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FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ____________
Commission file number 0-6983
[GRAPHIC OMITTED - LOGO]
COMCAST CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1709202
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1500 Market Street, Philadelphia, PA 19102-2148
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A Special Common Stock, $1.00 par value
Class A Common Stock, $1.00 par value
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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 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
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As of December 31, 2000, the aggregate market value of the Class A Special
Common Stock and Class A Common Stock held by non-affiliates of the Registrant
was $37.421 billion and $862.3 million, respectively.
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As of December 31, 2000, there were 908,015,192 shares of Class A Special Common
Stock, 21,832,250 shares of Class A Common Stock and 9,444,375 shares of Class B
Common Stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Part III - The Registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders presently scheduled to be held in June 2001.
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COMCAST CORPORATION
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business............................................................. 1
Item 2 Properties...........................................................16
Item 3 Legal Proceedings....................................................16
Item 4 Submission of Matters to a Vote of Security Holders..................16
Item 4A Executive Officers of the Registrant.................................17
PART II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters.........................................18
Item 6 Selected Financial Data..............................................19
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................21
Item 8 Financial Statements and Supplementary Data..........................31
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................................64
PART III
Item 10 Directors and Executive Officers of the Registrant...................64
Item 11 Executive Compensation...............................................64
Item 12 Security Ownership of Certain Beneficial Owners and Management.......64
Item 13 Certain Relationships and Related Transactions.......................64
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K......65
SIGNATURES...................................................................69
This Annual Report on Form 10-K is for the year ended December 31, 2000.
This Annual Report modifies and supersedes documents filed prior to this Annual
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 Annual Report. In addition, information that we
file with the SEC in the future will automatically update and supersede
information contained in this Annual Report. In this Annual Report, "Comcast,"
"we," "us" and "our" refer to Comcast Corporation and its subsidiaries.
You should carefully review the information contained in this Annual
Report, but should particularly consider any risk factors that we set forth in
this Annual Report and in other reports or documents that we file from time to
time with the SEC. In this Annual Report, we state our beliefs of future events
and of our future financial performance. In some cases, you can identify those
so-called "forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
Factors Affecting Future Operations
We have acquired and we anticipate acquiring cable communications systems
in new communities in which we do not have established relationships with the
franchising authority, community leaders and cable subscribers. Further, a
substantial number of new employees are being and must continue to be integrated
into our business practices and operations. Our results of operations may be
significantly affected by our ability to efficiently and effectively manage
these changes.
In addition, our businesses may be affected by, among other things:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o industry consolidation and mergers,
o franchise related matters,
o market conditions that may adversely affect the availability of
debt and equity financing for working capital, capital
expenditures or other purposes,
o demand for the programming content we distribute or the
willingness of other video program distributors to carry our
content, and
o general economic conditions.
PART I
ITEM 1 BUSINESS
We are principally involved in three lines of business:
o Cable-through the development, management and operation of
broadband communications networks,
o Commerce-through QVC, our electronic retail- ing subsidiary, and
o Content-through our consolidated subsidiaries Comcast Spectacor,
Comcast SportsNet and E! Entertainment Television, and through
our other programming investments, including The Golf Channel,
Speedvision and Outdoor Life.
We are currently the third largest cable operator in the United States and
are in the process of deploying digital cable applications and high-speed cable
modem service to expand the products available on our cable communications
networks.
Our consolidated cable operations served approximately 7.7 million
subscribers and passed approximately 12.9 million homes in the United States as
of December 31, 2000. We have entered into an agreement to acquire, subject to
receipt of necessary regulatory and other approvals, up to 700,000 cable
subscribers from AT&T Corp. Upon completion of this pending transaction, which
is expected to close by the end of the second quarter of 2001, we will serve
approximately 8.4 million subscribers.
Through QVC, we market a wide variety of products directly to consumers
primarily on merchandise-focused television programs. As of December 31, 2000,
QVC was available, on a full and part-time basis, to over 77.9 million homes in
the United States, over 8.9 million homes in the United Kingdom and over 22.6
million homes in Germany.
We are a Pennsylvania corporation that was organized in 1969. We have our
principal executive offices at 1500 Market Street, Philadelphia, PA 19102-2148.
Our telephone number is (215) 665-1700. We also have a world wide web site at
http://www.comcast.com. The information posted on our web site is not
incorporated into this Annual Report.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
You should see Note 10 to our consolidated financial statements in Item 8
of this Annual Report for information about our operations by industry segment.
GENERAL DEVELOPMENTS OF OUR BUSINESS
We entered into a number of significant transactions in 2000 which have
closed or are expected to close in 2001. We have summarized these transactions
below and have more fully described them in Note 3 to our consolidated financial
statements in Item 8 of this Annual Report.
Pending Transactions as of December 31, 2000
Adelphia Cable Systems Exchange
On January 1, 2001, we completed our previously announced cable systems
exchange with Adelphia Communications pursuant to which we received cable
communications systems serving approximately 460,000 subscribers from Adelphia.
In exchange, Adelphia received certain of our cable communications systems
serving approximately 440,000 subscribers.
AT&T Cable Systems Acquisition
In August 2000, we entered into an agreement with AT&T to acquire cable
communications systems serving up to 700,000 subscribers from AT&T in exchange
for AT&T common stock that we currently own or may acquire, in a transaction
intended to qualify as tax-free to both us and to AT&T. The transaction is
subject to customary closing conditions and regulatory approvals and is expected
to close by the end of the second quarter 2001.
Completed Transactions During 2000
Acquisition of Lenfest Communications, Inc.
In January 2000, we acquired Lenfest Communications, Inc., a cable
communications company serving approximately 1.1 million subscribers primarily
in the Philadelphia area from AT&T and the other Lenfest stockholders for
approximately 120.1 million shares of our Class A Special Common Stock with a
value of $6.014 billion. In connection with the acquisition, we assumed
approximately $1.326 billion of debt.
Consolidation of Comcast Cablevision of Garden State, L.P.
Comcast Cablevision of Garden State, L.P. , formerly Garden State
Cablevision L.P., a cable communications company serving approximately 216,000
subscribers in New Jersey, is a partnership which was owned 50% by Lenfest and
50% by us. We had accounted for our interest in Garden State Cable under the
equity method. As a result of the acquisition of Lenfest Communications, Inc.,
we now own 100% of Garden State Cable. As such, the operating results of Garden
State Cable have been included in our consolidated statement of operations from
the date of our acquisition of Lenfest.
Acquisition of CalPERS' Interest in Jointly Owned Cable Properties
In February 2000, we acquired the California Public Employees Retirement
System's 45% interest in Comcast MHCP Holdings, L.L.C., formerly a 55% owned
consolidated subsidiary of ours, which serves subscribers in Michigan, New
Jersey and Florida. As a result, we now own 100% of Comcast MHCP. The
consideration was $750.0 million in cash.
Acquisition of Remaining Interest in Jones Intercable, Inc.
In March 2000, we acquired from the public shareholders the approximate 60%
interest in Jones Intercable, Inc. not previously held by us for approximately
35.6 million shares of our Class A Special Common Stock with a value of $1.727
billion. Jones Intercable was formerly a 40% owned consolidated subsidiary of
ours.
Acquisition of Prime Communications LLC
In August 2000, we acquired Prime Communications LLC, a cable
communications company serving approximately 406,000 subscribers, for cash and
through our conversion to equity of previously made loans to Prime. Upon
closing, we assumed and immediately repaid $532.0 million of Prime's debt with
proceeds from borrowings under existing credit facilities.
AT&T Cable Systems Exchange
On December 31, 2000, we completed our previously announced cable systems
exchange with AT&T Corp. pursuant to which we received cable communications
systems serving approximately 770,000 subscribers. In exchange, AT&T received
certain of our cable communications systems serving approximately 700,000
subscribers.
DESCRIPTION OF OUR BUSINESSES
Cable Communications
Technology and Capital Improvements
Our cable communications networks receive signals by means of:
o special antennae,
o microwave relay systems,
o earth stations, and
o coaxial and fiber optic cables.
Products and Services
We offer a variety of services over our cable communications networks,
including traditional analog video and new services such as digital cable and
high- speed cable modem service. Available service offerings depend on the
bandwidth capacity of the cable communications system. Bandwidth, expressed in
megahertz (MHz), is a measure of information-carrying capacity. It is the range
of usable frequencies that can be carried by a cable communications system. The
greater the bandwidth, the greater the capacity of the system. As of January 31,
2001, approximately 84% of our cable subscribers were served by a system with a
capacity of at least 550-MHz and approximately 70% of our cable subscribers were
served by a system with a capacity of at least 750-MHz.
Digital compression technology enables us to substantially increase the
number of channels our cable communications systems can carry. Digital
compression technology converts up to twelve analog signals into a digital
format and compresses such signals into the bandwidth normally occupied by one
analog signal. At the home, a set-top video terminal converts the digital signal
into analog signals that can be viewed on a normal television set. Digital
compression technology enables us to provide a significant number of additional
programming choices to our subscribers.
We are deploying fiber optic cable and upgrading the technical quality of
our cable communications networks.
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As a result, the reliability and capacity of our systems have increased, aiding
in the delivery of additional video programming and other services such as
enhanced digital video, high-speed cable modem service and, in some areas,
telephony.
We will incur significant capital expenditures in the future for the
upgrading and rebuilding of the cable communications systems acquired or to be
acquired by us as a result of our acquisitions of Lenfest Communi- cations and
Jones Intercable, the systems exchanges with AT&T and Adelphia, as well as the
pending systems acquisition from AT&T.
Franchises
Cable communications systems are constructed and operated under
non-exclusive franchises granted by state or local governmental authorities for
varying lengths of time and are subject to federal, state and local legislation
and regulation. Our franchises typically provide for periodic payment of fees to
franchising authorities of up to 5% of "revenues" (as defined by each franchise
agreement). We normally pass those fees on to subscribers. In many cases, we
need the consent of the franchising authority to transfer our franchises.
Although franchises historically have been renewed, renewals may include
less favorable terms and conditions. Under existing law, franchises should
continue to be renewed for companies that have provided adequate service and
have complied generally with franchise terms. The franchising authority may
choose to award additional franchises to competing companies at any time. As of
January 31, 2001, we served approximately 1,776 franchise areas in the United
States.
Traditional Analog Video Services
We receive the majority of our revenues from subscription services.
Subscribers typically pay us on a monthly basis and generally may discontinue
services at any time. Monthly subscription rates and related charges vary
according to the type of service selected and the type of equipment used by
subscribers.
We offer a full range of traditional analog video services. We tailor both
our basic channel line-up and our additional channel offerings to each system
according to demographics, programming preferences, competition, price
sensitivity and local regulation. Our service offerings include the following
programming packages:
o basic programming,
o expanded basic programming,
o premium services, and
o pay-per-view programming.
All of our video subscribers receive our basic cable service. This service
generally consists of national television networks, local broadcast television,
locally- originated programming, including governmental and public access, and
limited satellite-delivered programming.
Our expanded basic cable service includes a group of satellite-delivered or
non-broadcast channels such as Entertainment and Sports Programming Network
(ESPN), Cable News Network (CNN) and MTV Networks (MTV), in addition to the
basic channel line-up.
For an additional monthly fee, subscribers can also subscribe to our
premium services either individually or in packages of several channels. Our
premium services generally offer, without commercial interruption, feature
motion pictures, live and taped sporting events, concerts and other special
features. The charge for premium services depends upon the type and level of
service selected by the subscriber. Our premium services may include offerings
such as:
o Home Box Office(R),
o Cinemax(R),
o Showtime(R),
o The Movie Channel(TM),
o Encore(R), and
o Starz(R).
Our pay-per-view service permits our subscribers to order, for a separate
fee, individual feature motion pictures and special event programs, such as
professional boxing, professional wrestling and concerts on an unedited,
commercial-free basis.
New Service Offerings
The high bandwidth capacity of our cable communications networks enables us
to deliver substantially more channels and/or new and advanced products and
services to our subscribers. A variety of emerging technologies and the rapid
growth of the Internet have presented us with substantial opportunities to
provide new or expanded products and services to our subscribers and to expand
our sources of revenue. As a result, we have introduced the following new
services for the benefit of both our residential and commercial subscribers:
o digital cable television service, and
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o high-speed cable modem service installed in personal computers.
We have and will continue to upgrade our cable communications systems so
that we can provide these and other new services such as video on demand,
commonly known as VOD, interactive television and cable telephony more rapidly
to our subscribers.
Digital Cable Service
We offer digital cable television services to subscribers in substantially
all of our cable communications systems.
Subscribers to our digital cable service may receive a mix of additional
television programming, an interactive program guide and multiple channels of
digital music. The additional programming falls into four categories:
o additional expanded basic channels,
o additional premium channels,
o "multiplexes" of premium channels to which a subscriber
previously subscribed, such as multiple channels of Home Box
Office or Showtime, which are varied as to time of broadcast or
programming content theme, and
o additional pay-per-view programming, such as more pay-per-view
options and/or frequent showings of the most popular films to
provide near video-on-demand.
Subscribers typically pay us on a monthly basis for digital cable services
and generally may discontinue services at any time. Monthly subscription rates
vary generally according to the level of service and the number of digital
converters selected by the subscriber. We expect that purchases of these
services by our subscribers will increase in the future.
High-Speed Cable Modem Service
We market Excite@Home's high-speed cable modem services as Comcast@Home in
areas served by certain of our cable communications systems. Residential
subscribers can connect their personal computers via cable modems to a
high-speed national network developed and managed by Excite@Home. Subscribers
can then access online information, including the Internet, at faster speeds
than that of conventional modems. We also provide businesses with Internet
connectivity solutions and networked business applications. We provide national
and local content and sell advertising to businesses.
Other Revenue Sources
We also generate revenues from advertising sales, installation services,
commissions from electronic retailing and other services. We generate revenues
from the sale of advertising time to local, regional and national advertisers on
non-broadcast channels.
Sales and Marketing
Our sales efforts are primarily directed toward generating incremental
revenues in our franchise areas and increasing the number of subscribers we
serve. We sell our products and services through:
o telemarketing,
o direct mail advertising,
o door-to-door selling,
o cable television advertising,
o local media advertising, and
o retail outlets.
Programming
We generally pay a monthly fee per subscriber per channel. Our programming
costs are increased by:
o increases in the number of subscribers,
o expansion of the number of channels provided to customers, and
o increases in contract rates from programming suppliers.
We attempt to secure long-term programming contracts with volume discounts
and/or marketing support and incentives from programming suppliers. Our
programming contracts are generally for a fixed period of time and are subject
to negotiated renewal. We have experienced increases in our cost of programming
and we anticipate that future contract renewals will result in programming costs
that are higher than our costs today, particularly for sports programming.
We utilize interactive programming guides to provide our subscribers with
current programming information, as well as advertising and other content. We
recently formed a joint venture with other companies, including various cable
companies, to develop additional sources for the interactive guide.
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Customer Service
We manage most of our cable communications systems in geographic clusters.
Clustering improves our ability to sell advertising, enhances our ability to
efficiently introduce and market new products, and allows us to more efficiently
and effectively provide customer service and support. As part of our clustering
strategy, we have consolidated our local customer service operations into large
regional call centers. These regional call centers have technologically advanced
telephone systems that provide 24-hour per day, 7-day per week call answering
capability, telemarketing and other services.
Our Cable Communications Systems
The table below summarizes certain subscriber information for our cable
communications systems as of December 31 (homes, subscribers and subscriptions
in thousands):
2000(9) 1999(9) 1998 1997 1996
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Cable
Homes Passed (1) 12,679 9,522 7,382 7,138 6,975
Subscribers (2) 7,607 5,720 4,511 4,366 4,280
Penetration (3) 60.0% 60.1% 61.1% 61.2% 61.4%
Digital Cable
"Digital Ready" Subscribers (4) 7,258 4,637 1,570
Subscriptions (5) 1,354 515 78
Penetration (6) 18.7% 11.1% 5.0%
Comcast@Home
"Modem Ready" Homes Passed (7) 6,360 3,259 1,804 866
Subscribers 400 142 51 10
"Modem Ready" Penetration (8) 6.3% 4.4% 2.8% 1.2%
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(1) A home is "passed" if we can connect it to our distribution system without
further extending the transmission lines.
(2) A dwelling with one or more television sets connected to a system counts as
one cable subscriber.
(3) Cable penetration means the number of cable subscribers as a percentage of
cable homes passed.
(4) A subscriber is "digital ready" if the subscriber is in a market where we
have launched our digital cable service.
(5) Each digital converter box counts as one digital cable subscription.
(6) Digital cable penetration means the number of digital cable subscriptions
as a percentage of "digital ready" subscribers. Certain subscribers may
have multiple digital cable subscriptions.
(7) A home passed is "modem ready" if we can connect it to our Internet service
connection system without further upgrading the transmission lines.
(8) "Modem ready" penetration means the number of Comcast@Home subscribers as a
percentage of "modem ready" homes passed.
(9) In April 1999, we acquired a controlling interest in Jones Intercable, Inc.
In January 2000, we acquired Lenfest Communications, Inc. and began
consolidating the results of Comcast Cablevision of Garden State, L.P. In
August 2000, we acquired Prime Communications LLC. On January 1, 2001 and
December 31, 2000, we completed our cable systems exchanges with Adelphia
Communications and AT&T Corp., respectively. The subscriber information as
of December 31, 2000 excludes the effects of our exchanges with Adelphia
and AT&T.
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Competition
Our cable communications systems compete with a number of different sources
which provide news, information and entertainment programming to consumers,
including:
o local television broadcast stations that provide off-air
programming which can be received using a roof-top antenna and
television set,
o program distributors that transmit satellite signals containing
video programming, data and other information to receiving dishes
of varying sizes located on the subscriber's premises,
o satellite master antenna television systems, commonly known as
SMATV, which generally serve condominiums, apartment and office
complexes and residential developments,
o other operators who build and operate communications systems in
the same communities that we serve,
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o interactive online computer services,
o newspapers, magazines and book stores,
o movie theaters,
o live concerts and sporting events, and
o home video products.
In order to compete effectively, we strive to provide, at a reasonable
price to subscribers:
o superior technical performance,
o superior customer service,
o a greater variety of video programming, and
o new products and services.
Federal law allows local telephone companies to provide, directly to
subscribers, a wide variety of services that are competitive with our cable
communications services. Some local telephone companies provide or plan to
provide video services within and outside their telephone service areas through
a variety of methods, including cable networks, satellite program distribution
and wireless transmission facilities.
A local telephone company, Ameritech, and facilities-based competitors such
as RCN Corporation and Knology Holdings, Inc., among others, are now offering
cable and other communications services in various areas where we hold
franchises. We anticipate that facilities- based competitors will develop in
other franchise areas that we serve.
Local telephone companies and other businesses construct and operate
communications facilities that provide access to the Internet and distribute
interactive computer-based services, data and other non-video services to homes
and businesses. These competitors are not required, in certain circumstances, to
comply with some of the material obligations imposed upon our cable
communications systems under our franchises. We are unable to predict the
likelihood of success of competing video or cable service ventures by local
telephone companies or other businesses. Nor can we predict the impact these
competitive ventures might have on our business and operations.
We operate each of our cable communications systems pursuant to a
non-exclusive franchise that is issued by the community's governing body such as
a city council, a county board of supervisors or a state regulatory agency.
Federal law prohibits franchising authorities from unreasonably denying requests
for additional franchises, and it permits franchising authorities to operate
cable systems. Companies that traditionally have not provided cable services and
that have substantial financial resources (such as public utilities that own
certain of the poles to which our cables are attached) may also obtain cable
franchises and may provide competing communications services.
In the past few years, Congress has enacted legislation and the Federal
Communications Commission, commonly known as the FCC, has adopted regulatory
policies intended to provide a more favorable operating environment for existing
and new technologies that provide, or have the potential to provide, substantial
competition to our cable communications systems. These technologies include
direct broadcast satellite service, commonly known as DBS, among others.
According to recent government and industry reports, conventional, medium and
high-power satellites currently provide video programming to over 14.5 million
individual households, condominiums, apartment and office complexes in the
United States. DBS providers with high-power satellites typically offer to their
subscribers more than 300 channels of programming, including programming
services substantially similar to those provided by cable communications
systems.
DBS service can be received virtually anywhere in the continental United
States through the installation of a small roof top or side-mounted antenna. DBS
systems use video compression technology to increase channel capacity and
digital technology to improve the quality of the signals transmitted to their
subscribers. Our digital cable service is competitive with the programming,
channel capacity and the digital quality of signals delivered to subscribers by
DBS systems. We are and will continue to deploy digital cable service in the
communities that we serve.
Two major companies, DirecTV and Echostar, are currently offering
nationwide high-power DBS services. Federal legislation establishes, among other
things, a permanent compulsory copyright license that permits satellite carriers
to retransmit local broadcast television signals to subscribers who reside
inside the local television station's market. These companies are transmitting
local broadcast signals in many markets which we serve. As a result, satellite
carriers are more competitive to cable communications system operators like us
because they offer programming which more closely resembles what we offer. These
companies and others are also developing ways to bring advanced communications
services to their customers. They are currently offering satellite-delivered
high-speed Internet access services with a telephone return path and are
beginning to provide true two-way interactivity. We are unable to predict the
effects these competitive developments might have on our business and
operations.
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Our cable communications systems also compete for subscribers with SMATV
systems. SMATV system operators typically are not subject to regulation like
local franchised cable communications system operators. SMATV systems offer
subscribers both improved reception of local television stations and many of the
same satellite-delivered programming services offered by franchised cable
communications systems. In addition, some SMATV operators are developing and/or
offering packages of telephony, data and video services to private residential
and commercial developments. SMATV system operators often enter into exclusive
service agreements with building owners or homeowners' associations, although
some states have enacted laws to provide cable communications systems access to
these complexes. Courts have reviewed challenges to these laws and have reached
varying results.
Many of our cable communications systems are currently offering high-speed
cable modem services to subscribers. These systems compete with a number of
other companies, many of whom have substantial resources, such as:
o existing Internet service providers, commonly known as ISPs,
o local telephone companies, and
o long distance telephone companies.
A number of companies, including telephone companies and ISP's, have asked
local, state and federal governments to mandate that cable communications
systems operators provide capacity on their broadband infrastructure so that
these companies and others may deliver high-speed Internet access and
interactive television services directly to customers over cable facilities.
The deployment of Digital Subscriber Line technology, known as DSL, allows
Internet access to subscribers at data transmission speeds equal to or greater
than that of modems over conventional telephone lines. Numerous companies,
including telephone companies, have introduced DSL service and certain telephone
companies are seeking to provide high-speed broadband services without regard to
present service boundaries and other regulatory restrictions. We are unable to
predict the likelihood of success of competing online services offered by our
competitors or what impact these competitive ventures may have on our business
and operations.
We expect advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment to occur in the
future. We refer you to page 10 for a detailed discussion of legislative and
regulatory factors. Other new technologies and services may develop and may
compete with services that our cable communications systems offer. Consequently,
we are unable to predict the effect that ongoing or future developments might
have on our business and operations.
Commerce
QVC is a domestic and international electronic media general merchandise
retailer which produces and distributes merchandise-focused television programs,
via satellite, to affiliated video program distributors for retransmission to
subscribers. At QVC, program hosts describe and demonstrate the products and
viewers place orders directly with QVC. We own 57% of QVC.
Revenue Sources
QVC sells a variety of consumer products and accessories including jewelry,
housewares, electronics, apparel and accessories, collectibles, toys and
cosmetics. QVC purchases, or obtains on consignment, products from domestic and
foreign manufacturers and wholesalers, often on favorable terms based on the
volume of the transactions. QVC intends to continue introducing new products and
product lines. QVC does not depend upon any one particular supplier for any
significant portion of its inventory.
Viewers place orders to purchase QVC merchandise by calling a toll-free
telephone number. QVC uses automatic call distributing equipment to distribute
calls to its operators. The majority of all payments for purchases are made with
a major credit card or QVC's private label credit card. QVC's private label
credit card program is serviced by an unrelated third party. QVC ships
merchandise promptly from its distribution centers, typically within 24 hours
after receipt of an order. QVC's return policy permits customers to return,
within 30 days, any merchandise purchased for a full refund of the purchase
price and original shipping charges.
Distribution Channels
In the United States, QVC is transmitted live 24 hours a day, 7 days a
week, to 62.7 million cable television homes. An additional 0.7 million cable
television homes receive QVC on a less than full time basis and 14.5 million
home satellite dish users receive QVC programming. The QVC program schedule
consists of one-hour and multi-hour program segments. Each program theme is
devoted to a particular category of product or lifestyle. From time to time,
special program segments are devoted to merchandise associated with a particular
celebrity, event, geographical region or seasonal interest.
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QVC sells products by means of electronic media in Germany and the United
Kingdom. In the UK, this service currently reaches over 8.9 million cable
television and home satellite dish-served homes. In Germany, this service
currently is available to over 22.6 million cable television and home satellite
dish-served homes. However, we estimate that only 9.5 million homes in Germany
have programmed their television sets to receive this service.
QVC also offers an interactive shopping service, iQVC, on the Internet. The
iQVC service offers a diverse array of merchandise, on-line, 24 hours a day, 7
days a week. iQVC also maintains a mailing list which e-mails product news to
subscribers.
QVC Transmission
A transponder on a communications satellite transmits the QVC domestic
signal. QVC subleases transponders for the transmission of its signals to the UK
and Germany and has made arrangements for redundant coverage through other
satellites in case of a failure. QVC has never had an interruption in
programming due to transponder failure. We cannot offer assurances that there
will not be an interruption or termination of satellite transmission due to
transponder failure. Interruption or termination could have a material adverse
effect on QVC's future results of operations.
Program Distributors
QVC has entered into affiliation agreements with video program distributors
in the US to carry QVC programming. Generally, there are no charges to the
programming distributors for the distribution of QVC. In return for carrying
QVC, each programming distributor receives an allocated portion, based upon
market share, of up to five percent of the net sales of merchandise sold to
customers located in the programming distributor's service area. QVC has entered
into multi-year affiliation agreements with various cable and satellite system
operators for carriage of QVC programming. The terms of most affiliation
agreements are automatically renewable for one-year terms unless terminated by
either party on at least 90 days notice prior to the end of the term. Most of
the affiliation agreements provide for the programming distributor to broadcast
commercials regarding QVC on other channels and to distribute QVC's advertising
material to subscribers. As of December 31, 2000, 9.5% of the total homes
reached by QVC were attributable to QVC's affiliation agreements with us and
20.0% with AT&T's Liberty Media Group, the owner of a 43% interest in QVC, and
their respective affiliated companies.
QVC's business depends on its affiliation with programming distributors for
the transmission of QVC programming. If a significant number of homes are no
longer served because of termination or non-renewal of affiliation agreements,
our financial results could be adversely affected. QVC has incentive programs to
induce programming distributors to enter into or extend affiliation agreements
or to increase the number of homes under existing affiliation agreements. These
incentives include various forms of marketing, carriage and launch support. QVC
will continue to recruit additional programming distributors and seek to enlarge
its audience.
Competition
QVC operates in a highly competitive environment. As a general merchandise
retailer, QVC competes for consumer expenditures with the entire retail
industry, including department, discount, warehouse and specialty stores, mail
order and other direct sellers, shopping center and mall tenants and
conventional retail stores. On television, QVC competes with other programs for
channel space and viewer loyalty against similar electronic retailing
programming, as well as against alternative programming supplied by other
sources, including news, public affairs, entertainment and sports programmers.
The use of digital compression provides programming distributors with greater
channel capacity. While greater channel capacity increases the opportunity for
QVC to be distributed, it also may adversely impact on QVC's ability to compete
for television viewers to the extent it results in higher channel position, in
placement of QVC in separate programming tiers, or in the addition of
competitive channels.
- 8 -
Content
We have made investments in cable television networks and other
programming-related enterprises as a means of generating additional revenues and
subscriber interest. Our programming investments as of December 31, 2000
include:
Ownership
Investment Description Percentage
- ------------------------ ---------------------------------------------------------- -----------
Comcast Spectacor Live sporting events, concerts and other events 66.0%
Comcast SportsNet Regional sports programming and events 53.1%
E! Entertainment Entertainment-related news and original programming 39.7%
Style Fashion-related programming 39.7%
CN8-The Comcast Network Regional and local programming 100.0%
Comcast Sports Southeast Regional sports programming and events 72.4%
The Golf Channel Golf-related programming 60.3%
Outdoor Life Outdoor activities 16.8%
Speedvision Automotive, marine and aviation 14.5%
The Sunshine Network Regional sports and public affairs 15.6%
In Demand Pay-per-view programming 11.1%
Home Team Sports Regional sports programming and events (a)
(a) The Company acquired 100% of Home Team Sports in February 2001. Home Team
Sports is a regional sports programming network which provides sports
related programming, including the Baltimore Orioles MLB baseball team, the
Washington Wizards NBA basketball team, the Washington Capitals NHL hockey
team and the Carolina Hurricanes NHL hockey team. Home Team Sports serves
approximately 4.8 million subscribers in the Mid-Atlantic region.
---------------------------
Consolidated Programming Investments
Comcast Spectacor
Comcast Spectacor is our family of businesses that perform and/or host live
sporting events, concerts and other special events. Comcast Spectacor consists
principally of the Philadelphia Flyers NHL Hockey Team, the Philadelphia 76ers
NBA Basketball Team, two large multi-purpose arenas in Philadelphia and Comcast
SportsNet, our regional sports programming network.
Comcast SportsNet
Comcast SportsNet is a 24-hour regional sports programming network which
provides sports-related programming, including the Philadelphia Flyers NHL
hockey team, the Philadelphia 76ers NBA basketball team and the Philadelphia
Phillies MLB baseball team to approximately 2.7 million subscribers in the
Philadelphia region. Comcast SportsNet is delivered to affiliates terrestrially.
E! Entertainment
E! Entertainment is a 24-hour network with programming dedicated to the
world of entertainment. Programming formats include behind-the-scenes specials,
original movies and series, news, talk shows and comprehensive coverage of
entertainment industry awards shows and film festivals worldwide. The network
has approximately 67 million subscribers.
Style
Style, an affiliate of E! Entertainment, is our 24-hour cable network
dedicated to fashion, home design, beauty, health, fitness and more, with
distribution to approximately 10 million subscribers. We launched Style in
October 1998.
CN8-The Comcast Network
CN8-The Comcast Network, our regional programming service is delivered to
approximately 3.9 million cable subscribers in Pennsylvania, New Jersey,
Delaware and Maryland. CN8 provides original programming, including local and
regional news and public affairs, regional sports, health, cooking and family-
oriented programming. We intend to continue to introduce similar programming in
other areas we serve.
Comcast Sports Southeast
Comcast Sports Southeast ("CSS") was created in September 1999. CSS is
delivered to approximately 2.0 million cable subscribers primarily in Alabama,
Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina,
South Carolina and Tennessee. CSS is a satellite-delivered service that provides
original sports programming and sports news geared toward the Southeast.
- 9 -
Other Programming Investments
The Golf Channel
The Golf Channel is a 24-hour network devoted exclusively to golf
programming with distribution to approximately 37 million subscribers. The
programming schedule includes live tournaments, golf instruction programs and
golf news.
Outdoor Life
Outdoor Life is a 24-hour network devoted exclusively to adventure and the
outdoor lifestyle. Its programming focuses on a wide range of outdoor activities
including expeditions, skiing, cycling, surfing and camping.
Speedvision
Speedvision is a 24-hour network devoted to automotive, aviation and marine
enthusiasts. Its programming includes original consumer news, motorsports
coverage, lifestyle and instructional programs and historical documentaries.
The Sunshine Network
The Sunshine Network is a regional sports and public affairs network, which
focuses its programming specifically on teams, events and programs from Florida.
Programming rights include over 20 local teams and properties, including the
Orlando Magic and Miami Heat NBA basketball teams and the Tampa Bay Lightning
NHL hockey team.
In Demand
In Demand is the brand-name of a cable operator-controlled buying
cooperative for pay-per-view programming.
---------------------------
LEGISLATION AND REGULATION
Cable
The Communications Act of 1934, as amended, establishes a national policy
to regulate the development and operation of cable communications systems. The
Communications Act allocates responsibility for enforcing federal policies among
the FCC, state and local governmental authorities. The courts, especially the
federal courts, play an important oversight role as these statutory and
regulatory provisions are interpreted and enforced by the various federal, state
and local governmental units.
We expect that court actions and regulatory proceedings will continue to
refine the rights and obligations of various parties, including the government,
under the Communications Act. The results of these judicial and administrative
proceedings may materially affect our business operations. In the following
paragraphs, we summarize the principal federal laws and regulations materially
affecting the growth and operation of the cable communications industry. We also
provide a brief description of certain state and local laws applicable to our
businesses.
The Communications Act and FCC Regulations
The Communications Act and the regulations and policies of the FCC affect
significant aspects of our cable system operations, including:
o subscriber rates,
o the content of programming we offer our subscribers, as well as
the way we sell our program packages to subscribers and other
video program distributors,
o the use of our cable systems by local franchising authorities,
the public and other unrelated third parties,
o our franchise agreements with governmental authorities,
o cable system ownership limitations and prohibitions, and
o our use of utility poles and conduit.
Subscriber Rates
The Communications Act and the FCC's regulations and policies limit the
ability of cable systems to raise rates for basic services and equipment in
communities that are not subject to effective competition, as defined by federal
law. Where there is no effective competition, federal law gives franchising
authorities the power to regulate the monthly rates charged by the operator for:
o the lowest level of programming service, typically called basic
service, which generally includes local broadcast channels and
public access or governmental channels required by the operator's
franchise, and
- 10 -
o the installation, sale and lease of equipment used by subscribers
to receive basic service, such as converter boxes and remote
control units.
The FCC has adopted detailed rate regulations, guidelines and rate forms
that we and the franchising authority must use in connection with the regulation
of our basic service and equipment rates. If the franchising authority concludes
that our rates are not in accordance with the FCC's rate regulations, it may
require us to reduce our rates and to refund overcharges to subscribers, with
interest. We may appeal adverse rate decisions to the FCC.
The Communications Act and the FCC's regulations also:
o prohibit regulation of rates charged by cable operators for
programming offered on a per channel or per program basis, and
for multi- channel groups of non-basic programming,
o require operators to charge uniform rates throughout each
franchise area that is not subject to effective competition,
o prohibit regulation of non-predatory bulk discount rates offered
by operators to subscribers in commercial and residential
developments, and
o permit regulated equipment rates to be computed by aggregating
costs of broad categories of equipment at the franchise, system,
regional or company level.
Content Requirements
The Communications Act and the FCC's regulations contain broadcast signal
carriage requirements that allow certain local commercial television broadcast
stations:
o to elect once every three years to require a cable communications
system to carry the station, subject to certain exceptions, or
o to negotiate with us on the terms by which we carry the station
on our cable communications system, commonly called
retransmission consent.
The Communications Act and the FCC's regulations require a cable operator
to devote up to one-third of its activated channel capacity for the mandatory
carriage of local commercial television stations. The Communi- cations Act also
gives local non-commercial television stations mandatory carriage rights;
however, such stations are not given the option to negotiate retransmission
consent for the carriage of their signals by cable systems. Additionally, cable
systems must obtain retransmission consent for:
o all "distant" commercial television stations (except for
commercial satellite-delivered independent "superstations" such
as WGN),
o commercial radio stations, and
o certain low-power television stations.
The FCC recently adopted regulations which require us to carry the signals
of local digital-only broadcast stations (both commercial and non-commercial)
and the digital signals of those local broadcast stations that return their
analog spectrum to the government and convert to a digital broadcast format. The
FCC's rules give the digital- only broadcast stations the discretion to elect
whether the operator will carry the station's signal in a digital or converted
analog format and to tie the carriage of their digital signals with the carriage
of their analog signals as a retransmission consent condition. We are unable to
predict the ultimate outcome of this proceeding or the impact any new carriage
requirements might have on the operations of our cable systems.
The Communications Act requires our cable systems to permit subscribers to
purchase video programming on a per channel or a per program basis without the
necessity of subscribing to any tier of service, other than the basic cable
service tier. However, we are not required to comply with this requirement until
2002 for any of our cable systems that do not have addressable converter boxes
or that have other substantial technological limitations. A limited number of
our systems do not have the technological capability to offer programming in the
manner required by the statute and thus currently are exempt from complying with
this requirement.
To increase competition between cable operators and other video program
distributors, the Communications Act:
o precludes any satellite video programmer affiliated with a cable
company, or with a common carrier providing video programming
directly to its subscribers, from favoring an affiliated company
over competitors,
o requires such programmers to sell their satellite- delivered
programming to other video program distributors, and
o limits the ability of such programmers to offer exclusive
programming arrangements to their affiliates.
The FCC has concluded that the program access rules do not apply to certain
terrestrially-delivered
- 11 -
programming, such as Comcast SportsNet. The FCC decision is currently under
appeal.
The Communications Act contains restrictions on the transmission by cable
operators of obscene or indecent programming. The Communications Act requires
the cable operator, upon the request of the subscriber, to scramble or otherwise
fully block any channel the subscriber does not wish to receive. A three-judge
federal district court determined that certain restrictions on channels
primarily dedicated to sexually oriented programming were unconstitutional. The
United States Supreme Court recently affirmed the lower court's ruling.
The FCC actively regulates other aspects of our programming, involving such
areas as:
o our use of syndicated and network programs and local sports
broadcast programming,
o advertising in children's programming,
o political advertising,
o origination cablecasting,
o sponsorship identification, and
o closed captioning of video programming.
Use of Our Cable Systems by The Government and Unrelated Third Parties
The Communications Act allows franchising authorities and unrelated third
parties to have access to our cable systems' channel capacity. For example, it:
o permits franchising authorities to require cable operators to set
aside channels for public, educational and governmental access
programming, and
o requires a cable system with 36 or more activated channels to
designate a significant portion of its channel capacity for
commercial leased access by third parties to provide programming
that may compete with services offered by the cable operator.
The FCC regulates various aspects of third party commercial use of channel
capacity on our cable systems, including the rates and certain terms and
conditions of the commercial use.
Recently, a number of companies, including telephone companies and ISPs
have asked local, state and federal governments to mandate that cable
communications systems operators provide capacity on their broadband
infrastructure so that these companies and others may deliver high-speed
Internet access and interactive television services directly to customers over
cable facilities. Some cable operators, including us, have initiated litigation
challenging municipal efforts to unilaterally impose so-called "open access"
requirements. The few court decisions dealing with this issue have been
inconsistent. The FCC recently initiated a regulatory proceeding to consider
"open access" and related regulatory issues and, in connection with its review
of the recent AOL-Time Warner merger, imposed, together with the Federal Trade
Commission, "open access," technical performance and other requirements related
to the merged company's Internet and Instant Messaging platforms. Whether the
policy framework reflected in these agencies' merger reviews will be imposed on
an industry- wide basis is uncertain. We cannot predict the ultimate outcome of
this administrative proceeding or the impact of any new access requirements on
the operation of our cable systems.
Franchise Matters
Although franchising matters are normally regulated at the local level
through a franchise agreement and/or a local ordinance, the Communications Act
provides oversight and guidelines to govern our relationship with local
franchising authorities. For example, the Communications Act:
o affirms the right of franchising authorities (state or local,
depending on the practice in individual states) to award one or
more franchises within their jurisdictions,
o generally prohibits us from operating in communities without a
franchise,
o encourages competition with our existing cable systems by:
o allowing municipalities to operate cable systems without
franchises, and
o preventing franchising authorities from granting exclusive
franchises or from unreasonably refusing to award additional
franchises covering an existing cable system's service area,
o permits local authorities, when granting or renewing our
franchises, to establish requirements for certain cable-related
facilities and equipment, but prohibits franchising authorities
from establishing requirements for specific video programming or
information services other than in broad categories,
o permits us to obtain modification of our franchise requirements
from the franchise authority or by judicial action if warranted
by changed circumstances,
- 12 -
o generally prohibits franchising authorities from:
o imposing requirements during the initial cable franchising
process or during franchise renewal that require, prohibit
or restrict us from providing telecom- munications services,
o imposing franchise fees on revenues we derive from providing
telecommunications services over our cable systems, or
o restricting our use of any type of subscriber equipment or
transmission technology, and
o limits our payment of franchise fees to the local franchising
authority to 5% of our gross revenues derived from providing
cable services over our cable system.
The Communications Act contains procedures designed to protect us against
arbitrary denials of the renewal of our franchises, although a franchising
authority under various conditions can deny us a franchise renewal. Moreover,
even if our franchise is renewed, the franchising authority may seek to impose
upon us new and more onerous requirements such as significant upgrades in
facilities and services or increased franchise fees as a condition of renewal.
Similarly, if a franchising authority's consent is required for the purchase or
sale of our cable system or franchise, the franchising authority may attempt to
impose more burdensome or onerous franchise requirements on us in connection
with a request for such consent. Historically, cable operators providing
satisfactory services to their subscribers and complying with the terms of their
franchises have typically obtained franchise renewals. We believe that we have
generally met the terms of our franchise agreements and have provided quality
levels of service. We anticipate that our future franchise renewal prospects
generally will be favorable.
Various courts have considered whether franchising authorities have the
legal right to limit the number of franchises awarded within a community and to
impose certain substantive franchise requirements (e.g. access channels,
universal service and other technical requirements). These decisions have been
inconsistent and, until the United States Supreme Court rules definitively on
the scope of cable operators' constitu- tional and statutory protections, the
legality of the franchising process generally and of various specific franchise
requirements is likely to be in a state of flux.
Ownership Limitations
The Communications Act generally prohibits us from owning or operating a
SMATV or wireless cable system in any area where we provide franchised cable
service. We may, however, acquire and operate SMATV systems in our franchised
service areas if the programming and other services provided to SMATV
subscribers are offered according to the terms and conditions of our franchise
agreement.
The Communications Act also authorizes the FCC to impose nationwide limits
on the number of subscribers under the control of a cable operator and on the
number of channels that can be occupied on a cable system by video programmers
in which the cable operator has an attributable ownership interest. The FCC has
adopted cable ownership regulations and established:
o a 30% nationwide subscriber ownership limit,
o subscriber ownership information reporting requirements, and
o attribution rules that identify when the ownership or management
by us or third parties of other communications businesses,
including cable systems, television broadcast stations and local
telephone companies, may be imputed to us for purposes of
determining our compliance with the FCC's ownership restrictions.
Although a federal appellate court rejected constitutional challenges to the
statutory ownership limitations and the United States Supreme Court recently
declined to review that case, an appeal challenging the FCC's adoption of its
cable ownership regulations is currently pending in federal court. We are unable
to predict the outcome of this judicial proceeding or the impact any ownership
restrictions might have on our business and operations.
The Communications Act eliminated the statutory prohibition on the common
ownership, operation or control of a cable system and a television broadcast
station in the same market. While the FCC has eliminated its regulations which
precluded the cross-ownership of a national broadcasting network and a cable
system, it has retained other regulations which prohibit the common ownership of
other broadcasting interests and cable systems in the same geographical areas.
The 1996 amendments to the Communications Act made far-reaching changes in
the relationship between local telephone companies and cable service providers.
These amendments:
o eliminated federal legal barriers to competition in the local
telephone and cable communications businesses, including allowing
local telephone companies to offer video services in their local
telephone service areas,
- 13 -
o preempted state and local laws and regulations which impose
barriers to telecommunications competition,
o set basic standards for relationships between telecommunications
providers, and
o generally limited acquisitions and prohibited certain joint
ventures between local telephone companies and cable operators in
the same market.
Local telephone companies may provide service as traditional cable
operators with local franchises or they may opt to provide their programming
over unfranchised "open video systems," subject to certain conditions,
including, but not limited to, setting aside a portion of their channel capacity
for use by unaffiliated program distributors on a non-discriminatory basis. A
federal appellate court overturned various parts of the FCC's open video rules,
including the FCC's preemption of local franchising requirements for open video
operators. The FCC has modified its open video rules to comply with the federal
court's decision. We are unable to predict the impact these rule modifications
may have on our business and operations.
Pole Attachment Regulation
The Communications Act requires the FCC to regulate the rates, terms and
conditions imposed by public utilities for cable systems' use of utility pole
and conduit space unless state authorities demonstrate to the FCC that they
adequately regulate pole attachment rates, as is the case in certain states in
which we operate. In the absence of state regulation, the FCC administers pole
attachment rates on a formula basis. The FCC's original rate formula governs the
maximum rate certain utilities may charge for attachments to their poles and
conduit by cable operators providing only cable services. The FCC also adopted a
second rate formula that became effective in February 2001 and governs the
maximum rate certain utilities may charge for attachments to their poles and
conduit by companies providing telecommunications services, including cable
operators.
Any resulting increase in attachment rates due to the FCC's new rate
formula will be phased in over a five-year period in equal annual increments,
beginning in February 2001. Several parties have requested the FCC to reconsider
its new regulations and several parties challenged the new rules in court. A
federal appellate court upheld the constitutionality of the new statutory
provision which requires that utilities provide cable systems and
telecommunications carriers with nondiscriminatory access to any pole, conduit
or right-of-way controlled by the utility. However, the same court determined in
a separate case that the FCC did not have authority to regulate the rates, terms
and conditions of cable operators' pole attachments that are simultaneously used
to provide high-speed Internet access and cable services. Based upon this
decision, a number of companies that control utility poles in areas served by us
have already announced and unilaterally implemented significant changes in
contract terms and increases in the rates charged for cable pole attachments. We
have joined in several complaints filed at the FCC by various state cable
associations challenging certain utilities' rate increases and the unilateral
imposition of new contract terms. Although the adverse appellate court decision
has been stayed pending review by the United States Supreme Court, if the
decision is not reversed, the contract terms imposed by utilities on cable
operators for pole attachments will likely be more onerous. We are unable to
predict the outcome of the legal challenge to the FCC's new regulations or the
ultimate impact any revised FCC rate formula, any new pole attachment rate
regulations or any elimination or modification of the FCC's regulatory authority
might have on our business and operations.
Other Regulatory Requirements of the Communications Act and the FCC
The Communications Act also includes provisions, among others, regulating:
o customer service,
o subscriber privacy,
o marketing practices,
o equal employment opportunity, and
o technical standards and equipment compatibility.
The FCC actively regulates other parts of our cable operations and has
adopted regulations implementing its authority under the Communications Act.
The FCC may enforce its regulations through the imposition of substantial
fines, the issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in connection with cable
operations. The FCC has ongoing rulemaking proceedings that may change its
existing rules or lead to new regulations. We are unable to predict the impact
that any further FCC rule changes may have on our business and operations.
Other bills and administrative proposals pertaining to cable communications
have previously been introduced in Congress or have been considered by other
governmental bodies over the past several years. It is probable that further
attempts will be made by Congress and other governmental bodies relating to the
regulation of cable
- 14 -
communications services.
Copyright
Our cable communications systems provide our subscribers with local and
distant television and radio broadcast signals which are protected by the
copyright laws. We generally do not obtain a license to use this programming
directly from the owners of the programming; instead we comply with an
alternative federal copyright licensing process. In exchange for filing certain
reports and contributing a percentage of our revenues to a federal copyright
royalty pool, we obtain blanket permission to retransmit copyrighted material.
In a report to Congress, the U.S. Copyright Office recommended that
Congress make major revisions to both the cable television and satellite
compulsory licenses. Congress recently modified the satellite compulsory license
in a manner that permits DBS providers to become more competitive with cable
operators like us. The possible simplification, modification or elimination of
the cable communications compulsory copyright license is the subject of
continuing legislative review. The elimination or substantial modification of
the cable compulsory license could adversely affect our ability to obtain
suitable programming and could substantially increase the cost of programming
that remains available for distribution to our subscribers. We are unable to
predict the outcome of this legislative activity.
Our cable communications systems often utilize music in the programs we
provide to subscribers including local advertising, local origination
programming and pay-per-view events. The right to use this music is controlled
by music performing rights organizations who negotiate on behalf of their
members for license fees covering each performance. The cable industry and one
of these organizations have agreed upon a standard licensing agreement covering
the performance of music contained in programs originated by cable operators and
in pay-per-view events. Negotiations on a similar licensing agreement are in
process with another music performing rights organization. Rate courts
established by a federal court exist to determine appropriate copyright coverage
and payments in the event the parties fail to reach a negotiated settlement. We
are unable to predict the outcome of these proceedings or the amount of any
license fees we may be required to pay for the use of music. We do not believe
that the amount of such fees will be significant to our financial position,
results of operations or liquidity.
State and Local Regulation
Our cable systems use local streets and rights-of-way. Consequently, we
must comply with state and local regulation which is typically imposed through
the franchising process. The terms and conditions of our franchises vary
materially from jurisdiction to jurisdiction. Each franchise generally contains
provisions governing:
o cable service rates,
o franchise fees,
o franchise term,
o system construction and maintenance obligations,
o system channel capacity,
o design and technical performance,
o customer service standards,
o franchise renewal,
o sale or transfer of the franchise,
o service territory of the franchisee,
o indemnification of the franchising authority,
o use and occupancy of public streets, and
o types of cable services provided.
A number of states subject cable systems to the jurisdiction of state
governmental agencies. Those states in which we operate that have enacted such
state level regulation are Connecticut, New Jersey and Delaware. State and local
franchising jurisdiction is not unlimited, however; it must be exercised
consistently with federal law. The Communications Act immunizes franchising
authorities from monetary damage awards arising from the regulation of cable
systems or decisions made on franchise grants, renewals, transfers and
amendments.
The summary of certain federal and state regulatory requirements in the
preceding pages does not describe all present and proposed federal, state and
local regulations and legislation affecting the cable industry. Other existing
federal regulations, copyright licensing, and, in many jurisdictions, state and
local franchise requirements, are currently the subject of judicial proceedings,
legislative hearings and administrative proposals which could change, in varying
degrees, the manner in which cable systems operate. We are unable to predict the
outcome of these proceedings or their impact upon our cable operations at this
time.
- 15 -
Commerce and Content
The FCC does not directly regulate the content or transmission of
programming services like those offered by QVC and E! Entertainment. The FCC
does, however, exercise regulatory authority over the satellites and uplink
facilities which transmit programming services such as those provided by QVC and
E! Entertainment. The FCC has granted, subject to periodic reviews, permanent
licenses to QVC for its uplink facilities (and for backup equipment of certain
of these facilities) at sufficient power levels for transmission of the QVC
service. The FCC has licensing authority over satellites from which QVC and E!
Entertainment obtain transponder capacity, but does not regulate their rates,
terms or conditions of service. The FCC could, however, alter the regulatory
obligations applicable to satellite service providers. The QVC programming
services offered in the UK and Germany are regulated by the media authorities in
those countries.
EMPLOYEES
As of December 31, 2000, we had approximately 35,000 employees. Of these
employees, approximately 18,000 were associated with cable communications,
approximately 11,000 were associated with commerce and approximately 6,000 were
associated with other divisions. We believe that our relationships with our
employees are good.
ITEM 2 PROPERTIES
Cable
A central receiving apparatus, distribution cables, servers, analog and
digital converters, cable modems, customer service call centers and local
business offices are the principal physical assets of a cable communications
system. We own or lease the receiving and distribution equipment of each system
and own or lease parcels of real property for the receiving sites, customer
service call centers and local business offices. In order to keep pace with
technological advances, we are maintaining, periodically upgrading and
rebuilding the physical components of our cable communications systems.
Commerce
Television studios, customer service call centers, business offices,
product warehouses and distribution centers are the principal physical assets of
our commerce operations. These assets include QVC's studios and offices, Studio
Park, located in West Chester, Pennsylvania. QVC owns the majority of these
assets. In order to keep pace with technological advances, QVC is maintaining,
periodically upgrading and rebuilding the physical components of our commerce
operations. QVC's warehousing and distribution facilities will continue to be
upgraded over the next several years.
Content
Two large multi-purpose arenas, television studios and business offices are
the principal physical assets of our content operations. We own the arenas and
own or lease the television studios and business offices of our content
operations.
We believe that substantially all of our physical assets are in good
operating condition.
ITEM 3 LEGAL PROCEEDINGS
We are subject to legal proceedings and claims which arise in the ordinary
course of our business. In the opinion of our management, the amount of ultimate
liability with respect to these actions will not materially affect our financial
position, results of operations or liquidity.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
- 16 -
ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT
The current term of office of each of our officers expires at the first
meeting of our Board of Directors following the next Annual Meeting of
Shareholders, presently scheduled to be held in June 2001, or as soon thereafter
as each of their successors is elected and qualified. The following table sets
forth certain information concerning our executive officers, including their
ages, positions and tenure as of December 31, 2000:
Officer
Name Age Since Position with Comcast
- ------------------ ----- ------ --------------------------------------------------
Ralph J. Roberts 80 1969 Chairman of the Board of Directors; Director
Julian A. Brodsky 67 1969 Vice Chairman of the Board of Directors; Director
Brian L. Roberts 41 1986 President; Director
Lawrence S. Smith 53 1988 Executive Vice President
John R. Alchin 52 1990 Executive Vice President; Treasurer
Stanley L. Wang 60 1981 Executive Vice President - Law and Administration
Lawrence J. Salva 44 2000 Senior Vice President
--------------------
Ralph J. Roberts has served as a Director and as our Chairman of the Board
of Directors for more than five years. Mr. Roberts devotes a major portion of
his time to our business and affairs. Mr. Roberts has been the President and a
Director of Sural Corporation ("Sural"), a privately-held investment company and
our controlling shareholder, for more than five years. Mr. Roberts also
presently serves as a Director of Comcast Cable Communications, Inc. Mr. Roberts
is the father of Brian L. Roberts.
Julian A. Brodsky has served as a Director and as our Vice Chairman of the
Board of Directors for more than five years. Mr. Brodsky devotes a major portion
of his time to our business and affairs. Mr. Brodsky presently serves as the
Treasurer and as a Director of Sural. Mr. Brodsky is also a Director of RBB
Fund, Inc. and NDS Group plc.
Brian L. Roberts has served as our President and as a Director for more
than five years. Mr. Roberts devotes a major portion of his time to our business
and affairs. Mr. Roberts presently serves as Vice President and as a Director of
Sural. As of December 31, 2000, our shares owned by Sural constituted
approximately 87% of the voting power of the two classes of our voting common
stock combined. Mr. Roberts has sole voting power over stock representing a
majority of voting power of all Sural stock and, therefore, has voting control
over Comcast. Mr. Roberts is our Principal Executive Officer. Mr. Roberts also
presently serves as a Director of Comcast Cable Communications, Inc. and The
Bank of New York. Mr. Roberts is a son of Ralph J. Roberts.
Lawrence S. Smith has served as an Executive Vice President for more than
five years. For more than five years prior to January 2000, Mr. Smith served as
our Principal Accounting Officer. Mr. Smith also presently serves as a Director
of Comcast Cable Communications, Inc.
John R. Alchin was named an Executive Vice President in February 2000.
Prior to that time, Mr. Alchin served as our Treasurer and as a Senior Vice
President for more than five years. Mr. Alchin is our Principal Financial
Officer.
Stanley L. Wang was named Executive Vice President - Law and Administration
in February 2000. Prior to that time, Mr. Wang served as a Senior Vice President
and as our Secretary and General Counsel for more than five years. Mr. Wang also
presently serves as a Director of Comcast Cable Communications, Inc.
Lawrence J. Salva joined the Company in January 2000 as Senior Vice
President and Chief Accounting Officer. Prior to that time, Mr. Salva was a
national accounting consulting partner in the public accounting firm of
PricewaterhouseCoopers for more than five years. Mr. Salva has served as our
Principal Accounting Officer since January 2000.
- 17 -
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our Class A Special Common Stock is included on Nasdaq under the symbol
CMCSK and our Class A Common Stock is included on Nasdaq under the symbol CMCSA.
There is no established public trading market for our Class B Common Stock. Our
Class B Common Stock can be converted, on a share for share basis, into Class A
Special or Class A Common Stock. The following table sets forth, for the
indicated periods, the closing price range of our Class A Special and Class A
Common Stock as furnished by Nasdaq (as adjusted for our two-for-one stock split
in the form of a 100% stock dividend in May 1999).
Class A
Special Class A
-------------------------------------------------------------
High Low High Low
------------- ----------- ------------- ------------
2000
First Quarter...................................... $54 9/16 $38 5/16 $51 7/16 $36 1/4
Second Quarter..................................... 44 3/16 29 3/4 41 3/4 29 3/4
Third Quarter...................................... 41 1/16 31 1/16 40 11/16 30 3/4
Fourth Quarter..................................... 43 15/16 34 43 15/16 33 7/8
1999
First Quarter...................................... $38 9/16 $29 5/8 $37 11/32 $28 15/16
Second Quarter..................................... 42 29 7/16 39 11/16 28 3/8
Third Quarter...................................... 41 9/16 32 5/8 38 9/16 29 7/16
Fourth Quarter..................................... 56 1/2 35 11/16 53 1/8 32 1/16
--------------------
We began paying quarterly cash dividends on our Class A Common Stock in
1977. From 1978, we paid equal dividends on shares of both our Class A Common
Stock and our Class B Common Stock. From December 1986, when the Class A Special
Common Stock was issued, through March 1999 we paid equal dividends on shares of
our Class A Special, Class A and Class B Common Stock. We declared dividends of
$.0467 for the year ended December 31, 1998 on shares of our Class A Special,
Class A and Class B Common Stock (as adjusted for our two-for-one stock split in
the form of a 100% stock dividend in May 1999). Our Board of Directors
eliminated the quarterly cash dividend on all classes of our common stock in
March 1999. We do not intend to pay dividends on our Class A Special, Class A or
Class B Common Stock for the foreseeable future.
If you hold shares of our Class A Special Common Stock, you cannot vote in
the election of directors or otherwise, except where class voting is required by
law. In that case, if you hold Class A Special Common Stock, you have one vote
per share. Generally, if you hold Class A Common Stock, you have one vote per
share. If you hold Class B Common Stock, you have 15 votes per share. Generally,
including the election of directors, holders of Class A Common Stock and Class B
Common Stock vote as one class except where class voting is required by law. If
you hold Class A Common Stock or Class B Common Stock, you have cumulative
voting rights.
As of December 31, 2000, there were 4,066 record holders of our Class A
Special Common Stock, 1,597 record holders of our Class A Common Stock and one
record holder of our Class B Common Stock.
- 18 -
ITEM 6 SELECTED FINANCIAL DATA
Year Ended December 31,
2000(1) 1999(1) 1998(1) 1997 1996
-------------------------------------------------------------
(Dollars in millions, except per share data)
-------------------------------------------------
Statement of Operations Data:
Revenues (2)....................................... $8,218.6 $6,529.2 $5,419.0 $4,700.4 $3,813.8
Operating (loss) income............................ (161.0) 664.0 557.1 466.6 465.9
Income (loss) from continuing operations before
extraordinary items........................... 2,045.1 780.9 1,007.7 (182.9) (6.4)
Discontinued operations (3)........................ 335.8 (31.4) (25.6) (46.1)
Extraordinary items................................ (23.6) (51.0) (4.2) (30.2) (1.0)
Net income (loss).................................. 2,021.5 1,065.7 972.1 (238.7) (53.5)
Basic earnings (loss) for common stockholders
per common share (4)
Income (loss) from continuing operations
before extraordinary items................. $2.27 $1.00 $1.34 ($.29) ($.01)
Discontinued operations (3)................... .45 (.04) (.04) (.10)
Extraordinary items........................... (.03) (.07) (.01) (.04)
----------- ---------- ---------- ---------- ----------
Net income (loss)............................. $2.24 $1.38 $1.29 ($.37) ($.11)
=========== ========== ========== ========== ==========
Diluted earnings (loss) for common
stockholders per common share (4)
Income (loss) from continuing operations
before extraordinary items................. $2.16 $.95 $1.25 ($.29) ($.01)
Discontinued operations (3)................... .41 (.03) (.04) (.10)
Extraordinary items........................... (.03) (.06) (.01) (.04)
----------- ---------- ---------- ---------- ----------
Net income (loss)............................. $2.13 $1.30 $1.21 ($.37) ($.11)
=========== ========== ========== ========== ==========
Cash dividends declared per common share (4)....... $.0467 $.0467 $.0467
Balance Sheet Data (at year end):
Total assets....................................... $35,744.5 $28,685.6 $14,710.5 $11,234.3 $10,660.4
Working capital (deficit).......................... 1,102.2 4,226.3 2,497.0 13.6 (12.6)
Long-term debt (5)................................. 10,517.4 8,707.2 5,464.2 5,334.1 5,998.3
Stockholders' equity............................... 14,086.4 10,341.3 3,815.3 1,646.5 551.6
Supplementary Financial Data:
Operating income before depreciation and
amortization (6).............................. $2,470.3 $1,880.0 $1,496.7 $1,293.1 $1,047.0
Net cash provided by (used in) (7).................
Operating activities.......................... 1,219.3 1,249.4 1,067.7 844.6 644.5
Financing activities.......................... (271.4) 1,341.4 809.2 283.9 (88.0)
Investing activities.......................... (1,218.6) (2,539.3) (1,415.3) (1,045.8) (749.5)
- ----------
(1) You should see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Item 7 of this Annual Report for a discussion
of events which affect the comparability of the information reflected in
this financial data.
(2) We have adjusted these amounts in accordance with Emerging Issues Task
Force No. 00-10, "Accounting for Shipping and Handling Fees and Costs" (see
Note 2 to our consolidated financial statements in Item 8 of this Annual
Report).
(3) In July 1999, we sold Comcast Cellular Corporation to SBC Communications,
Inc. Comcast Cellular is presented as a discontinued operation for all
periods presented (see Note 3 to our consolidated financial statements in
Item 8 of this Annual Report).
(4) We have adjusted these for our two-for-one stock split in the form of a
100% stock dividend in May 1999 (see Note 6 to our consolidated financial
statements in Item 8 of this Annual Report).
(5) Includes a $666.0 million adjustment to carrying value at December 31, 1999
(see Note 5 to our consolidated financial statements in Item 8 of this
Annual Report).
- 19 -
(6) Operating income before depreciation and amortization is commonly referred
to in our businesses as "operating cash flow." Operating cash flow is a
measure of a company's ability to generate cash to service its obligations,
including debt service obligations, and to finance capital and other
expenditures. In part due to the capital intensive nature of our businesses
and the resulting significant level of non-cash depreciation 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 those measurements as an indicator of our performance.
(7) This represents net cash provided by (used in) operating activities,
financing activities and investing activities as presented in our
consolidated statement of cash flows which is included in Item 8 of this
Annual Report.
- 20 -
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We have experienced significant growth 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. Cash requirements for acquisitions and capital
expenditures have been provided through our financing activities and sales of
investments, as well as our existing cash, cash equivalents and short-term
investments.
We have acquired and we anticipate acquiring cable communications systems
in new communities in which we do not have established relationships with the
franchising authority, community leaders and cable subscribers. Further, a
substantial number of new employees are being and must continue to be integrated
into our business practices and operations. Our previously announced cable
systems exchanges with AT&T Corp. ("AT&T") and Adelphia Communications
("Adelphia") closed on December 31, 2000 and January 1, 2001, respectively. Our
previously announced cable systems acquisition from AT&T, which is subject to
customary closing conditions and regulatory approvals, is expected to close by
the end of the second quarter of 2001. Our results of operations may be
significantly affected by our ability to efficiently and effectively manage
these changes.
General Developments of Business
See "General Developments of Business" in Part I and Note 3 to our
consolidated financial statements in Item 8.
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.
However, we believe that competition and technological changes will not
significantly affect our ability to obtain financing.
We believe that we will be able to meet our current and long-term liquidity
and capital requirements, including fixed charges, through our cash flows from
operating activities, existing cash, cash equivalents and investments, and
through available borrowings under our existing credit facilities.
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 December 31,
2000 were $3.711 billion, substantially all of which is unrestricted. See Note 4
to our consolidated financial statements included in Item 8.
Capital Expenditures
During 2001, we expect to incur approximately $1.65 billion of capital
expenditures in our cable, commerce and content businesses, including
approximately $1.45 billion for our cable operations.
Cable
We expect our 2001 cable capital expenditures will include approximately
$550 million for the upgrading and rebuilding of certain of our cable
communications systems, approximately $550 million for the deployment of cable
modems, digital converters and new service offerings, and the remainder for
recurring capital projects.
The amount of such capital expenditures for years subsequent to 2001 will
depend on numerous factors, some of which are beyond our control including:
o competition,
o cable system capacity of newly acquired systems, and
o the timing and rate of deployment of new services.
National manufacturers are the primary source of supplies, equipment and
materials utilized in the construction, rebuild and upgrade of our cable
communications systems. Costs have increased during recent years and are
expected to continue to increase as a result of the need to construct
increasingly complex systems, overall demand for labor and other factors. Future
increases in such costs may be significant to our financial position, results of
operations and liquidity.
Commerce
During 2001, we expect to incur approximately $150 million for our
majority-owned electronic retailing subsidiary, QVC, Inc. ("QVC"), primarily for
the
- 21 -
upgrading of QVC's warehousing facilities, distribution facilities and
information systems.
New Business Initiatives
During 2001, we expect to incur $275 million to $325 million of capital
expenditures in our new business initiatives primarily for the construction of
our domestic wireline business and the construction of our international
wireless operations. The amount of such capital expenditures for 2001 will
depend on the timing and rate at which we elect to deploy resources in the
targeted service areas.
We anticipate capital expenditures for years subsequent to 2001 will
continue to be significant. As of December 31, 2000, we do not have any
significant contractual obligations for capital expenditures.
Financing
See Notes 5 and 6 to our consolidated financial statements included in Item
8.
The $1.587 billion increase in our long-term debt, including current
portion, results principally from the $2.146 billion of aggregate debt that we
assumed in connection with our acquisitions of Lenfest Communications, Inc.
("Lenfest") in January 2000 and Prime Communications LLC ("Prime") in August
2000 (see Notes 3 and 5 to our consolidated financial statements included in
Item 8), $107.0 million of borrowings, net of retirements and repayments, and
the $666.0 million reduction to the carrying value of our 2.0% Exchangeable
Subordinated Debentures due 2029 (the "ZONES") during the year ended December
31, 2000 (see Note 5 to our consolidated financial statements included in Item
8).
As of December 31, 2000 and 1999, our long-term debt, including current
portion, was $10.811 billion and $9.225 billion, respectively. Excluding the
effects of interest rate risk management instruments, 28.5% and 25.4% of our
long-term debt as of December 31, 2000 and 1999, respectively, was at variable
rates.
In January 2001, our indirect wholly owned subsidiary, Comcast Cable
Communications, Inc. ("Comcast Cable") sold an aggregate of $1.5 billion of
public debt consisting of $500.0 million of 6.375% Senior Notes due 2006 and
$1.0 billion of 6.75% Senior Notes due 2011. In January 2001, we issued an
additional $192.8 million principal amount at maturity of our Zero Coupon
Convertible Debentures due 2020 (the "Zero Coupon Debentures" - see Note 5 to
our consolidated financial statements included in Item 8). We used substantially
all of the net proceeds from the offerings to repay a portion of the amounts
outstanding under Comcast Cable's commercial paper program and bank credit
facility. After giving effect to these subsequent transactions, and excluding
the effects of interest rate risk management instruments, 13.5% of our long-term
debt was at variable rates.
We have, and may from time to time in the future, depending on certain
factors including market conditions, make optional repayments on our debt
obligations, which may include open market repurchases of our outstanding public
notes and debentures.
Interest Rate Risk Management
We are exposed to the market risk of adverse changes in interest rates. To
manage the volatility relating to these exposures, we maintain a mix of fixed
and variable rate debt and enter into various derivative transactions pursuant
to our policies. Positions are monitored using techniques including market value
and sensitivity analyses. We do not hold or issue any derivative financial
instruments for trading purposes and are not a party to leveraged instruments.
The credit risks associated with our derivative financial instruments are
controlled through the evaluation and monitoring of the creditworthiness of the
counterparties. Although we may be exposed to losses in the event of
nonperformance by the counterparties, we do not expect such losses, if any, to
be significant.
Using interest rate exchange agreements ("Swaps"), we agree to exchange, at
specified intervals, the difference between fixed and variable interest amounts
calculated by reference to an agreed-upon notional principal amount. Interest
rate cap agreements ("Caps") are used to lock in a maximum interest rate should
variable rates rise, but enable us to otherwise pay lower market rates. Interest
rate collar agreements ("Collars") limit our exposure to and benefits from
interest rate fluctuations on variable rate debt to within a certain range of
rates.
- 22 -
The table set forth below summarizes the fair values and contract terms of
financial instruments subject to interest rate risk maintained by us as of
December 31, 2000 (dollars in millions):
Fair
Expected Maturity Date Value at
2001 2002 2003 2004 2005 Thereafter Total 12/31/00
---- ---- ---- ---- ---- ---------- ----- --------
Debt
Fixed Rate.......................... $107.9 $208.6 $7.9 $308.6 $705.9 $6,386.2 $7,725.1 $7,165.3
Average Interest Rate............ 10.2% 9.6% 8.0% 8.1% 8.3% 5.3% 5.9%
Variable Rate....................... $186.0 $239.4 $61.3 $0.1 $2,597.6 $1.8 $3,086.2 $3,086.2
Average Interest Rate............ 6.8% 6.4% 6.4% 7.9% 6.8% 7.9% 6.8%
Interest Rate Instruments
Variable to Fixed Swaps............. $197.5 $143.5 $36.7 $377.7 $3.7
Average Pay Rate................. 5.5% 4.9% 4.9% 5.2%
Average Receive Rate............. 6.4% 6.0% 6.0% 6.2%
Fixed to Variable Swaps............. $300.0 $150.0 $450.0 $3.2
Average Pay Rate................. 7.5% 7.9% 7.7%
Average Receive Rate............. 8.1% 8.3% 8.2%
---------------------------
The notional amounts of interest rate instruments, as presented in the
table above, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts. Interest
rates on variable debt are estimated by us using the average implied forward
London Interbank Offer Rate ("LIBOR") rates for the year of maturity based on
the yield curve in effect at December 31, 2000, plus the borrowing margin in
effect for each credit facility at December 31, 2000. Average receive rates on
the Variable to Fixed Swaps are estimated by us using the average implied
forward LIBOR rates for the year of maturity based on the yield curve in effect
at December 31, 2000. While Swaps, Caps and Collars represent an integral part
of our interest rate risk management program, their incremental effect on
interest expense for the years ended December 31, 2000, 1999 and 1998 was not
significant.
Equity Price Risk Management
During the year ended December 31, 1999, we entered into cashless collar
agreements (the "Equity Collars") covering $1.365 billion notional amount of
investment securities which were accounted for at fair value. The Equity Collars
limit our exposure to and benefits from price fluctuations in the underlying
equity securities. The Equity Collars mature between 2001 and 2003. As we have
accounted for the Equity Collars as a hedge, changes in the value of the Equity
Collars were substantially offset by changes in the value of the underlying
investment securities which were also marked- to-market through accumulated
other comprehensive income in our consolidated balance sheet.
We adopted Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities", as amended, on January 1,
2001, as required by the new statement. We refer you to page 29 for a discussion
of the expected impact the adoption of the new statement will have on our
consolidated financial position and results of operations.
Statement of Cash Flows
Cash and cash equivalents decreased $270.7 million as of December 31, 2000
from December 31, 1999. The decrease in cash and cash equivalents resulted from
cash flows from operating, financing and investing activities as explained
below.
Net cash provided by operating activities from continuing operations
amounted to $1.219 billion for the year ended December 31, 2000 due principally
to our operating income before depreciation and amortization (see "Results of
Operations"), offset by changes in working capital as a result of the timing of
receipts and disbursements and the effects of net interest and current income
tax expense.
Net cash used in financing activities from continuing operations, which
includes borrowings and repayments of debt, as well as the issuances and
repurchases of our equity securities, was $271.4 million for the year ended
December 31, 2000. During the year ended December 31, 2000, we borrowed $5.435
billion, consisting of $2.150 billion of borrowings under Comcast Cable's
commercial paper program, $2.283 billion of borrowings under subsidiary
revolving lines of credit and $1.002 billion through the issuance of our $1.285
billion principal
- 23 -
amount at maturity of Zero Coupon Debentures. During the year ended December 31,
2000, we repaid $5.357 billion of our long-term debt, consisting primarily of
$3.861 billion of repayments on certain of our revolving credit facilities,
$826.7 million of repayments under Comcast Cable's commercial paper program and
$615.7 million of aggregate repurchases of various of our senior notes and of
our senior subordinated debentures. In addition, during the year ended December
31, 2000, we received proceeds of $30.5 million related to issuances of our
common stock and the sale of put options on our common stock, we repurchased
$324.9 million of our common stock, and we incurred $55.8 million of deferred
financing costs.
Net cash used in investing activities from continuing operations was $1.219
billion for the year ended December 31, 2000. Net cash used in investing
activities includes the effects of acquisitions, net of cash acquired, of $187.3
million, consisting of our acquisition of certain cable communications systems,
investments of $1.011 billion, capital expenditures of $1.637 billion and
additions to deferred charges of $409.2 million, offset by net proceeds from
sales of short-term investments of $1.028 billion and proceeds from sales of
investments of $997.3 million.
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. The increases in our property and equipment, deferred charges and
long-term debt (see Notes 5 and 8 to our consolidated financial statements
included in Item 8) and the corresponding increases in depreciation expense,
amortization expense and interest expense from 1999 to 2000 and from 1998 to
1999 are primarily due to the effects of our acquisitions of Jones Intercable,
Inc. ("Jones Intercable"), Lenfest and Prime in April 1999, January 2000 and
August 2000, respectively, as well as our increased levels of capital
expenditures.
During 2001, we expect to incur $110 million to $150 million of operating
losses before depreciation and amortization, primarily in connection with the
expansion of our new domestic wireline and international wireless business
initiatives. The amount of such operating losses will depend on the timing and
rate at which we elect to deploy resources in the targeted service areas.
Our depreciation expense and amortization expense for years subsequent to
2000 will increase significantly as a result of our cable systems exchanges with
AT&T and Adelphia which closed on December 31, 2000 and January 1, 2001,
respectively.
- 24 -
Our summarized consolidated financial information for the three years ended
December 31, 2000 is as follows (dollars in millions, "NM" denotes percentage is
not meaningful):
Year Ended
December 31, Increase/(Decrease)
2000 1999 $ %
---------- --------- --------- --------
Revenues........................................................ $8,218.6 $6,529.2 $1,689.4 25.9%
Cost of goods sold from electronic retailing.................... 2,284.9 2,060.0 224.9 10.9
Operating, selling, general and administrative expenses......... 3,463.4 2,589.2 874.2 33.8
---------- ---------
Operating income before depreciation and amortization (1) ...... 2,470.3 1,880.0 590.3 31.4
Depreciation.................................................... 837.3 572.0 265.3 46.4
Amortization.................................................... 1,794.0 644.0 1,150.0 NM
---------- ---------
Operating (loss) income......................................... (161.0) 664.0 (825.0) NM
---------- ---------
Interest expense................................................ 691.4 538.3 153.1 28.4
Investment income............................................... (983.9) (629.5) 354.4 56.3
(Income) expense related to indexed debt........................ (666.0) 666.0 1,332.0 NM
Equity in net losses (income) of affiliates..................... 21.3 (1.4) (22.7) NM
Other income.................................................... (2,825.5) (1,409.4) 1,416.1 NM
Income tax expense.............................................. 1,441.3 723.7 717.6 99.2
Minority interest............................................... (115.3) 4.6 (119.9) NM
---------- ---------
Income from continuing operations before
extraordinary items.......................................... $2,045.1 $780.9 $1,264.2 NM
========== =========
Year Ended
December 31, Increase/(Decrease)
1999 1998 $ %
---------- --------- --------- --------
Revenues........................................................ $6,529.2 $5,419.0 $1,110.2 20.5%
Cost of goods sold from electronic retailing.................... 2,060.0 1,735.7 324.3 18.7
Operating, selling, general and administrative expenses......... 2,589.2 2,186.6 402.6 18.4
---------- ---------
Operating income before depreciation and amortization (1) ...... 1,880.0 1,496.7 383.3 25.6
Depreciation.................................................... 572.0 463.9 108.1 23.3
Amortization.................................................... 644.0 475.7 168.3 35.4
---------- ---------
Operating income................................................ 664.0 557.1 106.9 19.2
---------- ---------
Interest expense................................................ 538.3 466.7 71.6 15.3
Investment (income) expense..................................... (629.5) 187.8 (817.3) NM
Expense related to indexed debt................................. 666.0 666.0 NM
Equity in net (income) losses of affiliates..................... (1.4) 515.9 517.3 NM
Gain from equity offering of affiliate.......................... (157.8) (157.8) NM
Other income.................................................... (1,409.4) (2,012.9) (603.5) (30.0)
Income tax expense.............................................. 723.7 594.0 129.7 21.8
Minority interest............................................... 4.6 44.3 (39.7) (89.6)
---------- ---------
Income from continuing operations before
extraordinary items.......................................... $780.9 $1,007.7 ($226.8) (22.5%)
========== =========
- ------------
(1) Operating income before depreciation and amortization is commonly referred
to in our businesses as "operating cash flow." Operating cash flow is a
measure of a company's ability to generate cash to service its obligations,
including debt service obligations, and to finance capital and other
expenditures. In part due to the capital intensive nature of our businesses
and the resulting significant level of non-cash depreciation 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.
- 25 -
Operating Results by Business Segment
The following represent the operating results of our significant business
segments, including: "Cable" and "Commerce." The remaining components of our
operations are not independently significant to our consolidated financial
position or results of operations (see Note 10 to our consolidated financial
statements included in Item 8).
---------------------------
Cable
The following table presents financial information for the years ended
December 31, 2000, 1999 and 1998 for our cable segment (dollars in millions):
Year Ended
December 31, Increase
2000 1999 $ %
---------- ---------- -------- -----
Analog video.................................................. $3,536.8 $2,558.0 $978.8 38.3%
Digital video................................................. 114.5 30.9 83.6 NM
Cable modem................................................... 114.4 44.5 69.9 NM
Advertising sales............................................. 290.2 190.3 99.9 52.5
Other......................................................... 129.1 105.6 23.5 22.3
---------- ---------- --------
Service income........................................... 4,185.0 2,929.3 1,255.7 42.9
Operating, selling, general and administrative expenses....... 2,285.4 1,576.3 709.1 45.0
---------- ---------- --------
Operating income before depreciation and amortization (a)..... $1,899.6 $1,353.0 $546.6 40.4%
========== ========== ========
Year Ended
December 31, Increase
1999 1998 $ %
---------- ---------- -------- -----
Analog video.................................................. $2,558.0 $2,036.6 $521.4 25.6%
Digital video................................................. 30.9 2.2 28.7 NM
Cable modem................................................... 44.5 14.3 30.2 NM
Advertising sales............................................. 190.3 138.7 51.6 37.2
Other......................................................... 105.6 85.6 20.0 23.4
---------- ---------- --------
Service income........................................... 2,929.3 2,277.4 651.9 28.6
Operating, selling, general and administrative expenses....... 1,576.3 1,180.8 395.5 33.5
---------- ---------- --------
Operating income before depreciation and amortization (a)..... $1,353.0 $1,096.6 $256.4 23.4%
========== ========== ========
- ---------------
(a) See footnote (1) on page 25.
Of the $978.8 million increase from 1999 to 2000 in analog video service
income, which consists of our basic, expanded basic, premium and pay-per-view
services, $885.9 million is attributable to the effects of our acquisitions of
Jones Intercable, Lenfest and Prime in April 1999, January 2000 and August 2000,
respectively, and $92.9 million relates principally to changes in rates and
subscriber growth in our historical operations, offset by slightly lower
pay-per-view revenue. The increase from 1999 to 2000 in digital video service
income is due primarily to the addition of approximately 839,000 digital
subscriptions during the year ended December 31, 2000 and, to a lesser extent,
to the effects of a new, higher- priced digital service offering made in the
second half of 2000. The increase from 1999 to 2000 in cable modem service
income is primarily due to the addition of approximately 258,000 cable modem
subscribers during the year ended December 31, 2000. Approximately one- half of
the increase from 1999 to 2000 in advertising sales revenue is attributable to
the effects of our acquisition of Lenfest, with the remaining increase
attributable to the effects of the 2000 political campaigns and increased cable
viewership. The increase from 1999 to 2000 in other service income, which
includes installation revenues, guide revenues, commissions from electronic
retailing and other product offerings, is primarily attributable to our
acquisitions of Lenfest and Jones Intercable.
- 26 -
Of the $521.4 million increase from 1998 to 1999 in analog video service
income, $378.5 million is attributable to the effects of our acquisitions of
Jones Intercable and Greater Philadelphia Cablevision, Inc. in April 1999 and
June 1999, respectively, and $142.9 million relates principally to changes in
rates and subscriber growth in our historical operations and higher pay-per-view
revenue. The increase from 1998 to 1999 in digital video service income is due
primarily to the addition of approximately 437,000 digital subscriptions during
the year ended December 31, 1999. The increase from 1998 to 1999 in cable modem
service income is primarily due to the addition of approximately 91,000 cable
modem subscribers during the year ended December 31, 1999. The increase from
1998 to 1999 in advertising sales revenue is primarily attributable to our
acquisition of Jones Intercable, strong economic conditions and increased cable
viewership. The increase from 1998 to 1999 in other service income is primarily
attributable to our acquisition of Jones Intercable.
The increases in operating, selling, general, and administrative expenses
from 1999 to 2000 and from 1998 to 1999 are primarily due to the effects of our
acquisitions of Jones Intercable, Lenfest and Prime, increases in the costs of
cable programming as a result of changes in rates, subscriber growth and
additional channel offerings, the effects of cable modem subscriber growth, and,
to a lesser extent, to increases in labor costs and other volume related
expenses in our historical operations. We anticipate the cost of cable
programming will increase in the future as cable programming rates increase and
additional sources of cable programming become available.
Commerce
The following table sets forth the operating results for our commerce
segment, which consists of QVC, Inc. and subsidiaries (dollars in millions):
Year Ended
December 31, Increase
2000 1999 $ %
--------- -------- ------- ------
Net sales from electronic retailing........................... $3,535.9 $3,167.4 $368.5 11.6%
Cost of goods sold from electronic retailing.................. 2,284.9 2,060.0 224.9 10.9
Operating, selling, general and administrative expenses....... 631.8 568.6 63.2 11.1
--------- -------- -------
Operating income before depreciation and amortization (a)..... $619.2 $538.8 $80.4 14.9%
========= ======== =======
Gross margin.................................................. 35.4% 35.0%
========= ========
Year Ended
December 31, Increase
1999 1998 $ %
--------- -------- ------- ------
Net sales from electronic retailing........................... $3,167.4 $2,676.4 $491.0 18.3%
Cost of goods sold from electronic retailing.................. 2,060.0 1,735.7 324.3 18.7
Operating, selling, general and administrative expenses....... 568.6 506.5 62.1 12.3
--------- -------- -------
Operating income before depreciation and amortization (a)..... $538.8 $434.2 $104.6 24.1%
========= ======== =======
Gross margin.................................................. 35.0% 35.1%
========= ========
- ---------------
(a) See footnote (1) on page 25.
The increase in net sales from electronic retailing from 1999 to 2000 is
primarily attributable to the effects of 4.7%, 10.0% and 41.0% increases in the
average number of homes receiving QVC services in the United States ("US"),
United Kingdom ("UK") and Germany, respectively; increases of 5.5% and 9.4% in
net sales per home in the US and Germany (in Deutschemarks), respectively, and a
10.6% decrease in net sales per home in the UK (in British pounds); and the
negative effects of fluctuations in foreign currency exchange rates during the
year.
The increase in net sales from electronic retailing from 1998 to 1999 is
primarily attributable to the effects of 4.1%, 11.4% and 35.2% increases in the
average number of homes receiving QVC services in the US, UK and Germany,
respectively; increases of 8.5%, 8.4% and 90.9% in net sales per home in the US,
UK (in British pounds) and Germany (in Deutschemarks), respectively; and the
negative effect of fluctuations in the Deutschemark exchange rate during the
year.
- 27 -
The increases in cost of goods sold from electronic retailing are primarily
related to the growth in net sales. The changes in gross margin are a result of
shifts in sales mix.
In connection with new accounting guidance issued during the year ended
December 31, 2000 (see discussion of EITF 00-10 in Note 2 to our consolidated
financial statements included in Item 8), QVC reclassified shipping and handling
revenue from cost of goods sold from electronic retailing to net sales from
electronic retailing for all periods presented. This reclassification had no
effect on QVC's reported operating income before depreciation and amortization
and no significant effect on growth in net sales from electronic retailing. The
effect of the reclassification was to increase QVC's net sales from electronic
retailing by approximately 11% and to decrease gross margin by approximately
four percentage points, respectively, for the years ended December 31, 1999 and
1998 as compared to the amounts previously reported.
The increases in operating, selling, general and administrative expenses
from 1999 to 2000 and from 1998 to 1999 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 from 1999 to 2000 and from 1998 to 1999
are primarily due to the effects of our acquisitions of Lenfest in January 2000
and Jones Intercable in April 1999 and the issuance of the ZONES in October and
November 1999, offset, in part, by the net effects of our borrowings and
repayments and retirements of debt. We anticipate that, for the foreseeable
future, interest expense will be a significant cost to us.
Investment (Income) Expense
During the years ended December 31, 2000, 1999 and 1998, we recognized
pre-tax gains of $824.6 million, $323.0 million and $0.7 million, respectively,
on sales of certain of our investments.
During the years ended December 31, 2000 and 1999, in connection with
certain mergers of publicly traded companies held by us and accounted for as
investments available for sale, we recognized pre-tax gains of $62.1 million and
$187.6 million, respectively, representing the difference between the fair value
of the securities received by us and our basis in the securities exchanged. Such
gains were recorded as reclassifications from accumulated other comprehensive
income to investment income.
During the years ended December 31, 1999 and 1998, we recorded investment
expense of $18.1 million and $105.5 million, respectively, related to changes in
the value of and the settlement of call options on certain of our unrestricted
equity investments, all of which expired by November 1999.
During the years ended December 31, 2000, 1999 and 1998, we recorded
pre-tax losses of $74.4 million, $35.5 million and $152.8 million, respectively,
on certain of our investments based on a decline in value that was considered
other than temporary.
(Income) Expense Related to Indexed Debt
The ZONES have been accounted for as an indexed debt instrument since the
maturity value is dependent upon the fair value of Sprint PCS Stock. During the
years ended December 31, 2000 and 1999, we recorded (income) expense related to
indexed debt of ($666.0) million and $666.0 million, respectively, to reflect
the (decrease) increase in fair value of the underlying Sprint PCS Stock during
the respective periods.
Equity in Net Losses (Income) of Affiliates
Equity in net losses of affiliates for the year ended December 31, 1998
consists primarily of our proportionate share of the net losses of Sprint PCS,
Comcast UK Cable Partners Limited ("Comcast UK Cable") and Teleport
Communications, Inc. ("Teleport"). As a result of the restructuring of Sprint
PCS, the sale of our interest in Comcast UK Cable and the merger of Teleport
into AT&T during the year ended December 31, 1998 (see "Other Income" below), we
no longer accounted for these investments under the equity method.
Gain From Equity Offering of Affiliate
During the year ended December 31, 1998, in connection with Teleport's
issuance of shares of its Class A Common Stock, we recognized a $157.8 million
increase in our proportionate share of Teleport's net assets as a gain from
equity offering of affiliate.
Other Income
In December 2000, in connection with our cable systems exchange with AT&T
pursuant to which we received cable communications systems serving approximately
770,000 subscribers in exchange for
- 28 -
certain of our cable communications systems serving approximately 700,000
subscribers, we recorded a pre-tax gain of $1.711 billion, representing the
difference between the estimated fair value as of the closing date of the
transaction and our cost basis in the systems exchanged.
In August 2000, we obtained the right to exchange our Excite@Home Series A
Common Stock with AT&T and we waived certain of our Excite@Home Board level and
shareholder rights under a stockholders agreement (see Note 4 to our
consolidated financial statements included in Item 8). In connection with the
transaction, we recorded a pre-tax gain of $1.045 billion, representing the
estimated fair value of the investment as of the closing date.
In August 2000, we exchanged all of the capital stock in a wholly owned
subsidiary which held certain wireless licenses for approximately 3.2 million
shares of AT&T common stock. In connection with the exchange, we recognized a
pre-tax gain of $98.1 million, representing the difference between the fair
value of the AT&T common stock received of $100.0 million and our cost basis in
the subsidiary.
Other income for the year ended December 31, 1999 is primarily attributable
to the receipt of a $1.5 billion termination fee as liquidated damages from
MediaOne Group, Inc. ("MediaOne"), net of transaction costs, in May 1999 as a
result of MediaOne's termination of its Agreement and Plan of Merger with us
dated March 1999.
In November 1998, we recognized a pre-tax gain of $758.5 million on the
restructuring of the ownership and management control of Sprint PCS,
representing the difference between the aggregate fair value of the Sprint PCS
common stock, convertible preferred stock and warrant received by us and our
cost basis in our partnership interest in Sprint PCS.
In October 1998, we recognized a pre-tax gain of $148.3 million on the
exchange of our interest in Comcast UK Cable for approximately 4.8 million
shares of NTL Incorporated ("NTL") common stock, representing the difference
between the fair value of the NTL common stock received by us and our cost basis
in Comcast UK Cable.
In July 1998, AT&T completed its merger with Teleport. Upon closing of the
merger, we received 36.3 million shares (as adjusted for AT&T's 3-for-2 stock
split in April 1999) of AT&T common stock in exchange for the 25.6 million
shares of Teleport Class B Common Stock held by us. As a result of the exchange,
we recognized a pre-tax gain of $1.092 billion, representing the difference
between the fair value of the AT&T common stock received by us and our cost
basis in Teleport.
Income Tax Expense
The increases in income tax expense from 1999 to 2000 and from 1998 to 1999
are primarily the result of the effects of changes in our income before taxes
and minority interest, and non-deductible goodwill amortization.
Minority Interest
The changes in minority interest from 1999 to 2000 and from 1998 to 1999
are attributable to the effects of our acquisition of a controlling interest in
Jones Intercable in April 1999, our acquisition of the California Public
Employees Retirement System's 45% interest in Comcast MHCP Holdings L.L.C. in
February 2000 and to changes in the net income or loss of our other less than
100% owned consolidated subsidiaries.
Extraordinary Items
Extraordinary items for the years ended December 31, 2000, 1999 and 1998
consist of unamortized debt issue costs and debt extinguishment
costs, net of related tax benefits, expensed in connection with the redemption
and refinancing of certain indebtedness.
We believe that our operations are not materially affected by inflation.
Expected Impact of Adoption of SFAS No. 133
We adopted Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended, on January 1,
2001, as required by the new statement. This statement establishes accounting
and reporting standards for derivatives and hedging activities (see Note 2 to
our consolidated financial statements included in Item 8). Adoption of the new
statement will affect our accounting for our indexed debt instruments, equity
option agreements, cashless collar agreements on investment securities, equity
warrant agreements, and interest rate exchange agreements.
Under the new statement, our derivative instruments, which are comprised
solely of derivative financial instruments, must be recorded at fair value on
our consolidated balance sheet with changes in fair value recorded, except under
specific circumstances, to our consolidated statement of operations. Recording
changes in the fair value of our derivative instruments to our
- 29 -
consolidated statement of operations represents a change from our current
accounting whereby generally these changes are recorded as a component of
stockholders' equity. When specific circumstances exist, hedge accounting is
permitted when the derivative instrument is designated as a hedge. Hedge
accounting permits changes in the fair value of our derivative instruments to be
either substantially offset in our consolidated statement of operations by
changes in the fair value of the hedged item or deferred as a component of
stockholders' equity until the hedged item is recognized in our consolidated
statement of operations.
On January 1, 2001, in connection with our adoption of the new statement,
we reclassified our investment in Sprint PCS from an available for sale security
to a trading security. In connection with this reclassification, we expect to
record pre-tax investment income of approximately $1.1 billion, representing the
accumulated unrealized gain on our investment in Sprint PCS previously recorded
as a component of stockholders' equity. Further, beginning in the first quarter
of 2001, we will record changes in the fair value of our investment in Sprint
PCS to investment income or expense in our consolidated statement of operations.
These adjustments will be substantially offset by the changes in the fair values
of the Equity Collars described on page 23 and the derivative component of our
indexed debt instruments described below.
Upon adoption of the new statement, the balance of our indexed debt
instruments, included in long-term debt, will be reduced by approximately $400
million. The new statement requires that we split our indexed debt instruments
into their derivative and debt components. We will record the debt component at
a discount from its value at maturity. Over the term of the indexed debt
instruments, increases in the value of the debt component will be recorded to
interest expense in our consolidated statement of operations. Changes in the
fair value of the derivative component will be recorded to investment income or
expense in our consolidated statement of operations.
Our right to exchange our Excite@Home common stock with AT&T is a hedge of
our investment in Excite@Home. Therefore, although we have exercised our right
to exchange our investment with AT&T, beginning in the first quarter of 2001 we
will record changes in the fair value of this investment and of our investment
in Excite@Home common stock to investment income or expense in our consolidated
statement of operations until the transaction closes.
In connection with the adoption of the new statement, we expect to
recognize as income a cumulative effect of change in accounting principle, net
of tax, of approximately $400 million in the first quarter of 2001. This gain
will consist of the $400 million adjustment related to our indexed debt
instruments previously described and approximately $200 million principally
related to the reclassification of gains previously recognized as a component of
other comprehensive income on our equity derivative instruments, net of related
deferred income taxes.
The adoption of the new statement will also result in a decrease in other
comprehensive income as a result of the reclassification to our consolidated
statement of operations of pre-tax gains of approximately $1.3 billion,
primarily related to our investment in Sprint PCS as discussed above. The
decrease will be recorded in the first quarter of 2001, net of related deferred
income taxes, of approximately $450 million.
Adoption of the new statement will likely result in volatility from period
to period in investment (income) expense as reported on our consolidated
statement of operations. We are unable to predict the effects this volatility
may have on our future earnings.
- 30 -
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Comcast Corporation
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheet of Comcast
Corporation and its subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, cash flows and stockholders'
equity for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the consolidated financial statements of QVC, Inc.
("QVC") (a consolidated subsidiary) as of December 31, 1998 and for the year
then ended, which statements reflect total revenues constituting 49% of the
Company's consolidated revenues for the year ended December 31, 1998. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included in the Company's
consolidated financial statements for QVC, is based solely upon the report of
such other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Comcast Corporation and its subsidiaries as of December
31, 2000 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 23, 2001
- 31 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions, except share data)
December 31,
2000 1999
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................................. $651.5 $922.2
Investments............................................................... 3,059.7 7,606.0
Accounts receivable, less allowance for doubtful
accounts of $141.7 and $136.6........................................... 891.9 673.3
Inventories, net.......................................................... 438.5 402.8
Other current assets...................................................... 102.8 100.1
--------- ---------
Total current assets.................................................. 5,144.4 9,704.4
--------- ---------
INVESTMENTS.................................................................. 2,661.9 5,548.8
--------- ---------
PROPERTY AND EQUIPMENT....................................................... 6,799.2 5,153.2
Accumulated depreciation.................................................. (1,596.5) (1,700.9)
--------- ---------
Property and equipment, net............................................... 5,202.7 3,452.3
--------- ---------
DEFERRED CHARGES
Franchise and license acquisition costs................................... 16,594.4 5,155.7
Excess of cost over net assets acquired and other......................... 10,271.5 7,566.4
--------- ---------
26,865.9 12,722.1
Accumulated amortization.................................................. (4,130.4) (2,742.0)
--------- ---------
Deferred charges, net..................................................... 22,735.5 9,980.1
--------- ---------
$35,744.5 $28,685.6
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses..................................... $2,852.9 $2,737.5
Accrued interest.......................................................... 105.5 104.5
Deferred income taxes..................................................... 789.9 2,118.6
Current portion of long-term debt......................................... 293.9 517.5
--------- ---------
Total current liabilities............................................. 4,042.2 5,478.1
--------- ---------
LONG-TERM DEBT, less current portion (including adjustment to
carrying value of zero and $666.0 million)................................ 10,517.4 8,707.2
--------- ---------
DEFERRED INCOME TAXES........................................................ 5,786.7 3,150.5
--------- ---------
MINORITY INTEREST AND OTHER.................................................. 1,257.2 1,008.5
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 9).......................................
COMMON EQUITY PUT OPTIONS.................................................... 54.6
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock - authorized, 20,000,000 shares...........................
5.25% series B mandatorily redeemable convertible, $1,000 par value;
issued, 59,450 and 569,640 at redemption value.......................... 59.5 569.6
Class A special common stock, $1 par value - authorized,
2,500,000,000 shares; issued, 931,340,103 and 716,442,482; outstanding,
908,015,192 and 716,442,482 ............................................ 908.0 716.4
Class A common stock, $1 par value - authorized,
200,000,000 shares; issued, 21,832,250 and 25,993,380................... 21.8 26.0
Class B common stock, $1 par value - authorized,
50,000,000 shares; issued, 9,444,375.................................... 9.4 9.4
Additional capital........................................................ 11,598.8 3,527.0
Retained earnings (accumulated deficit)................................... 1,056.5 (619.8)
Accumulated other comprehensive income.................................... 432.4 6,112.7
--------- ---------
Total stockholders' equity............................................ 14,086.4 10,341.3
--------- ---------
$35,744.5 $28,685.6
========= =========
See notes to consolidated financial statements.
- 32 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in millions, except per share data)
Year Ended December 31,
2000 1999 1998
-------- ------- -------
REVENUES
Service income........................................................... $4,682.7 $3,361.8 $2,742.6
Net sales from electronic retailing...................................... 3,535.9 3,167.4 2,676.4
-------- ------- -------
8,218.6 6,529.2 5,419.0
-------- ------- -------
COSTS AND EXPENSES
Operating................................................................ 2,212.5 1,663.1 1,410.3
Cost of goods sold from electronic retailing............................. 2,284.9 2,060.0 1,735.7
Selling, general and administrative...................................... 1,250.9 926.1 776.3
Depreciation............................................................. 837.3 572.0 463.9
Amortization............................................................. 1,794.0 644.0 475.7
-------- ------- -------
8,379.6 5,865.2 4,861.9
-------- ------- -------
OPERATING (LOSS) INCOME..................................................... (161.0) 664.0 557.1
OTHER (INCOME) EXPENSE
Interest expense......................................................... 691.4 538.3 466.7
Investment (income) expense.............................................. (983.9) (629.5) 187.8
(Income) expense related to indexed debt................................. (666.0) 666.0
Equity in net losses (income) of affiliates.............................. 21.3 (1.4) 515.9
Gain from equity offering of affiliate................................... (157.8)
Other income............................................................. (2,825.5) (1,409.4) (2,012.9)
-------- ------- -------
(3,762.7) (836.0) (1,000.3)
-------- ------- -------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX
EXPENSE, MINORITY INTEREST AND EXTRAORDINARY ITEMS....................... 3,601.7 1,500.0 1,557.4
INCOME TAX EXPENSE.......................................................... 1,441.3 723.7 594.0
-------- ------- -------
INCOME FROM CONTINUING OPERATIONS BEFORE
MINORITY INTEREST AND EXTRAORDINARY ITEMS................................ 2,160.4 776.3 963.4
MINORITY INTEREST........................................................... (115.3) 4.6 44.3
-------- ------- -------
INCOME FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEMS...................................................... 2,045.1 780.9 1,007.7
GAIN (LOSS) FROM DISCONTINUED OPERATIONS, net of income tax expense
(benefit) of $166.1 million in 1999 and ($19.1) million in 1998......... 335.8 (31.4)
-------- ------- -------
INCOME BEFORE EXTRAORDINARY ITEMS........................................... 2,045.1 1,116.7 976.3
EXTRAORDINARY ITEMS ........................................................ (23.6) (51.0) (4.2)
-------- ------- -------
NET INCOME.................................................................. 2,021.5 1,065.7 972.1
PREFERRED DIVIDENDS......................................................... (23.5) (29.7) (29.1)
-------- ------- -------
NET INCOME FOR COMMON STOCKHOLDERS.......................................... $1,998.0 $1,036.0 $943.0
======== ======= =======
BASIC EARNINGS (LOSS) FOR COMMON STOCKHOLDERS PER COMMON SHARE
Income from continuing operations before extraordinary items............. $2.27 $1.00 $1.34
Discontinued operations.................................................. .45 (.04)
Extraordinary items...................................................... (.03) (.07) (.01)
-------- ------- -------
Net income............................................................... $2.24 $1.38 $1.29
======== ======= =======
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING................. 890.7 749.1 733.0
======== ======= =======
DILUTED EARNINGS (LOSS) FOR COMMON STOCKHOLDERS PER COMMON SHARE
Income from continuing operations before extraordinary items............. $2.16 $.95 $1.25
Discontinued operations.................................................. .41 (.03)
Extraordinary items...................................................... (.03) (.06) (.01)
-------- ------- -------
Net income............................................................... $2.13 $1.30 $1.21
======== ======= =======
DILUTED WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING................................................ 948.7 819.9 806.0
======== ======= =======
See notes to consolidated financial statements.
- 33 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
Year Ended December 31,
2000 1999 1998
--------- --------- ---------
OPERATING ACTIVITIES
Net income............................................................................. $2,021.5 $1,065.7 $972.1
Adjustments to reconcile net income to net cash provided
by operating activities from continuing operations:
Depreciation......................................................................... 837.3 572.0 463.9
Amortization......................................................................... 1,794.0 644.0 475.7
Non-cash interest (income) expense, net.............................................. (22.6) (27.8) 29.2
Non-cash (income) expense related to indexed debt.................................... (666.0) 666.0
Equity in net losses (income) of affiliates.......................................... 21.3 (1.4) 515.9
Gain from equity offering of affiliate............................................... (157.8)
Gains on investments and other income, net........................................... (3,679.3) (1,917.0) (1,758.5)
Minority interest.................................................................... 115.3 (4.6) (44.3)
Discontinued operations.............................................................. (335.8) 31.4
Extraordinary items.................................................................. 23.6 51.0 4.2
Deferred income taxes and other...................................................... 1,102.3 (31.9) 418.2
--------- --------- ---------
1,547.4 680.2 950.0
Changes in working capital........................................................... (328.1) 569.2 117.7
--------- --------- ---------
Net cash provided by operating activities from continuing operations .............. 1,219.3 1,249.4 1,067.7
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings............................................................... 5,435.3 2,786.6 1,938.0
Retirements and repayments of debt..................................................... (5,356.5) (1,368.2) (1,113.4)
Issuances of common stock and sales of put options on common stock..................... 30.5 17.1 41.8
Repurchases of common stock............................................................ (324.9) (30.7) (12.9)
Dividends.............................................................................. (9.4) (36.0)
Deferred financing costs............................................................... (55.8) (51.0) (16.3)
Other.................................................................................. (3.0) 8.0
--------- --------- ---------
Net cash (used in) provided by financing activities from continuing operations ..... (271.4) 1,341.4 809.2
--------- --------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired..................................................... (187.3) (755.2) (309.7)
Proceeds from termination fee, net..................................................... 1,460.0
Proceeds from sales of (purchases of) short-term investments, net...................... 1,028.1 (1,035.5) 145.9
Capital contributions to and purchases of investments.................................. (1,010.7) (2,012.2) (202.1)
Proceeds from sales of investments..................................................... 997.3 599.8 23.6
Proceeds from investees' repayments of loans........................................... 74.7
Capital expenditures................................................................... (1,636.8) (893.8) (898.9)
Sale of subsidiaries, net of cash sold................................................. 361.1 (140.4)
Additions to deferred charges.......................................................... (409.2) (263.5) (108.4)
--------- --------- ---------
Net cash used in investing activities from continuing operations................... (1,218.6) (2,539.3) (1,415.3)
--------- --------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
- CONTINUING OPERATIONS............................................................... (270.7) 51.5 461.6
CASH AND CASH EQUIVALENTS, beginning of year.............................................. 922.2 870.7 409.1
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year.................................................... $651.5 $922.2 $870.7
========= ========= =========
See notes to consolidated financial statements.
- 34 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in millions, except per share data)
Accumulated Other
Comprehensive
Income (Loss)
--------------------
Retained Unrealized
Preferred Stock Common Stock Earnings Gains on
------------- ---------------------- (Accum- Market- Cumulative
Series Series Class A Additional ulated able Translation
A B Special Class A Class B Capital Deficit) Securities Adjustments Total
------ ------ ------- ------- ------ --------- ----------- --------- ----------- ---------
BALANCE, JANUARY 1, 1998............... $31.9 $513.2 $674.6 $31.8 $8.8 $2,673.0 ($2,415.9) $140.7 ($11.6) $1,646.5
Comprehensive income:
Net income.......................... 972.1
Unrealized gains on marketable
securities, net of deferred
taxes of $489.4................... 908.8
Cumulative translation adjustments.. 11.8
Total comprehensive income............. 1,892.7
Conversion of convertible
subordinated debt to common
stock............................. 20.8 336.8 357.6
Exercise of options................. 3.4 0.6 31.8 35.8
Retirement of common stock.......... (0.4) (0.1) (2.4) (10.0) (12.9)
Cash dividends, common, $.0467
per share......................... (34.4) (34.4)
Cash dividends, Series A preferred.. (1.6) (1.6)
Series B preferred dividends........ 27.5 (27.5)
Temporary equity related to
put options....................... (79.8) (79.8)
Proceeds from sales of put options.. 11.4 11.4
------ ------ ------- ------- ------ --------- ----------- --------- ---------- ---------
BALANCE, DECEMBER 31, 1998............. 31.9 540.7 698.4 31.7 9.4 2,941.7 (1,488.2) 1,049.5 0.2 3,815.3
Comprehensive income:
Net income.......................... 1,065.7
Unrealized gains on marketable
securities, net of deferred
taxes of $2,730.2................. 5,070.3
Cumulative translation adjustments.. (7.3)
Total comprehensive income............. 6,128.7
Acquisition......................... 8.5 283.2 291.7
Exercise of options................. 2.2 23.7 25.9
Conversion of Series A preferred.... (31.9) 2.7 29.2
Retirement of common stock.......... (0.8) (4.6) (25.3) (30.7)
Cash dividends, Series A preferred.. (0.8) (0.8)
Series B preferred dividends........ 28.9 (28.9)
Share exchange...................... 4.6 (4.9) 172.3 (172.0)
Temporary equity related to
put options....................... 111.2 111.2
------ ------ ------- ------- ------ --------- ----------- --------- ---------- ---------
BALANCE, DECEMBER 31, 1999 ............ 569.6 716.4 26.0 9.4 3,527.0 (619.8) 6,119.8 (7.1) 10,341.3
Comprehensive income:
Net income.......................... 2,021.5
Unrealized losses on marketable
securities, net of deferred
taxes of $3,055.3................. (5,674.1)
Cumulative translation adjustments.. (6.2)
Total comprehensive loss............... (3,658.8)
Acquisitions........................ 155.7 7,585.2 7,740.9
Exercise of options................. 2.6 53.9 (27.7) 28.8
Retirement of common stock.......... (6.0) (3.1) (42.3) (273.5) (324.9)
Conversion of Series B preferred.... (533.6) 38.3 495.3
Series B preferred dividends........ 23.5 (23.5)
Share exchange...................... 1.0 (1.1) 44.1 (44.0)
Temporary equity related to
put options....................... (40.9) (40.9)
------ ------ ------- ------- ------ --------- ----------- --------- ---------- ---------
BALANCE, DECEMBER 31, 2000............. $ $59.5 $908.0 $21.8 $9.4 $11,598.8 $1,056.5 $445.7 ($13.3) $14,086.4
====== ====== ======= ======= ====== ========= =========== ========= ========== =========
See notes to consolidated financial statements.
- 35 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
1. BUSINESS
Comcast Corporation and its subsidiaries (the "Company") is principally
involved in three lines of business: cable, commerce and content.
The Company's cable business is principally involved in the development,
management and operation of broadband communications networks in the United
States ("US"). The Company's consolidated cable operations served
approximately 7.7 million subscribers and passed approximately 12.9 million
homes as of December 31, 2000.
Commerce is provided through the Company's consolidated subsidiary, QVC,
Inc. ("QVC"). Through QVC, an electronic retailer, the Company markets a
wide variety of products directly to consumers primarily on merchandise-
focused television programs. QVC was available, on a full and part-time
basis, to over 77.9 million homes in the US, over 8.9 million homes in the
United Kingdom ("UK") and over 22.6 million homes in Germany as of December
31, 2000.
Content is provided through the Company's consolidated subsidiaries
including Comcast Spectacor, Comcast SportsNet and E! Entertainment
Television, Inc. ("E! Entertainment"), and through other programming
investments including The Golf Channel, Speedvision and Outdoor Life.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER ITEMS
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly owned or controlled subsidiaries. All significant
intercompany accounts and transactions among consolidated entities have
been eliminated.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Values
The estimated fair value amounts presented in these consolidated financial
statements have been determined by the Company using available market
information and appropriate methodologies. However, considerable judgment
is required in interpreting market data to develop the estimates of fair
value. The estimates presented herein are not necessarily indicative of the
amounts that the Company could realize in a current market exchange. The
use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts. Such fair value
estimates are based on pertinent information available to management as of
December 31, 2000 and 1999, and have not been comprehensively revalued for
purposes of these consolidated financial statements since such dates.
Cash Equivalents
Cash equivalents consist principally of US Government obligations,
commercial paper, repurchase agreements and certificates of deposit with
maturities of three months or less when purchased. The carrying amounts of
the Company's cash equivalents approximate their fair values.
Inventories - Electronic Retailing
Inventories are stated at the lower of cost or market. Cost is determined
by the average cost method, which approximates the first-in, first-out
method.
- 36 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Investments
Investments consist principally of equity securities and US Government
obligations, commercial paper, repurchase agreements and certificates of
deposit with maturities of greater than three months when purchased.
Investments in entities in which the Company has the ability to exercise
significant influence over the operating and financial policies of the
investee are accounted for under the equity method. Equity method
investments are recorded at original cost and adjusted periodically to
recognize the Company's proportionate share of the investees' net income or
losses after the date of investment, additional contributions made and
dividends received. The differences between the Company's recorded
investments and its proportionate interests in the book value of the
investees' net assets are being amortized to equity in net income or loss,
primarily over a period of 20 years, which is consistent with the estimated
lives of the underlying assets.
Unrestricted publicly traded investments are classified as available for
sale and recorded at their fair value, with unrealized gains or losses
resulting from changes in fair value between measurement dates recorded as
a component of other comprehensive income.
Restricted publicly traded investments and investments in privately held
companies are stated at cost, adjusted for any known diminution in value
(see Note 4).
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided by the
straight-line method over estimated useful lives as follows:
Buildings and improvements.................8-40 years
Operating facilities.......................5-20 years
Other equipment............................2-10 years
Improvements that extend asset lives are capitalized; other repairs and
maintenance charges are expensed as incurred. The cost and related
accumulated depreciation applicable to assets sold or retired are removed
from the accounts and the gain or loss on disposition is recognized as a
component of depreciation expense.
Capitalized Costs
The costs associated with the construction of cable transmission and
distribution facilities and new cable service installations are
capitalized. Costs include all direct labor and materials as well as
certain indirect costs.
Deferred Charges
Franchise and license acquisition costs are amortized on a straight-line
basis over their legal or estimated useful lives ranging principally from 3
to 20 years. The excess of cost over the fair value of net assets acquired
is being amortized on a straight-line basis over estimated useful lives
ranging principally from 20 to 30 years. QVC and certain of the Company's
content subsidiaries have entered into multi-year affiliation agreements
with various cable and satellite system operators for carriage of their
respective programming. In connection with these affiliation agreements,
the Company's subsidiaries generally pay a fee to the cable or satellite
operator based on the number of subscribers. Cable or satellite
distribution rights are capitalized and amortized on a straight-line basis
over the term of the related distribution agreements ranging principally
from 6 to 12 years.
Valuation of Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets, including property and equipment and deferred charges, using
objective methodologies whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. Such
methodologies include evaluations based on the cash flows generated by the
underlying assets, profitability information, including estimated future
operating results, trends or other determinants of fair value. If the total
of the expected future undiscounted cash flows is less than the
- 37 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
carrying amount of the asset, a loss is recognized for the difference
between the fair value and the carrying value of the asset.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries, where the
functional currency is the local currency, are translated into US dollars
at the December 31 exchange rate. The related translation adjustments are
recorded as a component of other comprehensive income. Revenues and
expenses are translated using average exchange rates prevailing during the
year. Foreign currency transaction gains and losses are included in other
(income) expense.
Revenue Recognition
Service income is recognized as service is provided. Credit risk is managed
by disconnecting services to cable customers who are delinquent. Net sales
from electronic retailing are recognized at the time of shipment to
customers. The Company's policy is to allow customers to return merchandise
for up to thirty days after date of shipment. An allowance for returned
merchandise is provided as a percentage of sales based on historical
experience. Advertising sales revenue is recognized at estimated realizable
values when the advertising is aired.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations, as permitted by Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation."
Compensation expense for stock options is measured as the excess, if any,
of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. Compensation
expense for restricted stock awards is recorded annually based on the
quoted market price of the Company's stock at the date of the grant and the
vesting period. Compensation expense for stock appreciation rights is
recorded annually based on the changes in quoted market prices of the
Company's stock or other determinants of fair value at the end of the year
(see Note 6).
Postretirement and Postemployment Benefits
The estimated costs of retiree benefits and benefits for former or inactive
employees, after employment but before retirement, are accrued and recorded
as a charge to operations during the years the employees provide services.
Investment Income
Investment income includes interest income, dividend income and gains, net
of losses, on the sales of marketable securities and long-term investments.
Gross realized gains and losses are recognized using the specific
identification method (see Note 4). Investment income also includes
impairment losses resulting from adjustments to the net realizable value of
certain of the Company's investments.
Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities and expected benefits of utilizing net
operating loss carryforwards. The impact on deferred taxes of changes in
tax rates and laws, if any, applied to the years during which temporary
differences are expected to be settled, are reflected in the consolidated
financial statements in the period of enactment.
Derivative Financial Instruments
The Company employs derivative financial instruments for a number of
purposes. The Company manages its exposure to fluctuations in interest
rates by entering into interest rate exchange agreements ("Swaps"),
interest rate cap agreements ("Caps") and interest rate collar agreements
("Collars"). The Company manages the cost of its share repurchases the sale
of equity put option contracts ("Comcast Put Options"). The Company manages
its exposure to fluctuations in the value of certain of its investments by
entering into equity collar agreements ("Equity Collars") and equity put
option agreements ("Equity Put Options"). The Company makes investments in
businesses, to some degree, through the purchase of equity call option or
call warrant agreements ("Equity Warrants"). The
- 38 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Company has issued indexed debt instruments whose value, in part, is
derived from the market value of Sprint PCS common stock. The Company has
also sold call options on certain of its investments in equity securities
("Covered Call Options").
Swaps, Caps and Collars are matched with either fixed or variable rate debt
and periodic cash payments are accrued on a settlement basis as an
adjustment to interest expense. Any premiums associated with these
instruments are amortized over their term and realized gains or losses as a
result of the termination of the instruments are deferred and amortized
over the remaining term of the underlying debt. Unrealized gains and losses
as a result of these instruments are recognized when the underlying hedged
item is extinguished or otherwise terminated.
Proceeds from sales of Comcast Put Options are recorded in stockholders'
equity and an amount equal to the redemption price of the common stock is
reclassified from permanent equity to temporary equity. Subsequent changes
in the market value of Comcast Put Options are not recorded. Equity
Collars, Equity Put Options and Equity Warrants are marked to market on a
current basis with the result included in accumulated other comprehensive
income in the Company's consolidated balance sheet. Covered Call Options
are marked to market on a current basis with the result included in
investment (income) expense in the Company's consolidated statement of
operations.
Those instruments that have been entered into by the Company to hedge
exposure to interest rate risks are periodically examined by the Company to
ensure that the instruments are matched with underlying liabilities, reduce
the Company's risks relating to interest rates and, through market value
and sensitivity analysis, maintain a high correlation to the interest
expense of the hedged item. For those instruments that do not meet the
above criteria, variations in their fair value are marked-to-market on a
current basis in the Company's consolidated statement of operations.
The Company does not hold or issue any derivative financial instruments for
trading purposes and is not a party to leveraged instruments (see Note 5).
The credit risks associated with the Company's derivative financial
instruments are controlled through the evaluation and monitoring of the
creditworthiness of the counterparties. Although the Company may be exposed
to losses in the event of nonperformance by the counterparties, the Company
does not expect such losses, if any, to be significant.
Sale of Stock by a Subsidiary or Equity Method Investee
Changes in the Company's proportionate share of the underlying equity of a
consolidated subsidiary or equity method investee which result from the
issuance of additional securities by such subsidiary or investee are
recognized as gains or losses in the Company's consolidated statement of
operations unless gain realization is not assured in the circumstances.
Gains for which realization is not assured are credited directly to
additional capital.
SFAS No. 133, as Amended
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement establishes accounting and reporting standards for
derivatives and hedging activities. The new standard requires that all
derivative instruments be reported on the balance sheet at their fair
values. For derivative instruments designated and effective as fair value
hedges, changes in the fair value of the derivative instrument will be
substantially offset in the statement of operations by changes in the fair
value of the hedged item. For derivative instruments designated as cash
flow hedges, the effective portion of any hedge is reported in other
comprehensive income until it is recognized in earnings during the same
period in which the hedged item affects earnings. The ineffective portion
of all hedges will be recognized in current earnings each period. Changes
in the fair value of derivative instruments that are not designated as a
hedge will be recorded each period in current earnings.
In July 1999, the FASB issued SFAS No. 137 which deferred the effective
date for implementation of SFAS No. 133 to fiscal years beginning after
June 15, 2000. In June 2000, the FASB issued SFAS No. 138 which addressed
- 39 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
certain issues causing implementation difficulties for entities that apply
SFAS No. 133. The Company adopted SFAS No. 133, as amended, on January 1,
2001. Instruments that the Company has entered into that will be accounted
for under SFAS No. 133, as amended, include indexed debt instruments,
Swaps, Equity Warrants, Equity Put Options, and Equity Collars. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Item 7 of the Company's Annual Report on Form 10-K
for a discussion of the expected impact the adoption of SFAS No. 133 will
have on the Company's consolidated financial position and results of
operations.
SFAS No. 140
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS
No. 140 replaces SFAS No. 125 and addresses certain issues not previously
addressed in SFAS No. 125. SFAS 140 is effective for transfers and
servicing occurring after March 31, 2001. SFAS No. 140 is effective for
disclosures about securitizations and collateral and for the recognition
and reclassification of collateral for fiscal years ending after December
15, 2000. The adoption of SFAS No. 140 did not have a material impact on
the Company's financial position or results of operations.
SAB No. 101, as Amended
In December 1999, the staff of the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements," which provides guidance in applying
generally accepted accounting principles to selected revenue recognition
issues. In March 2000 and June 2000, the staff of the SEC amended SAB No.
101 to delay the required implementation date of SAB No. 101 to the fourth
quarter of fiscal years beginning after December 15, 1999. The Company
adopted SAB No. 101, as amended, on October 1, 2000. The adoption of SAB
No. 101, as amended, did not have a material impact on the Company's
results of operations.
EITF 00-10
In May, July and September 2000, the Emerging Issues Task Force (the
"EITF") reached a consensus on EITF Issue No. 00-10, "Accounting for
Shipping and Handling Fees and Costs." EITF No. 00-10 requires that all
amounts billed to a customer in a sale transaction for shipping and
handling be classified as revenue. QVC previously classified shipping and
handling revenue as an offset to cost of goods sold from electronic
retailing. The Company has reclassified shipping and handling revenue from
cost of goods sold from electronic retailing to net sales from electronic
retailing for all periods presented in the accompanying consolidated
statement of operations.
Securities Lending Transactions
The Company may enter into securities lending transactions pursuant to
which the Company requires the borrower to provide cash collateral equal to
the value of the loaned securities, as adjusted for any changes in the
value of the underlying loaned securities. Loaned securities for which the
Company maintains effective control are included in investments in the
Company's consolidated balance sheet.
- 40 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Earnings for Common Stockholders Per Common Share
Earnings for common stockholders per common share is computed by dividing
net income, after deduction of preferred stock dividends, when applicable,
by the weighted average number of common shares outstanding during the
period on a basic and diluted basis. The following table reconciles the
numerator and denominator of the computations of diluted earnings for
common stockholders per common share ("Diluted EPS") for the years ended
December 31, 2000, 1999 and 1998, respectively.
(Amounts in millions, except per share data)
Year Ended
December 31,
2000 1999 1998
------------ ------------ -----------
Net income for common stockholders........................... $1,998.0 $1,036.0 $943.0
Dilutive securities effect on net income for common
stockholders.............................................. 1.0
Preferred dividends.......................................... 23.5 29.7 29.1
------------ ------------ -----------
Net income for common stockholders used for
Diluted EPS............................................... $2,021.5 $1,065.7 $973.1
============ ============ ===========
Basic weighted average number of common shares
outstanding............................................... 890.7 749.1 733.0
Dilutive securities:
1 1/8% discount convertible subordinated debentures,
redeemed March 1998................................... 5.0
Series A and B convertible preferred stock.............. 42.5 44.0 45.2
Stock option and restricted stock plans................. 15.4 26.8 22.8
Put options on Class A Special Common Stock............. 0.1
------------ ------------ -----------
Diluted weighted average number of common shares
outstanding............................................... 948.7 819.9 806.0
============ ============ ===========
Diluted earnings for common stockholders per
common share.............................................. $2.13 $1.30 $1.21
============ ============ ===========
Comcast Put Options on a weighted average 1.5 million shares, 2.7 million
shares and 2.9 million shares of its Class A Special Common Stock (see Note
6) were outstanding during the years ended December 31, 2000, 1999 and
1998, respectively. Comcast Put Options outstanding during the years ended
December 31, 1999 and 1998 were not included in the computation of Diluted
EPS as the Comcast Put Options' exercise price was less than the average
market price of the Company's Class A Special Common Stock during the
periods.
In December 2000, the Company issued $1.285 billion principal amount at
maturity of Zero Coupon Convertible Debentures due 2020 (the "Zero Coupon
Debentures") (see Note 5). Holders may surrender the Zero Coupon Debentures
for conversion at any time prior to maturity, unless previously redeemed,
but only if the closing sale price of the Company's Class A Special Common
Stock is greater than 110% of the accreted conversion price for at least 20
trading days of the 30 trading days prior to conversion. As the weighted
average closing sale price of the Company's Class A Special Common Stock
was not greater than 110% of the accreted conversion price during the
period from the date of issuance of the Zero Coupon Debentures through
December 31, 2000, the Zero Coupon Debentures have been excluded from
Diluted EPS.
- 41 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 2000.
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
AT&T Cable Systems Exchange
On December 31, 2000, the Company completed its previously announced cable
systems exchange with AT&T Corp. ("AT&T") pursuant to which the Company
received cable communications systems serving approximately 770,000
subscribers. In exchange, AT&T received certain of the Company's cable
communications systems serving approximately 700,000 subscribers. In
connection with the exchange, the Company recorded to other income a pre-
tax gain of $1.711 billion, representing the difference between the
estimated fair value as of the closing date of the transaction and the
Company's cost basis in the systems exchanged.
Acquisition of Prime Communications LLC
In December 1998, the Company agreed to invest in Prime Communications LLC
("Prime"), a cable communications company serving approximately 406,000
subscribers. Pursuant to the terms of this agreement, in December 1998 the
Company acquired from Prime a $50.0 million 12.75% subordinated note due
2008 issued by Prime. In July 1999, the Company made a loan to Prime in the
form of a $733.5 million 6% ten year note, convertible into 90% of the
equity of Prime. Since that time, the Company made an additional $70.0
million in loans to Prime (on the same terms as the original loan). In
August 2000, the note, plus accrued interest of $51.7 million on the note
and the loans, was converted and the owners of Prime sold their remaining
10% equity interest in Prime to the Company for $87.7 million. As a result,
the Company now owns 100% of Prime and has assumed management control of
Prime's operations (the "Prime Acquisition"). Upon closing, the Company
assumed and immediately repaid $532.0 million of Prime's debt with proceeds
from borrowings under existing credit facilities.
Acquisition of Jones Intercable, Inc.
In April 1999, the Company acquired a controlling interest in Jones
Intercable, Inc. ("Jones Intercable"), a cable communications company
serving approximately 1.1 million subscribers, for aggregate consideration
of $706.3 million in cash. In June 1999, the Company purchased an
additional 1.0 million shares of Jones Intercable Class A Common Stock for
$50.0 million in cash in a private transaction. The Company contributed its
interest in Jones Intercable to Comcast Cable Communications, Inc.
("Comcast Cable"), an indirect wholly owned subsidiary of the Company.
In March 2000, the Jones Intercable shareholders approved a merger
agreement pursuant to which the Jones Intercable shareholders, including
Comcast Cable, received 1.4 shares of the Company's Class A Special Common
Stock in exchange for each share of Jones Intercable Class A Common Stock
and Common Stock (the "Jones Merger") and Jones Intercable was merged with
and into a wholly owned subsidiary of the Company. In connection with the
closing of the Jones Merger, the Company issued approximately 58.9 million
shares of its Class A Special Common Stock to the Jones Intercable
shareholders, including approximately 23.3 million shares to a subsidiary
of the Company and 35.6 million shares with a value of $1.727 billion to
the public shareholders. As required under generally accepted accounting
principles, the shares held by the subsidiary of the Company are presented
as issued but not outstanding (held in treasury) in the Company's December
31, 2000 consolidated balance sheet.
Acquisition of CalPERS' Interest in Jointly Owned Cable Properties
In February 2000, the Company acquired the California Public Employees
Retirement System's ("CalPERS") 45% interest in Comcast MHCP Holdings,
L.L.C. ("Comcast MHCP"), formerly a 55% owned consolidated subsidiary of
the Company which serves subscribers in Michigan, New Jersey and Florida.
As a result, the Company now owns 100% of Comcast MHCP. The consideration
was $750.0 million in cash.
- 42 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Acquisition of Lenfest Communications, Inc.
In January 2000, the Company acquired Lenfest Communications, Inc.
("Lenfest"), a cable communications company serving approximately 1.1
million subscribers primarily in the Philadelphia area from AT&T and the
other Lenfest stockholders for approximately 120.1 million shares of the
Company's Class A Special Common Stock with a value of $6.014 billion (the
"Lenfest Acquisition"). In connection with the Lenfest Acquisition, the
Company assumed approximately $1.326 billion of debt (see Note 5).
Consolidation of Comcast Cablevision of Garden State, L.P.
Comcast Cablevision of Garden State, L.P. ("Garden State Cable") (formerly
Garden State Cablevision L.P.), a cable communications company serving
approximately 216,000 subscribers in New Jersey, is a partnership which was
owned 50% by Lenfest and 50% by the Company. The Company had accounted for
its interest in Garden State Cable under the equity method. As a result of
the Lenfest Acquisition, the Company now owns 100% of Garden State Cable.
As such, the operating results of Garden State Cable have been included in
the Company's consolidated statement of operations from the date of the
Lenfest Acquisition.
Acquisition of Greater Philadelphia Cablevision, Inc.
In June 1999, the Company acquired Greater Philadelphia Cablevision, Inc.
("Greater Philadelphia"), a cable communications company serving
approximately 79,000 subscribers in Philadelphia from Greater Media, Inc.
for approximately 8.5 million shares of the Company's Class A Special
Common Stock with a value of $291.7 million.
The acquisitions completed by the Company during the years ended December
31, 2000 and 1999 were accounted for under the purchase method of
accounting. As such, the operating results of the acquired systems have
been included in the Company's consolidated statement of operations from
the acquisition date. The Company recorded the final purchase price
allocation related to the Company's acquisitions of Lenfest, Garden State
Cable, CalPERS' interest in Comcast MHCP and of the public shareholders'
interest in Jones Intercable during the fourth quarter of 2000. The
allocation of the purchase price for the acquisition of Prime and the AT&T
cable systems exchange, is preliminary pending completion of final
appraisals. As the consideration given in exchange for Jones Intercable,
Greater Philadelphia, Lenfest and the additional 50% interest in Garden
State Cable was shares of the Company's Class A Special Common Stock, and
in the case of Prime was primarily the conversion of convertible notes, the
acquisitions of such interests had no significant impact on the Company's
consolidated statement of cash flows during the years ended December 31,
2000 and 1999, respectively (see Note 8).
Unaudited Pro Forma Information
The following unaudited pro forma information for the years ended December
31, 2000, 1999 and 1998 has been presented as if the Jones Merger and the
acquisitions of Lenfest, CalPERS' interest in Comcast MHCP and Prime, the
consolidation of Garden State Cable and the cable systems acquired through
the exchange with AT&T each occurred on January 1, 1999, and the
acquisition of a controlling interest in Jones Intercable and the
acquisition of Greater Philadelphia occurred on January 1, 1998. This
information is based on historical results of operations, adjusted for
acquisition costs, and, in the opinion of management, is not necessarily
indicative of what the results would have been had the Company operated
Jones Intercable, Greater Philadelphia, Lenfest, Garden State Cable,
Comcast MHCP, Prime and the AT&T cable systems received in the exchange
since such dates.
(Amounts in millions,
except per share data)
Year Ended December 31,
2000 1999 1998
---------- ---------- -----------
Revenues ......................................... $8,397.3 $7,566.5 $5,922.7
Income before extraordinary items ................ $1,938.3 $252.2 $925.3
Net income ....................................... $1,914.7 $201.2 $921.1
Diluted EPS ....................................., $1.98 $0.21 $1.13
- 43 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Sale of Comcast Cellular Corporation
In July 1999, the Company sold Comcast Cellular Corporation ("Comcast
Cellular") to SBC Communications, Inc. for $361.1 million in cash and the
assumption of $1.315 billion of Comcast Cellular debt, and recognized a
gain on the sale of $355.9 million, net of income tax expense. The results
of operations of Comcast Cellular have been presented as a discontinued
operation in accordance with Accounting Principles Board ("APB") Opinion
30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." During the year ended
December 31, 1999, the Company recognized losses from discontinued
operations of $20.1 million.
Other Income
In August 2000, the Company obtained the right to exchange its Excite@Home
Corporation ("Excite@Home") Series A Common Stock (the "Excite@Home Stock")
with AT&T and waived certain of its Excite@Home Board level and shareholder
rights under a stockholders agreement. The Company also agreed to cause its
existing appointee to the Excite@Home Board of Directors to resign (see
Note 4). In connection with the transaction, the Company recorded to other
income a pre-tax gain of $1.045 billion, representing the estimated fair
value of the investment as of the closing date.
In August 2000, the Company exchanged all of the capital stock of a wholly
owned subsidiary which held certain wireless licenses for approximately 3.2
million shares of AT&T common stock. In connection with the exchange, the
Company recorded to other income a pre-tax gain of $98.1 million,
representing the difference between the fair value of the AT&T shares
received of $100.0 million and the Company's cost basis in the subsidiary.
During the year ended December 31, 1999, the Company received a $1.5
billion termination fee as liquidated damages from MediaOne Group, Inc.
("MediaOne") as a result of MediaOne's termination of its Agreement and
Plan of Merger with the Company dated March 1999. The termination fee, net
of transaction costs, was recorded to other income in the Company's
consolidated statement of operations.
Adelphia Cable Systems Exchange
On January 1, 2001, the Company completed its previously announced cable
systems exchange with Adelphia Communications ("Adelphia") pursuant to
which the Company received cable communications systems serving
approximately 460,000 subscribers from Adelphia. In exchange, Adelphia
received certain of the Company's cable communications systems serving
approximately 440,000 subscribers. In connection with the exchange, the
Company expects to record a gain and the acquisition will be accounted for
as a purchase.
AT&T Cable Systems Acquisition
In August 2000, the Company entered into an agreement with AT&T to acquire
cable communications systems serving up to 700,000 subscribers from AT&T in
exchange for AT&T common stock that the Company currently owns or may
acquire, in a transaction intended to qualify as tax-free to both the
Company and to AT&T. Pursuant to the agreement, the agreed upon value of
the cable communications systems to be acquired by the Company from AT&T is
up to $3.2 billion (subject to adjustment based on the actual number of
subscribers acquired). Also pursuant to the agreement, approximately 39.6
million shares of the AT&T common stock currently owned by the Company will
be valued at $54.41 per share. The transaction is subject to customary
closing conditions and regulatory approvals, will be accounted for as a
purchase, and is expected to close by the end of the second quarter of 2001
(see Note 4).
- 44 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
4. INVESTMENTS
December 31,
2000 1999
----------- -----------
(Dollars in millions)
Fair value method
AT&T Corp.............................. $1,174.3 $2,025.5
Excite@Home Corporation................ 1,479.1 918.0
Internet Capital Group, Inc............ 71.5 4,127.2
Sprint Corp. PCS Group................. 2,149.8 4,234.0
Other.................................. 322.4 667.4
----------- -----------
5,197.1 11,972.1
Cost method................................. 128.4 1,134.6
Equity method............................... 396.1 48.1
----------- -----------
Total investments.................. 5,721.6 13,154.8
Less, current investments................... 3,059.7 7,606.0
----------- -----------
Non-current investments..................... $2,661.9 $5,548.8
=========== ===========
Fair Value Method
The Company holds unrestricted equity investments in certain publicly
traded companies, with an historical cost of $4.490 billion and $2.558
billion as of December 31, 2000 and 1999, respectively. The unrealized
pre-tax gains on these investments as of December 31, 2000 and 1999 of
$707.1 million and $9.414 billion, respectively, have been reported in the
Company's consolidated balance sheet principally as a component of other
comprehensive income, net of related deferred income tax expense of $240.0
million and $3.294 billion, respectively.
AT&T. In July 1998, AT&T merged with Teleport Communications Group Inc.
("Teleport") with AT&T as the surviving corporation. Upon closing of the
transaction, the Company received approximately 36.3 million shares of
unregistered AT&T common stock (as adjusted for AT&T's 3-for-2 stock split
in April 1999) in exchange for the approximately 25.6 million shares of
Teleport Class B Common Stock held by the Company. As a result of the
exchange, the Company recorded to other income a pre-tax gain of $1.092
billion during the year ended December 31, 1998, representing the
difference between the fair value of the AT&T stock received and the
Company's basis in Teleport.
In March 1999, AT&T merged with Tele-Communications, Inc. ("TCI"), with
AT&T as the surviving corporation (the "AT&T/TCI Merger"). Upon closing of
the AT&T/TCI Merger, the Company received approximately 3.6 million shares
(as adjusted for AT&T's 3-for-2 stock split in April 1999) of AT&T common
stock in exchange for the approximately 3.1 million shares of TCI Class A
Common Stock held by the Company and the Company received approximately 3.6
million shares of Class A Liberty Media Group Tracking Shares for the
approximately 2.3 million shares of TCI Ventures Group, Inc. ("TCI
Ventures") common stock and the approximately 2.4 million shares of Liberty
Media Group Class A Common Stock held by the Company. As a result of the
exchange, the Company recorded to other income a pre-tax gain of $187.6
million during the year ended December 31, 1999, representing the
difference between the fair value of the stock received and the Company's
basis in TCI and TCI Ventures.
As of December 31, 2000 and 1999, the Company holds approximately 68.0
million and 39.9 million shares of AT&T common stock. As of December 31,
2000 and 1999, the Company has recorded its investment in AT&T at its
estimated fair value of $1.174 billion and $2.026 billion, respectively
(see Note 3).
Excite@Home. Excite@Home provides Internet services to subscribers and
businesses over the cable communications infrastructure in a limited number
of cities in the United States. The Company holds approximately
- 45 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
29.1 million shares of Excite@Home Stock and, as of December 31, 2000 and
1999, has earned warrants to purchase an additional 2.1 million shares and
0.6 million shares, respectively, of Excite@Home Stock. As of December 31,
2000 and 1999, 10% and 30% of the Excite@Home shares held by the Company
were contractually restricted shares (the "Restricted Shares") and 90% and
70% of the Excite@Home shares held by the Company were unrestricted shares
(the "Unrestricted Shares"). The Company has recorded the Restricted Shares
at their historical cost of $0.3 million and $0.6 million and the
Unrestricted Shares and warrants, which are classified as available for
sale, at their estimated fair value of $151.8 million and $918.0 million,
respectively, as of December 31, 2000 and 1999. The investment in the
Excite@Home Stock is included in current investments as of December 31,
2000.
On March 28, 2000 (the "Announcement Date"), Excite@Home and its principal
cable partners, including the Company (the "Founding Cable Stockholders"),
entered into an agreement (the "Letter Agreement") pursuant to which
Excite@Home and the Founding Cable Stockholders agreed to enter into
certain transactions which were completed on August 28, 2000. AT&T granted
the Company the right to exchange its Excite@Home Stock with AT&T at any
time between January 1, 2001and June 4, 2002 at a price equal to the higher
of $48 per share or the average per share trading price for a 30-day
trading period (as defined). The aggregate value of the Excite @Home Stock
that AT&T would be required to purchase from the Company is limited to
approximately $1.5 billion. The Company has the right to elect payment in
the form of cash or in shares of AT&T common stock. The Company accounts
for this right as an investment, classified as available for sale, at its
estimated fair value with unrealized gains or losses resulting from changes
between measurement dates recorded as a component of accumulated other
comprehensive income. As of December 31, 2000, the Company has recorded
this investment, which is included in current investments in the Company's
consolidated balance sheet, at its estimated fair value of $1.327 billion.
In January 2001, the Company exercised its right to exchange all of its
Excite@Home Corporation Series A Common Stock with AT&T at $48 per share
for approximately 69.6 million shares of AT&T common stock. Under the terms
of such exercise, the transaction is expected to close by March 31, 2001.
The Company agreed to enter into a new non-exclusive distribution agreement
with Excite@Home for the period from June 2002 through June 2006. The
Company may elect to terminate its existing exclusive distribution
agreement with Excite@Home (which would otherwise expire in June 2002) or
the new distribution agreement at any time beginning June 2001 on at least
six months notice. In addition, unearned warrants previously held by the
Company were amended to eliminate any previous performance vesting
conditions and the Company received additional new warrants with an
exercise price of $29.54 per share to purchase two shares of Excite@Home
Stock for each home passed by the Company's cable communications systems at
the Announcement Date. The new warrants and the unearned previously held
warrants vest in installments every six months beginning in June 2001 and
will be fully vested in June 2006 provided that the Company has not elected
to earlier terminate its existing or the new distribution agreement. The
new warrants include customary registration rights and will expire in March
2015. The Company's right to sell its Excite@Home Stock to AT&T is not
dependent upon its election to either continue or terminate its existing or
the new distribution agreement.
Internet Capital Group. In August 1999, Internet Capital Group ("ICG"), an
investee of the Company previously accounted for under the cost method,
completed an initial public offering of its common stock. ICG is an
Internet holding company engaged in managing and operating a network of
business-to-business e-commerce companies. During the year ended December
31, 2000, the Company sold approximately 2.3 million shares of its ICG
common stock for proceeds of $327.1 million and recognized a pre-tax gain
of $325.9 million. Such gain was recorded as a reclassification from
accumulated other comprehensive income to investment income. As of December
31, 2000 and 1999, the Company holds approximately 21.4 million and 23.7
million shares of ICG common stock and warrants and options to purchase
approximately 0.6 million shares of ICG common stock, respectively. As of
December 31, 2000 and 1999, the Company has recorded its investment in ICG
at its estimated fair value of $71.5 million and $4.127 billion,
respectively.
- 46 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Sprint PCS. In November 1998, in connection with the restructuring of the
ownership and management control of Sprint PCS, the Company recorded to
other income a pre-tax gain of $758.5 million, representing the difference
between the aggregate fair value of the Sprint PCS common stock,
convertible preferred stock and warrant received by the Company and the
Company's cost basis in its partnership interest in Sprint PCS. As of
December 31, 2000 and 1999, as adjusted for Sprint PCS' 2-for-1 stock split
in February 2000, the Company holds approximately 88.2 million shares and
93.8 million shares of unregistered Sprint PCS common stock, 123,452 shares
of Sprint PCS convertible preferred stock (convertible into approximately
4.0 million shares of unregistered Sprint PCS common stock) and a warrant
to purchase approximately 6.0 million shares of unregistered Sprint PCS
common stock at $12.01 per share (the "Sprint PCS Stock"). The Company has
registration rights, subject to customary restrictions, which will allow
the Company to sell its Sprint PCS Stock. During the year ended December
31, 2000, the Company sold approximately 5.6 million of its shares of
Sprint PCS common stock for proceeds of $312.0 million and recognized a
pre-tax gain of $265.3 million. Such gain was recorded as a
reclassification from accumulated other comprehensive income to investment
income. As of December 31, 2000 and 1999, the Company has recorded its
investment in Sprint PCS at its estimated fair value of $2.150 billion and
$4.234 billion, respectively (see Note 5).
Equity Price Risk
During the year ended December 31, 1999, the Company entered into Equity
Collars covering $1.365 billion notional amount of investment securities
which are accounted for at fair value. The Equity Collars limit the
Company's exposure to and benefits from price fluctuations in the
underlying equity securities. The Equity Collars mature between 2001 and
2003. As the Company has accounted for the Equity Collars as a hedge,
changes in the value of the Equity Collars were substantially offset by
changes in the value of the underlying investment securities which were
also marked-to-market through accumulated other comprehensive income in the
Company's consolidated balance sheet.
NTL Incorporated. In October 1998, the Company received approximately 4.8
million shares of NTL Incorporated ("NTL") common stock, an alternative
telecommunications company in the UK, in exchange for all of the shares of
Comcast UK Cable Partners Limited ("Comcast UK Cable"), a consolidated
subsidiary of the Company, held by the Company. As a result of the
exchange, the Company recorded to other income a pre-tax gain of $148.3
million during the year ended December 31, 1998, representing the
difference between the fair value of the NTL common stock received and the
Company's basis in Comcast UK Cable. During the year ended December 31,
1999, the Company sold all 5.8 million shares (as adjusted for NTL's
5-for-4 stock split in October 1999) of its NTL common stock for total
proceeds of $498.3 million and recorded to investment income a pre-tax gain
of $284.2 million.
Sales of Other Investments
During the years ended December 31, 2000, 1999 and 1998, the Company
recorded to investment income pre-tax gains of $233.4 million, $38.8
million and $0.7 million, respectively, on sales of certain of its other
investments.
Impairment Losses
During the years ended December 31, 2000, 1999 and 1998, the Company
recorded to investment expense pre-tax losses of $74.4 million, $35.5
million and $152.8 million, respectively, on certain of its investments
based on declines in value that were considered other than temporary.
Investment Expense Related to Call Options
During the years ended December 31, 1999 and 1998, the Company recorded
$18.1 million and $105.5 million, respectively, of investment expense
related to changes in the value of and the settlement of call options on
certain of the Company's fair value method investments, all of which
expired by November 1999.
- 47 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Equity Method
The Company records its proportionate interests in the net income (loss) of
certain of its equity method investees in arrears. The Company's recorded
investments exceed its proportionate interests in the book value of the
investees' net assets by $336.3 million as of December 31, 2000 (related to
the Company's investments in The Golf Channel and Susquehanna Cable). Such
excess is being amortized to equity in net income or loss, over a period of
twenty years, which is consistent with the estimated lives of the
underlying assets. The original cost of investments accounted for under the
equity method totaled $506.5 million and $235.6 million as of December 31,
2000 and1999, respectively. Summarized financial information is not
presented for Sprint PCS, Teleport or Birmingham Cable Corporation Limited
and Cable London, PLC (together, the "UK Investees") as of December 31,
2000 and 1999 or for the years ended December 31, 2000 and 1999, as such
investments are no longer accounted for under the equity method. Summarized
financial information for the Company's equity method investees for the
year ended December 31, 1998 is as follows (dollars in millions).
Sprint UK
PCS Teleport Investees Other Combined
--- -------- --------- ----- --------
Year Ended December 31, 1998:
Combined Results of Operations
Revenues, net...................... $1,136.5 $605.8 $197.8 $638.6 $2,578.7
Operating, selling, general and
administrative expenses.......... 2,587.6 558.7 153.3 653.8 3,953.4
Depreciation and amortization...... 749.5 163.4 69.7 69.1 1,051.7
Operating loss..................... (2,200.6) (116.3) (25.2) (84.3) (2,426.4)
Net loss (a)....................... (2,572.8) (190.6) (78.8) (134.2) (2,976.4)
Company's Equity in Net Loss
Equity in current period net loss.. ($385.9) ($27.2) ($28.9) ($66.4) ($508.4)
Amortization expense............... (3.5) (0.5) (3.5) (7.5)
---------- ---------- --------- ---------- ---------
Total equity in net loss......... ($389.4) ($27.2) ($29.4) ($69.9) ($515.9)
========== ========== ========= ========== =========
- ---------
(a) Net loss also represents loss from continuing operations before
extraordinary items and cumulative effect of changes in accounting
principles.
Golf Channel
During the year ended December 31, 2000, the Company exercised a call
option to purchase shares held by certain founding members and members of
management and purchased shares held by other minority shareholders of The
Golf Channel for aggregate consideration of $137.8 million. The Company's
current ownership after these transactions is 60.3%. The Company will
continue to record its investment in The Golf Channel under the equity
method due to certain veto rights that are held by one of the remaining
minority partners.
The Company does not have any additional significant contractual
commitments with respect to any of its investments. However, to the extent
the Company does not fund its investees' capital calls, it exposes itself
to dilution of its ownership interests.
Cost Method
It is not practicable to estimate the fair value of the Company's
investments in privately held companies, accounted for under the cost
method, due to a lack of quoted market prices.
- 48 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Gain from Equity Offering of Affiliate
For the year ended December 31, 1998, Teleport issued shares of its Class A
Common Stock. As a result of this stock issuance, the Company recognized a
$157.8 million increase in its proportionate share of Teleport's net assets
as gain from equity offering of affiliate.
5. LONG-TERM DEBT
December 31,
2000 1999
---------- ---------
(Dollars in millions)
Commercial Paper $1,323.5
Notes payable to banks due in installments through 2009...................... 1,751.4 $2,324.0
9-5/8% Senior notes, due 2002................................................ 200.0 200.0
8-1/8% Senior notes, due 2004................................................ 299.9 299.8
8-3/8% Senior notes, due 2005................................................ 696.3
8-3/8% Senior notes, due 2007................................................ 597.2 596.8
8-7/8% Senior notes, due 2007................................................ 249.0 248.9
6.20% Senior notes, due 2008................................................. 798.2 798.1
7-5/8% Senior notes, due 2008................................................ 197.1 196.8
7-5/8% Senior notes, due 2008................................................ 147.4
8-7/8% Senior notes, due 2017................................................ 545.8 545.7
8-1/2% Senior notes, due 2027................................................ 249.6 249.6
10-1/4% Senior subordinated debentures, due 2001............................. 100.4 100.4
9-3/8% Senior subordinated debentures, due 2005.............................. 172.5
9-1/8% Senior subordinated debentures, due 2006.............................. 144.7
10-1/2% Senior subordinated debentures, due 2006............................. 123.8
8-1/4% Senior subordinated debentures, due 2008.............................. 149.1
9-1/2% Senior subordinated debentures, due 2008.............................. 198.5
10-1/2% Senior subordinated debentures, due 2008............................. 100.0
10-5/8% Senior subordinated debentures, due 2012............................. 257.0 257.0
Zero Coupon Convertible Debentures, due 2020................................. 1,002.0
7% Disney Notes, due 2007.................................................... 132.8 132.8
ZONES at principal amount, due 2029.......................................... 1,806.8 1,806.8
Non-cash adjustment to carrying value...................................... 666.0
Other debt, due in installments.............................................. 184.0 186.3
---------- ---------
10,811.3 9,224.7
Less current portion......................................................... 293.9 517.5
---------- ---------
$10,517.4 $8,707.2
========== =========
- 49 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Maturities of long-term debt outstanding as of December 31, 2000 for the
four years after 2001 are as follows (dollars in millions):
2002................................................. $448.0
2003................................................. 69.2
2004................................................. 308.7
2005................................................. 3,303.5
Senior Notes Offerings
In January 2001, Comcast Cable sold an aggregate of $1.5 billion of public
debt consisting of $500.0 million of 6.375% Senior Notes due 2006 and $1.0
billion of 6.75% Senior Notes due 2011. Comcast Cable used substantially
all of the net proceeds from the offerings to repay a portion of the
amounts outstanding under its commercial paper program and bank credit
facility.
Zero Coupon Convertible Debentures
In December 2000, the Company issued $1.285 billion principal amount at
maturity of Zero Coupon Debentures for proceeds of $1.002 billion. In
January 2001, the Company issued an additional $192.8 million principal
amount at maturity of Zero Coupon Debentures for proceeds of $150.3
million. The Company used substantially all of the net proceeds from the
offering to repay a portion of the amounts outstanding under Comcast
Cable's commercial paper program and bank credit facility.
The 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, 2001, 2003, 2005, 2010 and 2015. The Company may
choose to pay the repurchase price for 2001, 2003 and 2005 repurchases in
cash or shares of its Class A Special Common Stock or a combination of cash
and shares of its Class A Special Common Stock. The Company may pay the
repurchase price for the 2010 and 2015 repurchases in cash only.
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 consolidated balance sheet as of December 31,
2000 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 (see "Comcast Cable Refinancing" below) in the
event holders of the Zero Coupon Debentures exercise their rights to
require the Company to repurchase the Zero Coupon Debentures in December
2001.
Comcast Cable Refinancing
In August 2000, the Company repaid and retired all amounts outstanding
under the existing bank credit facilities of its cable communications
subsidiaries, totaling approximately $2.4 billion, with the proceeds from a
new senior bank credit facility and new commercial paper program. The
Company's new senior bank credit facility consists of a $2.25 billion,
five-year revolving credit facility and a $2.25 billion, 364-day revolving
credit facility (together, the "Comcast Cable Revolver"). The 364-day
revolving credit facility supports Comcast Cable's new commercial paper
program. The Company borrowed $1.4 billion under the five-year facility and
$1.0 billion under the commercial paper program to repay and retire the
subsidiaries' credit facilities.
- 50 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Amounts outstanding under the commercial paper program are classified as
long-term in the Company's consolidated balance sheet as of December 31,
2000 as the Company refinanced a portion of these obligations on a
long-term basis with proceeds from the Comcast Cable senior notes offerings
in January 2001 and 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.
ZONES
During the fourth quarter of 1999, the Company issued 2.0% Exchangeable
Subordinated Debentures due 2029 (the "ZONES") in the aggregate principal
amount of $1.807 billion. At maturity, holders of the ZONES are entitled to
receive in cash an amount equal to the higher of (a) the principal amount
of the ZONES, or (b) the market value of two shares of Sprint PCS Stock.
Prior to maturity, each ZONES is exchangeable at the holders option for an
amount of cash equal to 95% of the market value of two shares of Sprint PCS
Stock.
The ZONES have been accounted for as an indexed debt instrument since the
maturity value is dependent upon the fair value of Sprint PCS Stock.
Therefore, the carrying value of the ZONES was adjusted each balance sheet
date to reflect the fair value of the underlying Sprint PCS Stock with the
change included in (income) expense related to indexed debt in the
Company's consolidated statement of operations. During the years ended
December 31, 2000 and 1999, the Company recorded (income) expense related
to indexed debt of ($666.0) million and $666.0 million, respectively. The
Company's investment in Sprint PCS was accounted for as available for sale,
with changes in fair value being reflected in accumulated other
comprehensive income (see Note 4). As of December 31, 2000, the number of
Sprint PCS shares held by the Company exceeded the number of ZONES
outstanding.
Debt Assumed
In connection with the Lenfest Acquisition, the consolidation of Garden
State Cable and the Prime Acquisition (see Note 3), the Company assumed
aggregate debt of $2.146 billion with interest rates ranging between 6.95%
and 10.5%, and maturities between 2001 and 2008.
Redemptions of Debt
During 2000, the Company repurchased certain senior subordinated debentures
having an aggregate principal amount of $615.7 million. During 1999, the
Company repurchased certain senior subordinated debentures having an
aggregate principal amount of $192.2 million and repaid $200.0 million in
notes payable to insurance companies having an interest rate of 8.6%. In
March 1999, the Company issued 8.7 million 3.35% Exchangeable Extendable
Subordinated Debentures due 2029 (the "PHONES") for gross proceeds of
$718.3 million. At maturity, holders of the PHONES were entitled to receive
in cash an amount equal to the higher of (a) the principal amount of the
PHONES, or (b) the market value of AT&T common stock. In July 1999, the
Company redeemed all $718.3 million principal amount of the PHONES. The
Company redeemed the PHONES due to its transaction with AT&T in which it
intends to use AT&T shares as consideration for the purchase of cable
systems from AT&T (see Note 3).
In March 1998, the Company completed the redemption of its $541.9 million
principal amount 1 1/8% discount convertible subordinated debentures due
2007 (the "1 1/8% Debentures"). The Company issued 20.8 million shares of
its Class A Special Common Stock upon conversion of $540.2 million
principal amount of 1 1/8% Debentures while $1.7 million principal amount
of 1 1/8% Debentures was redeemed for cash at a redemption price of 67.112%
of the principal amount, together with accrued interest thereon.
Stockholders' equity was increased by the full amount of 1 1/8% Debentures
converted plus accrued interest, less unamortized debt issue costs.
Unamortized debt issue costs related to the 1 1/8% Debentures redeemed for
cash were not significant. The issuance of the Company's Class A Special
Common Stock upon conversion of the 1 1/8% Debentures had no impact on the
Company's consolidated statement of cash flows due its noncash nature.
Extraordinary Items
Extraordinary items for the years ended December 31, 2000, 1999 and 1998 of
$23.6 million, $51.0 million and $4.2 million, respectively, consist of
unamortized debt issue costs and debt extinguishment costs, net of related
tax
- 51 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
benefits, expensed principally in connection with the redemptions and
refinancings of certain indebtedness described above.
Interest Rates
Bank debt interest rates vary based upon one or more of the following rates
at the option of the Company:
Prime rate to prime plus .75%;
Federal Funds rate plus .5% to 1.25%; and
LIBOR plus .19% to 1.875%.
As of December 31, 2000 and 1999, the Company's effective weighted average
interest rate on its variable rate debt outstanding was 7.34% and 6.67%,
respectively.
Interest Rate Risk Management
The Company is exposed to the market risk of adverse changes in interest
rates. To manage the volatility relating to these exposures, the Company's
policy is to maintain a mix of fixed and variable rate debt and enter into
various interest rate derivative transactions as described below.
Using Swaps, the Company agrees to exchange, at specified intervals, the
difference between fixed and variable interest amounts calculated by
reference to an agreed-upon notional principal amount. Caps are used to
lock in a maximum interest rate should variable rates rise, but enable the
Company to otherwise pay lower market rates. Collars limit the Company's
exposure to and benefits from interest rate fluctuations on variable rate
debt to within a certain range of rates.
All derivative transactions must comply with a board-approved derivatives
policy. In addition to prohibiting the use of derivatives for trading
purposes or that increase risk, this policy requires quarterly monitoring
of the portfolio, including portfolio valuation, measuring counterparty
exposure and performing sensitivity analyses.
The following table summarizes the terms of the Company's existing Swaps,
Caps and Collars as of December 31, 2000 and 1999 (dollars in millions):
Notional Average Estimated
Amount Maturities Interest Rate Fair Value
------ ---------- ------------- ----------
As of December 31, 2000
Variable to Fixed Swaps $377.7 2001-2003 5.2% $3.7
Fixed to Variable Swaps 450.0 2004-2008 7.7% 3.2
As of December 31, 1999
Variable to Fixed Swaps $1,111.8 2000-2003 5.6% $16.9
Fixed to Variable Swaps 300.0 2004 7.7% (3.9)
Caps 140.0 2000 6.8%
Collar 50.0 2000 6.3%/4.0% 0.1
The notional amounts of interest rate instruments, as presented in the
above table, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts.
While Swaps, Caps and Collars represent an integral part of the Company's
interest rate risk management program, their incremental effect on interest
expense for the years ended December 31, 2000, 1999 and 1998 was not
significant.
Estimated Fair Value
The Company's long-term debt had estimated fair values of $10.251 billion
and $9.231 billion as of December 31, 2000 and 1999, respectively. The
estimated fair value of the Company's publicly traded debt is based on
quoted
- 52 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
market prices for that debt. Interest rates that are currently available to
the Company for issuance of debt with similar terms and remaining
maturities are used to estimate fair value for debt issues for which quoted
market prices are not available.
Debt Covenants
Certain of the Company's subsidiaries' loan agreements contain restrictive
covenants which, for example, limit the subsidiaries' ability to enter into
arrangements for the acquisition of property and equipment, investments,
mergers and the incurrence of additional debt. Certain of these agreements
contain financial covenants which require that certain ratios and cash flow
levels be maintained and contain certain restrictions on dividend payments
and advances of funds to the Company. The Company and its subsidiaries were
in compliance with all financial covenants for all periods presented.
As of December 31, 2000, $286.3 million of the Company's cash, cash
equivalents and short-term investments is restricted to use by subsidiaries
of the Company under contractual or other arrangements. Restricted net
assets of the Company's subsidiaries were approximately $1.1 billion as of
December 31, 2000.
Lines and Letters of Credit
As of December 31, 2000, certain subsidiaries of the Company had unused
lines of credit of $2.182 billion under their respective credit facilities.
As of December 31, 2000, the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totaling $138.6 million to
cover potential fundings under various agreements.
6. STOCKHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue, in one or more series, up to a maximum
of 20.0 million shares of preferred stock. The shares can be issued with
such designations, preferences, qualifications, privileges, limitations,
restrictions, options, conversion rights and other special or related
rights as the Company's board of directors shall from time to time fix by
resolution.
In June 1997, the Company issued the Series B Preferred Stock. The Series B
Preferred Stock has a 5.25% pay-in- kind annual dividend. Dividends are
paid quarterly through the issuance of additional shares of Series B
Preferred Stock (the "Additional Shares") and are cumulative from the
issuance date (except that dividends on the Additional Shares will accrue
from the date such Additional Shares are issued). The Series B Preferred
Stock, including the Additional Shares, is convertible, at the option of
the holder, into 42.4 million shares of the Company's Class A Special
Common Stock, subject to adjustment in certain limited circumstances, which
equals an initial conversion price of $11.77 per share, increasing as a
result of the Additional Shares to $16.96 per share on June 30, 2004. The
Series B Preferred Stock is mandatorily redeemable on June 30, 2017, or, at
the option of the Company beginning on June 30, 2004 or at the option of
the holder on June 30, 2004 or on June 30, 2012. Upon redemption, the
Company, at its option, may redeem the Series B Preferred Stock with cash,
Class A Special Common Stock or a combination thereof. The Series B
Preferred Stock is generally non-voting. In December 2000, the Company
issued approximately 38.3 million shares of its Class A Special Common
Stock to the holder in connection with the holder's election to convert
$533.6 million at redemption value of Series B Preferred Stock. As the
Company intends to redeem the Series B Preferred Stock with Class A Special
Common Stock upon redemption, the Series B Preferred Stock has been
classified as a component of stockholders' equity as of December 31, 2000
and 1999.
Common Stock
The Company's Class A Special Common Stock is generally nonvoting and each
share of the Company's Class A Common Stock is entitled to one vote. Each
share of the Company's Class B Common Stock is entitled to fifteen
- 53 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
votes and is convertible, share for share, into Class A or Class A Special
Common Stock, subject to certain restrictions.
Stock Split
In March 1999, the Company's board of directors authorized an increase in
the number of authorized shares of the Company's Class A Special Common
Stock from 500 million shares to 2.5 billion shares and also authorized a
two- for-one stock split in the form of a 100% stock dividend (the "Stock
Split") payable in May 1999. The dividend was paid in Class A Special
Common Stock to the holders of Class A Common, Class A Special Common and
Class B Common Stock. The average number of shares outstanding and related
prices, per share amounts, share conversions and stock option data have
been retroactively restated to reflect the Stock Split. The Company's board
of directors also eliminated the quarterly cash dividend of $.0117 per
share on all classes of its common stock. The last quarterly cash dividend
was paid in March 1999.
Repurchase Program
Based on the trade date for stock repurchases, during the years ended
December 31, 2000, 1999 and 1998, the Company repurchased 9.1 million
shares, 1.0 million shares and 0.6 million shares, respectively, of its
common stock for aggregate consideration of $324.9 million, $30.7 million
and $12.9 million, respectively, pursuant to its Board-authorized
repurchase programs.
As part of the repurchase program, during the years ended December 31,
2000, 1999 and 1998, the Company sold Comcast Put Options on 2.0 million
shares, 5.5 million shares and 4.0 million shares of its Class A Special
Common Stock, respectively. The Comcast Put Options give the holder the
right to require the Company to repurchase such shares at specified prices
on specific dates. All Comcast Put Options sold during 1999 and 1998
expired unexercised. Comcast Put Options on 0.7 million shares expired
unexercised during the fourth quarter of 2000 with the remaining Comcast
Put Options set to mature on specific dates during the first quarter of
2001. The amount the Company would be obligated to pay to repurchase such
shares upon exercise of the outstanding Comcast Put Options, totaling $54.6
million, was reclassified from additional capital to common equity put
options in the Company's December 31, 2000 consolidated balance sheet. The
difference between the proceeds from the sale of the Comcast Put Options
and their estimated fair value was not significant as of December 31, 2000.
Share Exchanges
During the years ended December 31, 2000 and 1999, the Company issued
approximately 1.0 million shares and 4.6 million shares of its Class A
Special Common Stock, respectively, in exchange for approximately 1.1
million shares and 4.9 million shares of its Class A Common Stock,
respectively. The Class A Common Stock was subsequently retired.
Stock-Based Compensation Plans
As of December 31, 2000, the Company and its subsidiaries have several
stock-based compensation plans for certain employees, officers, directors
and other persons designated by the applicable compensation committees of
the boards of directors of the Company and its subsidiaries. These plans
are described below.
Comcast Option Plans. The Company maintains qualified and nonqualified
stock option plans for certain employees, directors and other persons under
which fixed stock options are granted and the option price is generally not
less than the fair value of a share of the underlying stock at the date of
grant (collectively, the "Comcast Option Plans"). Under the Comcast Option
Plans, 59.3 million shares of Class A Special Common Stock were reserved as
of December 31, 2000. Option terms are generally from five to 10 1/2 years,
with options generally becoming exercisable between two and 9 1/2 years
from the date of grant.
- 54 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
A summary of the activity of the Comcast Option Plans as of and for the
years ended December 31, 2000, 1999 and 1998 is presented below (options in
thousands):
2000 1999 1998
--------------------- --------------------- -----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- ----------- --------- ----------- --------- -----------
Class A Special Common Stock
Outstanding at beginning of year 40,416 $16.01 43,002 $11.09 32,220 $7.75
Granted 15,300 39.43 7,403 34.16 16,350 16.53
Exercised (4,805) 8.60 (7,527) 6.76 (3,970) 6.60
Canceled (1,293) 25.98 (2,462) 12.90 (1,598) 10.48
--------- --------- ---------
Outstanding at end of year 49,618 23.69 40,416 16.01 43,002 11.09
========= ========= =========
Exercisable at end of year 13,267 11.35 10,947 8.19 15,390 $7.30
========= ========= =========
Class B Common Stock
Outstanding at beginning of year 658 $2.85
Exercised (658) 2.85
---------
Outstanding at end of year
=========
Exercisable at end of year
=========
The following table summarizes information about the Class A Specia l
Common Stock options outstanding under the Comcast Option Plans as of
December 31, 2000 (options in thousands):
Options Outstanding Options Exercisable
------------------------------------------ -------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/00 Life Price at 12/31/00 Price
------------------- ------------- --------------- ----------- ----------- ------------
$4.17 to $10.58 13,088 3.4 years $8.26 8,297 $8.14
$11.00 to $16.94 12,385 7.3 years $16.19 4,182 $15.99
$17.09 to $37.56 13,066 8.6 years $31.61 756 $19.42
$37.75 to $53.13 11,079 9.3 years $40.96 32 $46.00
----------- ----------
49,618 13,267
=========== ==========
The weighted-average fair value at date of grant of a Class A Special
Common Stock option granted under the Comcast Option Plans during 2000,
1999 and 1998 was $21.20, $20.41 and $8.54, respectively. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
dividend yield of -0-%, -0-% and .44% for 2000, 1999 and 1998,
respectively; expected volatility of 35.8%, 36.1% and 31.3% for 2000, 1999
and 1998, respectively; risk-free interest rate of 6.3%, 5.8% and 5.6% for
2000, 1999 and 1998, respectively; expected option lives of 8.0 years, 9.9
years and 9.9 years for 2000, 1999 and 1998, respectively; and a forfeiture
rate of 3.0% for all years.
- 55 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Subsidiary Option Plans. Certain of the Company's subsidiaries maintain
qualified and nonqualified combination stock option/stock appreciation
rights ("SAR") plans (collectively, the "Tandem Plans") for employees,
officers, directors and other designated persons. Under the Tandem Plans,
the option price is generally not less than the fair value, as determined
by an independent appraisal, of a share of the underlying common stock at
the date of grant. If the SAR feature of the Tandem Plans is elected by the
eligible participant, the participant receives 75% of the excess of the
fair value of a share of the underlying common stock over the exercise
price of the option to which it is attached at the exercise date. Option
holders have stated an intention not to exercise the SAR feature of the
Tandem Plans. Because the exercise of the option component is more likely
than the exercise of the SAR feature, compensation expense is measured
based on the stock option component. Under the Tandem Plans, option/SAR
terms are ten years from the date of grant, with options/SARs generally
becoming exercisable over four to five years from the date of grant.
The QVC Tandem Plan is the most significant of the Tandem Plans. Summary
information related to the QVC Tandem Plan as of December 31, 2000, 1999
and 1998 is presented below (options/SARs in thousands):
2000 1999 1998
----------- ---------- -----------
Options/SARs outstanding at end
of year...................................................... 219 200 206
=========== ========== ===========
Weighted-average exercise price of
options/SARs outstanding
at end of year............................................... $789.51 $618.02 $500.82
=========== ========== ===========
Options/SARs exercisable at end
of year...................................................... 79 80 37
=========== ========== ===========
Weighted-average exercise price
of options/SARs exercisable
at end of year............................................... $606.92 $505.86 $397.46
=========== ========== ===========
As of the latest valuation date, the fair value of a share of QVC Common
Stock was $1,216.00.
- 56 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Had compensation expense for the Company's aforementioned stock-based
compensation plans been determined based on the fair value at the grant
dates for awards under those plans under the provisions of SFAS No. 123,
the Company's net income and net income per share would have changed to the
pro forma amounts indicated below (dollars in millions, except per share
data):
2000 1999 1998
---------- ---------- ----------
Net income - As reported................................. $2,021.5 $1,065.7 $972.1
Net income - Pro forma................................... 1,918.1 1,005.5 936.4
Net income for common stockholders -
As reported.......................................... $1,998.0 $1,036.0 $943.0
Net income for common stockholders -
Pro forma............................................ 1,894.6 975.8 907.3
Basic earnings for common stockholders
per common share - As reported....................... $2.24 $1.38 $1.29
Basic earnings for common stockholders
per common share - Pro forma......................... 2.13 1.30 1.24
Diluted earnings for common stockholders
per common share - As reported....................... $2.13 $1.30 $1.21
Diluted earnings for common stockholders
per common share - Pro forma......................... 2.02 1.23 1.17
The pro forma effect on net income and net income per share for the years
ended December 31, 2000, 1999 and 1998 by applying SFAS No. 123 may not be
indicative of the pro forma effect on net income or loss in future years
since SFAS No. 123 does not take into consideration pro forma compensation
expense related to awards made prior to January 1, 1995 and since
additional awards in future years are anticipated.
Other Stock-Based Compensation Plans
The Company maintains a restricted stock program under which management
employees may be granted restricted shares of the Company's Class A Special
Common Stock. The shares awarded vest annually, generally over a period not
to exceed five years from the date of the award, and do not have voting or
dividend rights until vesting occurs. At December 31, 2000, there were 1.2
million unvested shares granted under the program, of which 728,000 vested
in January 2001. During the years ended December 31, 2000, 1999 and 1998,
504,000, 170,000 and 656,000 shares were granted under the program,
respectively, with a weighted-average grant date market value of $37.80,
$43.22 and $17.33 per share, respectively. Compensation expense recognized
during the years ended December 31, 2000, 1999 and 1998 under this program
was $9.2 million, $4.7 million and $5.3 million, respectively.
Certain of the Company's subsidiaries have SAR plans for certain employees,
officers, directors and other persons (the "SAR Plans"). Under the SAR
Plans, eligible participants are entitled to receive a cash payment equal
to 100% of the excess, if any, of the fair value of a share of the
underlying common stock at the exercise date over the fair value of such a
share at the grant date. The SARs have a term of ten years from the date of
grant and become exercisable over four to five years from the date of
grant. Compensation expense related to the SAR Plans of $2.2 million, $6.4
million and $14.8 million was recorded during the years ended December 31,
2000, 1999 and 1998, respectively. Compensation expense during the year
ended December 31, 1998 included $11.6 million related to the termination
of a subsidiary SAR Plan.
- 57 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
7. INCOME TAXES
The Company joins with its 80% or more owned subsidiaries (the
"Consolidated Group") in filing consolidated federal income tax returns.
QVC and E! Entertainment, each file separate consolidated federal income
tax returns. Income tax expense consists of the following components:
Year Ended December 31,
2000 1999 1998
--------- -------- --------
(Dollars in millions)
Current expense
Federal......................................................... $321.4 $606.7 $135.5
State........................................................... 42.8 188.4 27.5
Foreign......................................................... 2.5 2.0
--------- -------- --------
366.7 797.1 163.0
--------- -------- --------
Deferred expense (benefit)
Federal......................................................... 998.6 (65.2) 424.6
State........................................................... 76.0 (8.2) 6.4
--------- -------- --------
1,074.6 (73.4) 431.0
--------- -------- --------
Income tax expense.............................................. $1,441.3 $723.7 $594.0
========= ======== ========
The effective income tax expense of the Company differs from the statutory
amount because of the effect of the following items:
Year Ended December 31,
2000 1999 1998
--------- -------- --------
(Dollars in millions)
-------- --------
Federal tax at statutory rate................................... $1,260.6 $525.0 $545.1
Non-deductible depreciation and amortization.................... 102.1 49.8 41.0
State income taxes, net of federal benefit...................... 77.2 117.1 22.0
Foreign (income) losses and equity in net losses of affiliates.. 8.0 (2.0) (11.2)
Other........................................................... (6.6) 33.8 (2.9)
--------- -------- --------
Income tax expense.............................................. $1,441.3 $723.7 $594.0
========= ======== ========
- 58 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Significant components of the Company's net deferred tax liability are as
follows:
December 31,
2000 1999
--------- ---------
(Dollars in millions)
---------
Deferred tax assets:
Net operating loss carryforwards........................ $289.8 $240.0
Reserves for bad debts and obsolete inventory........... 109.0 106.9
Differences between book and tax basis of
indexed debt securities............................... 223.1
Other................................................... 163.5 153.5
Less: Valuation allowance............................... (178.2)
--------- ---------
562.3 545.3
--------- ---------
Deferred tax liabilities:
Temporary differences, principally book and tax basis
of property and equipment and deferred charges........ 5,234.8 1,854.5
Differences between book and tax basis
in investments........................................ 1,838.2 3,959.9
Differences between book and tax basis of
indexed debt securities............................... 65.9
--------- ---------
7,138.9 5,814.4
--------- ---------
Net deferred tax liability................................. $6,576.6 $5,269.1
========= =========
The Company recorded $3.308 billion of deferred income tax liabilities in
2000 in connection with acquisitions principally related to basis
differences in property and equipment and deferred charges. The Company
recorded ($3.055) billion, $2.730 billion and $489.4 million of deferred
income taxes in 2000, 1999 and 1998, respectively, in connection with
unrealized (losses) gains on marketable securities which are included in
other comprehensive income.
The Company has recorded net deferred tax liabilities of $789.9 million and
$2.119 billion, as of December 31, 2000 and 1999, respectively, which have
been included in current liabilities, related primarily to current
investments. The Company has net operating loss carryforwards of
approximately $470.0 million which expire primarily in periods through
2019.
8. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of $705.8 million, $529.2
million and $418.9 million during the years ended December 31, 2000, 1999
and 1998, respectively.
The Company made cash payments for income taxes of $669.0 million, $190.5
million and $129.2 million during the years ended December 31, 2000, 1999
and 1998, respectively. The current tax payments principally relate to
capital gains on security transactions, liquidated damages, and the income
attributable to QVC.
During the year ended December 31, 2000, the Company acquired all of the
capital stock and/or partnership interests not previously owned by the
Company of Lenfest, Garden State Cable, Jones Intercable, Prime and Comcast
MHCP, principally through the issuance of the Company's Class A Special
Common Stock and the conversion of convertible notes. In addition, on
December 31, 2000, the Company completed its cable systems
- 59 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
exchange with AT&T (see Note 3). The fair values of the assets and
liabilities acquired by the Company during the year ended December 31, 2000
are presented as follows (in millions):
Current assets............................... $198.1
Investments.................................. 437.3
Property, plant & equipment.................. 1,030.9
Deferred charges............................. 14,558.6
Current liabilities.......................... (282.4)
Long-term debt............................... (2,146.5)
Deferred income taxes........................ (3,308.0)
------------
Net assets acquired..................... $10,488.0
============
9. COMMITMENTS AND CONTINGENCIES
Commitments
The Company and the owners of the 34% interest in Comcast Spectacor that
the Company does not own (the "Minority Group") each have the right to
initiate an "exit" process under which the fair market value of Comcast
Spectacor would be determined by appraisal. Following such determination,
the Company would have the option to acquire the interests in Comcast
Spectacor owned by the Minority Group based on the appraised fair market
value. In the event the Company did not exercise this option, the Company
and the Minority Group would then be required to use their best efforts to
sell Comcast Spectacor.
The Walt Disney Company ("Disney"), in certain circumstances, is entitled
to cause Comcast Entertainment Holdings LLC ("Entertainment Holdings"),
which is owned 50.1% by the Company and 49.9% by Disney, to purchase
Disney's entire interest in Entertainment Holdings at its then fair market
value (as determined by an appraisal process). If Entertainment Holdings
elects not to purchase Disney's interests, Disney has the right, at its
option, to purchase either the Company's entire interest in Entertainment
Holdings or all of the shares of stock of E! Entertainment held by
Entertainment Holdings in each case at fair market value. In the event that
Disney exercises its rights, as described above, a portion or all of the
Disney Notes (see Note 5) may be replaced with a three year note due to
Disney.
Liberty Media Group ("Liberty"), a majority owned subsidiary of AT&T, may,
at certain times, trigger the exercise of certain exit rights with respect
to its investment in QVC. If the exit rights are triggered, the Company has
first right to purchase the stock in QVC held by Liberty at Liberty's pro
rata portion of the fair market value (on a going concern or liquidation
basis, whichever is higher, as determined by an appraisal process) of QVC.
The Company may pay Liberty for such stock, subject to certain rights of
Liberty to consummate the purchase in the most tax- efficient method
available, in cash, the Company's promissory note maturing not more than
three years after issuance, the Company's equity securities or any
combination thereof. If the Company elects not to purchase the stock of QVC
held by Liberty, then Liberty will have a similar right to purchase the
stock of QVC held by the Company. If Liberty elects not to purchase the
stock of QVC held by the Company, then Liberty and the Company will use
their best efforts to sell QVC.
- 60 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
Minimum annual rental commitments for office space, equipment and
transponder service agreements under noncancellable operating leases as of
December 31, 2000 are as follows:
(Dollars
in millions)
------------
2001........................................ $73.0
2002........................................ 59.7
2003........................................ 55.9
2004........................................ 50.8
2005........................................ 41.5
Thereafter.................................. 228.0
Rental expense of $76.7 million, $71.1 million and $64.8 million for 2000,
1999 and 1998, respectively, has been charged to operations.
Contingencies
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position, results of operations or liquidity of the
Company.
In connection with a license awarded to an affiliate, the Company is
contingently liable in the event of nonperformance by the affiliate to
reimburse a bank which has provided a performance guarantee. The amount of
the performance guarantee is approximately $500 million; however the
Company's current estimate of the amount of expenditures (principally in
the form of capital expenditures) that will be made by the affiliate
necessary to comply with the performance requirements will not exceed $150
million.
- 61 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Continued)
10. FINANCIAL DATA BY BUSINESS SEGMENT
The following represents the Company's significant business segments,
"Cable" and "Commerce." The components of net income (loss) below operating
income (loss) are not separately evaluated by the Company's management on a
segment basis (see the Company's consolidated statement of operations)
(dollars in millions).
Corporate
Cable Commerce and Other(1) Total
-------- -------- ----------- --------
2000
Revenues ............................................................ $4,185.0 $3,535.9 $497.7 $8,218.6
Operating income (loss) before depreciation and amortization (2) .... 1,899.6 619.2 (48.5) 2,470.3
Depreciation and amortization ....................................... 2,417.7 125.9 87.7 2,631.3
Operating income (loss) ............................................. (518.1) 493.3 (136.2) (161.0)
Interest expense .................................................... 515.7 34.9 140.8 691.4
Assets .............................................................. 25,750.3 2,503.0 7,491.2 35,744.5
Long-term debt ...................................................... 6,711.0 302.0 3,504.4 10,517.4
Capital expenditures ................................................ 1,248.1 155.9 232.8 1,636.8
1999
Revenues ............................................................ $2,929.3 $3,167.4 $432.5 $6,529.2
Operating income (loss) before depreciation and amortization (2) .... 1,353.0 538.8 (11.8) 1,880.0
Depreciation and amortization ....................................... 1,026.6 117.2 72.2 1,216.0
Operating income (loss) ............................................. 326.4 421.6 (84.0) 664.0
Interest expense .................................................... 353.0 39.6 145.7 538.3
Assets .............................................................. 10,855.3 2,243.6 15,586.7 28,685.6
Long-term debt ...................................................... 4,735.3 476.7 3,495.2 8,707.2
Capital expenditures ................................................ 739.6 80.1 74.1 893.8
1998
Revenues ............................................................ $2,277.4 $2,676.4 $465.2 $5,419.0
Operating income (loss) before depreciation and amortization (2) .... 1,096.6 434.2 (34.1) 1,496.7
Depreciation and amortization ....................................... 674.2 126.1 139.3 939.6
Operating income (loss) ............................................. 422.4 308.1 (173.4) 557.1
Interest expense .................................................... 223.6 51.1 192.0 466.7
Assets .............................................................. 6,449.4 2,101.8 6,159.3 14,710.5
Long-term debt ...................................................... 3,462.1 626.8 1,375.3 5,464.2
Capital expenditures ................................................ 711.1 67.2 120.6 898.9
- --------------
(1) Other includes segments not meeting certain quantitative guidelines for
reporting. Other includes certain operating businesses such as
Comcast-Spectacor, E! Entertainment, the Company's domestic wireline
telecommunications and international wireless operations, the Company's
consolidated UK cable and telecommunications operations (prior to October
29, 1998), the Company's DBS operations (prior to April 1, 1998) and
elimination entries related to the segments presented. Corporate and other
assets consist primarily of the Company's investments (see Note 4).
(2) 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.
- 62 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 and 1998 (Concluded)
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth Total
Quarter Quarter Quarter Quarter (3) Year
------- ------- ------- ---------- ----
(Dollars in millions, except per share data)
2000 (1)
Revenues ..................................................... $1,938.9 $1,912.1 $1,960.0 $2,407.6 $8,218.6
Operating income before depreciation and amortization (2) .... 586.9 602.8 605.7 674.9 2,470.3
Operating income (loss) ...................................... 41.2 (31.6) (56.4) (114.2) (161.0)
Income (loss) from continuing operations
before extraordinary items .......................... (186.4) 198.8 1,249.1 783.6 2,045.1
Basic earnings (loss) for common
stockholders per common share
Income (loss) from continuing operations
before extraordinary items .......................... (.23) .21 1.37 .87 2.27
Net income (loss) .......................................... (.24) .20 1.37 .86 2.24
Diluted earnings (loss) for common
stockholders per common share
Income (loss) from continuing operations
before extraordinary items .......................... (.23) .20 1.29 .81 2.16
Net income (loss) .......................................... (.24) .19 1.29 .80 2.13
1999 (1)
Revenues ..................................................... $1,446.7 $1,549.2 $1,599.3 $1,934.0 $6,529.2
Operating income before depreciation and amortization (2) .... 425.1 457.3 463.9 533.7 1,880.0
Operating income ............................................. 186.6 149.8 151.0 176.6 664.0
Income (loss) from continuing operations
before extraordinary items .......................... 101.8 826.3 20.4 (167.6) 780.9
Basic earnings (loss) for common
stockholders per common share
Income (loss) from continuing operations
before extraordinary items .......................... .13 1.10 .02 (.23) 1.00
Net income (loss) .......................................... .10 1.10 .44 (.24) 1.38
Diluted earnings (loss) for common
stockholders per common share
Income (loss) from continuing operations
before extraordinary items .......................... .12 1.01 .03 (.23) .95
Net income (loss) .......................................... .10 1.01 .41 (.24) 1.30
- --------------
(1) Results of operations for 2000 were affected by the Lenfest Acquisition in
the first quarter, the Prime Acquisition and the gain recognized on the
Excite@Home transaction in the third quarter, the gain on the AT&T cable
systems exchange in the fourth quarter and the ZONES fair value adjustments
throughout 2000 (see Notes 3 and 5). Results of operations for 1999 were
affected by the acquisition of a controlling interest in Jones Intercable
and the receipt of the MediaOne termination fee in the second quarter and
the ZONES fair value adjustment in the fourth quarter (see Notes 3 and 5).
(2) See Note 10, note 2.
(3) The Company's consolidated results of operations for the fourth quarter of
2000 and 1999 are also affected by the seasonality of the Company's
commerce operations.
- 63 -
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information called for by Item 10, Directors and Executive Officers of
the Registrant (except for the information regarding executive officers called
for by Item 401 of Regulation S-K which is included in Part I hereof as Item 4A
in accordance with General Instruction G(3)), Item 11, Executive Compensation,
Item 12, Security Ownership of Certain Beneficial Owners and Management, and
Item 13, Certain Relationships and Related Transactions, is hereby incorporated
by reference to our definitive Proxy Statement for our Annual Meeting of
Shareholders presently scheduled to be held in June 2001, which shall be filed
with the Securities and Exchange Commission within 120 days of the end of our
latest fiscal year.
- 64 -
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements of ours are included in
Part II, Item 8:
Independent Auditors' Report.................................31
Consolidated Balance Sheet--December 31, 2000 and 1999.......32
Consolidated Statement of Operations--Years
Ended December 31, 2000, 1999 and 1998.....................33
Consolidated Statement of Cash Flows--Years
Ended December 31, 2000, 1999 and 1998.....................34
Consolidated Statement of Stockholders' Equity--
Years Ended December 31, 2000, 1999 and 1998...............35
Notes to Consolidated Financial Statements...................36
(b) (i) The following financial statement schedules required to be
filed by Items 8 and 14(d) of Form 10-K are included in Part IV:
Schedule I - Condensed Financial Information of Registrant
Unconsolidated (Parent Only)
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, not
required or the required information is included in the consolidated
financial statements or notes thereto.
(c) Reports on Form 8-K:
None.
(d) Exhibits required to be filed by Item 601 of Regulation S-K:
3.1(a) Amended and Restated Articles of Incorporation filed on
July 24, 1990 (incorporated by reference to Exhibit 3.1(a)
to our Annual Report on Form 10-K for the year ended
December 31, 1995).
3.1(b) Amendment to Restated Articles of Incorporation filed on
July 14, 1994 (incorporated by reference to Exhibit 3.1(b)
to our Annual Report on Form 10-K for the year ended
December 31, 1995).
3.1(c) Amendment to Restated Articles of Incorporation filed on
July 12, 1995 (incorporated by reference to Exhibit 3.1(c)
to our Annual Report on Form 10-K for the year ended
December 31, 1995).
3.1(d) Amendment to Restated Articles of Incorporation filed on
June 24, 1996 (incorporated by reference to Exhibit 4.1(d)
to our Registration Statement on Form S-3, as amended,
filed on July 16, 1996).
3.1(e) Form of Statement of Designations, Preferences and Rights
of Series B Convertible Preferred Stock of the Company
(incorporated by reference to Exhibit 3.1 to our Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997).
3.1(f) Amendment to Restated Articles of Incorporation.
3.2 Amended and Restated By-Laws (incorporated by reference to
Exhibit 3.1 to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999).
4.1 Specimen Class A Common Stock Certificate (incorporated by
reference to Exhibit 2(a) to our Registration Statement on
Form S-7 filed on September 17, 1980).
4.2 Specimen Class A Special Common Stock Certificate
(incorporated by reference to Exhibit 4(2) to our Annual
Report on Form 10-K for the year ended December 31, 1986).
4.3 Indenture, dated as of October 17, 1991, between the
Company and Bank of Montreal/Harris Trust (successor to
Morgan Guaranty Trust Company of New York), as Trustee
(incorporated by reference to Exhibit 2 to our Current
Report on Form 8-K filed on October 31, 1991).
- 65 -
4.4 Form of Debenture relating to our 10-1/4% Senior
Subordinated Debentures due 2001 (incorporated by reference
to Exhibit 4(19) to our Annual Report on Form 10-K for the
year ended December 31, 1991).
4.5 Form of Debenture relating to our $300,000,000 10-5/8%
Senior Subordinated Debentures due 2012 (incorporated by
reference to Exhibit 4(17) to our Annual Report on Form
10-K for the year ended December 31, 1992).
4.6 Indenture, dated as of February 20, 1991, between us and
Bankers Trust Company, as Trustee (incorporated by
reference to Exhibit 4.3 to our Registration Statement on
Form S-3, filed on January 11, 1990).
4.7 Form of Debenture relating to our $1,477,750,000 Principal
Amount at Maturity of Zero Coupon Convertible Debentures
due 2020.
10.1* Comcast Corporation 1986 Non-Qualified Stock Option Plan,
as amended and restated, effective December 10, 1996
(incorporated by reference to Exhibit 10.3 to our Annual
Report on Form 10-K for the year ended December 31, 1996).
10.2* Comcast Corporation 1987 Stock Option Plan, as amended and
restated, effective December 15, 1998 (incorporated by
reference to Exhibit 10.2 to our Annual Report on Form 10-K
for the year ended December 31, 1998).
10.3* Comcast Corporation 1996 Stock Option Plan, as amended and
restated, effective June 21, 1999 (incorporated by
reference to Exhibit 10.1 to our Quarterly Report on Form
10-Q for the quarter ended June 30, 1999).
10.4* Comcast Corporation 1996 Deferred Compensation Plan, as
amended and restated, effective December 19, 2000.
10.5* Comcast Corporation 1990 Restricted Stock Plan, as amended
and restated, effective June 21, 1999 (incorporated by
reference to Exhibit 10.3 to our Quarterly Report on Form
10-Q for the quarter ended June 30, 1999).
10.6* 1992 Executive Split Dollar Insurance Plan (incorporated by
reference to Exhibit 10(12) to our Annual Report on Form
10-K for the year ended December 31, 1992).
10.7* Comcast Corporation 1996 Cash Bonus Plan, as amended and
restated, effective December 19, 2000.
10.8* Comcast Corporation 1996 Executive Cash Bonus Plan, as
amended and restated, effective December 19, 2000.
10.9* Compensation and Deferred Compensation Agreement by and
between Comcast Corporation and Ralph J. Roberts, as
amended and restated (incorporated by reference to Exhibit
10.2 to our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000).
10.10* Compensation Agreement by and between Comcast Corporation
and Brian L. Roberts (incorporated by reference to Exhibit
10.1 to our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000).
10.11 The Comcast Corporation Retirement-Investment Plan, as
amended and restated (incorporated by reference to Exhibit
10.3 to our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000).
10.12 Defined Contribution Plans Master Trust Agreement, between
Comcast Corporation and State Street Bank and Trust Company
(incorporated by reference to Exhibit 10.2 to our
Registration Statement on Form S-8 filed on October 5,
1995).
10.13 Tax Sharing Agreement, dated as of December 2, 1992, among
Storer Communications, Inc., TKR Cable I, Inc., TKR Cable
II, Inc., TKR Cable III, Inc., AT&T Corp. (as successor to
Tele-Communications, Inc.), the Company and each of the
Departing Subsidiaries that are signatories thereto
(incorporated by reference to Exhibit 4 to our Current
Report on Form 8-K filed on December 17, 1992, as amended
by Form 8 filed January 8, 1993).
10.14* Comcast Corporation 1997 Deferred Stock Option Plan, as
amended and restated, effective December 19, 2000.
- ----------
* Constitutes a management contract or compensatory plan or arrangement.
- 66 -
10.15 Amended and Restated Stockholders Agreement, dated as of
February 9, 1995, among the Company, Comcast QVC, Inc., QVC
Programming Holdings, Inc., Liberty Media Corporation, QVC
Investment, Inc. and Liberty QVC, Inc. (incorporated by
reference to Exhibit 10.5 to our Quarterly Report on Form
10-Q for the quarter ended March 31, 1995).
10.16(a) Credit Agreement, dated as of February 15, 1995, among QVC,
Inc. and the Banks listed therein (incorporated by
reference to Exhibit (b)(6) to Amendment No. 21 to the
Tender Offer Statement on Schedule 14D-1 filed on February
17, 1995 by QVC Programming Holdings, Inc., the Company and
AT&T Corp. (as successor to Tele-Communications, Inc.) with
respect to the tender offer for all outstanding shares of
QVC, Inc.).
10.16(b)** Amendment No. 3, dated as of July 19, 1996, to the Credit
Agreement, dated as of February 15, 1995, among QVC, Inc.
and the Banks listed therein.
10.17 Indenture dated as of May 1, 1997, between Comcast Cable
Communications, Inc. and The Bank of New York (as successor
in interest to Bank of Montreal Trust Company), as Trustee,
in respect of Comcast Cable Communications, Inc.'s 8-1/8%
Notes due 2004, 8-3/8% Notes due 2007, 8-7/8% Notes due
2017, 8-1/2% Notes due 2027, 6.20% Notes due 2008, 6.375%
Notes due 2006 and 6.75% Notes due 2011 (incorporated by
reference to Exhibit 4.1(a) to the Registration Statement
on Form S-4 of Comcast Cable Communications, Inc.).
10.18 Purchase and Sale Agreement dated as of January 19, 1999
among SBC Communications Inc., Comcast Cellular Holdings
Corporation, Comcast Financial Corporation and Comcast
Corporation (incorporated by reference to Exhibit 10.34 to
our Annual Report on Form 10-K for the year ended December
31, 1998).
10.19 Agreement and Plan of Merger, dated as of November 16,
1999, by and among Comcast Corporation, Comcast LCI
Holdings, Inc., a wholly owned subsidiary of Comcast,
Lenfest Communications, Inc. ("Lenfest") and Lenfest's
stockholders as named therein. (incorporated by reference
to Exhibit 10.1 to our Current Report on Form 8-K filed on
December 13, 1999).
10.20 Asset Exchange Agreement, dated as of August 11, 2000,
among AT&T Corp. and Comcast Corporation (incorporated by
reference to Exhibit 10.1 to our Quarterly Report on Form
10-Q for the quarter ended September 30, 2000).
10.21 Agreement and Plan of Reorganization, dated as of August
11, 2000, among Comcast Corporation, Comcast Cable
Communications, Inc., Comcast CCCI II, LLC, Comcast
Teleport, Inc., Comcast Heritage, Inc., Comcast
Communications Properties, Inc., and AT&T Corp
(incorporated by reference to Exhibit 10.2 to our Quarterly
Report on Form 10-Q for the quarter ended September 30,
2000).
10.22 Five-Year Revolving Credit Agreement, dated as of August
24, 2000, among Comcast Cable Communications, Inc. and the
Financial Institutions Party Hereto, Banc of America
Securities LLC and Chase Securities Inc., as Joint Lead
Arrangers and Joint Book Managers, BNY Capital Markets,
Inc. and Salomon Smith Barney Inc., as Co-Arrangers, Bank
of America, N.A., as Administrative Agent, Swing Line
Lender and Letter of Credit Issuing Lender, Chase
Securities Inc., as Syndication Agent and Citibank, N.A.
and The Bank of New York, as Co- Documentation Agents
(incorporated by reference to Exhibit 10.4 to the Comcast
Cable Communications, Inc. Quarterly Report on Form 10-Q
for the quarter ended September 30, 2000).
10.23 364-Day Revolving Credit Agreement, dated as of August 24,
2000, among Comcast Cable Communications, Inc. and the
Financial Institutions Party Hereto, Banc of America
Securities LLC and Chase Securities Inc., as Joint Lead
Arrangers and Joint Book Managers, BNY Capital Markets,
Inc. and Salomon Smith Barney Inc., as Co-Arrangers, Bank
of America, N.A., as Administrative Agent, Chase Securities
Inc., as Syndication Agent and Citibank, N.A. and The Bank
of New York, as Co-Documentation Agents (incorporated by
reference to Exhibit 10.5 to the Comcast Cable
Communications, Inc. Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000).
- ----------
** Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant agrees
to furnish a copy of the referenced agreement to the Commission upon request.
- 67 -
10.24 Asset Exchange Closing Agreement dated as of January 1,
2001 among Comcast Corporation, the Comcast Parties,
Adelphia Communications Corporation and the Adelphia
Parties.
21 List of Subsidiaries.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG LLP.
99.1 Report of Independent Public Accountants to QVC, Inc. for
the year ended December 31, 1998.
- 68 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in Philadelphia,
Pennsylvania on March 2, 2001.
By: /s/ Brian L. Roberts
------------------------------
Brian L. Roberts
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Ralph J. Roberts Chairman of the Board of Directors; Director March 2, 2001
- --------------------------
Ralph J. Roberts
/s/ Julian A. Brodsky Vice Chairman of the Board of Directors; March 2, 2001
- -------------------------- Director
Julian A. Brodsky
/s/ Brian L. Roberts President; Director (Principal Executive March 2, 2001
- -------------------------- Officer)
Brian L. Roberts
/s/ John R. Alchin Executive Vice President, Treasurer March 2, 2001
- -------------------------- (Principal Financial Officer)
John R. Alchin
/s/ Lawrence J. Salva Senior Vice President March 2, 2001
- -------------------------- (Principal Accounting Officer)
Lawrence J. Salva
/s/ Sheldon M. Bonovitz Director March 2, 2001
- --------------------------
Sheldon M. Bonovitz
/s/ Joseph L. Castle II Director March 2, 2001
- --------------------------
Joseph L. Castle II
/s/ Felix G. Rohatyn Director March 2, 2001
- --------------------------
Felix G. Rohatyn
/s/ Bernard C. Watson Director March 2, 2001
- --------------------------
Bernard C. Watson
/s/ Irving A. Wechsler Director March 2, 2001
- --------------------------
Irving A. Wechsler
/s/ Anne Wexler Director March 2, 2001
- --------------------------
Anne Wexler
- 69 -
COMCAST CORPORATION AND SUBSIDIARIES
------------------------------------
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF
-----------------------------------------------
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
---------------------------------------
CONDENSED BALANCE SHEET
(In millions, except share data)
December 31,
ASSETS 1999
- ------ ----------
Cash and cash equivalents............................................. $8.6
Other current assets.................................................. 16.2
----------
Total current assets................................................ 24.8
Investments in and amounts due from subsidiaries
eliminated upon consolidation....................................... 14,664.6
Property and equipment, net........................................... 11.7
Other assets, net..................................................... 66.7
----------
$14,767.8
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued interest...................................................... $34.9
Other current liabilities............................................. 694.3
----------
Total current liabilities........................................... 729.2
----------
Long-term debt, less current portion (including adjustment
to carrying value of $666.0 million)................................ 3,147.5
----------
Deferred income taxes and other....................................... 549.8
----------
Stockholders' equity
5.25% series B mandatorily redeemable convertible,
$1,000 par value; issued, 569,640 at redemption value............. 569.6
Class A special common stock, $1 par value - authorized,
2,500,000,000 shares; issued, 716,442,482;........................ 716.4
Class A common stock, $1 par value - authorized,
200,000,000 shares; issued, 25,993,380............................ 26.0
Class B common stock, $1 par value - authorized,
50,000,000 shares; issued, 9,444,375.............................. 9.4
Additional capital.................................................. 3,527.0
Accumulated deficit................................................. (619.8)
Accumulated other comprehensive income.............................. 6,112.7
----------
Total stockholders' equity........................................ 10,341.3
----------
$14,767.8
==========
- 70 -
COMCAST CORPORATION AND SUBSIDIARIES
------------------------------------
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
------------------------------------------------
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
---------------------------------------
CONDENSED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
---------------------------------------------------------
(In millions, except per share data)
Year Ended December 31,
1999 1998
---------- ----------
REVENUES, principally intercompany fees eliminated
upon consolidation.............................................. $377.7 $320.1
GENERAL AND ADMINISTRATIVE EXPENSES................................ 91.3 83.2
---------- ----------
OPERATING INCOME................................................... 286.4 236.9
OTHER (INCOME) EXPENSE
Interest expense, including intercompany interest, net.......... 275.8 239.1
Expense related to indexed debt................................. 666.0
Equity in net income of affiliates and other.................... (1,652.4) (976.2)
---------- ----------
(710.6) (737.1)
---------- ----------
INCOME BEFORE INCOME TAX BENEFIT
AND EXTRAORDINARY ITEMS......................................... 997.0 974.0
INCOME TAX BENEFIT................................................. (113.5) (2.1)
---------- ----------
INCOME BEFORE EXTRAORDINARY ITEMS.................................. 1,110.5 976.1
EXTRAORDINARY ITEMS................................................ (44.8) (4.0)
---------- ----------
NET INCOME......................................................... 1,065.7 972.1
ACCUMULATED DEFICIT
Beginning of year............................................... (1,488.2) (2,415.9)
Retirement of common stock...................................... (25.3) (10.0)
Share exchange.................................................. (172.0)
Cash dividends, $.0467 per share in 1998........................ (34.4)
---------- ----------
End of year..................................................... ($619.8) ($1,488.2)
========== ==========
- 71 -
COMCAST CORPORATION AND SUBSIDIARIES
------------------------------------
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
------------------------------------------------
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
---------------------------------------
CONDENSED STATEMENT OF CASH FLOWS
---------------------------------
(In millions)
Year Ended December 31,
1999 1998
---------- ---------
OPERATING ACTIVITIES
Net income...................................................... $1,065.7 $972.1
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................. 6.8 13.2
Non-cash interest expense, net................................ 3.7
Non-cash expense related to indexed debt...................... 666.0
Equity in net income of affiliates............................ (1,593.0) (976.6)
Extraordinary items........................................... 44.8 4.0
Deferred income taxes and other............................... 292.9 104.2
---------- ---------
483.2 120.6
Changes in working capital.................................... 79.0 155.2
---------- ---------
Net cash provided by operating activities................. 562.2 275.8
---------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings........................................ 2,525.4
Retirement and repayment of debt................................ (962.9) (50.6)
Issuances of common stock and sales of put options
on common stock............................................... 17.1 41.8
Repurchases of common stock..................................... (30.7) (12.9)
Dividends....................................................... (9.4) (36.0)
Other........................................................... (23.0) (32.8)
---------- ---------
Net cash provided by (used in) financing activities....... 1,516.5 (90.5)
---------- ---------
INVESTING ACTIVITIES
Net transactions with affiliates................................ (2,087.1) (164.0)
Capital expenditures and other.................................. (14.2) (2.9)
---------- ---------
Net cash used in investing activities..................... (2,101.3) (166.9)
---------- ---------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS................................................ (22.6) 18.4
CASH AND CASH EQUIVALENTS, beginning of year....................... 31.2 12.8
---------- ---------
CASH AND CASH EQUIVALENTS, end of year............................. $8.6 $31.2
========== =========
- 72 -
COMCAST CORPORATION AND SUBSIDIARIES
------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
--------------------------------------------
(In millions)
Additions
Balance at Charged to Deductions Balance
Beginning Costs and from at End
of Year Expenses Reserves(A) of Year
------- -------- ----------- -------
Allowance for Doubtful Accounts
2000 $136.6 $65.9 $60.8 $141.7
1999 120.7 48.6 32.7 136.6
1998 108.8 52.2 40.3 120.7
Allowance for Obsolete
Electronic Retailing Inventories
2000 $89.2 $46.3 $30.0 $105.5
1999 60.9 61.9 33.6 89.2
1998 44.5 39.0 22.6 60.9
(A) Uncollectible accounts and obsolete inventory written off.
- 73 -