804.5
--------- --------- --------- ---------
OPERATING INCOME (LOSS).................................................... 478.4 (133.3) 899.5 (233.8)
OTHER INCOME (EXPENSE)
Interest expense....................................................... (182.6) (178.5) (369.3) (360.8)
Investment income (expense)............................................ (459.1) 502.7 (707.1) 717.4
Equity in net losses of affiliates..................................... (43.0) (9.5) (48.4) (6.6)
Other income (expense)................................................. 9.6 (6.3) (14.0) 1,187.9
--------- --------- --------- ---------
(675.1) 308.4 (1,138.8) 1,537.9
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE............................. (196.7) 175.1 (239.3) 1,304.1
INCOME TAX BENEFIT (EXPENSE)............................................... 32.9 (103.0) 30.2 (588.6)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE................................................... (163.8) 72.1 (209.1) 715.5
MINORITY INTEREST.......................................................... (45.8) (36.9) (89.4) (63.6)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE................ (209.6) 35.2 (298.5) 651.9
CUMULATIVE EFFECT OF ACCOUNTING CHANGE..................................... 384.5
--------- --------- --------- ---------
NET INCOME (LOSS).......................................................... ($209.6) $35.2 ($298.5) $1,036.4
========= ========= ========= =========
RETAINED EARNINGS
Beginning of period.................................................... $1,541.4 $2,040.6 $1,631.5 $1,056.5
Net income (loss)...................................................... (209.6) 35.2 (298.5) 1,036.4
Retirement of common stock............................................. (14.5) (15.7) (17.1)
--------- --------- --------- ---------
End of period.......................................................... $1,317.3 $2,075.8 $1,317.3 $2,075.8
========= ========= ========= =========
BASIC EARNINGS (LOSS) PER COMMON SHARE
Income (loss) before cumulative effect of accounting change............ ($0.22) $0.04 ($0.31) $0.69
Cumulative effect of accounting change................................. 0.40
--------- --------- --------- ---------
Net income (loss)................................................... ($0.22) $0.04 ($0.31) $1.09
========= ========= ========= =========
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING................. 952.3 951.1 951.9 948.2
========= ========= ========= =========
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Income (loss) before cumulative effect of accounting change............ ($0.22) $0.04 ($0.31) $0.67
Cumulative effect of accounting change................................. 0.40
--------- --------- --------- ---------
Net income (loss)................................................... ($0.22) $0.04 ($0.31) $1.07
========= ========= ========= =========
DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING............... 952.3 965.6 951.9 965.3
========= ========= ========= =========
See notes to condensed consolidated financial statements.
3
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in millions)
Six Months Ended June 30,
2002 2001
--------- --------
OPERATING ACTIVITIES
Net income (loss)................................................................ ($298.5) $1,036.4
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation................................................................... 676.6 514.7
Amortization................................................................... 98.7 1,046.2
Non-cash interest expense, net................................................. 21.5 26.1
Equity in net losses of affiliates............................................. 48.4 6.6
Losses (gains) on investments and other income (expense), net.................. 738.8 (1,875.5)
Minority interest.............................................................. 89.4 63.6
Cumulative effect of accounting change......................................... (384.5)
Deferred income taxes.......................................................... (4.2) (131.9)
Proceeds from sales of trading security........................................ 280.3
Other.......................................................................... (9.7) 19.3
--------- --------
1,361.0 601.3
Changes in working capital, net of effects of acquisitions and divestitures:
Decrease in accounts receivable, net......................................... 8.9 111.2
Decrease (increase) in inventories, net...................................... 40.5 (33.3)
Increase in other current assets............................................. (18.2) (65.3)
(Decrease) increase in accounts payable, accrued expenses and other
current liabilities........................................................ (341.7) 360.7
--------- --------
(310.5) 373.3
Net cash provided by operating activities................................ 1,050.5 974.6
--------- --------
FINANCING ACTIVITIES
Proceeds from borrowings......................................................... 632.1 4,554.7
Retirements and repayments of debt............................................... (1,169.3) (3,206.4)
Proceeds from settlement of interest rate exchange agreements.................... 56.8
Issuances of common stock........................................................ 11.2 20.2
Deferred financing costs......................................................... (2.3) (22.5)
--------- --------
Net cash (used in) provided by financing activities...................... (471.5) 1,346.0
--------- --------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired............................................... (16.1) (872.8)
Sales (purchases) of short-term investments, net................................. 3.0 (135.5)
Purchases of investments......................................................... (31.6) (175.7)
Proceeds from sales of investments............................................... 595.9 225.3
Capital expenditures............................................................. (788.9) (1,143.7)
Additions to intangible and other noncurrent assets.............................. (133.5) (123.8)
--------- --------
Net cash used in investing activities.................................... (371.2) (2,226.2)
--------- --------
INCREASE IN CASH AND CASH EQUIVALENTS............................................... 207.8 94.4
CASH AND CASH EQUIVALENTS, beginning of period...................................... 350.0 651.5
--------- --------
CASH AND CASH EQUIVALENTS, end of period............................................ $557.8 $745.9
========= ========
See notes to condensed consolidated financial statements.
4
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
Comcast Corporation and its subsidiaries (the "Company") has prepared these
unaudited condensed consolidated financial statements based upon Securities
and Exchange Commission rules that permit reduced disclosure for interim
periods.
These financial statements include all adjustments that are necessary for a
fair presentation of the Company's results of operations and financial
condition for the interim periods shown including normal recurring accruals
and other items. The results of operations for the interim periods
presented are not necessarily indicative of results for the full year.
For a more complete discussion of the Company's accounting policies and
certain other information, refer to the financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31,
2001.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to those classifications used in 2002 (see Note 2).
2. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, as Amended
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivatives and Hedging
Activities," as amended. SFAS No. 133 establishes accounting and reporting
standards for derivatives and hedging activities. SFAS No. 133 requires
that all derivative instruments be reported on the balance sheet at their
fair values. 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. 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 and $191.3 million principally related
to the reclassification of gains previously recognized as a component of
accumulated other comprehensive income (loss) on the Company's equity
derivative instruments, net of related deferred income taxes of $207.0
million.
SFAS No. 142
The Financial Accounting Standards Board ("FASB") issued SFAS No. 142,
"Goodwill and Other Intangible Assets," in June 2001. SFAS No. 142
addresses how intangible assets that are acquired individually or with a
group of other assets should be accounted for in financial statements upon
and subsequent to their acquisition. The Company adopted SFAS No. 142 on
January 1, 2002, as required by the new statement. Upon adoption, the
Company no longer amortizes goodwill and other indefinite lived intangible
assets, which consist of cable and sports franchise rights. The Company is
required to test its goodwill and intangible assets that are determined to
have an indefinite life for impairment at least annually. The provisions of
SFAS No. 142 require the completion of an initial transitional impairment
assessment, with any impairments identified treated as a cumulative effect
of a change in accounting principle. The Company completed this assessment
and determined that no cumulative effect results from adopting this change
in accounting principle. The provisions of SFAS No. 142 also require the
completion of an annual impairment test, with any impairments recognized in
current earnings. The Company completed the annual impairment test during
the three months ended June 30, 2002 and determined that no impairment
charge is necessary (see Note 6).
SFAS No. 143
The FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," in June 2001. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS No. 143
is effective for fiscal years beginning after June 15,
5
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
2002. The Company does not expect the adoption of SFAS No. 143 will have a
material impact on its financial condition or results of operations.
SFAS No. 144
The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," in August 2001. SFAS No. 144, which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of, supercedes SFAS No. 121 and is
effective for fiscal years beginning after December 15, 2001. The Company
adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 had
no impact on the Company's financial condition or results of operations.
SFAS No. 145
The FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections," in
April 2002. SFAS No. 145 rescinds, amends or makes various technical
corrections to certain existing authoritative pronouncements. Among other
things, SFAS No. 145 will change the accounting for certain gains and
losses resulting from extinguishments of debt by requiring that a gain or
loss from extinguishments of debt be classified as an extraordinary item
only if it meets the specific criteria of APB Opinion No. 30. SFAS No. 145
also requires that cash flows from all trading securities, such as the
Company's investment in Sprint PCS, be classified as cash flows from
operating activities in its statement of cash flows.
The Company adopted the provisions of SFAS No. 145 effective April 1, 2002,
as permitted by the new statement. The Company previously classified losses
from debt extinguishments as extraordinary items in its statement of
operations. Upon adoption of SFAS No. 145, the Company reclassified these
losses from extraordinary items to interest expense for all periods
presented in its statement of operations. The change in classification had
no effect on the Company's net income (loss) or financial condition. The
Company previously classified cash flows from purchases, sales and
maturities of its investment in Sprint PCS as cash flows from investing
activities in its statement of cash flows. The change in classification was
to increase the Company's net cash provided by operating activities and to
increase the Company's net cash used in investing activities for the six
months ended June 30, 2001.
SFAS No. 146
The FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities," in June 2002. SFAS No. 146 changes the standards for
recognition of a liability for a cost associated with an exit or disposal
activity. SFAS No. 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred.
SFAS No. 146 establishes that fair value is the objective for initial
measurement of the liability. SFAS No. 146 nullifies the guidance of
Emerging Issues Task Force ("EITF") 94-3 under which an entity recognized a
liability for an exit cost on the date that the entity committed itself to
an exit plan. The Company will adopt the provisions of SFAS No. 146 for
exit or disposal activities that are initiated after December 31, 2002, as
required by the new statement. The Company does not expect the adoption of
SFAS No. 146 will have a material impact on its financial condition or
results of operations.
EITF 01-9
In November 2001, the EITF of the FASB reached a consensus on EITF 01-9,
"Accounting for Consideration Given to a Customer (Including a Reseller of
the Vendor's Products"). EITF 01-9 requires, among other things, that
consideration paid to customers should be classified as a reduction of
revenue unless certain criteria are met. Certain of the Company's content
subsidiaries have paid or may pay distribution fees to cable television and
satellite broadcast systems for carriage of their programming. The Company
previously classified the amortization of these distribution fees as
expense in its statement of operations. Upon adoption of EITF 01-9 on
January 1, 2002, the Company reclassified certain of these distribution
fees from expense to a revenue reduction for all periods presented in its
statement of operations. The change in classification had no impact on the
Company's reported operating income (loss) or financial condition. This
change does not apply to distribution fees paid by the Company's
consolidated subsidiary, QVC, Inc. ("QVC") as the counterparties to QVC's
distribution agreements
6
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
do not make revenue payments to QVC. Amortization expense includes $5.0
million, $7.0 million, $9.6 million and $14.1 million during the three
months ended June 30, 2002 and 2001 and during the six months ended June
30, 2002 and 2001, respectively, related to QVC distribution fees.
EITF 01-14
In November 2001, the FASB staff announced EITF Topic D-103, "Income
Statement Characterization of Reimbursements Received for 'Out-of-Pocket'
Expenses Incurred," which has subsequently been recharacterized as EITF
01-14. EITF 01-14 requires that reimbursements received for out-of-pocket
expenses incurred be characterized as revenue in the statement of
operations.
Under the terms of its franchise agreements, the Company is required to pay
up to 5% of its gross revenues derived from providing cable services to the
local franchising authority. The Company normally passes these fees through
to its cable subscribers. The Company previously classified cable franchise
fees collected from its cable subscribers as a reduction of the related
franchise fee expense included within selling, general and administrative
expenses in its statement of operations.
EITF 01-14, by analogy, applies to franchise fees. Upon adoption of EITF
01-14 on January 1, 2002, the Company reclassified franchise fees collected
from cable subscribers from a reduction of selling, general and
administrative expenses to a component of service revenues for all periods
presented in its statement of operations. The change in classification had
no impact on the Company's reported operating income (loss) or financial
condition.
3. EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the
period on a basic and diluted basis.
The following table reconciles the numerator and denominator of the
computations of diluted earnings (loss) per common share ("Diluted EPS")
for the interim periods presented.
(Amounts in millions, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Income (loss) before cumulative effect of accounting
change used for Diluted EPS.......................... ($209.6) $35.2 ($298.5) $651.9
========= ========= ========= =========
Basic weighted average number of common shares
outstanding.......................................... 952.3 951.1 951.9 948.2
Dilutive securities:
Series B convertible preferred stock.............. 2.1
Stock option and restricted stock plans........... 14.5 15.0
--------- --------- --------- ---------
Diluted weighted average number of common shares
outstanding.......................................... 952.3 965.6 951.9 965.3
========= ========= ========= =========
Diluted income (loss) before cumulative effect of
accounting change per common share................... ($0.22) $0.04 ($0.31) $0.67
========= ========= ========= =========
Potentially dilutive securities related to the Company's Zero Coupon
Debentures, stock options and restricted stock plans (see below) were
excluded from the computation of Diluted EPS for the three and six months
ended June 30, 2002 because their effect on loss per common share was
antidilutive.
7
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The Company's Zero Coupon Convertible Debentures due 2020 (the "Zero Coupon
Debentures" - see Note 7) may be converted at any time prior to maturity if
the closing sale price of the Company's Class A Special Common Stock is
greater than 110% of the accreted conversion price (as defined). Diluted EPS
for the three months ended June 30, 2002 and 2001 and for the six months
ended June 30, 2002 and 2001, respectively, excludes approximately 19.8
million, 21.1 million, 19.8 million and 21.1 million potential common shares
related to the Zero Coupon Debentures, respectively, 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.
Diluted EPS for the three and six months ended June 30, 2002 excludes
approximately 64.7 million and 63.7 million potential common shares related
to the Company's stock option and restricted stock plans because the assumed
issuance of such potential common shares is antidilutive in periods in which
there is a loss. Diluted EPS for the three and six months ended June 30, 2001
excludes approximately 2.3 million and 2.1 million potential common shares,
respectively, related to the Company's stock option plans because the option
exercise price was greater than the average market price of the Company's
common stock for the period.
4. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Agreement and Plan of Merger with AT&T Broadband
On December 19, 2001, the Company entered into an Agreement and Plan of
Merger with AT&T Corp. ("AT&T") pursuant to which the Company agreed to a
transaction which will result in the combination of the Company and a holding
company of AT&T's broadband business ("AT&T Broadband") that AT&T will spin
off to its shareholders immediately prior to the combination. As of June 30,
2002, AT&T Broadband served approximately 13.3 million subscribers. Under the
terms of the transaction, the combined company will issue approximately 1.235
billion shares of its voting common stock to AT&T Broadband shareholders in
exchange for all of AT&T's interests in AT&T Broadband, and approximately 115
million shares of its common stock to Microsoft Corporation ("Microsoft") in
exchange for AT&T Broadband shares that Microsoft will receive immediately
prior to the completion of the transaction for settlement of their $5 billion
aggregate principal amount in quarterly income preferred securities.
Excluding AT&T Broadband's exchangeable notes, which are mandatorily
redeemable at AT&T Broadband's option into shares of certain publicly traded
companies held by AT&T Broadband, the Company currently estimates that the
combined company will require approximately $20 billion of assumed,
refinanced and new indebtedness upon completion of the AT&T Broadband
transaction. For each share of a class of common stock of Comcast that they
hold at the time of the merger, each Comcast shareholder will receive one
share of a corresponding class of stock of the combined company. The Company
expects that the transaction will qualify as tax-free to both the Company and
to AT&T. The Company will account for the transaction as an acquisition under
the purchase method of accounting, with the Company as the acquiring entity.
Consideration of facts and circumstances leading to the identification of the
Company as the acquiring entity is described in Note 5 to the financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001. On July 10, 2002, shareholders of both the Company
and AT&T approved the transaction. The transaction is subject to customary
closing conditions and regulatory and other approvals. The Company expects to
close the transaction by the end of 2002.
Unaudited Pro Forma Information
The following unaudited pro forma information has been presented as if the
acquisitions made by the Company in 2001 each occurred on January 1, 2001.
For a discussion of the Company's 2001 acquisitions, refer to the financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001. This information is based on historical results of
operations and has been adjusted for acquisition costs. This information is
not necessarily indicative of what the results would have been had the
Company operated the entities acquired since January 1, 2001.
8
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(Amounts in millions,
except per share data)
Six Months Ended
June 30, 2001
----------------------
Revenues...................................................... $4,806.1
Income before cumulative effect of accounting change.......... $605.9
Net income.................................................... $990.4
Diluted EPS................................................... $1.03
Other Income (Expense)
On January 1, 2001, the Company completed its cable systems exchange with
Adelphia Communications Corporation ("Adelphia"). The Company received
cable systems serving approximately 445,000 subscribers from Adelphia and
Adelphia received certain of the Company's cable systems serving
approximately 441,000 subscribers. The Company recorded to other income
(expense) a pre-tax gain of $1.199 billion, representing the difference
between the estimated fair value of $1.799 billion as of the closing date
of the transaction and the Company's cost basis in the systems exchanged
(see Note 9).
5. INVESTMENTS
June 30, December 31,
2002 2001
--------------- ------------
(Dollars in millions)
Fair value method
AT&T Corp............................................ $444.2 $1,514.9
Sprint Corp. PCS Group............................... 758.2 2,109.5
Other................................................ 100.8 227.2
--------------- ------------
1,303.2 3,851.6
Cost method................................................. 128.3 143.6
Equity method............................................... 353.7 307.2
--------------- ------------
Total investments.................................... 1,785.2 4,302.4
Less, current investments................................... 1,057.6 2,623.2
--------------- ------------
Non-current investments..................................... $727.6 $1,679.2
=============== ============
Fair Value Method
The Company holds unrestricted equity investments in certain publicly
traded companies which it accounts for as available for sale or trading
securities. The unrealized pre-tax gains on available for sale investments
as of June 30, 2002 and December 31, 2001 of $32.4 million and $280.3
million, respectively, have been reported in the Company's balance sheet
principally as a component of accumulated other comprehensive income
(loss), net of related deferred income taxes of $11.3 million and $95.3
million, respectively.
9
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The cost, fair value and gross unrealized gains and losses related to the
Company's available for sale securities are as follows:
June 30, December 31,
2002 2001
----------- -----------
(Dollars in millions)
Cost................................................ $469.7 $1,355.0
Gross unrealized gains.............................. 33.1 283.2
Gross unrealized losses............................. (0.7) (2.9)
----------- -----------
Fair value.......................................... $502.1 $1,635.3
=========== ===========
Derivatives
The Company uses derivative financial instruments to manage its exposure to
fluctuations in interest rates, securities prices and certain foreign
currencies. The Company also invests in businesses, to some degree, through
the purchase of equity call option or call warrant agreements. The Company
has issued indexed debt instruments and prepaid forward sale agreements
whose value, in part, is derived from the market value of Sprint PCS common
stock.
The unrealized pre-tax losses on cash flow hedges as of June 30, 2002 and
December 31, 2001 of $1.7 million and $0.9 million have been reported in
the Company's balance sheet as a component of accumulated other
comprehensive income (loss), net of related deferred income taxes of $0.6
million and $0.3 million, respectively.
Investment Income (Expense)
Investment income (expense) for the interim periods includes the following
(in millions):
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Interest and dividend income............................... $10.6 $17.4 $17.5 $35.0
(Losses) gains on sales and exchanges of investments, net.. (102.5) 448.0 (100.9) 459.6
Investment impairment losses............................... (208.7) (45.0) (221.3) (939.1)
Reclassification of unrealized gains....................... 1,092.4
Unrealized (loss) gain on Sprint PCS common stock.......... (420.2) 392.4 (1,439.7) 265.6
Mark to market adjustments on derivatives related to
Sprint PCS common stock............................... 324.2 (317.9) 1,171.1 (191.5)
Mark to market adjustments on derivatives and
hedged items.......................................... (62.5) 7.8 (133.8) (4.6)
--------- --------- --------- ---------
Investment income (expense)........................... ($459.1) $502.7 ($707.1) $717.4
========= ========= ========= =========
The investment impairment losses for the three and six months ended June
30, 2002 and the six months ended June 30, 2001 relate principally to other
than temporary declines in the Company's investment in AT&T.
The Company reclassified its investment in Sprint PCS from an available for
sale security to a trading security in connection with the adoption of SFAS
No. 133 on January 1, 2001. In connection with this reclassification, the
Company recorded to investment income (expense) the accumulated unrealized
gain of $1.092 billion on the Company's investment in Sprint PCS which was
previously recorded as a component of accumulated other comprehensive
income (loss).
10
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
6. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill by business segment (see
Note 11) for the periods presented are as follows (in millions):
Corporate
Cable Commerce and Other Total
------------ ------------ ------------ ------------
Balance, December 31, 2001...................... $4,688.4 $834.8 $766.2 $6,289.4
Purchase price allocation adjustments....... 5.1 151.8 156.9
------------ ------------ ------------ ------------
Balance, June 30, 2002.......................... $4,693.5 $834.8 $918.0 $6,446.3
============ ============ ============ ============
During the six months ended June 30, 2002, the Company recorded the final
purchase price allocation related to the Company's acquisition, on October
30, 2001, of Outdoor Life Network, which resulted in an increase in
goodwill and a corresponding decrease in cable and satellite television
distribution rights. In addition, during the six months ended June 30,
2002, the Company recorded the final purchase price allocation related to
certain of its cable system acquisitions, which resulted in an increase in
goodwill and a corresponding decrease in franchise rights.
As of June 30, 2002, the weighted average amortization period for the
Company's intangible assets subject to amortization is 8.3 years and
estimated related amortization expense for each of the five years ended
December 31 is as follows (in millions):
2002............................ $200.7
2003............................ $188.4
2004............................ $173.4
2005............................ $159.1
2006............................ $136.9
11
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following pro forma financial information for the three and six months
ended June 30, 2001, and for the years ended December 31, 2001, 2000 and
1999, is presented as if SFAS No. 142 was adopted as of January 1, 1999
(amounts in millions, except per share data):
Three Six
Months Months
Ended Ended
June 30, June 30, Years Ended December 31,
2001 2001 2001 2000 1999
----------- ----------- --------- --------- ---------
Net Income
As reported............................... $35.2 $1,036.4 $608.6 $2,021.5 $1,065.7
Amortization of goodwill................ 81.8 154.4 334.8 303.5 128.5
Amortization of equity method goodwill.. 6.8 11.1 15.0 15.2 4.4
Amortization of franchise rights........ 274.7 529.4 1,083.7 858.1 258.3
--------- --------- --------- --------- ---------
As adjusted............................... $398.5 $1,731.3 $2,042.1 $3,198.3 $1,456.9
========= ========= ========= ========= =========
Income before extraordinary items
and cumulative effect of
accounting change, as adjusted.......... $398.5 $1,346.8 $1,659.1 $3,221.9 $1,507.9
========= ========= ========= ========= =========
Basic EPS
As reported............................... $0.04 $1.09 $0.64 $2.24 $1.38
Amortization of goodwill................ 0.08 0.17 0.35 0.34 0.17
Amortization of equity method goodwill.. 0.01 0.01 0.02 0.02 0.01
Amortization of franchise rights........ 0.29 0.56 1.14 0.96 0.35
--------- --------- --------- --------- ---------
As adjusted............................... $0.42 $1.83 $2.15 $3.56 $1.91
========= ========= ========= ========= =========
Diluted EPS
As reported............................... $0.04 $1.07 $0.63 $2.13 $1.30
Amortization of goodwill................ 0.08 0.16 0.35 0.32 0.16
Amortization of equity method goodwill.. 0.01 0.01 0.02 0.02 0.01
Amortization of franchise rights........ 0.28 0.55 1.12 0.90 0.31
--------- --------- --------- --------- ---------
As adjusted............................... $0.41 $1.79 $2.12 $3.37 $1.78
========= ========= ========= ========= =========
7. LONG-TERM DEBT
Commercial Paper
The Company's senior bank credit facility consists of a $2.25 billion,
five-year revolving credit facility and a $1.925 billion, 364-day revolving
credit facility (together, the "Comcast Cable Revolver"). The 364-day
revolving credit facility supports the commercial paper program of Comcast
Cable Communications, Inc., a wholly owned subsidiary of the Company.
Amounts outstanding under the commercial paper program are classified as
long-term in the Company's balance sheet as of June 30, 2002 and December
31, 2001 as the Company has both the ability and the intent to refinance
these obligations, if necessary, on a long-term basis with amounts
available under the Comcast Cable Revolver.
12
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Zero Coupon Convertible Debentures
The Company's Zero Coupon Debentures have a yield to maturity of 1.25%,
computed on a semi-annual bond equivalent basis. The Zero Coupon Debentures
may be converted, subject to certain restrictions, into shares of the
Company's Class A Special Common Stock at the option of the holder at a
conversion rate of 14.2566 shares per $1,000 principal amount at maturity,
representing an initial conversion price of $54.67 per share. The Zero
Coupon Debentures are senior unsecured obligations. The Company may redeem
for cash all or part of the Zero Coupon Debentures on or after December 19,
2005.
Holders may require the Company to repurchase the Zero Coupon Debentures on
December 19, 2002, 2003, 2005, 2010 and 2015. Holders may surrender the
Zero Coupon Debentures for conversion at any time prior to maturity if the
closing 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. Amounts outstanding under the Zero
Coupon Debentures are classified as long-term in the Company's balance
sheet as of June 30, 2002 and December 31, 2001 as the Company has both the
ability and the intent to refinance the Zero Coupon Debentures on a
long-term basis with amounts available under the Comcast Cable Revolver in
the event holders of the Zero Coupon Debentures exercise their rights to
require the Company to repurchase the Zero Coupon Debentures in December
2002.
ZONES
At maturity, holders of the Company's 2.0% Exchangeable Subordinated
Debentures due 2029 (the "ZONES") are entitled to receive in cash an amount
equal to the higher of the principal amount of the ZONES or the market
value of Sprint PCS common stock.
Prior to maturity, each ZONES is exchangeable at the holders' option for an
amount of cash equal to 95% of the market value of Sprint PCS Stock. As of
June 30, 2002, the number of Sprint PCS shares held by the Company exceeded
the number of ZONES outstanding.
As of June 30, 2002 and December 31, 2001, long-term debt includes $689.1
million and $1.613 billion, respectively, of ZONES. Upon adoption of SFAS
No. 133, the Company split the accounting for the ZONES into derivative and
debt components. The Company records the change in the fair value of the
derivative component of the ZONES (see Note 5) and the increase in the
carrying value of the debt component of the ZONES as follows (in millions):
Three Months Six Months
Ended Ended
June 30, June 30,
2002 2001 2002 2001
-------- ------- ------- -------
Increase (decrease) in derivative component to
investment income (expense)..................... ($271.3) $245.0 ($935.0) $175.6
Increase in debt component to interest expense....... $5.8 $5.5 $11.5 $11.0
New Credit Facilities
On May 3, 2002, AT&T Broadband Corp. and AT&T Comcast Corporation, a
company owned 50% each by AT&T and the Company ("AT&T Comcast"), entered
into definitive credit agreements with a syndicate of lenders for an
aggregate of $12.825 billion of new indebtedness in order to obtain the
financing necessary to complete the AT&T Broadband transaction (see Note 4)
and for the combined company's financing needs after the transaction. This
financing requires subsidiary guarantees, including guarantees by certain
of the Company's wholly owned subsidiaries and by subsidiaries of AT&T
Broadband. Under the terms of the new credit facilities, the obligations of
the lenders to provide the financing upon the completion of the AT&T
Broadband transaction are subject to a number of conditions, including the
condition that the combined company holds investment-grade credit ratings
from both the Standard & Poor's and Moody's rating agencies at the time of
closing. Accordingly, there can be no
13
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
assurance that AT&T Broadband Corp. and AT&T Comcast will be able to obtain
the financing necessary to complete the AT&T Broadband transaction.
Interest Rates
Excluding the derivative component of the ZONES whose changes in fair value
are recorded to investment income (expense), the Company's effective
weighted average interest rate on its long-term debt outstanding was 6.35%
and 6.03% as of June 30, 2002 and December 31, 2001, respectively.
Interest Rate Risk Management
During the six months ended June 30, 2002, the Company settled $950.0
million aggregate notional amount of fixed to variable interest rate
exchange agreements ("Swaps") and received proceeds of $56.8 million. This
amount is being recognized as an adjustment to interest expense over the
term of the related debt. During the six months ended June 30, 2002,
variable to fixed Swaps with an aggregate notional amount of $70.2 million
expired. As of June 30, 2002, the Company has variable to fixed Swaps with
an aggregate notional amount of $180.1 million with an average pay rate of
4.9% and an average receive rate of 1.9%. The Swaps mature between 2002 and
2003.
In June 2002, the Company entered into interest rate lock agreements ("Rate
Locks") to hedge the risk that the cash flows related to the interest
payments on an anticipated issuance or assumption of certain fixed rate
debt in connection with the AT&T Broadband transaction may be adversely
affected by interest rate fluctuations. The Rate Locks mature in the fourth
quarter of 2002, the timing of the anticipated issuance or assumption of
the fixed rate debt. To the extent the Rate Locks are effective in
offsetting the variability of the hedged cash flows, changes in the fair
value of the Rate Locks will not be included in earnings but will be
reported as a component of accumulated other comprehensive income (loss).
Upon the issuance or assumption of the debt, the value of the Rate Locks
will be recognized as an adjustment to interest expense over the same
period in which the related interest costs on the debt are recognized in
earnings.
Lines and Letters of Credit
As of June 30, 2002, certain subsidiaries of the Company had unused lines
of credit of $3.363 billion under their respective credit facilities.
As of June 30, 2002, the Company and certain of its subsidiaries had unused
irrevocable standby letters of credit totaling $85.4 million to cover
potential fundings under various agreements.
8. STOCKHOLDERS' EQUITY
Retirement of Shares
In March 2002, as a result of the merger of a wholly owned subsidiary into
the Company, approximately 23.3 million shares of the Company's Class A
Special Common Stock held by the subsidiary were retired and returned to
authorized but unissued status.
14
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Comprehensive Income (Loss)
The Company's total comprehensive income (loss) for the interim periods was
as follows (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
--------- ---------- --------- ----------
Net income (loss).................................... ($209.6) $35.2 ($298.5) $1,036.4
Unrealized (losses) gains on marketable securities... (223.0) 82.3 (364.3) 196.9
Reclassification adjustments for losses (gains)
included in net income (loss)...................... 198.4 (65.4) 203.1 (329.1)
Unrealized gains (losses) on the effective portion
of cash flow hedges................................ 3.7 (0.5) (0.5) (1.7)
Foreign currency translation gains (losses).......... 5.2 2.7 (6.4) (6.7)
--------- ---------- --------- ----------
Comprehensive income (loss).......................... ($225.3) $54.3 ($466.6) $895.8
========= ========== ========= ==========
9. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The fair values of the assets and liabilities acquired by the Company
through noncash transactions during the six months ended June 30, 2001 are
as follows (in millions):
Current assets.............................. $56.6
Property, plant & equipment................. 686.1
Intangible assets........................... 2,755.8
Current liabilities......................... (37.0)
-----------
Net assets acquired.................... $3,461.5
===========
The Company made cash payments for interest and income taxes during the
interim periods as follows (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- --------
Interest........................................................ $237.5 $193.5 $347.3 $296.7
Income taxes.................................................... $128.9 $111.3 $158.4 $126.4
10. COMMITMENTS AND CONTINGENCIES
Certain litigation has been filed, and other litigation has been
threatened, against the Company as a result of alleged conduct of the
Company with respect to its investment in and distribution relationship
with At Home Corporation ("At Home"). At Home was a provider of high-speed
Internet access and content services, which filed for bankruptcy protection
in September 2001. Filed actions are: (i) class action lawsuits against the
Company, Brian L. Roberts (the Company's President and a director), AT&T
(the former controlling shareholder of At Home and also a former
distributor of the At Home service) and other corporate and individual
defendants in the Superior Court of San Mateo County, California, alleging
breaches of fiduciary duty on the part of the Company and the other
defendants in connection with transactions agreed to in March 2000 among At
Home, the Company, AT&T, Cox Communications, Inc. ("Cox," also an investor
in At Home and a former distributor of the At Home service); and (ii) class
action lawsuits against the Company, AT&T and others in the United States
District Court for the Southern District of New York, alleging securities
law violations and common law fraud in connection with disclosures made by
At Home in 2001. The actions in San Mateo County, California have been
stayed by the United States Bankruptcy Court for the Northern District of
California, the court in which At Home filed for bankruptcy,
15
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
as violating the automatic bankruptcy stay. The plaintiffs have submitted
an amended complaint to the Bankruptcy Court, which is expected to decide
in September 2002 whether the amended complaint can proceed. In the
Southern District of New York actions, the court has ordered the actions
consolidated into a single action. It is expected that an amended
consolidated complaint will be served in mid-October 2002.
In the At Home bankruptcy proceeding, certain creditors of At Home have
been threatening, and have negotiated for themselves the right to bring,
claims against the Company, AT&T and Cox arising from the March 2000
agreements and for alleged breaches of fiduciary duty. Further, the
creditors have negotiated for the right to bring claims against the Company
and Cox seeking recovery of alleged short-swing profits pursuant to Section
16(b) of the Securities Exchange Act of 1934 purported to have arisen in
connection with certain transactions relating to At Home stock effected
pursuant to the March 2000 agreements.
Following closing of the AT&T Broadband transaction, the Company may be
contractually liable for 50% of the liabilities of AT&T relating to At Home
(AT&T would be liable for the other 50% of such liabilities). The Company
denies any wrongdoing in connection with these actual and potential claims,
and intends to defend all such claims vigorously. In management's opinion,
the final disposition of all such claims (including taking into account any
liability of the Company on account of AT&T as described in the second
preceding sentence), will not have a material adverse effect on the
Company's or, following the closing of the AT&T Broadband transaction, the
combined company's consolidated financial condition or results of
operations.
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 condition, results of operations or
liquidity of the Company.
In connection with a license awarded to an affiliate, the Company is
contingently liable in the event of nonperformance by the affiliate to
reimburse a bank which has provided a performance guarantee. The amount of
the performance guarantee is approximately $200 million; however the
Company's current estimate of the amount of future expenditures
(principally in the form of capital expenditures) that will be made by the
affiliate necessary to comply with the performance requirements will not
exceed $75 million.
16
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
11. FINANCIAL DATA BY BUSINESS SEGMENT
The following represents the Company's significant business segments,
"Cable" and "Commerce." The components of net income (loss) below operating
income (loss) are not separately evaluated by the Company's management on a
segment basis (dollars in millions).
Corporate and
Cable Commerce Other (1) Total
----- -------- --------- -----
Three Months Ended June 30, 2002
--------------------------------
Revenues (2)................................................ $1,540.8 $994.5 $173.6 $2,708.9
Operating income before depreciation and
amortization (3)....................................... 653.2 194.5 18.9 866.6
Depreciation and amortization............................... 298.1 28.1 62.0 388.2
Operating income (loss) .................................... 355.1 166.4 (43.1) 478.4
Interest expense............................................ 141.8 2.9 37.9 182.6
Capital expenditures........................................ 330.6 50.6 8.6 389.8
Three Months Ended June 30, 2001
--------------------------------
Revenues (2)................................................ $1,325.9 $876.0 $136.8 $2,338.7
Operating income (loss) before
depreciation and amortization (3)...................... 548.6 159.8 (15.5) 692.9
Depreciation and amortization............................... 740.8 36.8 48.6 826.2
Operating income (loss) .................................... (192.2) 123.0 (64.1) (133.3)
Interest expense............................................ 128.9 7.1 42.5 178.5
Capital expenditures........................................ 513.2 41.9 71.7 626.8
Six Months Ended June 30, 2002
------------------------------
Revenues (2)................................................ $3,010.2 $1,988.0 $383.2 $5,381.4
Operating income before depreciation and
amortization (3)....................................... 1,250.7 386.8 37.3 1,674.8
Depreciation and amortization............................... 590.7 55.5 129.1 775.3
Operating income (loss)..................................... 660.0 331.3 (91.8) 899.5
Interest expense............................................ 287.3 6.4 75.6 369.3
Capital expenditures........................................ 688.7 82.4 17.8 788.9
Six Months Ended June 30, 2001
------------------------------
Revenues (2)................................................ $2,520.3 $1,760.0 $290.4 $4,570.7
Operating income (loss) before
depreciation and amortization (3)...................... 1,035.7 332.5 (41.1) 1,327.1
Depreciation and amortization............................... 1,424.8 71.4 64.7 1,560.9
Operating income (loss)..................................... (389.1) 261.1 (105.8) (233.8)
Interest expense............................................ 261.7 15.1 84.0 360.8
Capital expenditures........................................ 950.9 68.0 124.8 1,143.7
As of June 30, 2002
-------------------
Assets...................................................... $28,840.3 $2,800.9 $4,477.6 $36,118.8
Long-term debt, less current portion........................ 8,147.7 1.4 2,394.4 10,543.5
As of December 31, 2001
-----------------------
Assets...................................................... $29,084.6 $2,809.2 $6,366.7 $38,260.5
Long-term debt, less current portion........................ 8,363.2 62.7 3,315.7 11,741.6
_______________
17
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
(1) Other includes segments not meeting certain quantitative guidelines for
reporting including the Company's content and business communications
operations as well as elimination entries related to the segments
presented. Corporate and other assets consist primarily of the
Company's investments (see Note 5).
(2) Revenues include $151.4 million, $113.1 million, $296.6 million and
$234.4 million during the three months ended June 30, 2002 and 2001 and
during the six months ended June 30, 2002 and 2001, respectively, of
non-US revenues, principally related to the Company's commerce
segment. No single customer accounted for a significant amount of the
Company's revenues in any period.
(3) 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.
18
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
We have grown significantly in recent years through both strategic
acquisitions and growth in our existing businesses. We have historically met our
cash needs for operations through our cash flows from operating activities. We
have generally financed our cash requirements for acquisitions and capital
expenditures through borrowings of long-term debt, sales of investments and from
existing cash, cash equivalents and short-term investments.
Except where specifically indicated, the following management's discussion
and analysis of financial condition and results of operations does not include
the anticipated effects of the AT&T Broadband transaction.
General Developments of Business
Refer to Note 4 to our financial statements included in Item 1 and Note 5
to our financial statements included in our Annual Report on Form 10-K for the
year ended December 31, 2001 for a discussion of our acquisitions and other
significant events.
Liquidity and Capital Resources
The cable communications and the electronic retailing industries are
experiencing increasing competition and rapid technological changes. Our future
results of operations will be affected by our ability to react to changes in the
competitive environment and by our ability to implement new technologies. We
believe that competition and technological changes will not significantly affect
our ability to obtain financing.
We believe that we will be able to meet our current and long-term liquidity
and capital requirements, including fixed charges, through our cash flows from
operating activities, existing cash, cash equivalents and investments, and
through available borrowings under our existing credit facilities.
We have both the ability and intent to redeem the $1.1 billion outstanding
Zero Coupon Debentures with amounts available under subsidiary credit facilities
if holders exercise their rights to require us to repurchase the Zero Coupon
Debentures in December 2002. As of June 30, 2002, certain of our subsidiaries
had unused lines of credit of $3.363 billion under their respective credit
facilities.
Refer to Note 7 to our financial statements included in Item 1 for a
discussion of our Zero Coupon Debentures. Refer to Note 10 to our financial
statements included in Item 1 for a discussion of our commitments and
contingencies.
AT&T Broadband Transaction
Excluding AT&T Broadband's exchangeable notes, which are mandatorily
redeemable at AT&T Broadband's option into shares of certain publicly traded
companies held by AT&T Broadband, we currently estimate that the combined
company will require approximately $20 billion of assumed, refinanced and new
indebtedness upon completion of the AT&T Broadband transaction. Of this $20
billion of indebtedness, approximately $7 billion to $8 billion will be assumed
indebtedness of AT&T Broadband's subsidiaries, $9 billion to $10 billion will
retire amounts we expect AT&T Broadband will owe AT&T Corp. ("AT&T") at, and
will be required to pay, upon closing of the AT&T Broadband transaction, and $2
billion to $4 billion will be needed to refinance AT&T Broadband debt that will
become due on or shortly after the closing of the AT&T Broadband transaction and
to provide appropriate cash reserves to fund AT&T Broadband's operations and
capital expenditures. We can not provide assurances that the actual amount of
this indebtedness will not exceed $20 billion.
On August 12, 2002, AT&T, AT&T Comcast Corporation ("AT&T Comcast"), AT&T
Broadband, our wholly owned subsidiary Comcast Cable Communications, Inc.
("Comcast Cable"), and two of AT&T's broadband subsidiaries filed a registration
statement with the Securities and Exchange Commission detailing a potential
exchange offer for some of AT&T's existing public indebtedness. The exchange
offer is designed to satisfy one of the conditions to the AT&T Broadband
transaction and, if successful, would result in the assumption of a portion of
AT&T's indebtedness by AT&T Broadband. The exchange offer is subject to market
conditions and the resolution of continued negotiations between us and AT&T. The
$9 billion to $10 billion that we expect AT&T Broadband will be required to pay
AT&T upon closing of the AT&T Broadband transaction would be reduced based upon
the amount of AT&T indebtedness assumed by AT&T Broadband in the exchange in an
amount to be mutually agreed.
On May 3, 2002, AT&T Broadband Corp. and
19
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
AT&T Comcast entered into definitive credit agreements with a syndicate of
lenders for an aggregate of $12.825 billion to provide the financing to complete
the AT&T Broadband transaction and for the combined company's financing needs
after the transaction. The amount of AT&T's indebtedness assumed by AT&T
Broadband in the exchange offer, if any, will not reduce the amounts available
under these credit agreements.
Refer to Note 7 to our financial statements included in Item 1 for a
discussion of the new credit facilities.
In addition to any assumption of AT&T indebtedness by AT&T Broadband in the
exchange offer and amounts available under the new credit agreements, we may
also use other available sources of financing to fund these requirements,
including:
o our existing cash, cash equivalents and short- term investments,
o amounts available under our subsidiaries' lines of credit, which
totaled $3.363 billion as of June 30, 2002, and
o through the sales of our and AT&T Broadband's investments, including
AT&T Broadband's investment in Time Warner Entertainment.
Subsequent to closing of the AT&T Broadband transaction, we will have a
substantially higher amount of debt, interest expense and capital expenditures
at the combined company. If the credit rating agencies determine that the
combined company is less creditworthy, on a combined basis, than that of Comcast
on an historical basis, it is possible that our cost of and access to capital
could be negatively affected. We currently hold investment grade ratings for our
various debt securities. If our debt securities are downgraded as a result of
our assumption of debt in the AT&T Broadband transaction, access to the
commercial paper market would likely become limited and the costs of borrowing
under alternative sources would likely increase.
Cash, Cash Equivalents and Short-term Investments
We have traditionally maintained significant levels of cash, cash
equivalents and short-term investments to meet our short-term liquidity
requirements. Our cash equivalents and short-term investments are recorded at
fair value. Cash, cash equivalents and short-term investments as of June 30,
2002 were $1.615 billion, substantially all of which is unrestricted.
Investments
A significant portion of our investments are in publicly traded companies
and are reflected at fair value which fluctuates with market changes.
We do not have any significant contractual funding commitments with respect
to any of our investments. Our ownership interests in these investments may,
however, be diluted if we do not fund our investees' non-binding capital calls.
We continually evaluate our existing investments, as well as new investment
opportunities.
Refer to Note 5 to our financial statements included in Item 1 for a
discussion of our investments.
Financing
As of June 30, 2002 and December 31, 2001, our long-term debt, including
current portion, was $10.750 billion and $12.202 billion, respectively.
The $1.452 billion decrease from December 31, 2001 to June 30, 2002 results
principally from the $923.5 million aggregate reduction to the carrying value of
our ZONES during 2002, and the effects of our net repayments during 2002.
Excluding the effects of interest rate risk management instruments, 12.1%
and 13.4% of our long-term debt as of June 30, 2002 and December 31, 2001,
respectively, was at variable rates.
We have and may in the future, depending on certain factors including
market conditions, make optional repayments on our debt obligations, which may
include open market repurchases of our outstanding public notes and debentures.
Refer to Note 7 to our financial statements included in Item 1 for a
discussion of our long-term debt.
Equity Price Risk
We have entered into cashless collar agreements (the "Equity Collars") and
prepaid forward sales agreements ("Prepaid Forward Sales") which we account for
at fair value. The Equity Collars and Prepaid Forward Sales limit our exposure
to and benefits from price fluctuations in Sprint PCS common stock.
During the 2002 and 2001 interim periods, the change in the fair value of
our investment in Sprint PCS common stock, classified as a trading security,
were substantially offset by the changes in the fair values of the
20
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
Equity Collars, the derivative components of the ZONES, and the Prepaid Forward
Sales. See "Results of Operations - Investment Income (Expense)" below.
Interest Rate Risk
During the six months ended June 30, 2002, we settled $950.0 million
aggregate notional amount of our fixed to variable interest rate exchange
agreements ("Swaps") and received proceeds of $56.8 million. This amount is
being recognized as an adjustment to interest expense over the term of the
related debt. During the six months ended June 30, 2002, variable to fixed Swaps
with an aggregate notional amount of $70.2 million expired. As of June 30, 2002,
we have $180.1 million aggregate notional amount of variable to fixed Swaps with
an average pay rate of 4.9% and an average receive rate of 1.9%. The Swaps
mature between 2002 and 2003.
In June 2002, we entered into interest rate lock agreements ("Rate Locks")
to hedge the risk that the cash flows related to the interest payments on an
anticipated issuance or assumption of certain fixed rate debt in connection with
the AT&T Broadband transaction may be adversely affected by interest rate
fluctuations. The Rate Locks mature in the fourth quarter of 2002, the timing of
the anticipated issuance or assumption of the fixed rate debt.
Accumulated Other Comprehensive Income (Loss)
The change in accumulated other comprehensive income (loss) from December
31, 2001 to June 30, 2002 is principally attributable to declines in unrealized
gains on our investments classified as available for sale held throughout the
period, and to realized losses on sales of investments and investment impairment
losses on investments classified as available for sale during the six months
ended June 30, 2002. Refer to Note 5 to our financial statements included in
Item 1.
_________________________
Statement of Cash Flows
Cash and cash equivalents increased $207.8 million as of June 30, 2002 from
December 31, 2001. 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 $1.051 billion for
the six months ended June 30, 2002, due principally to our operating income
before depreciation and amortization (see "Results of Operations"), and by
changes in working capital as a result of the timing of receipts and
disbursements and the effects of net interest and current income tax expense.
Net cash used in financing activities includes borrowings and repayments of
debt, proceeds from settlement of Swaps, as well as proceeds from the issuances
of our common stock. Net cash used in financing activities was $471.5 million
for the six months ended June 30, 2002. During the six months ended June 30,
2002, we borrowed $632.1 million, consisting of:
o $223.9 million under Comcast Cable's commercial paper program, and
o $408.2 million under revolving credit facilities.
During the six months ended June 30, 2002, we repaid $1.169 billion of our
long-term debt, consisting of:
o $240.2 million under Comcast Cable's commercial paper program,
o $200.0 million of our 9.625% Senior Notes due 2002, and
o $729.1 million on certain of our revolving credit facilities.
In addition, during the six months ended June 30, 2002, we received
proceeds of $56.8 million from settlement of certain of our Swaps and proceeds
of $11.2 million from issuances of our common stock.
Net cash used in investing activities includes the effects of acquisitions,
net of cash acquired, purchases of investments, capital expenditures, and
additions to intangible and other noncurrent assets, offset by proceeds from
sales of investments. Net cash used in investing activities was $371.2 million
for the six months ended June 30, 2002, consisting primarily of capital
expenditures of $788.9 million and additions to intangible and other noncurrent
assets of $133.5 million, including $62.3 million related to the satellite and
cable television affiliation agreements of QVC and our content subsidiaries.
Such amounts were offset, in part, by proceeds from sales of investments of
$595.9 million.
_______________________
21
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
Results of Operations
The effects of our recent acquisitions were to increase our revenues and
expenses, resulting in increases in our operating income before depreciation and
amortization.
We adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets," on January 1, 2002, as required by the
new statement. Refer to Notes 2 and 6 to our financial statements included in
Item 1 for a discussion of the impact the adoption of the new statement had on
our consolidated financial condition and results of operations.
Our summarized financial information for the interim periods is as follows
(dollars in millions, "NM" denotes percentage is not meaningful):
Three Months Ended
June 30, Increase / (Decrease)
2002 2001 $ %
--------- --------- --------- ---------
Revenues....................................................... $2,708.9 $2,338.7 $370.2 15.8%
Cost of goods sold from electronic retailing................... 628.8 555.2 73.6 13.3
Operating, selling, general and administrative expenses........ 1,213.5 1,090.6 122.9 11.3
Depreciation................................................... 342.8 273.9 68.9 25.2
Amortization................................................... 45.4 552.3 (506.9) (91.8)
--------- --------- --------- ---------
Operating income (loss)........................................ 478.4 (133.3) 611.7 NM
--------- --------- --------- ---------
Interest expense............................................... (182.6) (178.5) 4.1 2.3
Investment income (expense).................................... (459.1) 502.7 (961.8) NM
Equity in net losses of affiliates............................. (43.0) (9.5) 33.5 352.6
Other income (expense)......................................... 9.6 (6.3) 15.9 NM
Income tax benefit (expense)................................... 32.9 (103.0) 135.9 NM
Minority interest.............................................. (45.8) (36.9) 8.9 24.1
--------- --------- --------- ---------
Income (loss) before cumulative effect of accounting change.... ($209.6) $35.2 ($244.8) NM
========= ========= ========= =========
Operating income before depreciation and amortization (1)...... $866.6 $692.9 $173.7 25.1%
========= ========= ========= =========
Six Months Ended
June 30, Increase / (Decrease)
2002 2001 $ %
--------- --------- --------- ---------
Revenues....................................................... $5,381.4 $4,570.7 $810.7 17.7%
Cost of goods sold from electronic retailing................... 1,260.0 1,111.8 148.2 13.3
Operating, selling, general and administrative expenses........ 2,446.6 2,131.8 314.8 14.8
Depreciation................................................... 676.6 514.7 161.9 31.5
Amortization................................................... 98.7 1,046.2 (947.5) (90.6)
--------- --------- --------- ---------
Operating income (loss)........................................ 899.5 (233.8) 1,133.3 NM
--------- --------- --------- ---------
Interest expense............................................... (369.3) (360.8) 8.5 2.4
Investment income (expense).................................... (707.1) 717.4 (1,424.5) NM
Equity in net losses of affiliates............................. (48.4) (6.6) 41.8 633.3
Other income (expense)......................................... (14.0) 1,187.9 (1,201.9) NM
Income tax benefit (expense)................................... 30.2 (588.6) (618.8) NM
Minority interest.............................................. (89.4) (63.6) 25.8 40.6
--------- --------- --------- ---------
Income (loss) before cumulative effect of accounting change.... ($298.5) $651.9 ($950.4) NM
========= ========= ========= =========
Operating income before depreciation and amortization (1)...... $1,674.8 $1,327.1 $347.7 26.2%
========= ========= ========= =========
____________
(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,
22
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
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.
Consolidated Operating Results
Revenues
The increases in consolidated revenues for the interim periods from 2001 to
2002 are primarily attributable to increases in service revenues in our Cable
segment and to increases in net sales in our Commerce segment (see "Operating
Results by Business Segment" below). The remaining increases are primarily the
result of increases in revenues from our content operations, principally due to
growth in our historical operations and the effects of our acquisitions.
On January 1, 2002, we adopted Emerging Issues Task Force ("EITF") 01-9,
"Accounting for Consideration Given to a Customer (Including a Reseller of the
Vendor's Products)" and EITF 01-14, "Income Statement Characterization of
Reimbursements Received for 'Out-of-Pocket' Expenses Incurred."
EITF 01-9 requires, among other things, that consideration paid to
customers should be classified as a reduction of revenue unless certain criteria
are met. Certain of our content subsidiaries have paid or may pay distribution
fees to cable television and satellite broadcast systems for carriage of their
programming. Upon adoption of EITF 01-9, we reclassified certain of these
distribution fees from expense to a revenue reduction for all periods presented
in our statement of operations. This change does not apply to distribution fees
paid by our consolidated subsidiary, QVC, Inc. ("QVC") as the counterparties to
QVC's distribution agreements do not make revenue payments to QVC.
EITF 01-14 requires that reimbursements received for out-of-pocket expenses
incurred be characterized as revenue in the statement of operations. Under the
terms of our franchise agreements, we are required to pay up to 5% of our gross
revenues derived from providing cable services to the local franchising
authority. We normally pass these fees through to our cable subscribers. Upon
adoption of EITF 01-14, we reclassified franchise fees collected from cable
subscribers from a reduction of selling, general and administrative expenses to
a component of service revenues for all periods presented in our statement of
operations.
The changes in classification had no impact on our reported operating
income (loss) or financial condition. Refer to Note 2 to our financial
statements included in Item 1 for a discussion of the adoption of EITF 01-9 and
EITF 01-14.
Cost of goods sold from electronic retailing
Refer to the "Commerce" section of "Operating Results by Business Segment"
below for a discussion of the increase in cost of goods sold from electronic
retailing.
Operating, selling, general and administrative expenses
The increases in consolidated operating, selling, general and
administrative expenses for the interim periods from 2001 to 2002 are primarily
attributable to increases in expenses in our Cable segment and, to a lesser
extent, to increases in expenses in our Commerce segment (see "Operating Results
by Business Segment" below). The remaining increases are primarily the result of
increased expenses in our content operations, principally due to growth in our
historical operations and the effects of our acquisitions.
Depreciation
The increases in depreciation expense for the interim periods from 2001 to
2002 in our Cable segment are primarily due to the effects of our recent
acquisitions and our capital expenditures. The increases in depreciation expense
for the interim periods from 2001 to 2002 in our Commerce segment are primarily
due to the effects of our capital expenditures. The remaining increases are
primarily the result of increases in depreciation in our
23
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
content operations, principally due to the effects of our acquisitions.
Amortization
Of the $506.9 million and $947.5 million decreases in amortization expense
for the interim periods from 2001 and 2002, $504.3 million and $968.8 million
are attributable to the adoption of SFAS No. 142 on January 1, 2002. The
remaining changes are primarily the result of increases in amortization expense
in our content operations, principally due to the effects of our acquisitions.
Refer to Note 6 to our financial statements included in Item 1 for the pro forma
impact of adoption of SFAS No. 142 on amortization expense.
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 condition or results
of operations. Refer to Note 11 to our financial statements included in Item 1
for a summary of our financial data by business segment (dollars in millions).
Cable Three Months Ended
June 30, Increase/(Decrease)
2002 2001 $ %
--------- --------- --------- --------
Video........................................................ $1,186.6 $1,059.5 $127.1 12.0%
High-speed Internet.......................................... 139.6 64.8 74.8 115.4
Advertising sales............................................ 99.9 85.7 14.2 16.6
Other........................................................ 64.4 67.7 (3.3) (4.9)
Franchise fees............................................... 50.3 48.2 2.1 4.4
--------- --------- --------- --------
Revenues................................................ 1,540.8 1,325.9 214.9 16.2
Operating, selling, general and administrative expenses...... 887.6 777.3 110.3 14.2
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $653.2 $548.6 $104.6 19.1%
========= ========= ========= ========
Six Months Ended
June 30, Increase
2002 2001 $ %
--------- --------- --------- --------
Video........................................................ $2,336.2 $2,044.3 $291.9 14.3%
High-speed Internet.......................................... 259.2 119.3 139.9 117.3
Advertising sales............................................ 181.0 151.9 29.1 19.2
Other........................................................ 132.3 113.4 18.9 16.7
Franchise fees............................................... 101.5 91.4 10.1 11.1
--------- --------- --------- --------
Revenues................................................ 3,010.2 2,520.3 489.9 19.4
Operating, selling, general and administrative expenses...... 1,759.5 1,484.6 274.9 18.5
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $1,250.7 $1,035.7 $215.0 20.8%
========= ========= ========= ========
_______________
(a) See footnote (1) on page 22.
Video revenue consists of our basic, expanded basic, premium, pay-per-view,
equipment and digital subscriptions. Of the $127.1 million and $291.9 million
increases in video revenues for the interim periods from 2001 to 2002, $50.2
million and $142.5 million are attributable to the effects of our acquisitions
of cable systems and $76.9 million and $149.4 million relate to increased rates
and subscriber growth in our historical operations, driven principally by growth
in digital subscriptions. During the three and six months ended June 30, 2002,
we added approximately 197,900 and 401,600 digital subscriptions.
The increases in high-speed Internet revenue for the interim periods from
2001 to 2002 are primarily due to the addition of approximately 128,400 and
220,800 high-speed Internet subscribers during the three and six months ended
June 30, 2002, and to the effects of rate increases.
24
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
The increases in advertising sales revenue for the interim periods from
2001 to 2002 are primarily attributable to the effects of a stronger advertising
market and the continued leveraging of our market-wide fiber interconnects.
Other revenue includes installation revenues, guide revenues, commissions
from electronic retailing, revenues of our regional sports programming networks
and revenue from other product offerings. The increase for the six month period
from 2001 to 2002 is primarily attributable to the effects of our acquisitions
and to growth in our regional sports programming networks. The decrease for the
three month period from 2001 to 2002 is primarily attributable to a decrease in
installation revenue.
The increases in franchise fees collected from our cable subscribers under
the terms of our franchise agreements for the interim periods from 2001 to 2002
are attributable to the increases in our revenues upon which the fees apply.
The increases in operating, selling, general and administrative expense for
the interim periods from 2001 to 2002 are primarily due to the effects of our
acquisitions of cable systems, as well as to the effects of increases in the
costs of cable programming, high-speed Internet subscriber growth, and, to a
lesser extent, increases in labor costs and other volume related expenses in our
historical operations.
Our cost of programming increases as a result of changes in rates,
subscriber growth, additional channel offerings and our acquisitions. We
anticipate the cost of cable programming will increase in the future as cable
programming rates increase and additional sources of cable programming become
available.
Commerce (QVC, Inc. and Subsidiaries) Three Months Ended
June 30, Increase
2002 2001 $ %
--------- --------- --------- --------
Net sales from electronic retailing.......................... $994.5 $876.0 $118.5 13.5%
Cost of goods sold from electronic retailing................. 628.8 555.2 73.6 13.3
Operating, selling, general and administrative
expenses................................................ 171.2 161.0 10.2 6.3
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $194.5 $159.8 $34.7 21.7%
========= ========= ========= ========
Gross margin................................................. 36.8% 36.6%
========= =========
Six Months Ended
June 30, Increase
2002 2001 $ %
--------- --------- --------- --------
Net sales from electronic retailing.......................... $1,988.0 $1,760.0 $228.0 13.0%
Cost of goods sold from electronic retailing................. 1,260.0 1,111.8 148.2 13.3
Operating, selling, general and administrative
expenses................................................ 341.2 315.7 25.5 8.1
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $386.8 $332.5 $54.3 16.3%
========= ========= ========= ========
Gross margin................................................. 36.6% 36.8%
========= =========
_______________
(a) See footnote (1) on page 22.
Of the $118.5 million and $228.0 million increases in net sales from
electronic retailing for the interim periods from 2001 to 2002, $80.6 million
and $166.5 million are attributable to increases in net sales in the United
States. This growth is principally the result of increases over the prior year
interim period in the average number of homes receiving QVC services and in net
sales per home as follows:
25
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
Three Months Six Months
Ended Ended
June 30, 2002 June 30, 2002
----------------- ---------------
Increase in average number of homes.......................... 3.5% 3.6%
Increase in net sales per home............................... 6.9% 7.2%
It is unlikely that the number of homes receiving the QVC service
domestically will continue to grow at rates comparable to prior periods given
that the QVC service is already received by approximately 96% of all U.S. cable
television homes and substantially all satellite television homes in the U.S.
Future growth in sales will depend increasingly on continued additions of new
customers from homes already receiving the QVC service and continued growth in
repeat sales to existing customers.
The remaining increases of $37.9 million and $61.5 million in net sales
from electronic retailing for the interim periods from 2001 to 2002 are
primarily attributable to increases in net sales in Germany and Japan, and to
the effects of fluctuations in foreign currency exchange rates during the
periods.
The increases in cost of goods sold are primarily related to the growth in
net sales. The changes in gross margin are primarily due to the effects of
shifts in sales mix.
The increases in operating, selling, general and administrative expenses
are primarily attributable to higher variable costs and personnel costs
associated with the increases in sales volume.
Consolidated Analysis
Interest Expense
The increases in interest expense for the interim periods from 2001 to 2002
are primarily due to the effects of Comcast Cable's senior notes offerings in
May and June 2001.
We anticipate that, for the foreseeable future, interest expense will be a
significant cost to us. We believe we will continue to be able to meet our
obligations through our ability both to generate operating income before
depreciation and amortization and to obtain external financing.
_______________________
Investment Income (Expense)
Investment income (expense) for the interim periods includes the following
(in millions):
Three Months Six Months Ended
Ended June 30, June 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Interest and dividend income.................................. $10.6 $17.4 $17.5 $35.0
(Losses) gains on sales and exchanges of investments, net..... (102.5) 448.0 (100.9) 459.6
Investment impairment losses.................................. (208.7) (45.0) (221.3) (939.1)
Reclassification of unrealized gains.......................... 1,092.4
Unrealized (loss) gain on Sprint PCS common stock............. (420.2) 392.4 (1,439.7) 265.6
Mark to market adjustments on derivatives
related to Sprint PCS common stock....................... 324.2 (317.9) 1,171.1 (191.5)
Mark to market adjustments on derivatives and
hedged items............................................. (62.5) 7.8 (133.8) (4.6)
--------- --------- --------- ---------
Investment income (expense).............................. ($459.1) $502.7 ($707.1) $717.4
========= ========= ========= =========
26
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
The investment impairment losses for the three and six months ended June
30, 2002 and the six months ended June 30, 2001 relate principally to other than
temporary declines in our investment in AT&T.
In connection with the reclassification of our investment in Sprint PCS
from an available for sale security to a trading security, we recorded to
investment income (expense) the accumulated unrealized gain of $1.092 billion on
our investment in Sprint PCS which was previously recorded as a component of
accumulated other comprehensive income (loss).
Equity in Net Losses of Affiliates
The increases in equity in net losses of affiliates for the interim periods
from 2001 to 2002 are primarily attributable to effects of the consolidation of
The Golf Channel in June 2001, the effects of our additional investments and to
changes in the net income or loss of our equity method investees, offset, in
part, by decreases in the amortization of equity method goodwill as a result of
the adoption of SFAS No. 142 on January 1, 2002.
Other Income (Expense)
On January 1, 2001, we completed our cable systems exchange with Adelphia
Communications Corporation ("Adelphia"). We received cable systems serving
approximately 445,000 subscribers from Adelphia and Adelphia received certain of
our cable systems serving approximately 441,000 subscribers. We recorded to
other income (expense) a pre-tax gain of $1.199 billion, representing the
difference between the estimated fair value of $1.799 billion as of the closing
date of the transaction and our cost basis in the systems exchanged.
Income Tax Benefit (Expense)
The changes in income tax benefit (expense) for the interim periods from
2001 to 2002 are primarily the result of the effects of changes in our income
before taxes, minority interest and cumulative effect of accounting change.
Minority Interest
The increases in minority interest for the interim periods from 2001 to
2002 are attributable to the effects of changes in the net income or loss of our
less than wholly owned consolidated subsidiaries.
Cumulative Effect of Accounting Change
In connection with the adoption of SFAS No. 142, we completed an initial
transitional impairment assessment of goodwill and other indefinite lived
intangible assets, which consist of our cable and sports franchise rights. Based
upon further guidance provided by the EITF, we determined that no cumulative
effect results from adopting this change in accounting principle.
In connection with the adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, we recognized as income a
cumulative effect of accounting change, net of related income taxes, of $384.5
million during the six months ended June 30, 2001. The income consisted of a
$400.2 million adjustment to record the debt component of our ZONES at a
discount from its value at maturity and $191.3 million principally related to
the reclassification of gains previously recognized as a component of
accumulated other comprehensive income (loss) on our equity derivative
instruments, net of related deferred income taxes of $207.0 million.
We believe that our operations are not materially affected by inflation.
27
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
PART II. OTHER INFORMATION
-------- -----------------
ITEM 1. LEGAL PROCEEDINGS
Certain litigation has been filed, and other litigation has been
threatened, against the Company as a result of alleged conduct of the
Company with respect to its investment in and distribution relationship
with At Home Corporation ("At Home"). At Home was a provider of high-speed
Internet access and content services, which filed for bankruptcy protection
in September 2001. Filed actions are: (i) class action lawsuits against the
Company, Brian L. Roberts (the Company's President and a director), AT&T
(the former controlling shareholder of At Home and also a former
distributor of the At Home service) and other corporate and individual
defendants in the Superior Court of San Mateo County, California, alleging
breaches of fiduciary duty on the part of the Company and the other
defendants in connection with transactions agreed to in March 2000 among At
Home, the Company, AT&T, Cox Communications, Inc. ("Cox," also an investor
in At Home and a former distributor of the At Home service); and (ii) class
action lawsuits against the Company, AT&T and others in the United States
District Court for the Southern District of New York, alleging securities
law violations and common law fraud in connection with disclosures made by
At Home in 2001. The actions in San Mateo County, California have been
stayed by the United States Bankruptcy Court for the Northern District of
California, the court in which At Home filed for bankruptcy, as violating
the automatic bankruptcy stay. The plaintiffs have submitted an amended
complaint to the Bankruptcy Court, which is expected to decide in September
2002 whether the amended complaint can proceed. In the Southern District of
New York actions, the court has ordered the actions consolidated into a
single action. It is expected that an amended consolidated complaint will
be served in mid-October 2002.
In the At Home bankruptcy proceeding, certain creditors of At Home have
been threatening, and have negotiated for themselves the right to bring,
claims against the Company, AT&T and Cox arising from the March 2000
agreements and for alleged breaches of fiduciary duty. Further, the
creditors have negotiated for the right to bring claims against the Company
and Cox seeking recovery of alleged short-swing profits pursuant to Section
16(b) of the Securities Exchange Act of 1934 purported to have arisen in
connection with certain transactions relating to At Home stock effected
pursuant to the March 2000 agreements.
Following closing of the AT&T Broadband transaction, the Company may be
contractually liable for 50% of the liabilities of AT&T relating to At Home
(AT&T would be liable for the other 50% of such liabilities). The Company
denies any wrongdoing in connection with these actual and potential claims,
and intends to defend all such claims vigorously. In management's opinion,
the final disposition of all such claims (including taking into account any
liability of the Company on account of AT&T as described in the second
preceding sentence), will not have a material adverse effect on the
Company's or, following the closing of the AT&T Broadband transaction, the
combined company's consolidated financial condition or results of
operations.
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 condition, results of operations or
liquidity of the Company.
28
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting on July 10, 2002, the shareholders approved the
following proposals:
To elect ten directors to serve for the ensuing year and until their
respective successors shall have been duly elected and qualified.
Director Class of Stock For Withheld
-------- -------------- --- --------
Ralph J. Roberts Class A 18,098,310 30,377
Class B 141,665,625
Julian A. Brodsky Class A 18,104,463 24,224
Class B 141,665,625
Brian L. Roberts Class A 18,109,917 18,770
Class B 141,665,625
Decker Anstrom Class A 18,111,843 16,844
Class B 141,665,625
Sheldon M. Bonovitz Class A 18,090,050 38,637
Class B 141,665,625
Joseph L. Castle II Class A 18,107,111 21,576
Class B 141,665,625
Felix G. Rohatyn Class A 18,100,304 28,383
Class B 141,665,625
Bernard C. Watson Class A 18,117,675 11,012
Class B 141,665,625
Irving A. Wechsler Class A 18,098,290 30,397
Class B 141,665,625
Anne Wexler Class A 18,082,491 46,196
Class B 141,665,625
To ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the 2002 fiscal year.
Class of Stock For Against Abstain
-------------- --- ------- -------
Class A 18,067,949 94,439 72,721
Class B 141,665,625
To consider a proposal to approve an amendment to the Comcast Corporation
1996 Stock Option Plan.
Class of Stock For Against Abstain
-------------- --- ------- -------
Class A 17,455,304 645,438 134,367
Class B 141,665,625
29
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
10.1 Comcast Corporation 1996 Stock Option Plan, as amended and
restated, effective April 29, 2002.
10.2 Comcast Corporation 1997 Deferred Stock Option Plan, as amended
and restated, effective April 29, 2002.
10.3 Comcast Corporation 1996 Deferred Compensation Plan, as amended
and restated, effective July 9, 2002.
99.1 Certifications of Chief Executive Officer and Co-Chief
Financial Officers of Comcast Corporation pursuant to Section
1350 of Chapter 63 of Title 18 of the United States Code.
(b) Reports on Form 8-K:
(i) We filed a Current Report on Form 8-K under Items 5 and 7(c) on
May 3, 2002 reporting the results of our operations for the
three months ended March 31, 2002.
30
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMCAST CORPORATION
----------------------------------
/S/ LAWRENCE J. SALVA
----------------------------------
Lawrence J. Salva
Senior Vice President
(Principal Accounting Officer)
Date: August 14, 2002
31