Disclaimer

The SEC Filings on this page are provided by EDGAR (www.sec.gov), the Electronic Data Gathering, Analysis, and Retrieval System of the U.S. Securities and Exchange Commission (SEC). EDGAR performs automated collection, validation, indexing, acceptance, and forwarding of submissions by companies and others who are required by law to file forms with the SEC. The information here is provided for your convenience only. Comcast has no control over the information provided by EDGAR and cannot guarantee the sequence, accuracy, or completeness of any information or data displayed through EDGAR. Accordingly, Comcast does not accept any responsibility for the content or use of any information obtained through EDGAR.

Consult Your Tax Advisor

The information in this document represents our understanding of federal income tax laws and regulations, but does not constitute personal tax advice based on your specific situation. It does not purport to be complete or to describe the consequences that may apply to you given your particular taxes. You should consult your own tax advisor regarding the applicability of any state, local and foreign tax laws.

Form 10-Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended:

JUNE 30, 2006

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 001-32871

 


LOGO

COMCAST CORPORATION

(Exact name of registrant as specified in its charter)

 

PENNSYLVANIA   27-0000798
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

1500 Market Street, Philadelphia, PA 19102-2148

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (215) 665-1700

 


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

Yes x No ¨

 


Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x                        Accelerated filer ¨                        Non-accelerated filer ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ¨ No x

As of June 30, 2006, there were 1,365,994,008 shares of our Class A Common Stock, 717,356,654 shares of our Class A Special Common Stock and 9,444,375 shares of our Class B Common Stock outstanding.

 



Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

TABLE OF CONTENTS

 

               Page
Number

PART I. FINANCIAL INFORMATION

  
   ITEM 1.   

Financial Statements

   2
      Condensed Consolidated Balance Sheet as of June 30, 2006 and December 31, 2005 (Unaudited)    2
      Condensed Consolidated Statement of Operations for the Three and Six Months Ended June 30, 2006 and 2005 (Unaudited)    3
      Condensed Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2006 and 2005 (Unaudited)    4
     

Notes to Condensed Consolidated Financial Statements (Unaudited)

   5
   ITEM 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations    29
   ITEM 3.   

Quantitative and Qualitative Disclosures About Market Risk

   39
   ITEM 4.   

Controls and Procedures

   39

PART II. OTHER INFORMATION

  
   ITEM 1.   

Legal Proceedings

   39
   ITEM 1A.   

Risk Factors

   39
   ITEM 2.   

Unregistered Sales of Equity Securities and Use of Proceeds

   39
   ITEM 4.   

Submission of Matters to a Vote of Security Holders

   40
   ITEM 6.   

Exhibits

   41
   SIGNATURES    42

 


This Quarterly Report on Form 10-Q is for the three and six months ended June 30, 2006. This Quarterly Report modifies and supersedes documents filed prior to this Quarterly Report. The SEC allows us to “incorporate by reference” information that we file with them, which means that we can disclose important information to you by referring you directly to those documents. Information incorporated by reference is considered to be part of this Quarterly Report. In addition, information that we file with the SEC in the future will automatically update and supersede information contained in this Quarterly Report. Throughout this Quarterly Report, we refer to Comcast Corporation as “Comcast”; Comcast and its consolidated subsidiaries as “we,” “us” and “our”; and Comcast Holdings Corporation as “Comcast Holdings.”

You should carefully review the information contained in this Quarterly Report and particularly consider any risk factors that we set forth in this Quarterly Report and in other reports or documents that we file from time to time with the SEC. In this Quarterly Report, we state our beliefs of future events and of our future financial performance. In some cases, you can identify these 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. In evaluating those statements, you should specifically consider various factors, including the risks outlined below. Actual events or our actual results may differ materially from any of our forward-looking statements.

Our businesses may be affected by, among other things, the following:

 

    all of the services offered by our cable systems face a wide range of competition that could adversely affect our future results of operations

 

    programming costs are increasing, which could adversely affect our future results of operations

 

    we are subject to regulation by federal, state and local governments, which may impose costs and restrictions

 

    we may face increased competition because of technological advances and new regulatory requirements, which could adversely affect our future results of operations

 

    we face risks arising from the outcome of various litigation matters, including litigation associated with the acquisition of AT&T Corp.’s broadband cable business

 

    acquisitions and other strategic transactions present many risks, and we may not realize the financial and strategic goals that were contemplated at the time of any transaction

 

    our Chairman and CEO has considerable influence over our operations

 

1


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

 

     (Dollars in millions,
except share data)
 
     June 30,
2006
    December 31,
2005
 

ASSETS

    

CURRENT ASSETS

    

Cash and cash equivalents

   $ 973     $ 693  

Investments

     813       148  

Accounts receivable, less allowance for doubtful accounts of $137 and $136

     1,125       1,060  

Other current assets

     629       693  
                

Total current assets

     3,540       2,594  
                

INVESTMENTS

     11,838       12,682  

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $14,356 and $12,629

     18,945       18,769  

FRANCHISE RIGHTS

     51,366       51,090  

GOODWILL

     13,794       14,218  

OTHER INTANGIBLE ASSETS, net of accumulated amortization of $5,319 and $4,776

     3,090       3,160  

OTHER NONCURRENT ASSETS, net

     515       633  
                
   $ 103,088     $ 103,146  
                

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

CURRENT LIABILITIES

    

Accounts payable and accrued expenses related to trade creditors

   $ 2,068     $ 2,033  

Accrued expenses and other current liabilities

     2,703       2,545  

Deferred income taxes

     230       2  

Current portion of long-term debt

     763       1,689  
                

Total current liabilities

     5,764       6,269  
                

LONG-TERM DEBT, less current portion

     23,360       21,682  

DEFERRED INCOME TAXES

     26,873       27,370  

OTHER NONCURRENT LIABILITIES

     6,512       6,949  

MINORITY INTEREST

     672       657  

COMMITMENTS AND CONTINGENCIES (NOTE 10)

    

STOCKHOLDERS’ EQUITY

    

Preferred stock—authorized 20,000,000 shares; issued, zero

            

Class A common stock, $0.01 par value—authorized, 7,500,000,000 shares; issued, 1,609,634,508 and 1,607,007,818; outstanding, 1,365,994,008 and 1,363,367,318

     16       16  

Class A Special common stock, $0.01 par value—authorized, 7,500,000,000 shares; issued 764,646,497 and 813,097,757; outstanding, 717,356,654 and 765,807,914

     8       9  

Class B common stock, $0.01 par value—authorized, 75,000,000 shares; issued and outstanding, 9,444,375

            

Additional capital

     42,342       43,000  

Retained earnings

     5,152       4,825  

Treasury stock, 243,640,500 Class A common shares and 47,289,843 Class A Special common shares

     (7,517 )     (7,517 )

Accumulated other comprehensive loss

     (94 )     (114 )
                

Total stockholders’ equity

     39,907       40,219  
                
   $ 103,088     $ 103,146  
                

See notes to condensed consolidated financial statements.

 

2


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

 

     (Dollars in millions,
except per share data)
 
     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
         2006             2005             2006             2005      

REVENUES

   $ 6,228     $ 5,598     $ 12,129     $ 10,961  

COSTS AND EXPENSES

        

Operating (excluding depreciation)

     2,310       1,944       4,506       3,901  

Selling, general and administrative

     1,486       1,445       2,990       2,821  

Depreciation

     958       891       1,890       1,765  

Amortization

     245       270       464       560  
                                
     4,999       4,550       9,850       9,047  
                                

OPERATING INCOME

     1,229       1,048       2,279       1,914  

OTHER INCOME (EXPENSE)

        

Interest expense

     (496 )     (467 )     (972 )     (911 )

Investment income (loss), net

     14       176       78       140  

Equity in net (losses) income of affiliates

     (14 )     (16 )     (24 )     (4 )

Other income (expense)

     85       30       97       (78 )
                                
     (411 )     (277 )     (821 )     (853 )
                                

INCOME BEFORE INCOME TAXES AND MINORITY INTEREST

     818       771       1,458       1,061  

INCOME TAX EXPENSE

     (362 )     (331 )     (526 )     (471 )
                                

INCOME BEFORE MINORITY INTEREST

     456       440       932       590  

MINORITY INTEREST

     4       (10 )     (6 )     (17 )
                                

NET INCOME

   $ 460     $ 430     $ 926     $ 573  
                                

BASIC EARNINGS FOR COMMON STOCKHOLDERS PER COMMON SHARE

   $ 0.22     $ 0.19     $ 0.44     $ 0.26  
                                

DILUTED EARNINGS FOR COMMON STOCKHOLDERS PER COMMON SHARE

   $ 0.22     $ 0.19     $ 0.43     $ 0.26  
                                

See notes to condensed consolidated financial statements.

 

3


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

     (Dollars in millions)  
     Six Months Ended
June 30,
 
     2006     2005  

OPERATING ACTIVITIES

    

Net income

   $ 926     $ 573  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation

     1,890       1,765  

Amortization

     464       560  

Share-based compensation expense

     96       24  

Noncash interest expense, net

     40       21  

Equity in net losses (income) of affiliates

     24       4  

(Gains) losses on investments and noncash other (income) expense, net

     (51 )     (172 )

Noncash contribution expense

     5       6  

Minority interest

     6       17  

Deferred income taxes

     (245 )     (66 )

Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:

    

Change in accounts receivable, net

     (61 )     (68 )

Change in accounts payable and accrued expenses related to trade creditors

     34       1  

Change in other operating assets and liabilities

     115       (148 )
                

Net cash provided by (used in) operating activities

     3,243       2,517  
                

FINANCING ACTIVITIES

    

Proceeds from borrowings

     2,587       1,495  

Retirements and repayments of debt

     (1,905 )     (279 )

Repurchases of common stock

     (1,388 )     (660 )

Issuances of common stock

     60       59  

Other

     2       83  
                

Net cash provided by (used in) financing activities

     (644 )     698  
                

INVESTING ACTIVITIES

    

Capital expenditures

     (1,854 )     (1,842 )

Cash paid for intangible assets

     (141 )     (192 )

Acquisitions, net of cash acquired

     (550 )     (134 )

Proceeds from sales and restructuring of investments

     303       317  

Purchases of investments

     (70 )     (305 )

Proceeds from sales (purchases) of short-term investments, net

     (4 )     (63 )

Other

     (3 )     (113 )
                

Net cash used in (provided by) investing activities

     (2,319 )     (2,332 )
                

INCREASE IN CASH AND CASH EQUIVALENTS

     280       883  

CASH AND CASH EQUIVALENTS, beginning of period

     693       452  
                

CASH AND CASH EQUIVALENTS, end of period

   $ 973     $ 1,335  
                

See notes to condensed consolidated financial statements.

 

4


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation

We have prepared these unaudited condensed consolidated financial statements based upon Securities and Exchange Commission (“SEC”) rules that permit reduced disclosure for interim periods.

These financial statements include all adjustments that are necessary for a fair presentation of our results of operations and financial condition for the interim periods shown, including normal recurring accruals and other items. The results of operations for the interim periods presented are not necessarily indicative of results for the full year.

For a more complete discussion of our accounting policies and certain other information, refer to our annual financial statements for the preceding fiscal year as filed with the SEC.

Reclassifications

Certain reclassifications have been made to the prior year financial statements to conform to those classifications used in 2006.

2. RECENT ACCOUNTING PRONOUNCEMENTS

SFAS No. 123R

Effective January 1, 2006, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment” (“SFAS No. 123R”) using the Modified Prospective Approach. See Note 8 for further detail regarding the adoption of this standard.

SFAS No. 155

In February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an Amendment of FASB Statements No. 133 and 140” (“SFAS No. 155”). SFAS No. 155 allows financial instruments that contain an embedded derivative and that otherwise would require bifurcation to be accounted for as a whole on a fair value basis, at the holders’ election. SFAS No. 155 also clarifies and amends certain other provisions of SFAS No. 133 and SFAS No. 140. This statement is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. We do not expect that the adoption of SFAS No. 155 will have a material impact on our consolidated financial condition or results of operations.

FASB Interpretation No. 48

In July 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the recognition threshold and measurement of a tax position taken on a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. FIN 48 also requires expanded disclosure with respect to the uncertainty in income taxes. We are currently evaluating the requirements of FIN 48 and the impact this interpretation may have on our financial statements.

 

5


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

3. EARNINGS PER SHARE

Basic earnings per common share (“Basic EPS”) is computed by dividing net income for common stockholders by the weighted-average number of common shares outstanding during the period.

Our potentially dilutive securities include potential common shares related to our stock options and restricted share units. Diluted earnings for common stockholders per common share (“Diluted EPS”) considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an antidilutive effect.

Diluted EPS for the three and six months ended June 30, 2006, excludes approximately 97 million and 113 million potential common shares, respectively, and Diluted EPS for the three and six months ended June 30, 2005, excludes approximately 90 million and 78 million potential common shares, respectively, related to our share-based compensation plans, because the inclusion of the potential common shares would have an antidilutive effect. Diluted EPS for the three and six months ended June 30, 2005, excludes the impact of potential common shares related to our Comcast exchangeable notes, which were settled using cash in 2005.

The following table reconciles the numerator and denominator of the computations of Diluted EPS for common stockholders for the periods presented (amounts in millions, except per share data):

 

     Three Months Ended June 30,
     2006    2005
     Income    Shares    Per Share
Amount
   Income    Shares    Per Share
Amount

Basic EPS for common stockholders

   $ 460    2,112    $ 0.22    $ 430    2,207    $ 0.19

Effect of dilutive securities:

                 

Assumed exercise or issuance of shares relating to stock plans

      11          14   
                                     

Diluted EPS

   $ 460    2,123    $ 0.22    $ 430    2,221    $ 0.19
                                     
     Six Months Ended June 30,
     2006    2005
     Income    Shares    Per Share
Amount
   Income    Shares    Per Share
Amount

Basic EPS for common stockholders

   $ 926    2,123    $ 0.44    $ 573    2,211    $ 0.26

Effect of dilutive securities:

                 

Assumed exercise or issuance of shares relating to stock plans

      9          13   
                                     

Diluted EPS

   $ 926    2,132    $ 0.43    $ 573    2,224    $ 0.26
                                     

4. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS

Susquehanna

On April 30, 2006, we acquired the cable systems of Susquehanna Cable Co. and its subsidiaries (“Susquehanna”) for a total purchase price of approximately $775 million. The Susquehanna systems acquired included approximately 230,000 video subscribers and 86,000 high-speed Internet subscribers primarily in Pennsylvania, New York, Maine, and Mississippi.

 

6


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

Prior to the acquisition, we held an approximate 30% equity ownership interest in Susquehanna which we accounted for using the equity method of accounting. On May 1, 2006, Susquehanna Cable Co. redeemed the approximate 70% equity ownership interest in Susquehanna held by Susquehanna Media Co., which resulted in Susquehanna becoming 100% owned by us.

The results of operations of the Susquehanna systems have been included in our consolidated financial statements since the acquisition date and are reported in our Cable segment. We allocated the purchase price to property and equipment, customer relationship intangibles, nonamortizing franchise rights and goodwill. The purchase price allocation is preliminary pending receipt of a final valuation. The acquisition of the Susquehanna cable systems was not significant to our financial condition or results of operations for the three or six months ended June 30, 2006 and 2005.

Adelphia and Time Warner Proposed Transactions

In April 2005, we entered into agreements with Time Warner to: (i) jointly acquire substantially all the assets of Adelphia Communications Corporation; (ii) redeem our interest in Time Warner Cable (“TWC”) and its subsidiary, Time Warner Entertainment (“TWE”); and (iii) exchange certain cable systems with Time Warner Cable (“proposed transactions”). As a result of these proposed transactions, on a net basis, our cash investment is expected to be $1.5 billion and we expect to gain approximately 1.7 million video subscribers in geographic areas near our existing systems (including South Florida, New England, mid-Atlantic and Minnesota). The cable systems we expect to transfer to Time Warner in the exchange are located in Los Angeles, Cleveland and Dallas (the “Exchange Systems”).

In addition to entering into the agreements described above, we amended certain pre-existing agreements with Time Warner relating to the disposition and redemption of certain of our interests in TWC and TWE in the event these transactions do not close.

These proposed transactions have been subject to customary regulatory review and approvals, including court approval in the Adelphia Chapter 11 bankruptcy case, which has now been obtained. In July 2006, the Federal Communications Commission (“FCC”) approved the proposed transactions which represented the last federal approval needed in order to close the proposed transactions. The proposed transactions are expected to close on July 31, 2006.

Effective in the third quarter, we will classify the Exchange Systems as assets held for sale and the results of their operations as discontinued operations for all periods presented in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). Prior to FCC approval in July 2006, the proposed sale of the Exchange Systems was not deemed probable for such classification under SFAS No. 144.

 

7


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

5. INVESTMENTS

 

     (Dollars in millions)
      June 30,
2006
   December 31,
2005

Fair value method

     

Cablevision

   $ 110    $ 120

Discovery Holding Company

     146      152

Embarq Corporation

     53     

Liberty Capital

     419     

Liberty Global

     323      336

Liberty Interactive

     432     

Liberty Media

          787

Sprint Nextel

     522      614

Time Warner

     984      994

Vodafone

     54      54

Other

     117      90
             
     3,160      3,147

Equity method, principally cable-related

     2,670      2,830

Cost method, principally Time Warner Cable and AirTouch

     6,821      6,853
             

Total investments

     12,651      12,830

Less, current investments

     813      148
             

Noncurrent investments

   $ 11,838    $ 12,682
             

The cost, fair value and unrealized gains and losses related to our available for sale securities, which consist principally of our investment in Time Warner Inc., are as follows (dollars in millions):

 

     June 30,
2006
    December 31,
2005
 

Cost

   $ 1,100     $ 1,104  

Unrealized gains

     93       62  

Unrealized losses

     (15 )     (6 )
                

Fair value

   $ 1,178     $ 1,160  
                

Redemption of Sprint Nextel Convertible Preferred Stock

In March 2006, we received proceeds of $62 million in connection with Sprint Nextel’s redemption of all of its outstanding Seventh Series B Convertible Preferred Stock (“Sprint Preferred Stock”), including all 61,726 shares of Sprint Preferred Stock held by us. In connection with the redemption transaction, we recognized investment income of $8 million.

Liberty Media Restructuring Transaction

In May 2006, we received 25 million shares of Liberty Media Interactive (“Liberty Interactive”) Series A common stock and 5 million shares of Liberty Media Capital (“Liberty Capital”) Series A common stock in connection with Liberty Media Corporation’s (“Liberty Media”) restructuring. In the restructuring, each share of Liberty Media Series A common stock received 0.25 shares of the new Liberty Interactive Series A common

 

8


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

stock and 0.05 shares of Liberty Capital Series A common stock for each share of Liberty Media Series A common stock. We have classified all of the shares of Liberty Interactive and Liberty Capital common stock we received as trading securities at fair value. All of these shares collateralize our Liberty Media prepaid forward sales obligation.

Sprint Nextel Spin-off Transaction

In May 2006, we received approximately 1.3 million shares of Embarq Corporation (“Embarq”) common stock in connection with the spin-off by Sprint Nextel of Embarq, its local communications business. In the spin-off, each share of Sprint Nextel common stock received 0.05 shares of the new Embarq common stock. We have classified all of the shares of Embarq common stock we received as trading securities at fair value. All of these shares collateralize our ZONES debt and our Sprint Nextel prepaid forward sales obligation.

Investment Income (Loss), Net

Investment income (loss), net includes the following (dollars in millions):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
         2006             2005             2006             2005      

Interest and dividend income

   $ 45     $ 24     $ 81     $ 51  

Gains (losses) on sales and exchanges of investments, net

     5             8       (28 )

Investment impairment losses

           (3 )           (3 )

Unrealized gains (losses) on trading securities and hedged items

     (85 )     83       1       (94 )

Mark to market adjustments on derivatives related to trading securities and hedged items

     48       43       (24 )     198  

Mark to market adjustments on derivatives

     1       29       12       16  
                                

Investment income, net

   $ 14     $ 176     $ 78     $ 140  
                                

6. GOODWILL

The changes in the carrying amount of goodwill by business segment (see Note 11) for the six months ended June 30, 2006, are as follows (dollars in millions):

 

     Cable     Content    Corporate
and Other
   Total  

Balance, December 31, 2005

   $ 12,993     $ 966    $ 259    $ 14,218  

Settlement or adjustments

     (593 )               (593 )

Acquisitions

     149            20      169  
                              

Balance, June 30, 2006

   $ 12,549     $ 966    $ 279    $ 13,794  
                              

The decrease in goodwill is primarily due to adjustments to certain pre-acquisition tax liabilities associated with the acquisition of AT&T Corp.’s broadband cable business, which we refer to as Broadband.

 

9


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

7. LONG-TERM DEBT

Debt Borrowings

Senior Notes Offerings

In March 2006, we issued $2.25 billion of senior notes consisting of $1.0 billion of 5.9% senior notes due 2016 and $1.25 billion of 6.45% senior notes due 2037. In May 2006, we issued $345 million of 7.0% senior notes due 2055. We used the net proceeds of these offerings for working capital and general corporate purposes, including the repayment of commercial paper obligations.

Debt Assumed

On May 1, 2006, in connection with the Susquehanna transaction (see Note 4) we assumed a $185 million principal amount variable-rate term loan due 2008. The interest rate on the term loan is the London Interbank Offered Rate (“LIBOR”) plus 0.5%.

Debt Repayments

In January 2006, we repaid all $500 million principal amount of 6.375% senior notes due 2006. In February 2006, we repaid all $388 million principal amount of 6.875% senior notes due 2006. In May 2006, we repaid all $600 million principal amount of 8.3% senior notes due 2006. In June 2006, we repaid all $119 million principal amount of 10.5% senior subordinated notes due 2006. These repayments were funded with available cash and borrowings under our commercial paper program.

Lines and Letters of Credit

As of June 30, 2006, we and certain of our subsidiaries had unused lines of credit totaling $4.365 billion under various credit facilities and unused irrevocable standby letters of credit totaling $385 million to cover potential fundings under various agreements.

8. STOCKHOLDERS’ EQUITY

Stock Option Plans

We maintain stock option plans for certain employees under which fixed price stock options may be 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. Under our stock option plans, approximately 170 million shares of our Class A and Class A Special common stock are reserved for issuance upon the exercise of options, including those outstanding as of June 30, 2006. Option terms are generally 10 years, with options generally becoming exercisable between two and nine and one half years from the date of grant.

The fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Expected volatility is based on a blend of implied and historical volatility of our Class A common stock. We use historical data on exercises of stock options and other factors to estimate the expected term of the options granted. The risk-free rate is based on the U.S. Treasury yield curve in effect at the date of grant.

 

10


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

The following table summarizes the weighted-average fair values at date of grant of a Class A common stock option granted under our stock option plans and the related weighted-average valuation assumptions:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2006     2005     2006     2005  

Fair value

   $ 12.98     $ 12.30     $ 10.71     $ 13.16  

Dividend yield

     0 %     0 %     0 %     0 %

Expected volatility

     27.0 %     27.0 %     27.0 %     27.1 %

Risk-free interest rate

     5.1 %     4.1 %     4.8 %     4.3 %

Expected option life (in years)

     7.0       7.0       7.0       7.0  

Forfeiture rate

     3.0 %     3.0 %     3.0 %     3.0 %

The following table summarizes the activity of our stock option plans for the six months ended June 30, 2006:

 

     Options
(in thousands)
    Weighted-
Average
Exercise
Price
   Weighted-
Average
Remaining
Contractual Term
(in years)
  

Aggregate
Intrinsic Value

(in millions)

Class A Common Stock

          

Outstanding as of January 1, 2006

   80,827     $ 37.09      

Granted

   11,589     $ 26.52      

Exercised

   (1,279 )   $ 22.68      

Forfeited

   (1,050 )   $ 30.03      

Expired

   (977 )   $ 40.45      
              

Outstanding as of June 30, 2006

   89,110     $ 35.97    5.9    $ 262.4
                        

Exercisable as of June 30, 2006

   51,253     $ 40.93    4.1    $ 121.6
                        

Class A Special Common Stock

          

Outstanding as of January 1, 2006

   51,299     $ 31.35      

Exercised

   (1,071 )   $ 12.91      

Forfeited

   (33 )   $ 32.19      

Expired

   (748 )   $ 35.99      
              

Outstanding as of June 30, 2006

   49,447     $ 31.71    3.9    $ 209.0
                        

Exercisable as of June 30, 2006

   43,716     $ 31.93    3.8    $ 181.1
                        

We also maintain a deferred stock option plan for certain employees and directors that provided the optionees with the opportunity to defer the receipt of shares of our Class A or Class A Special common stock which would otherwise be deliverable upon exercise by the optionees of their stock options. As of June 30, 2006, 1.7 million shares of Class A Special common stock were issuable under exercised options, the receipt of which was irrevocably deferred by the optionees pursuant to our deferred stock option plan.

 

11


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

Restricted Stock Plan

We maintain a restricted stock plan under which certain employees and directors (“Participant”) may be granted restricted share unit awards in our Class A or Class A Special common stock (the “Restricted Stock Plan”). Under our Restricted Stock Plan, approximately 27 million shares of our Class A and Class A Special common stock are reserved for issuance pursuant to awards under the plan, including those outstanding as of June 30, 2006. Awards of restricted share units are valued by reference to shares of common stock that entitle a Participant to receive, upon the settlement of the unit, one share of common stock for each unit. The awards vest annually, generally over a period not to exceed five years from the date of the award, and do not have voting rights.

The following table summarizes the weighted-average fair value at date of grant and the compensation expense recognized related to restricted share unit awards:

 

     Three Months Ended
June 30,
   Six Months Ended
June 30,
         2006            2005            2006            2005    

Weighted-average fair value

   $ 31.70    $ 32.01    $ 29.43    $ 33.63

Compensation expense recognized (in millions)

   $ 17    $ 19    $ 29    $ 24

The following table summarizes the activity of the Restricted Stock Plan for the six months ended June 30, 2006:

 

    

Number of Nonvested
Share Unit Awards

(in thousands)

    Weighted-
Average Grant
Date Fair Value

Class A Common Stock

    

Unvested awards as of January 1, 2006

   5,649     $ 32.55

Awards granted

   4,664     $ 29.43

Awards vested

   (1,016 )   $ 32.81

Awards forfeited

   (184 )   $ 31.53
        

Unvested awards as of June 30, 2006

   9,113     $ 30.88
            

Class A Special Common Stock

    

Unvested awards as of January 1, 2006

   69     $ 36.69

Awards vested

   (68 )   $ 37.13
        

Unvested awards as of June 30, 2006

   1     $ 27.47
            

As of June 30, 2006, 381,000 and 96,000 shares of Class A common and Class A Special common stock, respectively, were issuable under vested restricted share unit awards, the receipt of which was irrevocably deferred by Participants pursuant to the Restricted Stock Plan.

Share-Based Compensation

Prior to January 1, 2006, we accounted for our share-based compensation plans in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), as permitted by SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), and accordingly did not recognize compensation expense for stock options with an exercise price equal to or greater than the market price of the underlying stock at the date of grant. Had the fair-value based method as prescribed

 

12


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

by SFAS No. 123 been applied, additional pre-tax compensation expense of $39 million and $78 million would have been recognized for the three and six months ended June 30, 2005, respectively, and the effect on net income and earnings per share would have been as follows (dollars in millions, except per share data):

 

     Three Months Ended
June 30, 2005
    Six Months Ended
June 30, 2005
 

Net income, as reported

   $ 430     $ 573  

Add: Share-based compensation expense included in net income, as reported above

     12       16  

Less: Share-based compensation expense determined under fair value-based method for all awards, net of related tax effects

     (37 )     (65 )
                

Pro forma, net income

   $ 405     $ 524  
                

Basic earnings for common stockholders per common share:

    

As reported

   $ 0.19     $ 0.26  

Pro forma

   $ 0.18     $ 0.24  

Diluted earnings for common stockholders per common share:

    

As reported

   $ 0.19     $ 0.26  

Pro forma

   $ 0.18     $ 0.24  

Effective January 1, 2006, we adopted SFAS No. 123R using the Modified Prospective Approach. SFAS No. 123R revises SFAS No. 123 and supersedes APB No. 25. SFAS No. 123R requires the cost of all share- based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values at grant date, or the date of later modification, over the requisite service period. In addition, SFAS No. 123R requires unrecognized cost (based on the amounts previously disclosed in our pro forma footnote disclosure) related to options vesting after the date of initial adoption to be recognized in the financial statements over the remaining requisite service period.

Under the Modified Prospective Approach, the amount of compensation cost recognized includes: (i) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123 and (ii) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R. Prior to the adoption of SFAS No. 123R, we recognized the majority of our share-based compensation costs using the accelerated recognition method. We recognize the cost of previously granted share-based awards under the accelerated recognition method and recognize the cost of new share-based awards on a straight-line basis over the requisite service period. The incremental pre-tax share-based compensation expense recognized due to the adoption of SFAS No. 123R for the three and six months ended June 30, 2006, was $33 million and $67 million, respectively. Total share-based compensation expense recognized under SFAS No. 123R, including the incremental pre-tax share-based compensation expense above, was $50 million and $96 million, with an associated tax benefit of $17 million and $33 million, respectively, for the three and six months ended June 30, 2006. The amount of share-based compensation capitalized was not material to our consolidated financial statements.

Cash received from option exercises under all share-based payment arrangements for the three and six months ended June 30, 2006, was $36.8 million and $42.0 million, respectively. The total intrinsic value (market value on date of exercise less exercise price) of options exercised for the three and six months ended June 30, 2006, was $19.8 million and $28.3 million respectively. The tax benefit realized from stock options exercised for the three and six months ended June 30, 2006, was $6.4 million and $8.7 million, respectively.

 

13


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

As of June 30, 2006, there was $255 million of total unrecognized, pre-tax compensation cost related to nonvested stock options. This cost is expected to be recognized over a weighted-average period of approximately two and one half years.

The total fair value of restricted share units vested during the three and six months ended June 30, 2006, was $3 million and $29 million, respectively. As of June 30, 2006, there was $202 million of total unrecognized pre-tax compensation cost related to nonvested restricted share unit awards. This cost is expected to be recognized over a weighted-average period of approximately two and one half years.

SFAS No. 123R also required us to change the classification, in our condensed consolidated statement of cash flows, of any tax benefits realized upon the exercise of stock options or issuance of restricted share unit awards in excess of that which is associated with the expense recognized for financial reporting purposes. These amounts are presented as a financing cash inflow rather than as a reduction of income taxes paid in our condensed consolidated statement of cash flows. The excess cash tax benefit classified as a financing cash inflow for the three and six months ended June 30, 2006, was $3 million and $4 million, respectively.

Comprehensive Income

Our total comprehensive income for the three and six months ended June 30, 2006, and 2005 was as follows (dollars in millions):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
         2006            2005             2006            2005      

Net income

   $ 460    $ 430     $ 926    $ 573  

Unrealized (losses) gains on marketable securities

     18      (42 )     14      (32 )

Reclassification adjustments for losses included in net income

     3      (6 )     6      (3 )
                              

Comprehensive income

   $ 481    $ 382     $ 946    $ 538  
                              

9. STATEMENT OF CASH FLOWS—SUPPLEMENTAL INFORMATION

We made cash payments for interest and income taxes during the three and six months ended June 30, 2006, and 2005 as follows (dollars in millions):

 

     Three Months Ended
June 30,
   Six Months Ended
June 30,
         2006            2005            2006            2005    

Interest

   $ 410    $ 341    $ 910    $ 879

Income taxes

   $ 395    $ 415    $ 411    $ 427

No significant noncash financing or investing activities occurred during the six months ended June 30, 2006. During the six months ended June 30, 2005, we had the following noncash investing and financing activities:

 

    recorded $170 million of intangible assets in connection with the formation of a technology development venture with Motorola

 

    recorded $40 million of investments in connection with our commitment to fund an equity method investment

 

    settled an aggregate of $572 million face amount of our obligations relating to our Exchangeable Notes by delivering the underlying shares or ADRs to the counterparties upon maturity of the instruments, and the equity collar agreements related to the underlying securities were exercised

 

14


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

10. COMMITMENTS AND CONTINGENCIES

Commitments

Certain of our subsidiaries support debt compliance with respect to obligations of certain cable television partnerships and investments in which we hold an ownership interest (see Note 5). The obligations expire between March 2007 and March 2011. Although there can be no assurance, we believe that we will not be required to meet our obligations under such commitments. The total notional amount of our commitments was $1.161 billion as of June 30, 2006, at which time there were no quoted market prices for similar agreements.

Contingencies

At Home Cases

Litigation has been filed against us as a result of our alleged conduct with respect to our investment in and distribution relationship with At Home Corporation. At Home was a provider of high-speed Internet services that filed for bankruptcy protection in September 2001. Filed actions are: (i) class action lawsuits against us, Brian L. Roberts (our Chairman and Chief Executive Officer and a director), AT&T (the former controlling shareholder of At Home and also a former distributor of the At Home service) and others in the Superior Court of San Mateo County, California, alleging breaches of fiduciary duty in connection with transactions agreed to in March 2000 among At Home, AT&T, Cox (Cox is also an investor in At Home and a former distributor of the At Home service) and us; (ii) class action lawsuits against us, AT&T and others in the United States District Court for the Southern District of New York, alleging securities law violations and common law fraud in connection with disclosures made by At Home in 2001; and (iii) a lawsuit brought in the United States District Court for the District of Delaware in the name of At Home by certain At Home bondholders against us, Brian L. Roberts, Cox and others, alleging breaches of fiduciary duty relating to the March 2000 transactions and seeking recovery of alleged short-swing profits of at least $600 million, pursuant to Section 16(b) of the Exchange Act, purported to have arisen in connection with certain transactions relating to At Home stock, effected pursuant to the March 2000 agreements.

The actions in San Mateo County, California (item (i) above), have been stayed by the United States Bankruptcy Court for the Northern District of California, the court in which At Home filed for bankruptcy, as violating the automatic bankruptcy stay. The decision to stay the actions was affirmed by the District Court and the Court of Appeals for the Ninth Circuit, and the actions were dismissed on April 6, 2006. In the Southern District of New York actions (item (ii) above), the court has dismissed the common law fraud claims against all defendants, leaving only the securities law claims. In a subsequent decision, the court limited the remaining claims against us and Mr. Roberts to disclosures that are alleged to have been made by At Home prior to August 28, 2000. In March 2005, the court certified a class of all purchasers of publicly traded At Home stock between March 28, 2000 and September 28, 2001. In a decision dated March 23, 2006, the court dismissed all remaining claims for failure to properly allege loss causation. Plaintiffs in the class action are appealing the decision. Defendants also moved to dismiss a complaint filed by an individual shareholder on the same grounds as the motions to dismiss the class action. The Delaware case (item (iii) above) was transferred to the United States District Court for the Southern District of New York. The court dismissed the Section 16(b) claims against us for failure to state a claim and the breach of fiduciary duty claim for lack of federal jurisdiction. The plaintiffs have appealed the decision dismissing the Section 16(b) claims and have recommenced the breach of fiduciary duty claim in Delaware Chancery Court. We have filed a motion to dismiss the Chancery Court claim. In June 2006, the court denied our motion to dismiss and later set a discovery schedule with a trial date in October 2007.

 

15


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

Under the terms of the Broadband acquisition, we are contractually liable for 50% of any liabilities of AT&T relating to certain At Home litigation. For litigation in which we are contractually liable for 50% of any liabilities, AT&T will be liable for the other 50%. In addition to the actions against AT&T described in items (i), (ii) and (iii) above (in which we are also a defendant), such litigation matters included two additional actions brought by At Home’s bondholders’ liquidating trust against AT&T (and not naming us): (i) a lawsuit filed against AT&T and certain of its senior officers in Santa Clara, California state court alleging various breaches of fiduciary duties, misappropriation of trade secrets and other causes of action and (ii) an action filed against AT&T in the District Court for the Northern District of California alleging that AT&T infringes an At Home patent by using its broadband distribution and high-speed Internet backbone networks and equipment. In May 2005, At Home bondholders’ liquidating trust and AT&T agreed to settle these two actions. Pursuant to the settlement, AT&T agreed to pay $340 million to the bondholders’ liquidating trust. The settlement was approved by the Bankruptcy Court, and these two actions were dismissed. As a result of the settlement by AT&T, we recorded a $170 million charge to other income (expense), reflecting our portion of the settlement amount, in our first quarter 2005 financial results. In May 2005, we paid $170 million representing our share of the settlement amount, and we classified such payment as an operating activity in our 2005 statement of cash flows.

We deny any wrongdoing in connection with the claims that have been made directly against us, our subsidiaries and Brian L. Roberts, and are defending all of these claims vigorously. The final disposition of these claims is not expected to have a material adverse effect on our consolidated financial position but could possibly be material to our consolidated results of operations of any one period. Further, no assurance can be given that any adverse outcome would not be material to our consolidated financial position.

AT&T—Wireless and Common Stock Cases

Under the terms of the Broadband acquisition, we are potentially responsible for a portion of the liabilities arising from two purported securities class action lawsuits brought against AT&T and others and consolidated for pre-trial purposes in the United States District Court for the District of New Jersey. These lawsuits assert claims under Section 11 and Section 12(a)(2) of the Securities Act of 1933, as amended, and Section 10(b) of the Exchange Act.

The first lawsuit, for which our portion of any loss is up to 15%, alleges that AT&T made material misstatements and omissions in the Registration Statement and Prospectus for the AT&T Wireless initial public offering (“Wireless Case”). In March 2004, the plaintiffs, and AT&T and the other defendants, moved for summary judgment in the Wireless Case. The New Jersey District Court denied the motions and the Judicial Panel on Multidistrict Litigation remanded the cases for trial to the United States District Court for the Southern District of New York, where they had originally been brought. A trial date was set for April 19, 2006. On April 5, 2006, the parties reached an agreement to settle the Wireless Case for $150 million, of which our portion is $22.5 million. This settlement agreement is pending before the Court for approval. The Court has scheduled a final hearing to address the settlement for October 19, 2006. The additional amount recorded related to the settlement did not have a material impact on our results of operations for the six months ended June 30, 2006.

The second lawsuit, for which our portion of any loss is 50%, alleges that AT&T knowingly provided false projections relating to AT&T common stock (“Common Stock Case”). In October 2004, the plaintiffs, and AT&T and the other defendants, agreed to settle the Common Stock Case for $100 million. Some class members have objected to the amount and apportionment of the fees of class counsel and have appealed to the Third Circuit Court of Appeals. In May 2005, we paid $50 million representing our share of the settlement amount. AT&T and its directors and officers insurers are in litigation as to whether the Common Stock Case claims and the settlement are covered by the D&O policies. Should AT&T recover all or some of the settlement from the insurers, we will be entitled to a return of all or some of our payment from AT&T.

 

16


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

AT&T—TCI Cases

In June 1998, the first of a number of purported class action lawsuits was filed by then-shareholders of Tele-Communications, Inc. (“TCI”) Series A TCI Group Common Stock (“Common A”) against AT&T and the directors of TCI relating to the acquisition of TCI by AT&T. A consolidated amended complaint combining the various different actions was filed in February 1999 in the Delaware Court of Chancery. The consolidated amended complaint alleges that former members of the TCI board of directors breached their fiduciary duties to Common A shareholders by agreeing to transaction terms whereby holders of the Series B TCI Group Common Stock received a 10% premium over what Common A shareholders received in connection with the transaction. The complaint further alleges that AT&T aided and abetted the TCI directors’ breach of their fiduciary duties.

In connection with the TCI acquisition, which was completed in early 1999, AT&T agreed under certain circumstances to indemnify TCI’s former directors for certain losses, expenses, claims or liabilities, potentially including those incurred in connection with this action. In connection with the Broadband acquisition, we agreed to indemnify AT&T for certain losses, expenses, claims or liabilities. Those losses and expenses potentially include those incurred by AT&T in connection with this action, both as a defendant and in connection with any obligation that AT&T may have to indemnify the former TCI directors for liabilities incurred as a result of the claims against them.

In July 2003, the Delaware Court of Chancery granted AT&T’s motion to dismiss on the ground that the complaint failed to adequately plead AT&T’s “knowing participation,” as required to state a claim for aiding and abetting a breach of fiduciary duty. In February 2005, the former TCI director defendants filed a motion for summary judgment. In December 2005, the Court issued a ruling that there were triable issues of fact as to whether the merger was fair to the Common A shareholders, among other matters. The trial is scheduled to begin in October 2006. The final disposition of these claims is not expected to have a material adverse effect on our consolidated financial position, but could possibly be material to our consolidated results of operations of any one period. Further, no assurance can be given that any adverse outcome would not be material to our consolidated financial position.

Patent Litigation

We are a defendant in several unrelated lawsuits claiming infringement of various patents relating to various aspects of our businesses. In certain of these cases other industry participants are also defendants, and also in certain of these cases we expect that any potential liability would be the responsibility of our equipment vendors pursuant to applicable contractual indemnification provisions. To the extent that the allegations in these lawsuits can be analyzed by us at this stage of their proceedings, we believe the claims are without merit and intend to defend the actions vigorously. The final disposition of these claims is not expected to have a material adverse effect on our consolidated financial position, but could possibly be material to our consolidated results of operations of any one period. Further, no assurance can be given that any adverse outcome would not be material to our consolidated financial position.

Antitrust Cases

We are defendants in two purported class actions pending in the United States District Courts for the District of Massachusetts and the Eastern District of Pennsylvania, respectively. The potential class in the Massachusetts case is our subscriber base in the “Boston Cluster” area, and the potential class in the Pennsylvania case is our subscriber base in the “Philadelphia and Chicago clusters,” as those terms are defined in the complaints. In each case, plaintiffs allege that certain subscriber exchange transactions with other cable providers resulted in unlawful “horizontal market restraints” in those areas and seek damages pursuant to antitrust statutes, including treble damages.

 

17


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

As a result of recent events in both cases relating to the procedural issue of whether plaintiffs’ claims could proceed in court or, alternatively, whether plaintiffs should be compelled to arbitrate their claims pursuant to arbitration clauses in their subscriber agreements, it has become more likely that these cases will proceed in court. We have moved to dismiss the Pennsylvania case and are negotiating a scheduling order in the Massachusetts case.

We believe the claims in these actions are without merit and are defending the actions vigorously. The final disposition of these claims is not expected to have a material adverse effect on our consolidated financial position, but an adverse outcome could possibly be material to our consolidated results of operations of any one period. Further, no assurance can be given that any adverse outcome would not be material to our consolidated financial position.

Other

We are subject to other legal proceedings and claims that arise in the ordinary course of our business. The amount of ultimate liability with respect to such actions is not expected to materially affect our financial position, results of operations or liquidity.

 

18


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

11. FINANCIAL DATA BY BUSINESS SEGMENT

Our reportable segments consist of our Cable and Content businesses. Our Content segment consists of our national cable networks E!, Style Network, The Golf Channel, OLN, G4 and AZN Television. In evaluating the profitability of our segments, the components of net income (loss) below operating income (loss) before depreciation and amortization are not separately evaluated by our management (dollars in millions).

 

     Cable(a)    Content    Corporate and
Other(b)(g)
    Eliminations(c)     Total

Three Months Ended June 30, 2006

                          

Revenues(d)

   $ 5,931    $ 273    $ 60     $ (36 )   $ 6,228

Operating income (loss) before depreciation and amortization(e)

     2,456      60      (83 )     (1 )     2,432

Depreciation and amortization

     1,143      41      23       (4 )     1,203

Operating income (loss)

     1,313      19      (106 )     3       1,229

Capital expenditures

     962      5      9             976

Three Months Ended June 30, 2005

                          

Revenues(d)

   $ 5,330    $ 234    $ 58     $ (24 )   $ 5,598

Operating income (loss) before depreciation and amortization(e)(f)

     2,152      93      (71 )     35       2,209

Depreciation and amortization

     1,121      29      16       (5 )     1,161

Operating income (loss)(f)

     1,031      64      (87 )     40       1,048

Capital expenditures

     936      3      11             950

Six Months Ended June 30, 2006

                          

Revenues(d)

   $ 11,519    $ 512    $ 176     $ (78 )   $ 12,129

Operating income (loss) before depreciation and amortization(e)

     4,671      110      (145 )     (3 )     4,633

Depreciation and amortization

     2,232      82      49       (9 )     2,354

Operating income (loss)

     2,439      28      (194 )     6       2,279

Capital expenditures

     1,826      13      15             1,854

Six Months Ended June 30, 2005

                          

Revenues(d)

   $ 10,436    $ 447    $ 141     $ (63 )   $ 10,961

Operating income (loss) before depreciation and amortization(e)(f)

     4,122      169      (122 )     70       4,239

Depreciation and amortization

     2,225      74      36       (10 )     2,325

Operating income (loss)(f)

     1,897      95      (158 )     80       1,914

Capital expenditures

     1,819      7      16             1,842

As of June 30, 2006

                          

Assets

   $ 100,758    $ 2,378    $ 3,124     $ (3,172 )   $ 103,088

As of December 31, 2005

                          

Assets

   $ 100,770    $ 2,530    $ 2,760     $ (2,914 )   $ 103,146

 

19


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 


(a) For the three and six months ended June 30, 2006, and 2005 approximately 63% and 65%, respectively, of our Cable segment’s revenues were derived from our video services. For the three and six months ended June 30, 2006 and 2005 approximately 20% and 18%, respectively, of our Cable segment’s revenues were derived from our high-speed internet services. The remaining revenues were derived primarily from phone, advertising and other revenues. Our regional sports and news networks Comcast SportsNet, Comcast SportsNet Mid-Atlantic, Comcast SportsNet Chicago, Comcast SportsNet West, Cable Sports Southeast and CN8-The Comcast Network are included in our Cable segment.

 

(b) Corporate and other includes Comcast Spectacor, the portion of operating results of our less than wholly owned technology development ventures (see “(g)” below), corporate activities and all other businesses not presented in our Cable or Content segments. Assets included in this caption consist primarily of our investments (see Note 5).

 

(c) Included in the Eliminations column are intersegment transactions that our segments enter into with one another. The most common types of transactions are the following:

 

    our Content segment generates revenue by selling cable network programming to our Cable segment, which represents a substantial majority of the revenue elimination amount

 

    our Cable segment receives incentives offered by our Content segment when negotiating programming contracts that are recorded as a reduction of programming costs

 

    our Cable segment generates revenue by selling the use of satellite feeds to our Content segment

 

(d) Non-U.S. revenues were not significant in any period. No single customer accounted for a significant amount of our revenue in any period.

 

(e) To measure the performance of our operating segments, we use operating income before depreciation and amortization, excluding impairment charges related to fixed and intangible assets, and gains or losses from the sale of assets, if any. This measure eliminates the significant level of noncash depreciation and amortization expense that results from the capital-intensive nature of our businesses and from intangible assets recognized in business combinations. It is also unaffected by our capital structure or investment activities. We use this measure to evaluate our consolidated operating performance, the operating performance of our operating segments, and to allocate resources and capital to our operating segments. It is also a significant component of our annual incentive compensation programs. We believe that this measure is useful to investors because it is one of the bases for comparing our operating performance with other companies in our industries, although our measure may not be directly comparable to similar measures used by other companies. This measure should not be considered as a substitute for operating income (loss), net income (loss), net cash provided by operating activities or other measures of performance or liquidity reported in accordance with GAAP.

 

(f) To be consistent with our management reporting presentation, the 2005 segment amounts have been adjusted as if stock options had been expensed as of January 1, 2005 (See Note 8). For the three months ended June 30 2005, the adjustments reducing operating income before depreciation and amortization by segment were $30 million for Cable, $1 million for Content and $8 million for Corporate and Other. For the six months ended June 30, 2005 the adjustments reducing operating income before depreciation and amortization by segment were $56 million for Cable, $2 million for Content and $20 million for Corporate and Other. For the three and six months ended June 30, 2005 the total adjustments of $39 million and $78 million, respectively, are reversed in the Eliminations column to reconcile to our consolidated 2005 amounts.

 

(g) We consolidate our less than wholly owned technology development ventures which we control or we are deemed the primary beneficiary. These ventures are with various corporate partners, such as Motorola and Gemstar. The ventures have been created to share the costs of development of new technologies for set-top boxes and other devices. The results of these entities are included within Corporate and Other. Cost allocations are made to the Cable segment based on our percentage ownership in each entity. The remaining net costs related to the minority corporate partners are included in the Corporate and Other segment.

 

20


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Comcast Corporation and five of our cable holding company subsidiaries, Comcast Cable Communications, LLC (“CCCL”), Comcast Cable Communications Holdings, Inc. (“CCCH”), Comcast MO Group, Inc. (“Comcast MO Group”), Comcast Cable Holdings, LLC (“CCH”), and Comcast MO of Delaware, LLC (“Comcast MO of Delaware”) fully and unconditionally guaranteed each other’s debt securities. Comcast MO Group, CCH and Comcast MO of Delaware are collectively referred to as the “Combined CCHMO Parents.”

In September 2005, Comcast Corporation unconditionally guaranteed Comcast Holdings’ ZONES due October 2029 and its 10 5/8% Senior Subordinated Debentures due 2012, both of which were issued by Comcast Holdings; accordingly we have added Comcast Holdings’ condensed consolidated information for all periods presented. Our condensed consolidating financial information is as follows :

Comcast Corporation

Condensed Consolidating Balance Sheet

June 30, 2006

 

(Dollars in millions)   Comcast
Parent
  CCCL
Parent
  CCCH
Parent
  Combined
CCHMO
Parents
  Comcast
Holdings
  Non-
Guarantor
Subsidiaries
  Elimination
and
Consolidation
Adjustments
    Consolidated
Comcast
Corporation

ASSETS

               

Cash and cash equivalents

  $ 7   $   $   $   $   $ 966   $     $ 973

Investments

                        813           813

Accounts receivable, net

                        1,125           1,125

Other current assets

    9     1                 619           629
                                                 

Total current assets

    16     1                 3,523           3,540
                                                 

Investments

                        11,838           11,838

Investments in and amounts due from subsidiaries eliminated upon consolidation

    55,251     30,213     36,657     40,072     24,117     851     (187,161 )    

Property and equipment, net

    9         2         1     18,933           18,945

Franchise rights

                        51,366           51,366

Goodwill

                        13,794           13,794

Other intangible assets, net

                        3,090           3,090

Other noncurrent assets, net

    101     18     22         32     342           515
                                                 

Total assets

  $ 55,377   $ 30,232   $ 36,681   $ 40,072   $ 24,150   $ 103,737   $ (187,161 )   $ 103,088
                                                 

LIABILITIES AND
STOCKHOLDERS’ EQUITY

               

Accounts payable and accrued expenses related to trade creditors

  $   $   $   $   $   $ 2,068   $     $ 2,068

Accrued expenses and other current liabilities

    495     222     97     112     81     1,696           2,703

Deferred income taxes

                        230           230

Current portion of long-term debt

        600         40         123           763
                                                 

Total current liabilities

    495     822     97     152     81     4,117           5,764
                                                 

Long-term debt, less current portion

    10,505     4,371     3,498     3,263     960     763           23,360

Deferred income taxes

    3,470                 866     22,537           26,873

Other noncurrent liabilities

    1,000     72             51     5,389           6,512

Minority interest

                        672           672

Stockholders’ Equity

               

Common stock

    24                               24

Other stockholders’ equity

    39,883     24,967     33,086     36,657     22,192     70,259     (187,161 )     39,883
                                                 

Total stockholders’ equity

    39,907     24,967     33,086     36,657     22,192     70,259     (187,161 )     39,907
                                                 

Total liabilities and stockholders’ equity

  $ 55,377   $ 30,232   $ 36,681   $ 40,072   $ 24,150   $ 103,737   $ (187,161 )   $ 103,088
                                                 

 

21


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

Comcast Corporation

Condensed Consolidating Balance Sheet

December 31, 2005

 

(Dollars in millions)   Comcast
Parent
  CCCL
Parent
  CCCH
Parent
  Combined
CCHMO
Parents
  Comcast
Holdings
  Non-
Guarantor
Subsidiaries
  Elimination
and
Consolidation
Adjustments
    Consolidated
Comcast
Corporation

ASSETS

               

Cash and cash equivalents

  $   $   $   $   $   $ 693   $     $ 693

Investments

                        148           148

Accounts receivable, net

                        1,060           1,060

Other current assets

    16                     677           693
                                                 

Total current assets

    16                     2,578           2,594
                                                 

Investments

                        12,682           12,682

Investments in and amounts due from subsidiaries eliminated upon consolidation

    53,103     29,562     36,042     40,482     22,742     955     (182,886 )    

Property and equipment, net

    11         2         3     18,753           18,769

Franchise rights

                        51,090           51,090

Goodwill

                        14,218           14,218

Other intangible assets, net

                    4     3,156           3,160

Other noncurrent assets, net

    122     21     23         43     424           633
                                                 

Total assets

  $ 53,252   $ 29,583   $ 36,067   $ 40,482   $ 22,792   $ 103,856   $ (182,886 )   $ 103,146
                                                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               

Accounts payable and accrued expenses related to trade creditors

  $   $   $   $   $   $ 2,033   $     $ 2,033

Accrued expenses and other current liabilities

    447     224     113     127     89     1,545           2,545

Deferred income taxes

                        2           2

Current portion of long-term debt

        620         995         74           1,689
                                                 

Total current liabilities

    447     844     113     1,122     89     3,654           6,269
                                                 

Long term-debt, less current portion

    8,243     4,988     3,498     3,318     981     654           21,682

Deferred income taxes

    3,470                 811     23,089           27,370

Other noncurrent liabilities

    873     54             50     5,972           6,949

Minority interest

                        657           657

Stockholders’ Equity

               

Common stock

    25                               25

Other stockholders’ equity

    40,194     23,697     32,456     36,042     20,861     69,830     (182,886 )     40,194
                                                 

Total stockholders’ equity

    40,219     23,697     32,456     36,042     20,861     69,830     (182,886 )     40,219
                                                 

Total liabilities and stockholders’ equity

  $ 53,252   $ 29,583   $ 36,067   $ 40,482   $ 22,792   $ 103,856   $ (182,886 )   $ 103,146
                                                 

 

22


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

Comcast Corporation

Condensed Consolidating Statement of Operations

For the Three Months Ended June 30, 2006

 

(Dollars in millions)   Comcast
Parent
    CCCL
Parent
    CCCH
Parent
    Combined
CCHMO
Parents
    Comcast
Holdings
    Non-
Guarantor
Subsidiaries
    Elimination
and
Consolidation
Adjustments
    Consolidated
Comcast
Corporation
 

Revenues

               

Service revenues

  $     $     $     $     $     $ 6,228     $     $ 6,228  

Management fee revenue

    126       48       77       77       2             (330 )      
                                                               
    126       48       77       77       2       6,228       (330 )     6,228  
                                                               

Costs and Expenses

               

Operating (excluding depreciation)

                                  2,310             2,310  

Selling, general and administrative

    62       48       77       77       3       1,549       (330 )     1,486  

Depreciation

    2                         1       955             958  

Amortization

                            1       244             245  
                                                               
    64       48       77       77       5       5,058       (330 )     4,999  
                                                               

Operating income (loss)

    62                         (3 )     1,170             1,229  

Other Income (Expense)

               

Interest expense

    (173 )     (103 )     (82 )     (66 )     (23 )     (49 )           (496 )

Investment income (loss), net

                            55       (41 )           14  

Equity in net (losses) income of affiliates

    532       602       580       623       482       39       (2,872 )     (14 )

Other income (expense)

                                  85             85  
                                                               
    359       499       498       557       514       34       (2,872 )     (411 )
                                                               

Income (loss) before income taxes and minority interest

    421       499       498       557       511       1,204       (2,872 )     818  

Income tax (expense) benefit

    39       36       28       23       (10 )     (478 )           (362 )
                                                               

Income (loss) before minority interest

    460       535       526       580       501       726       (2,872 )     456  

Minority interest

                                  4             4  
                                                               

Net income (loss)

  $ 460     $ 535     $ 526     $ 580     $ 501     $ 730     $ (2,872 )   $ 460  
                                                               

 

23


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

Comcast Corporation

Condensed Consolidating Statement of Operations

For the Three Months Ended June 30, 2005

 

(Dollars in millions)   Comcast
Parent
    CCCL
Parent
    CCCH
Parent
    Combined
CCHMO
Parents
    Comcast
Holdings
    Non-
Guarantor
Subsidiaries
    Elimination
and
Consolidation
Adjustments
    Consolidated
Comcast
Corporation
 

Revenues

               

Service revenues

  $     $     $     $     $     $ 5,598     $     $ 5,598  

Management fee revenue

    113       44       69       69       2             (297 )      
                                                               
    113       44       69       69       2       5,598       (297 )     5,598  
                                                               

Costs and Expenses

               

Operating (excluding depreciation)

                                  1,944             1,944  

Selling, general and administrative

    49       44       69       69       3       1,508       (297 )     1,445  

Depreciation

                            1       890             891  

Amortization

                            2       268             270  
                                                               
    49       44       69       69       6       4,610       (297 )     4,550  
                                                               

Operating income (loss)

    64                         (4 )     988             1,048  

Other Income (Expense)

               

Interest expense

    (80 )     (120 )     (82 )     (98 )     (27 )     (60 )           (467 )

Investment income (loss), net

                            (2 )     178             176  

Equity in net income (losses) of affiliates

    440       364       96       160       353       (83 )     (1,346 )     (16 )

Other income (expense)

                                  30             30  
                                                               
    360       244       14       62       324       65       (1,346 )     (277 )
                                                               

Income (loss) before income taxes and minority interest

    424       244       14       62       320       1,053       (1,346 )     771  

Income tax (expense) benefit

    6       42       28       34       12       (453 )           (331 )
                                                               

Income (loss) before minority interest

    430       286       42       96       332       600       (1,346 )     440  

Minority interest

                                  (10 )           (10 )
                                                               

Net income (loss)

  $ 430     $ 286     $ 42     $ 96     $ 332     $ 590     $ (1,346 )   $ 430  
                                                               

 

24


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

Comcast Corporation

Condensed Consolidating Statement of Operations

For the Six Months Ended June 30, 2006

 

(Dollars in millions)   Comcast
Parent
    CCCL
Parent
    CCCH
Parent
    Combined
CCHMO
Parents
    Comcast
Holdings
    Non-
Guarantor
Subsidiaries
    Elimination
and
Consolidation
Adjustments
    Consolidated
Comcast
Corporation
 

Revenues

               

Service revenues

  $     $     $     $     $     $ 12,129     $     $ 12,129  

Management fee revenue

    246       93       150       150       4             (643 )      
                                                               
    246       93       150       150       4       12,129       (643 )     12,129  
                                                               

Costs and Expenses

               

Operating (excluding depreciation)

                                  4,506             4,506  

Selling, general and administrative

    125       93       150       150       7       3,108       (643 )     2,990  

Depreciation

    5                         2       1,883             1,890  

Amortization

                            4       460             464  
                                                               
    130       93       150       150       13       9,957       (643 )     9,850  
                                                               

Operating income (loss)

    116                         (9 )     2,172             2,279  

Other Income (Expense)

               

Interest expense

    (322 )     (207 )     (164 )     (136 )     (46 )     (97 )           (972 )

Investment income (loss), net

                            25       53             78  

Equity in net (losses) income of affiliates

    1,060       783       734       822       630       (6 )     (4,047 )     (24 )

Other income (expense)

                                  97             97  
                                                               
    738       576       570       686       609       47       (4,047 )     (821 )
                                                               

Income (loss) before income taxes and minority interest

    854       576       570       686       600       2,219       (4,047 )     1,458  

Income tax (expense) benefit

    72       72       57       48       11       (786 )           (526 )
                                                               

Income (loss) before minority interest

    926       648       627       734       611       1,433       (4,047 )     932  

Minority interest

                                  (6 )           (6 )
                                                               

Net income (loss)

  $ 926     $ 648     $ 627     $ 734     $ 611     $ 1,427     $ (4,047 )   $ 926  
                                                               

 

25


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

Comcast Corporation

Condensed Consolidating Statement of Operations

For the Six Months Ended June 30, 2005

 

(Dollars in millions)   Comcast
Parent
    CCCL
Parent
    CCCH
Parent
    Combined
CCHMO
Parents
    Comcast
Holdings
    Non-
Guarantor
Subsidiaries
    Elimination
and
Consolidation
Adjustments
    Consolidated
Comcast
Corporation
 

Revenues

               

Service revenues

  $     $     $     $     $     $ 10,961     $     $ 10,961  

Management fee revenue

    224       86       136       136       4             (586 )      
                                                               
    224       86       136       136       4       10,961       (586 )     10,961  
                                                               

Costs and Expenses

               

Operating (excluding depreciation)

                                  3,901             3,901  

Selling, general and administrative

    91       86       136       136       6       2,952       (586 )     2,821  

Depreciation

    1                         2       1,762             1,765  

Amortization

                            5       555             560  
                                                               
    92       86       136       136       13       9,170       (586 )     9,047  
                                                               

Operating income (loss)

    132                         (9 )     1,791             1,914  

Other Income (Expense)

               

Interest expense

    (151 )     (240 )     (165 )     (195 )     (53 )     (107 )           (911 )

Investment income (loss), net

                            51       89             140  

Equity in net income (losses) of affiliates

    585       681       279       406       543       (22 )     (2,476 )     (4 )

Other income (expense)

                                  (78 )           (78 )
                                                               
    434       441       114       211       541       (118 )     (2,476 )     (853 )
                                                               

Income (loss) before income taxes and minority interest

    566       441       114       211       532       1,673       (2,476 )     1,061  

Income tax (expense) benefit

    7       84       58       68       4       (692 )           (471 )
                                                               

Income (loss) before minority interest

    573       525       172       279       536       981       (2,476 )     590  

Minority interest

                                  (17 )           (17 )
                                                               

Net income (loss)

  $ 573     $ 525     $ 172     $ 279     $ 536     $ 964     $ (2,476 )   $ 573  
                                                               

 

26


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

Comcast Corporation

Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2006

 

(Dollars in millions)   Comcast
Parent
    CCCL
Parent
    CCCH
Parent
    Combined
CCHMO
Parents
    Comcast
Holdings
    Non-
Guarantor
Subsidiaries
    Elimination
and
Consolidation
Adjustments
  Consolidated
Comcast
Corporation
 

Operating Activities

               

Net cash provided by (used in) operating activities

  $ 102     $ (114 )   $ (117 )   $ (125 )   $ 6     $ 3,491     $   $ 3,243  
                                                             

Financing Activities

               

Proceeds from borrowings

    2,587                                         2,587  

Retirements and repayments of debt

    (260 )     (619 )           (988 )     (9 )     (29 )         (1,905 )

Repurchases of common stock

    (1,388 )                                       (1,388 )

Issuances of common stock

    60                                         60  

Other

    4                               (2 )         2  
                                                             

Net cash provided by (used in) financing activities

    1,003       (619 )           (988 )     (9 )     (31 )         (644 )
                                                             

Investing Activities

               

Net transactions with affiliates

    (1,142 )     733       117       1,113       (7 )     (814 )          

Capital expenditures

    (3 )                             (1,851 )         (1,854 )

Cash paid for intangible assets

                                  (141 )         (141 )

Acquisitions, net of cash acquired

                                  (550 )         (550 )

Proceeds from sales and restructuring of investments

    47                         10       246           303  

Purchases of investments

                                  (70 )         (70 )

Proceeds from sales (purchases) of short-term investments, net

                                  (4 )         (4 )

Other

                                  (3 )         (3 )
                                                             

Net cash provided by (used in) investing activities

    (1,098 )     733       117       1,113       3       (3,187 )         (2,319 )
                                                             

Increase in cash and cash equivalents

    7                               273           280  

Cash and cash equivalents, beginning of period

                                  693           693  
                                                             

Cash and cash equivalents, end of period

  $ 7     $     $     $     $     $ 966     $   $ 973  
                                                             

 

27


Table of Contents

Comcast Corporation

Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2005

 

    Comcast
Parent
    CCCL
Parent
    CCCH
Parent
    Combined
CCHMO
Parents
    Comcast
Holdings
    Non-
Guarantor
Subsidiaries
    Elimination
and
Consolidation
Adjustments
  Consolidated
Comcast
Corporation
 

Operating Activities

               

Net cash provided by (used in) operating activities

  $ 372     $ (131 )   $ (107 )   $ (182 )   $ (99 )   $ 2,664     $   $ 2,517  
                                                             

Financing Activities

               

Proceeds from borrowings

    1,494                               1           1,495  

Retirements and repayments of debt

    (131 )                 (115 )     (7 )     (26 )         (279 )

Repurchases of common stock

    (660 )                                       (660 )

Issuances of common stock

    59                                         59  

Other

                                  83           83  
                                                             

Net cash provided by (used in) financing activities

    762                   (115 )     (7 )     58           698  
                                                             

Investing activities

               

Net transactions with affiliates

    (1,131 )     131       107       297       106       490            

Capital expenditures

                                  (1,842 )         (1,842 )

Cash paid for intangible assets

                                  (192 )         (192 )

Acquisitions, net of cash acquired

                                  (134 )         (134 )

Proceeds from sales and restructuring of investments

                                  317           317  

Purchases of investments

                                  (305 )         (305 )

Proceeds from sales (purchases) of short-term investments, net

                                  (63 )         (63 )

Other

                                  (113 )         (113 )
                                                             

Net cash provided by (used in) investing activities

    (1,131 )     131       107       297       106       (1,842 )         (2,332 )
                                                             

Increase in cash and cash equivalents

    3                               880           883  

Cash and cash equivalents, beginning of period

                                  452           452  
                                                             

Cash and cash equivalents, end of period

  $ 3     $     $     $     $     $ 1,332     $   $ 1,335  
                                                             

 

28


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are the nation’s largest broadband cable provider and offer a wide variety of consumer entertainment and communication products and services, serving approximately 21.7 million video subscribers, 9.3 million high-speed Internet subscribers and 1.7 million phone subscribers as of June 30, 2006. We also have a controlling interest in six national cable networks (E! Entertainment Television; Style Network; The Golf Channel; OLN; G4; and AZN Television) and other entertainment-related businesses. We classify our operations in two reportable segments: Cable and Content. Our Cable segment develops, manages and operates our broadband cable systems, including video, high-speed Internet and phone services. The majority of our Cable segment revenue is earned from monthly subscriptions for these cable services. Other revenue sources include advertising sales and the operation of our regional sports and news networks. The Cable segment generates approximately 95% of our consolidated revenues. Revenue from our Content segment is earned primarily from advertising sales and from monthly per subscriber license fees paid by cable system operators and satellite television companies.

Highlights for the six months ended June 30, 2006, include the following:

 

    revenue growth of 10.4% and operating income before depreciation and amortization growth of 13.3% in our Cable segment compared to the same period in 2005, driven by continued growth in the cable system assets of our digital cable and high-speed Internet services, rate increases in our video services

 

    subscriber growth for digital (approximately 693,000), high-speed Internet (approximately 747,000) and Comcast Digital Voice (approximately 517,000) services since December 31, 2005

 

    acquired the cable systems of Susquehanna Communications and added approximately 230,000 video subscribers and 86,000 high-speed Internet subscribers primarily in Pennsylvania, New York, Maine, and Mississippi

 

    repurchased approximately 49 million shares of our Class A Special common stock pursuant to our Board-authorized share repurchase program for approximately $1.4 billion

Adelphia and Time Warner Proposed Transactions

As disclosed in Note 4 to our consolidated financial statements, in April 2005, we entered into agreements with Time Warner to: (i) jointly acquire substantially all the assets of Adelphia Communications Corporation; (ii) redeem our interest in Time Warner Cable and its subsidiary, Time Warner Entertainment; and (iii) exchange certain cable systems with Time Warner Cable (“proposed transactions”). These proposed transactions have been subject to customary regulatory review and approvals, including court approval in the Adelphia Chapter 11 bankruptcy case, which has now been obtained. In July, 2006, the Federal Communications Commission “FCC” approved the proposed transactions which represented the last federal approval needed in order to close the transactions. The proposed transactions are expected to close on July 31, 2006.

In July 2006, we initiated the dissolution of a cable system partnership we have with Time Warner. The partnership holds cable systems which will be distributed to the partners upon dissolution. We account for this partnership using the equity method of accounting. The specific cable systems to be received by us in the dissolution are expected to be known by August 2006. We expect this transaction to close in late 2006 or early 2007.

 

29


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

The following provides the details of these highlights and insights into our consolidated financial statements, including discussion of our results of operations and our liquidity and capital resources (dollars in millions).

Consolidated Operating Results

 

    

Three Months Ended

June 30,

    Increase /(Decrease)    

Six Months Ended

June 30,

    Increase /(Decrease)  
(Dollars in millions)       2006             2005         2005 to 2006     2006     2005     2005 to 2006  

Revenues

  $ 6,228     $ 5,598     11.3 %   $ 12,129     $ 10,961     10.7 %

Costs and expenses

           

Operating, selling, general and administrative (excluding depreciation)

    3,796       3,389     12.0       7,496       6,722     11.5  

Depreciation

    958       891     7.5       1,890       1,765     7.1  

Amortization

    245       270     (9.3 )     464       560     (17.1 )
                                           

Operating income

    1,229       1,048     17.3       2,279       1,914     19.1  

Other income (expense) items, net

    (411 )     (277 )   48.4       (821 )     (853 )   (3.8 )
                                           

Income before income taxes and minority interest

    818       771     6.1       1,458       1,061     37.4  

Income tax expense

    (362 )     (331 )   9.4       (526 )     (471 )   (11.7 )
                                           

Income before minority interest

    456       440     3.6       932       590     58.0  

Minority interest

    4       (10 )   n/m       (6 )     (17 )   n/m  
                                           

Net income

  $ 460     $ 430     7.0 %   $ 926     $ 573     61.6 %
                                           

All percentages are calculated based on actual amounts. Minor differences may exist due to rounding.

Consolidated Revenues

Our Cable segment and Content segment accounted for substantially all of the increases in consolidated revenues for the three and six months ended June 30, 2006, compared to the same periods in 2005. Cable segment and Content segment revenues are discussed separately below in Segment Operating Results. The remaining changes relate to our other business activities revenues, primarily Comcast Spectacor, whose revenues increased reflecting the return of National Hockey League games for the 2005/2006 season.

Consolidated Operating, Selling, General and Administrative Expenses

Our Cable segment and Content segment accounted for substantially all of the increases in consolidated operating, selling, general and administrative expenses for the three and six months ended June 30, 2006, compared to the same periods in 2005. Cable segment and Content segment operating, selling, general and administrative expenses are discussed separately below in Segment Operating Results. The remaining changes relate to our other business activities, primarily Comcast Spectacor and the impact of adopting Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment” (“SFAS No. 123R”).

Adoption of SFAS No. 123R

Effective January 1, 2006, we adopted SFAS No. 123R using the Modified Prospective Approach. SFAS No. 123R revises SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and

 

30


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). SFAS No. 123R requires the cost of all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values at grant date, or the date of later modification, over the requisite service period. In addition, SFAS No. 123R requires unrecognized cost (based on the amounts previously disclosed in our pro forma footnote disclosure) related to options vesting after the date of initial adoption to be recognized in the financial statements over the remaining requisite service period.

The estimated annual increase in share-based compensation expense relating to the adoption of SFAS No. 123R, including the estimated impact of 2006 share-based awards, is expected to be approximately $135 million in 2006. The incremental pre-tax share-based compensation expense recognized due to the adoption of SFAS No. 123R for the three and six months ended June 30, 2006, was $33 million and $67 million respectively. Total share-based compensation expense recognized under SFAS No. 123R, including the incremental pre-tax share-based compensation expense above, was $50 million and $96 million, respectively, for the three and six months ended June 30, 2006. Share-based compensation expense is reflected in the operating results of each segment (see Note 8 and Note 11 to our consolidated financial statements for further detail).

Consolidated Depreciation and Amortization

The increases in depreciation expense for the three and six months ended June 30, 2006, compared to the same periods in 2005 are primarily due to the effects of capital expenditures in our Cable segment.

The decreases in amortization expense for the three and six months ended June 30, 2006, compared to the same periods in 2005 are primarily due to the decrease in the amortization of our franchise-related customer relationship intangible assets in our Cable segment, partially offset by increased amortization expense related to software-related intangibles acquired in various transactions in 2005.

Segment Operating Results

Certain adjustments have been made to the 2005 segment presentation to conform to our 2006 management reporting presentation. These adjustments primarily relate to the adoption of SFAS No. 123R and are further discussed in Note 11 to our consolidated financial statements included in Item 1.

To measure the performance of our operating segments, we use operating income before depreciation and amortization, excluding impairment charges related to fixed and intangible assets, and gains or losses from the sale of assets, if any. This measure eliminates the significant level of noncash depreciation and amortization expense that results from the capital-intensive nature of our businesses and from intangible assets recognized in business combinations. It is also unaffected by our capital structure or investment activities. We use this measure to evaluate our consolidated operating performance, the operating performance of our operating segments, and to allocate resources and capital to our operating segments. It is also a significant component of our annual incentive compensation programs. We believe that this measure is useful to investors because it is one of the bases for comparing our operating performance with other companies in our industries, although our measure may not be directly comparable to similar measures used by other companies. Because we use this metric to measure our segment profit or loss, we reconcile it to operating income, the most directly comparable financial measure calculated and presented in accordance with Generally Accepted Accounting Principles (“GAAP”) in the business segment footnote to our consolidated financial statements. You should not consider this measure a substitute for operating income (loss), net income (loss), net cash provided by operating activities, or other measures of performance or liquidity we have reported in accordance with GAAP.

 

31


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

Cable Segment Operating Results

The following table presents our Cable segment operating results (dollars in millions):

 

     Three Months Ended
June 30,
   Increase/(Decrease)  
         2006            2005                $                    %          

Video

   $ 3,731    $ 3,441    $ 290    8.4 %

High-speed Internet

     1,204      982      222    22.6  

Phone

     213      174      39    22.4  

Advertising sales

     393      362      31    8.6  

Other

     207      201      6    3.0  

Franchise fees

     183      170      13    7.7  
                           

Revenues

     5,931      5,330      601    11.3  

Operating expenses

     2,109      1,839      270    14.7  

Selling, general and administrative expenses

     1,366      1,339      27    2.0  
                           

Operating income before depreciation and amortization

   $ 2,456    $ 2,152    $ 304    14.1 %
                           
     Six Months Ended
June 30,
   Increase/(Decrease)  
     2006    2005    $    %  

Video

   $ 7,307    $ 6,803    $ 504    7.4 %

High-speed Internet

     2,335      1,907      428    22.4  

Phone

     404      349      55    15.8  

Advertising sales

     702      658      44    6.7  

Other

     413      382      31    8.1  

Franchise fees

     358      337      21    6.2  
                           

Revenues

     11,519      10,436      1,083    10.4  

Operating expenses

     4,157      3,703      454    12.3  

Selling, general and administrative expenses

     2,691      2,611      80    3.1  
                           

Operating income before depreciation and amortization

   $ 4,671    $ 4,122    $ 549    13.3 %
                           

The following table presents our subscriber and monthly average revenue statistics on a pro forma basis. The pro forma adjustments reflect the addition of approximately 230,000 video subscribers and approximately 86,000 high-speed Internet subscribers acquired in the Susquehanna acquisition and from various other small acquisitions. The impact of these acquisitions on our segment operating results was not material (subscribers in thousands).

 

     June 30,    Increase/(Decrease)  
     2006    2005            #                     %          

Video subscribers

   21,657    21,680    (23 )   (0.1 )%

High-speed Internet subscribers

   9,344    7,774    1,570     20.2  

Phone subscribers:

          

Comcast Digital Voice

   721    24    697     n/m  

Circuit-switched

   978    1,215    (237 )   (19.5 )
                      

Total phone subscribers

   1,699    1,239    460     37.1 %
                      

 

32


Table of Contents

COMCAST CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

 

     Three Months Ended
June 30,
   Increase/(Decrease)  
         2006            2005            $             %      

Monthly average video revenue per video subscriber

   $ 57.49    $ 53.33    $ 4.16     7.8 %

Monthly average high-speed Internet revenue per high-speed Internet subscriber

   $ 43.78    $ 43.35    $ 0.43     1.0 %

Monthly average phone revenue per phone subscriber

   $ 44.83    $ 46.63    $ (1.80 )   (3.9 )%
     Six Months Ended
June 30,
   Increase/(Decrease)  
     2006    2005    $     %  

Monthly average video revenue per video subscriber

   $ 56.55    $ 52.68    $ 3.87     7.3 %

Monthly average high-speed Internet revenue per high-speed Internet subscriber

   $ 43.64    $ 43.26    $ 0.38     0.9 %

Monthly average phone revenue per phone subscriber

   $ 44.63    $ 47.20    $ (2.57 )   (5.4 )%

Cable Segment Revenues

Video

Our video revenues continue to grow from rate increases and growth in our digital cable services, including the demand for advanced services such as DVR, which allows subscribers to record programs digitally, and to pause and rewind live television, and HDTV, which provides multiple channels in high definition. From June 30, 2005 to June 30, 2006, we added approximately 1.3 million digital subscribers, or a 14.7% increase. As of June 30, 2006, approximately 49%, or 10.5 million subscribers, of our 21.7 million video subscribers subscribed to at least one of our digital services, compared to approximately 42.4% as of June 30, 2005. As a result of these factors, our average monthly video revenue per video subscriber increased, while our video subscriber base has been stable. The acquisition of Susquehanna also contributed $23 million in revenue during the three and six months ended June 30, 2006.

High-speed Internet

The increases in high-speed Internet revenue for the three and six months ended June 30, 2006, compared to the same periods in 2005 a