<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                               ----------------

                                   FORM 10-Q

                               ----------------

(MARK ONE)

[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
   1934

   for the quarterly period ended June 30, 2001.

                                       OR

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
   ACT OF 1934

   for the transition period from       to      .

                         Commission File No. 000-22697

                               ----------------

                              AT HOME CORPORATION
           (Exact name of the Registrant as specified in its charter)

<TABLE>
<S>                                         <C>
                 Delaware                                   77-0408542
      (State or other jurisdiction of                    (I.R.S. Employer
      incorporation or organization)                   Identification Number)

            450 Broadway Street
         Redwood City, California                              94063
 (Address of principal executive offices)                    (Zip Code)
</TABLE>

                                 (650) 556-5000
            (The Registrant's telephone number, including area code)

  Former name, former address, and former year, if changed since last report:

                                Not applicable.

                               ----------------

   Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_]

<TABLE>
<CAPTION>
                                                                        As of
                                                                      July 31,
                                                                        2001
                                                                     -----------
<S>                                                                  <C>
Number of shares of Series A Common Stock outstanding............... 324,076,027
Number of shares of Series B Common Stock outstanding...............  86,595,578
</TABLE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                              AT HOME CORPORATION

       QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
                         PART I--FINANCIAL INFORMATION

 <C>     <S>                                                               <C>
 Item 1. Condensed Consolidated Financial Statements--Unaudited:

         Condensed Consolidated Balance Sheets as of June 30, 2001 and
          December 31, 2000.............................................     3

         Condensed Consolidated Statements of Operations for the Three
          and Six Months Ended June 30, 2001 and 2000...................     4

         Condensed Consolidated Statements of Cash Flows for the Six
          Months Ended June 30, 2001 and 2000...........................     5

         Notes to Condensed Consolidated Financial Statements...........     6

 Item 2. Management's Discussion and Analysis of Financial Condition and
          Results of Operations.........................................    15

 Item 3. Quantitative and Qualitative Disclosures About Market Risk.....    47

                           PART II--OTHER INFORMATION

 Item 1. Legal Proceedings..............................................    49

 Item 2. Changes in Securities and Use of Proceeds......................    50

 Item 3. Defaults Upon Senior Securities................................    50

 Item 4. Submission of Matters to a Vote of Security Holders............    50

 Item 5. Other Information..............................................    51

 Item 6. Exhibits and Reports on Form 8-K...............................    52

 Signatures..............................................................   53
</TABLE>

                                       2
<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1.  Condensed Consolidated Financial Statements

                              AT HOME CORPORATION

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                        June 30,    December 31,
                                                          2001          2000
                                                      ------------  ------------
                                                      (Unaudited)       (*)
<S>                                                   <C>           <C>
                       ASSETS
Current assets:
 Cash and cash equivalents..........................  $    154,278  $    64,508
 Restricted cash....................................        21,132       34,139
 Short-term investments.............................         8,015      102,115
                                                      ------------  -----------
   Total cash and cash equivalents, restricted cash
    and short-term investments......................       183,425      200,762
 Accounts receivable, net...........................        24,670       65,899
 Accounts receivable--related parties...............        70,530       54,126
 Other current assets...............................        43,499       42,626
                                                      ------------  -----------
   Total current assets.............................       322,124      363,413
Property, equipment and improvements, net...........       407,380      366,127
Investments in affiliated companies.................        30,784       35,032
Other investments...................................        22,359       73,628
Distribution agreements, net........................       141,422      239,357
Goodwill and other acquired intangible assets, net..       184,084      908,788
Other assets........................................       162,719      120,355
                                                      ------------  -----------
   Total assets.....................................  $  1,270,872  $ 2,106,700
                                                      ============  ===========
   LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
 Accounts payable...................................  $     56,516  $    65,060
 Accounts payable--related parties..................         4,759       10,892
 Accrued compensation and related expenses..........        20,458       21,940
 Deferred revenue...................................        33,111       40,381
 Other accrued liabilities..........................       101,943      101,826
 Current portion of capital lease and other
  obligations.......................................        76,593       70,258
 Convertible note...................................       100,000          --
 Accrued restructuring costs (Note 2)...............       164,938          --
                                                      ------------  -----------
   Total current liabilities........................       558,318      310,357
Convertible notes and debentures....................       747,228      743,525
Capital lease and other obligations, less current
 portion............................................       151,674       85,904
Other liabilities...................................        10,964       10,397

Commitments and contingencies

Stockholders' equity (deficit):
 Convertible preferred stock, $0.01 par value,
  Authorized shares--9,650,000:
   Issued and outstanding shares--6,185 in 2001 and
    9,857 in 2000...................................       245,661      286,208
 Common stock, $0.01 par value, Authorized shares--
  1,110,000,000:
   Issued and outstanding shares--408,771,512 in
    2001 and 399,952,419 in 2000....................     9,883,414    9,809,893
 Deferred compensation..............................       (23,067)     (34,070)
 Accumulated other comprehensive income.............           157       19,085
 Accumulated deficit................................   (10,303,477)  (9,124,599)
                                                      ------------  -----------
   Total stockholders' equity (deficit).............      (197,312)     956,517
                                                      ------------  -----------
   Total liabilities and stockholders' equity
    (deficit).......................................  $  1,270,872  $ 2,106,700
                                                      ============  ===========
</TABLE>
--------
(*) The condensed consolidated balance sheet as of December 31, 2000 has been
    derived from audited financial statements as of that date but does not
    include the information and footnotes required by generally accepted
    accounting principles for complete financial statements.

  The accompanying notes are an integral part of these condensed consolidated
                              financial statements

                                       3
<PAGE>

                              AT HOME CORPORATION

          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                Three Months Ended       Six Months Ended
                                     June 30,                June 30,
                                ------------------    ------------------------
                                  2001       2000        2001         2000
                                ---------  ---------  -----------  -----------
<S>                             <C>        <C>        <C>          <C>
Revenues/(1)/:
  Consumer access.............. $  89,671  $  52,479  $   165,031  $    94,458
  Commercial services..........    14,251     13,769       29,797       27,234
  Media/advertising............    28,576     74,737       73,633      150,960
  International................     6,143      7,736       12,973       14,132
                                ---------  ---------  -----------  -----------
    Total revenues.............   138,641    148,721      281,434      286,784
Operating costs/(2)/:
  Cost of services and
   products....................    98,475     69,363      191,109      126,602
  Product development and
   engineering.................    29,632     26,813       59,037       47,788
  Sales and marketing..........    44,636     74,254      106,341      131,180
  General and administrative...    18,492     17,798       35,894       28,522
  Restructuring costs..........   158,746        --       175,809          --
  Cost and amortization of
   distribution agreements.....    50,786     28,166       75,439      122,131
  Costs and amortization of
   goodwill, intangible assets,
   deferred compensation and
   other acquisition-related
   amounts.....................    32,343    589,317      134,459    1,162,450
  Write-down of goodwill, other
   intangible assets and other
   assets......................    23,404        --       623,477          --
                                ---------  ---------  -----------  -----------
    Total operating costs......   456,514    805,711    1,401,565    1,618,673
                                ---------  ---------  -----------  -----------
Loss from operations...........  (317,873)  (656,990)  (1,120,131)  (1,331,889)
Interest and other income
 (expense), net................   (12,547)       858      (15,843)       4,051
Write-down of other
 investments...................   (10,552)       --       (23,932)         --
Equity share of losses of
 affiliated companies..........    (5,302)   (12,131)     (18,972)     (16,946)
                                ---------  ---------  -----------  -----------
Net loss....................... $(346,274) $(668,263) $(1,178,878) $(1,344,784)
                                =========  =========  ===========  ===========
Net loss per share--basic and
 diluted....................... $   (0.85) $   (1.69) $     (2.90) $     (3.43)
                                =========  =========  ===========  ===========
Shares used in per share
 computation--basic and
 diluted.......................   408,065    396,092      407,134      391,868
                                =========  =========  ===========  ===========
/(1)/Revenue from related
     parties................... $  13,577  $  12,144  $    24,149  $    24,238
                                =========  =========  ===========  ===========
/(2)/Depreciation and
     amortization included in
     operating costs, excluding
     amortization of
     distribution agreements and
     acquisition-related
     amounts................... $  40,256  $  23,638  $    75,628  $    43,227
                                =========  =========  ===========  ===========
</TABLE>

--------

  The accompanying notes are an integral part of these condensed consolidated
                              financial statements

                                       4
<PAGE>

                              AT HOME CORPORATION

          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                        Six Months Ended
                                                            June 30,
                                                     ------------------------
                                                        2001         2000
                                                     -----------  -----------
<S>                                                  <C>          <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net loss............................................ $(1,178,878) $(1,344,784)
Adjustments to reconcile net loss to cash used in
 operating activities:
 Depreciation and amortization......................      75,118       42,717
 Amortization of distribution agreements............      49,332       46,581
 Cost of distribution agreements....................      26,107       75,550
 Amortization of deferred and other stock-based
  compensation......................................      11,003       10,745
 Amortization of goodwill and other intangible
  assets............................................     123,806    1,148,421
 Write-down of goodwill, other intangible assets and
  other assets......................................     623,477          --
 Write-down of other investments....................      23,932          --
 Accretion of discount on convertible debentures....       4,972        4,769
 Equity share of losses of affiliated companies.....      18,972       16,946
 Accrued restructuring costs........................     164,938          --
 Changes in assets and liabilities:
 Accounts receivable................................      24,825      (19,880)
 Other assets.......................................      (2,000)     (37,661)
 Accounts payable...................................     (14,605)      24,927
 Accrued liabilities................................      (1,494)      20,418
 Deferred revenues..................................      (8,992)      (5,205)
 Other long-term liabilities........................         567        1,734
                                                     -----------  -----------
Cash used in operating activities...................     (58,920)     (14,722)
                                                     -----------  -----------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Purchases of short-term investments.................      (8,015)     (97,265)
Sales and maturities of short-term investments......     102,115      166,716
Purchases of other investments......................      (1,250)     (28,170)
Sales of other investments..........................      11,286       15,711
Net purchases of property, equipment and
 improvements.......................................     (93,436)     (78,733)
Payments under backbone agreement...................      (7,035)     (11,970)
Investment in joint ventures........................     (13,303)     (49,935)
Business combinations, net of cash received.........         --        (6,565)
                                                     -----------  -----------
Cash used in investing activities...................      (9,638)     (90,211)
                                                     -----------  -----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Proceeds from issuance of common stock, net of
 repurchases........................................       5,648       63,733
Proceeds from issuance of debt......................     183,200          --
Payments on capital lease obligations...............     (43,527)     (25,840)
                                                     -----------  -----------
Cash provided by financing activities...............     145,321       37,893
                                                     -----------  -----------
Net increase (decrease) in cash and cash
 equivalents........................................      76,763      (67,040)
Cash and cash equivalents, beginning of period
 (including restricted cash of $34,139 in 2001 and
 $988 in 2000)......................................      98,647      224,548
                                                     -----------  -----------
Cash and cash equivalents, end of period (including
 restricted cash of $21,132 in 2001 and $1,739 in
 2000).............................................. $   175,410  $   157,508
                                                     ===========  ===========
SUPPLEMENTAL DISCLOSURES
 Interest paid...................................... $    20,934  $    16,964
                                                     ===========  ===========
 Acquisition of equipment under capital leases...... $    30,432  $    68,000
                                                     ===========  ===========
 Vested warrants to purchase Series A common stock
  capitalized as distribution agreements............ $       365  $    13,045
                                                     ===========  ===========
 Conversion of preferred stock to common stock...... $    40,547  $   100,006
                                                     ===========  ===========
 Mergers and acquisitions:
   Common and preferred stock issued and options and
    warrants exercisable for common stock assumed... $       --   $   197,384
                                                     ===========  ===========
   Liabilities assumed.............................. $       --   $     2,352
                                                     ===========  ===========
</TABLE>
  The accompanying notes are an integral part of these condensed consolidated
                              financial statements

                                       5
<PAGE>

                              AT HOME CORPORATION

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Summary of Significant Accounting Policies and Certain Other Items

Significant Accounting Policies

Basis of Presentation

   The unaudited condensed consolidated financial statements include the
accounts of At Home Corporation and its consolidated subsidiaries, all of which
are wholly owned. All significant intercompany transactions and balances have
been eliminated in consolidation. Investments in entities owned 20% or more but
less than majority owned and not otherwise controlled by us are accounted for
under the equity method and presented in the consolidated balance sheets as
investments in affiliated companies. The unaudited condensed consolidated
financial statements reflect all adjustments consisting of normal recurring
accruals, which are, in the opinion of management, necessary for a fair
presentation of the interim periods presented. The results of operations for
the three months (second quarter) and six months (first half) ended June 30,
2001 are not necessarily indicative of the results to be expected for any
subsequent period. Certain information and disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission's rules and regulations. The unaudited condensed
consolidated financial statements and notes included herein should be read in
conjunction with our audited consolidated financial statements and notes
included in our annual report on Form 10-K, as amended, for the year ended
December 31, 2000 as filed with the Securities and Exchange Commission on April
2, 2001.

Reclassifications

   Certain reclassifications have been made to previously reported amounts in
the consolidated financial statements in order to conform to the current
presentation.

Effect of New Accounting Standards

   In July 2001, the Financial Accounting Standards Board, or FASB, issued
Statement on Financial Accounting Standards No. (FAS) 141, "Business
Combinations" and FAS 142, "Goodwill and Other Intangible Assets". FAS 141 is
effective for all business combinations initiated after June 30, 2001 and
requires the use of the purchase method of accounting, includes criteria for
the recognition of intangible assets separately from goodwill, and mandates
that all goodwill created after June 30, 2001 will not be amortized. FAS 142
will be effective for fiscal years beginning after December 15, 2001 at which
time all goodwill amortization will be discontinued, and instead goodwill must
be tested for impairment on at least an annual basis using a fair value method.
In addition, separately identified and recognized intangible assets resulting
from business combinations completed before July 1, 2001 that do not meet the
new criteria for separate recognition of intangible assets will be reclassified
as goodwill at the effective date of FAS 142. Those intangible assets not
reclassified to goodwill must be reassessed and amortized over revised useful
lives in accordance with FAS 142. Prior to the effective date of FAS 142,
testing of goodwill for impairment, if required, will be based on our current
methodology that relies primarily on a discounted cash flow test. We expect
that the adoption of FAS 141 and FAS 142 will result in separately identified
intangible assets being reclassified to goodwill and a decrease in goodwill
amortization by approximately $50 million in 2002.

Calculation of Net Loss Per Share

   Basic and diluted net loss per share is computed using the weighted average
number of common shares outstanding during the period. Since we have a net loss
for all periods presented, net loss per share on a diluted basis is equivalent
to basic net loss per share because the effect of converting outstanding stock
options, warrants, common stock subject to repurchase, convertible debt,
preferred stock and other common stock equivalents would be anti-dilutive.

                                       6
<PAGE>

   The computation of basic and diluted net loss per share is as follows for
the periods indicated (in thousands, except per share data):

<TABLE>
<CAPTION>
                                Three Months Ended       Six Months Ended
                                     June 30,                June 30,
                                --------------------  ------------------------
                                  2001       2000        2001         2000
                                ---------  ---------  -----------  -----------
   <S>                          <C>        <C>        <C>          <C>
   Net loss...................  $(346,274) $(668,263) $(1,178,878) $(1,344,784)
                                =========  =========  ===========  ===========
   Weighted average shares of
    common stock outstanding..    408,332    397,806      407,520      394,009
   Less: weighted average
    shares of common stock
    subject to repurchase.....       (267)    (1,714)        (386)      (2,141)
                                ---------  ---------  -----------  -----------
   Shares used in per share
    calculations..............    408,065    396,092      407,134      391,868
                                =========  =========  ===========  ===========
   Net loss per share--basic
    and diluted...............  $   (0.85) $   (1.69) $     (2.90) $     (3.43)
                                =========  =========  ===========  ===========
</TABLE>

Segment Reporting

   Our key operating segments are organized around our customers and services
and aggregated into the reported business segments based on how our management
organizes, manages and internally reports our revenues. Our key operating
segments and the reported business segments that they were aggregated into as
of June 30, 2001 were as follows: (1) Consumer Access, which includes the @Home
service, premium broadband services, customers care and set-top development;
(2) Commercial Services, which includes the @Work service and e-commerce
applications; (3) Media/Advertising, which includes the Excite,
Bluemountain.com and Webshots narrowband content services, broadband content
services, and targeted and other advertising services provided by MatchLogic;
and (4) International, which provides our broadband and narrowband services in
Europe, Australia and Japan. Information used by our key operating decision
makers (consisting of our executive management team) in reviewing operations
and in allocating resources includes revenue for each key operating segment.
Information such as assets and liabilities are not produced internally for each
key operating segment. Although we allocate some specific operating costs to
each key operating segment, which results in a partial measure of loss from
operations and net loss, a significant portion of operating costs such as
network operations and engineering are not allocated to some of the segments,
and therefore our key operating decision makers have not utilized this partial
financial information in segment format for the purpose of reviewing operations
and allocating resources. In addition, we have corporate marketing, corporate
development, general and administrative, and other operations that generate no
revenues and are not part of a key operating segment.

   Our reportable segments have changed from prior years, and the 2000
information has been restated accordingly. The following represents information
for our reported business segments for the periods indicated (in thousands):

<TABLE>
<CAPTION>
                                              Three Months    Six Months Ended
                                             Ended June 30,       June 30,
                                            ----------------- -----------------
                                              2001     2000     2001     2000
                                            -------- -------- -------- --------
   <S>                                      <C>      <C>      <C>      <C>
   Revenues:
     Consumer Access....................... $ 89,671 $ 52,479 $165,031 $ 94,458
     Commercial Services...................   14,251   13,769   29,797   27,234
     Media/Advertising.....................   28,576   74,737   73,633  150,960
     International.........................    6,143    7,736   12,973   14,132
                                            -------- -------- -------- --------
       Total consolidated revenues......... $138,641 $148,721 $281,434 $286,784
                                            ======== ======== ======== ========
</TABLE>

   Media/Advertising and Commercial Services revenues were derived
predominantly from customers located in the United States in each of the second
quarter and first half of 2001 and 2000.

                                       7
<PAGE>

   Consumer Access revenue derived from customers located outside the United
States, and excluded from International, consisted primarily of revenue from
our cable partners and their cable customers located in Canada, and accounted
for approximately 15% of total Consumer Access revenue in each of the second
quarter and first half of 2001 and 2000.

   International revenue earned from services provided to our unconsolidated
international joint ventures was $5 million and $4.9 million in the second
quarter of 2001 and 2000, respectively, and was $10.1 million and $9 million in
the first half of 2001 and 2000, respectively. International revenue earned by
our consolidated operations outside of North America was $1.1 million and $2.8
million in the second quarter of 2001 and 2000, respectively, and was $2.9
million and $5.1 million in the first half of 2001 and 2000, respectively.

   No single customer accounted for more than 10% of total consolidated
revenues in each of the second quarter or first half of 2001 and 2000. However,
together with their cable customers, AT&T, Comcast and Cox each accounted for
approximately 25%, 15% and 15%, respectively, of total consolidated revenues in
the second quarter of 2001; approximately 10%, 5% and 5%, respectively, in the
second quarter of 2000; approximately 20%, 15% and 15%, respectively, in the
first half of 2001; and approximately 10%, 5% and 5%, respectively, in the
first half of 2000.

Revenue from Related Parties

   Revenue from related parties was $13.6 million and $12.1 million in the
second quarter of 2001 and 2000, respectively, and was $24.1 million and $24.2
million in the first half of 2001 and 2000, respectively. Related party revenue
from services such as advertising arrangements, customer service support, local
area content development, development of set-top devices and pre-commercial
deployment consulting provided to our cable partners with significant
investments in our common stock was $8.4 million and $6.9 million in the second
quarter of 2001 and 2000, respectively, and $13.5 million and $13.9 million in
the first half of 2001 and 2000, respectively. Related party revenue from
consulting and other services rendered to our international and other joint
ventures, including arrangements on a cost-plus basis, was $5.2 million in both
the second quarter of 2001 and 2000, and was $10.6 million and $10.3 million in
the first half of 2001 and 2000, respectively.

Revenue Related to Our Strategic Investments

   In conjunction with many of our investments, we have strategic arrangements
to provide services to our investees consisting of the delivery of advertising
impressions, e-commerce sponsorships and revenue share arrangements on our web
sites. Revenue under these arrangements is recognized based on the fair value
of the services provided if sufficient objective evidence of fair value exists
for the investment. This revenue was $7.1 million and $16.2 million in the
second quarter of 2001 and 2000, respectively, and $17.1 million and $28.5
million in the first half of 2001 and 2000, respectively. Investments under
these arrangements are recorded at their fair values on the date of the
investment. The fair values of such investments in privately held companies are
generally determined based on the price per share paid by a third party in the
same round of financing in which we participate.

Barter Revenue

   Revenue from barter transactions involving the exchange of advertising in
our media properties for advertising in third party Internet, print and
television media was $0.7 million and $6.9 million in the second quarter of
2001 and 2000, respectively, and was $3.7 million and $12.2 million in the
first half of 2001 and 2000, respectively. Revenue from these exchanges is
recorded at the lower of the fair value of the advertising delivered or the
advertising received. In accordance with Emerging Issues Task Force (EITF)
Issue No. 99-17, "Accounting for Advertising Barter Transactions", effective
January 20, 2000, the fair value of advertising delivered is based on similar
advertising transactions for which we received cash during the six months prior
to the advertising barter transactions. Advertising barter transactions
generally result in the recognition of equivalent amounts of revenue and
expense.

                                       8
<PAGE>

   Revenue recognized from other barter transactions, involving primarily the
exchange of our advertising and data-marketing services for third party
software and property and equipment for internal use, was $0.4 million and $3.3
million in the second quarter of 2001 and 2000, respectively and was $0.8
million and $6.4 million in the first half of 2001 and 2000, respectively.
Revenue from these exchanges is generally recorded at the fair value of the
services provided unless the fair value of the services or products received is
more readily determinable.

Write-down of Goodwill, Other Intangible Assets and Other Assets

   Write-down of goodwill, other intangible assets and other assets consisted
of $23.4 million in the second quarter of 2001, including $12.6 million related
to the Cablevision distribution agreement and $10.8 million for impaired
software. In the first half of 2001, write-down of goodwill, other intangible
assets and other assets was $623.5 million and consisted of the above-mentioned
amounts in the second quarter of 2001 and $600.1 million of impairment write-
downs to goodwill and other intangible assets in the first quarter of 2001.
There were no write-downs in the comparable periods in 2000.

Software

   In May 2001, several in-progress projects in our Media/Advertising business
segment were discontinued. This resulted in the impairment of capitalized costs
related to these projects, consisting of third-party software recorded in
property, equipment and improvements. The software has no alternate use and
cannot be sold, and therefore, the $10.8 million carrying amount of this
software was written-off in the second quarter of 2001.

Cablevision Distribution Agreement

   On April 23, 2001, we announced that we are formally seeking the termination
of our relationship with Cablevision and the recovery of warrants to purchase
up to 21.9 million shares of our Series A common stock granted to Cablevision
in 1997 and 1998 pursuant to a distribution agreement for the deployment of the
@Home service on an exclusive basis to customers located in Cablevision's cable
markets. We capitalized the cost of these distribution agreements in 1997 and
1998 based on the fair values of the warrants at that time, and we have been
amortizing these balances on a straight-line basis through June 4, 2002, the
term of exclusivity. However, based on our intention to terminate the agreement
and the probability that we will recover the warrants, we recorded a $12.6
million charge to operations which represents the difference between the
unamortized balance of the Cablevision distribution agreement and the $37.4
million fair value of the warrants which was included in other assets. The
remaining balance included in other assets represents the current fair value of
the warrants issued to Cablevision.

Goodwill and Other Intangible Assets

   In the first quarter of 2001, we identified indicators of possible
impairment of our long-lived assets (principally, goodwill and other acquired
intangible assets) on a basis similar to the impairment indicators identified
as of December 31, 2000. The impairment indicators included continued
deterioration in the business climate of, and reduced levels of venture capital
funding activity for, Internet advertising and other Internet-based companies,
continued significant declines in the market values of our competitors in the
Internet advertising industry, and changes made and announced in April 2001 in
our operating and cash flow forecasts for the remainder of 2001.

   We performed asset impairment tests with the assistance of independent
valuation experts at the business unit level, the lowest level for which we
have identifiable cash flows. The tests were performed by comparing the
expected undiscounted cash flows for a five-year period, plus a terminal value
for future cash flows, to each business unit's carrying amount of the goodwill
and other intangible assets resulting from purchase business combinations in
which the acquired operations have continued to be managed as separate business
units. We determined that the carrying amounts of property and equipment and
other tangible assets without alternate use

                                       9
<PAGE>

other than as currently used by the business units tested for impairment were
not significant. Based on the results of these tests, we determined that the
carrying values of business-unit goodwill and other intangible assets related
to Excite, Kendara, DataInsight, Rucker, iMALL, Bluemountain.com, Webshots, and
Worldprints were impaired in the first quarter of 2001.

   We determined, with the assistance of independent valuation experts, the
fair value of the impaired long-lived assets for the respective business units.
Fair value was determined using the discounted cash flow method and the market
comparison method. An impairment write-down of goodwill and other intangible
assets totaling $600.1 million was recorded in the first quarter of 2001,
reflecting the amount by which the carrying amounts of the assets exceeded
their respective fair values. The write-down consisted of $569.1 million for
goodwill and $31 million for other acquired intangible assets. These
intangibles assets were associated primarily with business units operating in
the Media/Advertising segment.

   There were no further indicators of possible impairment of these long-lived
assets in the second quarter of 2001.

Write-down of Other Investments

   We recorded impairment write-downs of other investments of $10.6 million and
$23.9 million in the second quarter and first half of 2001, respectively,
including $2.2 million and $9 million, respectively, of write-downs on publicly
traded equity securities representing other-than-temporary unrealized losses
included in accumulated other comprehensive income (loss) and $8.4 million and
$14.9 million, respectively, of write-downs on privately held investments
representing a reduction in the investment balance recorded in other
investments. There were no impairment write-downs of other investments recorded
in the comparable periods in 2000. The impairment write-downs related to
publicly traded equity securities resulted from our conclusion that declines in
the fair market values of such investments below their carrying values were not
temporary (generally, the fair market values were below the carrying values for
a continuous period of six months or more). The impairment write-downs related
to privately held investments resulted from our conclusion that the carrying
values of these investments were not recoverable, based on indicators such as
bankruptcy, limited liquidity and low probability of closing required near-term
financing.

2. Restructuring Costs

   On April 30, 2001, we announced a workforce reduction of approximately 380
employees and the expansion of our operational restructuring announced on
January 23, 2001. The workforce reduction was approved by our board of
directors on April 16, 2001 and impacted all divisions throughout the company,
but was more heavily weighted towards our media operations. Subsequently on
June 6, 2001, we announced that we would complete the shutdown of consolidated
European narrowband operations by July 15, 2001 as contemplated in the April
30, 2001 announcement. Additionally, management determined that several
facilities would not be occupied as a result of the workforce reductions and
the general reduction in our planned employee levels, and these facilities
include recently constructed buildings near our corporate headquarters. We have
significant lease obligations in connection with these recently constructed
buildings representing the substantial portion of our restructuring costs in
the second quarter of 2001.

   On January 23, 2001, we announced a workforce reduction of approximately 250
employees and a related operational restructuring, which was approved by our
board of directors on January 19, 2001. The majority of reductions and
restructuring affected the Excite Network narrowband operations in the
Media/Advertising business segment and the iMALL operations in the Commercial
Services business segment. We substantially completed the winding down of iMALL
activities in the second quarter of 2001. In addition, we sold our Narrative
Communications (Enliven) operations in the first quarter of 2001 in exchange
for a 20% ownership interest in a newly formed entity that plans to continue
the former Enliven operations. We also discontinued our DSL offering to @Work
customers in the first quarter of 2001 due to the dissolution of Northpoint, a
wholesale provider of DSL connectivity.


                                       10
<PAGE>

   As of June 30, 2001, over 600 positions were eliminated as a result of the
January 23 and April 30 workforce reductions, of which approximately 120
employees remained on staff primarily for the purpose of shutting down our
consolidated European narrowband operations. We plan to complete the exit
activities associated with the January 23 and April 30 workforce reductions
prior to the end of 2001.

   We incurred restructuring costs of $158.7 million in the second quarter of
2001 and $17.1 million in the first quarter of 2001 related to our workforce
reductions announced on April 30, 2001 and January 23, 2001, respectively. We
did not incur restructuring costs in the comparable periods in 2000. The
following represents the accrual for restructuring costs as of and for each of
the periods indicated (in thousands):

<TABLE>
<CAPTION>
                               Severance Facilities Assets  Other    Total
                               --------- ---------- ------  ------  --------
   <S>                         <C>       <C>        <C>     <C>     <C>
   Balance as of December 31,
    2000......................  $   --    $    --   $  --   $  --   $    --
     Additions................    5,526      5,789   4,492   1,256    17,063
     Deductions...............   (4,921)      (508)    --      --     (5,429)
                                -------   --------  ------  ------  --------
   Balance as of March 31,
    2001......................      605      5,281   4,492   1,256    11,634
     Additions................    7,592    150,939     --      215   158,746
     Deductions...............   (5,008)      (188)   (209)    (37)   (5,442)
                                -------   --------  ------  ------  --------
   Balance as of June 30,
    2001......................  $ 3,189   $156,032  $4,283  $1,434  $164,938
                                =======   ========  ======  ======  ========
</TABLE>

   Additions represent the restructuring costs incurred in each period and
include: severance and related employee benefit obligations; losses on
noncancellable leases related to facilities exited as a result of consolidating
personnel, net of expected sublease income and including unrecoverable
leasehold improvements; losses associated with equipment and other assets that
have been made redundant or will no longer be used as a result of the
activities exited; and other costs such as penalties incurred for terminated
contracts. Deductions represent cash payments and asset disposals in each
period related to restructuring costs. Accrued restructuring costs as of June
30, 2001 included future severance payments related primarily to employees
winding down the European narrowband operations by July 15, 2001, facilities
losses for several leased buildings, the most significant of which are recently
completed facilities near our corporate headquarters, estimated losses upon the
disposition of equipment and other assets to be sold prior to the end of 2001,
and pending payments under terminated contracts and other related costs.
Approximately $125 million of the restructuring cost accrual as of June 30,
2001 represents rental payments, net of estimated sublease income, that are due
more than one year in the future assuming we are not successful in terminating,
or assigning to third party lessees the obligations under, our lease
commitments.

3. Business Combinations and Acquisition-Related Costs

   Acquisition-related costs were as follows for the periods indicated (in
thousands):

<TABLE>
<CAPTION>
                                            Three Months
                                               Ended        Six Months Ended
                                              June 30,          June 30,
                                          ---------------- -------------------
                                           2001     2000     2001      2000
                                          ------- -------- -------- ----------
   <S>                                    <C>     <C>      <C>      <C>
   Amortization of goodwill and other
    intangible assets.................... $27,108 $581,074 $123,806 $1,148,422
   Amortization of acquisition-related
    deferred compensation................   5,235    5,331   10,493     10,235
   Other acquisition-related costs.......     --     2,912      160      3,793
                                          ------- -------- -------- ----------
     Total acquisition-related costs..... $32,343 $589,317 $134,459 $1,162,450
                                          ======= ======== ======== ==========
</TABLE>

Amortization of Goodwill and Other Intangible Assets

   Amortization of goodwill and other intangible assets was $27.1 million and
$581.1 million in the second quarter of 2001 and 2000, respectively, and was
$123.8 million and $1,148.4 million in the first half of 2001

                                       11
<PAGE>

and 2000, respectively. Accumulated amortization of these intangible assets was
$174.2 million and $2,252 million as of June 30, 2001 and 2000, respectively.
The reduction in amortization and accumulated amortization in 2001 from the
comparable periods in 2000 resulted from the impairment write-downs of goodwill
and other intangible assets amounting to $4,609.1 million in the fourth quarter
of 2000 and an additional $600.1 million in the first quarter of 2001.

Amortization of Acquisition-Related Deferred Compensation

   Amortization of deferred compensation related to acquisitions was $5.2
million and $5.3 million in the second quarter of 2001 and 2000, respectively
and was $10.5 million and $10.2 million in the first half of 2001 and 2000,
respectively. Acquisition-related deferred compensation resulted from certain
outstanding employee stock options and restricted stock that we assumed in the
acquisitions of Webshots and Bluemountain.com in 1999 and DataInsight in 2000.
Deferred compensation is measured as the difference between the exercise price
of an unvested award and the fair market value of our Series A common stock at
the date of the acquisition and is amortized over the vesting term of the
award.

   Amortization of deferred compensation related to the issuance of restricted
stock and stock options to employees under our own stock purchase agreements
was $0.2 million in both the second quarter of 2001 and 2000 and was $0.5
million in both the first half of 2001 and 2000. This amortization, which is
not acquisition-related, is included in the category of operating costs in
which the related employee salaries are recorded.

Other Acquisition-Related Costs

   There were no other acquisition-related costs in the second quarter of 2001,
as compared to a cost of $2.9 million in the second quarter of 2000. Other
acquisition-related costs were $0.2 million and $3.8 million in the first half
of 2001 and 2000, respectively. These costs were incurred predominantly as a
result of ongoing personnel, systems and technology integration efforts related
primarily to our acquisitions of Excite, iMALL, Bluemountain.com, Kendara and
Worldprints.

4. Investments in Affiliated Companies

At Home Japan

   Under our joint venture agreement pertaining to At Home Japan, we may be
required to make future contributions of up to 134 million Yen, or $1.1
million, based on timing to be determined by At Home Japan's board of
directors. If we do not make required contributions, our ownership position
would be diluted. Under specified circumstances, we may sell up to 50% of our
interest in At Home Japan. Our performance-based warrants for up to 0.9 million
shares issued to our Japanese cable partners in 1999 were exercisable as to
0.3 million warrants as of June 30, 2001. The fair values of these warrants are
recorded when earned as investments in affiliated companies.

At Home Solutions

   At Home Solutions offers production, packaging, marketing, distribution and
support of the @Home service for delivery by small and medium-sized cable
operators to residential and small office customers in the United States. We
have an option for a three-year period commencing on April 1, 2002 to purchase
the interest owned by each of the other partners in the At Home Solutions joint
venture at fair market value. If we do not exercise the purchase option, each
joint venture partner will have the right to sell its interest in At Home
Solutions to the other partners, and the partners collectively will have the
right to require At Home Solutions to register the sale of their interests to
the public or collectively to purchase our interest in At Home Solutions for a
nominal price.

   In addition to the circumstances described above, our ownership position in
our joint ventures may be significantly diluted if we do not participate fully
in non-mandatory requests for contributions of capital to the joint ventures.

                                       12
<PAGE>

5. Financing Transactions

Convertible Note Financing

   On June 8, 2001, we issued convertible notes and entered into related
agreements with third party investors under which we received $100 million in
cash financing. The notes do not bear interest and none of the conversion
features discussed below resulted in an initial beneficial conversion feature
requiring accounting treatment as a discount and amortization to interest
expense. However, we incurred approximately $2 million of debt issuance costs
that are being amortized to interest expense over the stated 5-year term of the
notes through June 8, 2006. The notes are convertible at any time into shares
of our Series A common stock at a rate of $4.38 per share, based on 110% of the
weighted-average price of our Series A common stock on June 8, 2001. This
conversion rate is subject to reduction as specified in the agreements upon the
issuance of common stock in future equity transactions. The holders of these
notes may elect to convert the notes at the original issuance price on each
anniversary of the date of issuance starting on June 8, 2002, and therefore we
have included the principal amount in current liabilities. The notes are also
redeemable by us on the second, third and fourth anniversary of the date of
issuance. At each such conversion or redemption date, as well as at maturity,
we have the option of delivering the par amount in cash or Series A common
stock at a rate of 95% of the average of the volume-weighted trading price of
the common stock over the 10 trading days prior to each date of issuance, and
the shares would be issued in eight equal installments over an 80-day period.
However, if we have not met specified conditions for redeeming the notes in
stock, we may be obligated to pay cash rather than stock to satisfy these
redemption obligations. In addition, we may elect to pay cash if redeeming the
notes in stock results in an unacceptable level of dilution to our
stockholders.

   We are required to register the resale of the shares issuable upon
conversion of the notes in accordance with timeframes specified in our
registration rights agreement with the note holders. We are also required to
maintain the listing of our Series A common stock on either the New York Stock
Exchange, the Nasdaq National Market or the American Stock Exchange. We do not
currently meet the Nasdaq's continued listing requirement because our net
tangible assets and stockholders' equity are below the minimum thresholds and
the bid price of our Series A common stock is currently less than the minimum
$3.00 bid price required when such thresholds are not met. If we do not meet
the continued listing requirements of one of these stock markets at any time
after receiving a redemption notice from a note holder, if our Series A common
stock were delisted, or if we fail to meet other specified conditions in our
agreements with the note holders, the notes provide for acceleration of
repayment in cash at that time. Our stockholders have approved a reverse stock
split which would, if our board of directors elects to implement it, increase
the trading price of our Series A common stock above $3.00, but we cannot
assure you that this would result in a sustained increase above the minimum bid
price requirements. In addition, events of default include failure to meet our
payment obligations under these notes or our other outstanding debt
obligations, failure to meet material provisions of the notes for a period of
30 days after receiving notice, or filing for bankruptcy. A default under these
notes could result in the acceleration of the amounts due under our other
outstanding convertible subordinated notes and debentures.

   We have granted holders of these notes a security interest in $100 million
of our assets that are not otherwise secured, as collateral for the outstanding
amounts due under the notes. These notes are senior to our outstanding
subordinated notes and debentures.

Backbone Capacity Agreement with AT&T

   On June 19, 2001, we terminated our backbone capacity agreement with AT&T
and simultaneously entered into a revised agreement. We received $85.2 million
in cash in exchange for granting AT&T a security interest in the capacity
rights under the agreement and we recorded this amount in capital lease and
other obligations. The $85.2 million principal amount, plus interest at a rate
of 8%, is required to be repaid to AT&T in monthly installments of
approximately $0.7 million through April 2020, the term of the revised backbone
capacity agreement. Additionally, we paid AT&T $7 million in June 2001 for
backbone route extensions and this amount, together with the previously
unamortized balance, is being amortized on a straight-line basis to operations
over the term of the agreement. The new backbone capacity agreement generally
preserves the backbone operations and upgrade and expansion rights provided
under the original agreement.

                                       13
<PAGE>

6. Comprehensive Loss

   The components of our comprehensive loss for each period presented are as
follows (in thousands):

<TABLE>
<CAPTION>
                               Three Months Ended       Six Months Ended
                                    June 30,                June 30,
                               --------------------  ------------------------
                                 2001       2000        2001         2000
                               ---------  ---------  -----------  -----------
   <S>                         <C>        <C>        <C>          <C>
   Net loss................... $(346,274) $(668,263) $(1,178,878) $(1,344,784)
   Unrealized gain (loss) on
    available-for-sale
    investments...............    (3,022)  (101,506)     (19,024)    (109,347)
   Foreign currency
    translation gain (loss)...        (2)        11           96          142
                               ---------  ---------  -----------  -----------
     Comprehensive loss....... $(349,298) $(769,758) $(1,197,806) $(1,453,989)
                               =========  =========  ===========  ===========
</TABLE>

7. Subsequent Events

   On July 24, 2001, we announced that we would need to raise additional
funding prior to December 31, 2001 to support our operations. We made this
announcement because, for the remainder of the year, we do not expect to
experience any recovery in the demand for our online advertising and marketing
services, to secure financing terms from some of our equipment vendors, to
receive standard payment terms from several critical suppliers, or to recover
previously expected amounts in connection with real estate lease commitments,
as well as due to other factors. We plan to take further measures to conserve
cash in addition to the restructuring plans announced in January and April
2001, and we may raise additional funds through strategic means including the
possible sale or restructuring of our media operations, or financing
transactions. We have not yet completed any transactions in this regard and
there can be no assurance that we will be successful in achieving sufficient
cash conservation measures, completing strategic transactions or otherwise
raising sufficient additional funds to finance our operations on a timely
basis. If we are unable to successfully complete the necessary measures, there
would be a material adverse impact on our operations and liquidity.

   In August 2001, we commenced an operational and strategic realignment of our
entire business that has resulted in the identification of approximately 200
positions to be eliminated. We expect to undertake further restructuring
efforts in the third quarter of 2001 that may result in the elimination of
additional positions, but it is too early to determine the impact these actions
would have on our results of operations.

                                       14
<PAGE>

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

   The following discussion of our financial condition and results of
operations should be read in conjunction with the condensed consolidated
financial statements and related notes contained in this report and the
information contained in our annual report for the year ended December 31,
2000. This discussion contains "forward-looking" statements within the meaning
of the Securities Act of 1933 and the Securities Exchange Act of 1934. In some
cases, you can identify these statements by words such as "may," "might,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue," and other similar terms. These forward-
looking statements may include, among other things, statements regarding
continued performance and projected subscriber and revenue growth under our
agreements with our cable partners, projected Commercial Services revenue
growth, and more generally other projections of our future financial
performance, our anticipated growth and anticipated trends in our businesses.
These statements are only predictions, based on our current expectations about
future events and we cannot guarantee that they will be accurate. These
forward-looking statements involve risks and uncertainties, and our actual
results, performance or achievements could differ materially from those
expressed or implied by the forward-looking statements on the basis of several
factors, including those that we discuss under the section entitled "Risk
Factors". We encourage you to read that section carefully. These forward-
looking statements speak only as of the date of this report, and we will not
necessarily update information in this report if any forward-looking statement
later turns out to be inaccurate.

Overview

   We are a leading global provider of broadband network and media services.
These services include the @Home service, the @Work service, media and
advertising services provided by Excite and MatchLogic, and international
services. The @Home service is a residential high-speed Internet service
delivered, with the assistance of our cable partners, to approximately 3.7
million subscribers worldwide, including approximately 3.3 million subscribers
in North America. We have arrangements with our cable partners, which include
AT&T, Comcast, Cox, Shaw, Rogers and many others, to provide the @Home service
to 64 million homes worldwide, of which 40 million homes were upgraded for two-
way data traffic and therefore capable of receiving the @Home service as of
June 30, 2001. Our @Work service provides approximately 12,000 small and
medium-sized enterprises with telecommunication lines such as cable and T1 and
several content delivery networks with very high-speed data lines such as OC-3.
Excite provides advertising and media services on the Excite Network, including
narrowband and broadband content offerings such as the Excite portal, the @Home
2000 services featuring our personalized Excite content to our broadband
subscribers, the Bluemountain.com electronic greeting card service and the
Webshots web site offering online digital photos. MatchLogic provides targeted
advertising and data marketing services. International services include
international versions of the Excite portal and the @Home high-speed Internet
service.

   Currently, our services are organized into four business segments. Consumer
Access includes the @Home service, Commercial Services includes the @Work
service, Media/Advertising includes Excite and MatchLogic advertising and media
services, and International includes our international operations.

Recent Events

Announcement of Need for Additional Funding Prior to December 31, 2001

   On July 24, 2001, we announced that we would need to raise additional
funding prior to December 31, 2001 to support our operations. We made this
announcement because, for the remainder of the year, we do not expect to
experience a recovery in the demand for our online advertising and marketing
services, to secure financing terms from some of our equipment vendors, to
receive standard payment terms from several critical suppliers or to recover
previously expected amounts in connection with real estate lease commitments,
as well as due to other factors. We plan to take further measures to conserve
cash in addition to the restructuring plans announced in January and April
2001, and we may raise additional funds through strategic means including the

                                       15
<PAGE>

possible sale or restructuring of our media operations, or financing
transactions. We have not yet completed any transactions in this regard and
there can be no assurance that we will be successful in achieving sufficient
cash conservation measures, completing strategic transactions or otherwise
raising sufficient additional funds to finance our operations on a timely
basis. If we are unable to successfully complete the necessary measures, there
would be a material adverse impact on our operations and liquidity.

   On April 17, 2001, we entered into a letter agreement with AT&T which would
have provided for an outsourcing arrangement to maintain and improve current
network performance levels. We have decided not to go forward with this
arrangement.

Asset Write-downs

   In the second quarter of 2001, we recorded asset write-downs of $23.4
million, including $12.6 million related to the Cablevision distribution
agreement as discussed below and $10.8 million for impaired software. In
addition, we recorded write-downs of $10.6 million related to our other
investments, including publicly traded equity securities and privately held
investments.

Backbone Capacity Agreement with AT&T

   On June 19, 2001, we terminated our backbone capacity agreement with AT&T
and simultaneously entered into a revised agreement. We received $85.2 million
in cash in exchange for granting AT&T a security interest in the capacity
rights under the agreement and we recorded this amount in capital lease and
other obligations. The $85.2 million principal amount, plus interest at a rate
of 8%, is required to be repaid to AT&T in monthly installments of
approximately $0.7 million through April 2020, the term of the revised backbone
capacity agreement. Additionally, we paid AT&T $7 million in June 2001 for
backbone route extensions and this amount, together with the previously
unamortized balance, is being amortized on a straight-line basis to operations
over the term of the agreement. The new backbone capacity agreement generally
preserves the backbone operations and upgrade and expansion rights provided
under the original agreement.

Convertible Note Financing

   On June 8, 2001, we issued convertible notes and entered into related
agreements with third party investors under which we received $100 million in
cash financing. The notes do not bear interest and are convertible at any time
into shares of our Series A common stock at a rate of $4.38 per share, based on
110% of the weighted-average price of our Series A common stock on June 8,
2001. This conversion rate is subject to reduction as specified in the
agreements upon the issuance of common stock in future equity transactions. The
holders of these notes may elect to convert the notes at the original issuance
price on each anniversary of the date of issuance starting on June 8, 2002. The
notes are also redeemable by us on the second, third and fourth anniversary of
the date of issuance. At each such conversion or redemption date, as well as at
maturity, we have the option of delivering the par amount in cash or Series A
common stock at a rate of 95% of the average of the volume-weighted trading
price of the common stock over the 10 trading days prior to each date of
issuance, and the shares would be issued in eight equal installments over an
80-day period. However, if we have not met specified conditions for redeeming
the notes in stock, we may be obligated to pay cash rather than stock to
satisfy these redemption obligations. In addition, we may elect to pay cash if
redeeming the notes in stock results in an unacceptable level of dilution to
our stockholders. We are required to register the resale of the shares issuable
upon conversion of the notes. We have granted holders of these notes a security
interest in $100 million of our assets that are not otherwise secured, as
collateral for the outstanding amounts due under the notes. These notes are
senior to our outstanding subordinated notes and debentures.

Workforce Reductions

   On April 30, 2001, we announced a workforce reduction of approximately 380
employees. The workforce reduction impacted all divisions throughout the
company, but was more heavily weighted towards our media

                                       16
<PAGE>

operations. We previously announced on January 23, 2001 a workforce reduction
of approximately 250 employees primarily in our Excite narrowband and iMALL
operations. As a result of these restructuring plans, we recorded severance and
facilities-related exit costs of $158.7 million in the second quarter of 2001
and $17.1 million in the first quarter of 2001. The substantial portion of the
restructuring costs incurred during the second quarter was due to accruals for
expected losses related to lease commitments for recently completed facilities
near our corporate headquarters.

   In August 2001, we commenced an operational and strategic realignment of our
entire business that has resulted in the identification of approximately 200
positions to be eliminated. We expect to undertake further restructuring
efforts in the third quarter of 2001 that may result in the elimination of
additional positions, but it is too early to determine the impact these actions
would have on our results of operations.

Termination of Relationship with Cablevision

   On April 23, 2001, we announced that we are formally seeking the termination
of our relationship with Cablevision and the return of warrants to purchase up
to 21.9 million shares of our Series A common stock issued to Cablevision. In
the second quarter of 2001, we wrote down the distribution agreement to the
current fair value of the warrants, on the basis that the likely resolution of
this matter is our recovery of the warrants. In addition, we are no longer
reporting Cablevision subscribers in our subscriber numbers and we have
restated prior year subscriber numbers to conform to this presentation.

Results of Operations

Three Months (Second Quarter) and Six Months (First Half) Ended June 30, 2001
Compared to Three Months and Six Months Ended June 30, 2000

Revenues

   Our reportable segments have changed from prior years, and the 2000
information has been restated accordingly. The following represents our
revenues by business segment for the periods indicated (dollars in thousands):

<TABLE>
<CAPTION>
                                           Three Months Ended June 30,
                                  ----------------------------------------------
                                           % of Total Period          % of Total
                                    2001    Revenues  Change   2000    Revenues
                                  -------- ---------- ------ -------- ----------
   <S>                            <C>      <C>        <C>    <C>      <C>
   Revenues:
     Consumer access............. $ 89,671     65%      71%  $ 52,479     35%
     Commercial services.........   14,251     10%       4%    13,769      9%
     Media/advertising...........   28,576     21%     (62%)   74,737     50%
     International...............    6,143      4%     (21%)    7,736      6%
                                  --------    ---            --------    ---
       Total revenues............ $138,641    100%      (7%) $148,721    100%
                                  ========    ===            ========    ===
<CAPTION>
                                            Six Months Ended June 30,
                                  ----------------------------------------------
                                           % of Total Period          % of Total
                                    2001    Revenues  Change   2000    Revenues
                                  -------- ---------- ------ -------- ----------
   <S>                            <C>      <C>        <C>    <C>      <C>
   Revenues:
     Consumer access............. $165,031     59%      75%  $ 94,458     33%
     Commercial services.........   29,797     11%       9%    27,234      9%
     Media/advertising...........   73,633     26%     (51%)  150,960     53%
     International...............   12,973      4%      (8%)   14,132      5%
                                  --------    ---            --------    ---
       Total revenues............ $281,434    100%      (2%) $286,784    100%
                                  ========    ===            ========    ===
</TABLE>


                                       17
<PAGE>

  Consumer Access

   Consumer Access revenues include the percentage of @Home service
subscription fees from North American subscribers that we received under our
revenue sharing agreements with our cable partners, including fees for premium
services such as multiple IP addresses, and fees received from our cable
partners related to customer support operations and advanced set-top
development. The following are significant factors affecting revenue from the
@Home service:

  .  Revenue from the @Home service varies by cable partner and market in the
     United States, but has historically represented 35% of the average $40
     per month fee collected from each subscriber by the cable partner. In
     the second quarter of 2001, AT&T and Comcast each announced an increase
     in the price charged for the @Home service.

  .  Our Canadian cable partners perform a significant portion of the
     customer and infrastructure support of the @Home service, and as a
     result, our percentage of Canadian subscriber fees is approximately 20%.
     Canadian cable partners also typically charge approximately $30 per
     month for the @Home service. Our revenue from Canadian @Home subscribers
     has historically accounted for approximately 15% to 20% of Consumer
     Access revenues.

  .  Subscribers that choose to purchase their own modems generally pay up to
     $10 per month less than subscribers that rent modems from the cable
     partner. We have recently released self-installation kits in markets
     served by Comcast and Cox and this will likely result in a greater
     number of new subscribers purchasing their own modems.

  .  Our cable partners may offer incentives to new subscribers including
     reduced price or free service for several months, and are generally free
     to decide the price that they charge for the @Home service.

  .  Revenue from @Home subscribers outside of North America is recorded by
     our unconsolidated joint ventures and not in our Consumer Access
     segment.

  .  We receive a smaller share of revenue from @Home subscribers in North
     America served by our @Home Solutions joint venture.

   Due to the above factors, revenue from the @Home service may significantly
lag subscriber growth rates and may not result in consistent measurements such
as average revenue per unit (ARPU) over any period.

   Consumer Access revenues increased in the second quarter and first half of
2001 by 71% and 75%, respectively, as compared to the same periods in 2000, due
primarily to the 101% growth in the number of North American @Home subscribers
from 1,626,000 as of June 30, 2000 to 3,271,000 as of June 30, 2001. Please
note that we are no longer reporting Cablevision subscribers in our subscriber
totals and we have restated the June 30, 2000 North American subscriber numbers
to exclude 95,000 Cablevision subscribers in conformity with this revised
presentation. Consumer Access revenues did not increase at the same rate as the
increase in the number of @Home subscribers due to a combination of the factors
affecting @Home revenue discussed above, the most significant of which was free
service incentives offered by our cable partners to attract new subscribers. In
addition, the number of @Home subscribers at the end of a particular period is
not representative of the average number of paying subscribers during that
period.

   We expect Consumer Access revenues to comprise a growing percentage of our
overall revenues in future quarters, and revenue from the @Home service in
future periods will continue to be affected by the above factors. In the near
term specifically, revenue from the @Home service may increase due to higher
rates charged by our cable partners such as AT&T and Comcast. However, an
increase in the number of subscribers purchasing cable modems instead of
renting them from our cable partners may partially offset this expected
increase in revenue. In addition, our subscriber growth rates are dependent on
the number of markets and households that our cable partners upgrade to receive
the @Home service and the subscriber penetration rates in those markets. As of
June 30, 2001, the markets of our cable partners in North America included

                                       18
<PAGE>

approximately 54 million households (excluding approximately 5 million
Cablevision households that were included in previously reported totals), of
which 66%, or approximately 35 million (excluding approximately 1 million
Cablevision households included in previously reported totals), were capable of
receiving the @Home service. In general, we expect the percentage growth rate
in subscribers to decrease as the number of subscribers increases and as
penetration rates in existing markets increase. However, we believe that our
subscriber growth will benefit as the @Home service becomes more widely
available and as self-installation kits become more widely deployed.

   Also, in June 2001, we announced that our mutual exclusivity obligations
with Comcast and Cox would end on December 4, 2001, although our distribution
agreements with these cable partners currently remain in place. We are
currently discussing restructured commercial relationships with these cable
partners. These cable partners may seek to provide service elements such as e-
mail, provisioning and local data routing through their own operations, and
restructured commercial relationships could therefore result in lower revenues
from, or different overall fee arrangements with, these cable partners. We
cannot guarantee that Comcast and Cox will not terminate their entire
relationship with us or elect to enter into relationships with other Internet
service providers in the future, which would negative impact our revenues.
Currently, Comcast and Cox together account for approximately 30% of our
consolidated revenues.

   Please see "Risk Factors--Risks Related to Our Broadband Business" for
further discussion of factors that may affect our ability to generate Consumer
Access revenues in the future.

  Commercial Services

   Commercial Services includes revenues from the @Work service, small business
hosting services and content delivery network arrangements. Revenues from the
@Work service and content delivery networks are based on the number of
customers and the type of data connections used by those customers.

   Commercial Services revenues increased in the second quarter and first half
of 2001 by 4% and 9%, respectively, as compared to the same periods in 2000,
due primarily to the 61% growth in the number of @Work customers from 7,580 as
of June 30, 2000 to 12,170 as of June 30, 2001, offset by the decrease in
e-commerce revenue generated by our iMALL e-commerce business application
operations discontinued in the first quarter of 2001.

   We discontinued our DSL offering to @Work customers in the first quarter of
2001 due to the dissolution of NorthPoint, a wholesale provider of DSL
connectivity, but we do not expect that this will result in a significant
impact on Commercial Services revenues in future periods. In addition, the
iMALL operations discontinued in the first quarter of 2001 may result in lower
total Commercial Services revenues for the remainder of 2001 as compared to
2000. However, we expect that ongoing Commercial Services revenues, excluding
those from exited iMALL activities, will increase in 2001 as compared to 2000.
We believe that content delivery networks and other parties that require access
to high bandwidth over an intelligent private network such as ours will account
for an increasing portion of our Commercial Services revenues in the future.
However, growth in revenues from content delivery networks is dependent on
continued demand for their content services, which could be impacted by the
downturn in the U.S. economy and weakening demand for content and advertising
services in the Internet sector. Please see "Risk Factors--Risks Related to Our
Broadband Business" for further discussion of factors that may affect our
ability to generate Commercial Services revenues in the future.

  Media/Advertising

   Media/Advertising includes revenues generated by our narrowband and
broadband Excite portals and the Bluemountain.com and Webshots web sites
(together, the Excite Network), as well as targeted advertising, online
database marketing and e-commerce relationship management services provided by
MatchLogic. We are

                                       19
<PAGE>

assessing the strategic sale or restructuring of media operations not directly
supporting our broadband strategy and if any of these actions are taken, our
Media/Advertising revenues in future periods would decrease substantially.

   Media/Advertising revenues decreased in the second quarter and first half of
2001 by 62% and 51%, respectively, as compared to the same periods in 2000, due
to the decline in our advertising rates and number of advertisers in response
to softness in the Internet advertising market, deterioration in the Internet
business climate, and reluctance by advertisers to remain in, or enter into,
partnership arrangements with us given the uncertainty related to our
narrowband media operations.

   We anticipate that difficult conditions related to Internet advertising in
general, and uncertainty related specifically to our media properties, will
persist for the remainder of 2001, and we expect continued lower future levels
of Media/Advertising revenues as compared to 2000. Please see "Risk Factors--
Risk Related to Our Media Business" for further discussion of factors that may
affect our ability to generate revenues from Media/Advertising in the future.

  International

   International includes revenues earned from services provided to our joint
ventures outside of North America, including revenue sharing for online
advertising and consulting and other services provided under arrangements on a
cost plus basis, and revenue earned by our consolidated operations outside of
North America, consisting primarily of advertising revenue.

   Revenues from International decreased in the second quarter and first half
of 2001 by 21% and 8%, respectively, as compared to the same periods in 2000,
due to decline in international demand for Internet advertising, partially
offset by the growth in international @Home broadband operations. International
revenue earned from our unconsolidated international joint ventures was $5
million and $4.9 million in the second quarter of 2001 and 2000, respectively,
and $10.1 million and $9 million in the first half of 2001 and 2000,
respectively. International revenue earned by our consolidated operations
outside of North America was $1.1 million and $2.8 million in the second
quarter of 2001 and 2000, respectively, and $2.9 million and $5.1 million in
the first half of 2001 and 2000, respectively.

   In future periods, we expect International revenues to be affected by
similar factors to those impacting Media/Advertising and Consumer Access
revenues and also by the level of consulting and other services we provide to
our international joint ventures, the timing and amount of which may vary
significantly. Please see "Risk Factors--International growth is important to
our business, but our international operations are subject to additional risks
and may not be successful" and "Risk Factors--Risk Related to Our Media
Business" for further discussion of factors that may affect our ability to
generate revenues from International in the future.

  Revenue from related parties

   Revenue from related parties increased by 12% to $13.6 million, or 10% of
total revenues, in the second quarter of 2001 from $12.1 million, or 8% of
total revenues, in the second quarter of 2000 and decreased by less than 1% to
$24.1 million, or 9% of total revenues, in the first half of 2001 from $24.2
million, or 8% of total revenues, in the first half of 2000. Related party
revenue from services such as advertising arrangements, customer service
support, local area content development, development of set-top devices and
pre-commercial deployment consulting provided to our cable partners with
significant investments in our common stock increased by 22% to $8.4 million in
the second quarter of 2001 from $6.9 million in the second quarter of 2000 and
decreased by 3% to $13.5 million in the first half of 2001 from $13.9 million
in the first half of 2000. Related party revenue from consulting and other
services rendered to our international and other joint ventures, including
arrangements on a cost plus basis, was $5.2 million in both the second quarter
of 2001 and 2000 and increased by 3% to $10.6 million in the first half of 2001
from $10.3 million in the first half of 2000.

                                       20
<PAGE>

  Revenue related to our strategic investments

   In conjunction with many of our investments, we have strategic arrangements
to provide services to our investees consisting of the delivery of advertising
impressions, e-commerce sponsorships and revenue share arrangements on our web
sites. Revenue under these arrangements is recognized based on the fair value
of the services provided if sufficient objective evidence of fair value exists
for the investment. Revenue from strategic investments decreased by 56% to $7.1
million, or 5% of total revenues, in the second quarter of 2001 from $16.2
million, or 11% of total revenues, in the second quarter of 2000, and decreased
by 40% to $17.1 million, or 6% of total revenues, in the first half of 2001
from $28.5 million, or 10% of total revenues, in the first half of 2000.
Investments under these arrangements are recorded at their fair values on the
date of the investment. The fair values of such investments in privately held
companies are generally determined based on the price per share paid by a third
party in the same round of financing in which we participate.

  Barter revenue

   Revenue from barter transactions involving the exchange of advertising in
our media properties for third party advertising in Internet, print and
television media decreased by 90% to $0.7 million, or 1% of total revenues, in
the second quarter of 2001 from $6.9 million, or 5% of total revenues, in the
second quarter of 2000, and decreased by 70% to $3.7 million, or 1% of total
revenues, in the first half of 2001 from $12.2 million, or 4% of total
revenues, in the first half of 2000. Revenue from these exchanges is recorded
at the lower of the fair value of the advertising delivered or the advertising
received. In accordance with Emerging Issues Task Force (EITF) Issue No. 99-17,
"Accounting for Advertising Barter Transactions", effective January 20, 2000,
the fair value of advertising delivered is based on similar advertising
transactions for which we received cash during the six months prior to the
advertising barter transactions. Advertising barter transactions generally
result in the recognition of equivalent amounts of revenue and expense.

   Revenue recognized from other barter transactions, involving primarily the
exchange of our advertising and data-marketing services for third party
software and property and equipment for internal use, decreased by 88% to $0.4
million, or less than 1% of total revenues, in the second quarter of 2000 from
$3.3 million, or 2% of total revenues, in the second quarter of 2000, and
decreased by 88% to $0.8 million, or less than 1% of total revenues, in the
first half of 2001 from $6.4 million, or 2% of total revenues, in the first
half of 2000. Revenue from these exchanges is generally recorded at the fair
value of the services provided unless the fair value of the services or
products received is more readily determinable.

Operating costs

   Our operating costs were as follows for the periods indicated (dollars in
thousands):

<TABLE>
<CAPTION>
                                                       Three Months Ended June
                                                                 30,
                                                       ------------------------
                                                         2001   Change   2000
                                                       -------- ------ --------
   <S>                                                 <C>      <C>    <C>
   Operating costs:
     Cost of services and products.................... $ 98,475   42%  $ 69,363
     Product development and engineering..............   29,632   11%    26,813
     Sales and marketing..............................   44,636  (40%)   74,254
     General and administrative.......................   18,492    4%    17,798
     Restructuring charge.............................  158,746   n/a       --
     Costs and amortization of distribution
      agreements......................................   50,786   80%    28,166
     Costs and amortization of goodwill, intangible
      assets, deferred compensation and other
      acquisition-related amounts.....................   32,343  (95%)  589,317
     Write-down of goodwill, other intangible assets
      and other assets................................   23,404   n/a       --
                                                       --------        --------
       Total operating costs.......................... $456,514  (43%) $805,711
                                                       ========        ========
</TABLE>

                                       21
<PAGE>

<TABLE>
<CAPTION>
                                                     Six Months Ended June 30,
                                                    ----------------------------
                                                       2001    Change    2000
                                                    ---------- ------ ----------
   <S>                                              <C>        <C>    <C>
   Operating costs:
     Cost of services and products................  $  191,109   51%  $  126,602
     Product development and engineering..........      59,037   24%      47,788
     Sales and marketing..........................     106,341  (19%)    131,180
     General and administrative...................      35,894   26%      28,522
     Restructuring charge.........................     175,809   n/a         --
     Costs and amortization of distribution
      agreements..................................      75,439  (38%)    122,131
     Costs and amortization of goodwill,
      intangible assets, deferred compensation and
      other acquisition-related amounts...........     134,459  (88%)  1,162,450
     Write-down of goodwill, other intangible
      assets and other assets.....................     623,477   n/a         --
                                                    ----------        ----------
       Total operating costs......................  $1,401,565  (13%) $1,618,673
                                                    ==========        ==========
</TABLE>

  Cost of services and products

   Cost of services and products is primarily related to our broadband network
for delivering the @Home and @Work services and our Internet web sites, and
includes costs related to telecommunications and connectivity, web hosting,
technical and customer support, operational personnel, equipment depreciation,
and royalties, license arrangements and revenue sharing arrangements for
content and other services. Cost of services and products increased in the
second quarter and first half of 2001 by 42% and 51%, respectively, as compared
to the same periods in 2000, due primarily to network maintenance, depreciation
of network equipment, connectivity costs and customer service operations
related to the growth in @Home and @Work customers and higher network expenses
due to our efforts to stabilize, scale and improve the reliability of our
broadband network. These increases were partially offset by reduced levels of
revenue sharing payments related to media and advertising services. We expect
cost of services and products to increase in the future together with expected
increases in the size of our @Home and @Work customer bases and as we continue
to make investments in network enhancement initiatives.

   Gross Margin. We define gross margin as total revenues minus cost of
services and products, excluding cost and amortization of distribution
agreements, which is a presentation not in conformity with generally accepted
accounting principles. Gross margin decreased by 49% to $40.2 million, or 29%
of total revenues, in the second quarter of 2001 from $79.4 million, or 53% of
total revenues, in the second quarter of 2000, and decreased by 44% to $90.3
million, or 32% of total revenues, in the first half of 2001 from $160.2
million, or 56% of total revenues, in the first half of 2000. These decreases
in gross margin and gross margin percentage were due to lower Media/Advertising
revenues in 2001, as cost of services and products in our media and advertising
business is typically much lower than that in our @Home and @Work operations.
In addition, we incurred incremental network costs in 2001 related to network
enhancement initiatives. Based on the decline in Media/Advertising revenues and
our continuing efforts related to our broadband network, in the future we
expect lower gross margin and gross margin percentage than in prior periods.

  Product development and engineering

   Product development and engineering costs consist primarily of salaries and
related costs for hardware and software development and engineering personnel,
consulting fees, equipment depreciation, supplies, and allocated overhead costs
such as computer systems and facilities. Product development and engineering
costs related to internally developed software for internal use and for our web
sites, such as labor and contractor costs for programming, are capitalized when
it is probable that the project will be completed and the related assets will
be used as intended. Product development and engineering costs increased in the
second quarter and first half of 2001 by 11% and 24%, respectively, as compared
to the same periods in 2000, due to higher

                                       22
<PAGE>

network development costs related to our efforts to stabilize, scale and
improve the reliability of our broadband network as well as costs for the
development of advanced broadband services, such as premium subscription-based
services, billing and back-office systems, auto-provisioning and self-
installation initiatives. In addition, a portion of the increase in the first
half of 2001 as compared to 2000 was related to development costs for iMALL
e-commerce business applications, which we have exited in 2001. These increases
were partially offset by moderate operational cost savings from the decrease in
product development related to media and advertising and from lower levels of
engineering recruiting and consulting fees. We anticipate that product
development and engineering costs will continue to increase on an absolute
dollar basis in the future due in part to continuing design and development
costs for network enhancement initiatives and advanced broadband services.

  Sales and marketing

   Sales and marketing costs consist primarily of promotional and advertising
costs, personnel costs for our direct sales force, commissions, agency and
consulting fees, and allocated overhead costs such as computer systems and
facilities. We currently rely on our cable partners to market the @Home service
in local markets although we have historically made additional marketing funds
available to our cable partners for this purpose. In addition, we have engaged
in nationwide marketing of the @Home service through promotional activities and
retail initiatives. Sales and marketing costs decreased in the second quarter
and first half of 2001 by 40% and 19%, respectively, as compared to the same
periods in 2000, due to the curtailment in spending for marketing and promotion
of our narrowband web sites and the discontinuation of our free ISP product
during the first quarter of 2001 which has resulted in the elimination of
related marketing costs. The decrease in the first half of 2001 as compared to
2000 was partially offset by efforts in the first quarter of 2001 to support
our strategic alliances and data marketing activities. We expect sales and
marketing costs to decline moderately on an absolute dollar basis during the
remainder of 2001 primarily due to lower levels of spending for promotion and
marketing across each of our business segments and cost savings realized from
workforce reductions.

  General and administrative

   General and administrative costs consist primarily of administrative, legal,
finance and executive personnel costs, fees for professional services and the
related costs of facilities and computer systems to support our operations.
General and administrative costs increased in the second quarter and first half
of 2001 by 4% and 26%, respectively, as compared to the same periods in 2000,
due to the expansion of facilities and computer systems, including related
increases in costs for telecommunications, utilities and taxes, and higher
legal and professional fees supporting the growth of our operations and
infrastructure between 2000 and 2001. The rate of increase in general and
administrative costs declined in the second quarter of 2001 as compared to the
first half of 2001 due to the implementation of cost-saving measures including
workforce reductions, and we anticipate that general and administrative costs
will stabilize in the future as we continue to adjust our administrative
functions to support our current business strategies.

  Restructuring charge

   On April 30, 2001, we announced a workforce reduction of approximately 380
employees and the expansion of our operational restructuring announced on
January 23, 2001. The workforce reduction was approved by our board of
directors on April 16, 2001 and impacted all divisions throughout the company,
but was more heavily weighted towards our media operations. Subsequently on
June 6, 2001, we announced that we would complete the shutdown of consolidated
European narrowband operations by July 15, 2001 as contemplated in the April
30, 2001 announcement. Additionally, management determined that several
facilities would not be occupied as a result of the workforce reductions and
the general reduction in our planned employee levels, and these facilities
include recently constructed buildings near our corporate headquarters. We have
significant lease obligations in connection with these recently constructed
buildings representing the substantial portion of our restructuring costs in
the second quarter of 2001.


                                       23
<PAGE>

   On January 23, 2001, we announced a workforce reduction of approximately 250
employees and a related operational restructuring, which was approved by our
board of directors on January 19, 2001. The majority of reductions and
restructuring affected the Excite Network narrowband operations in the
Media/Advertising business segment and the iMALL operations in the Commercial
Services business segment. We substantially completed the winding down of iMALL
activities in the second quarter of 2001. In addition, we sold our Narrative
Communications (Enliven) operations in the first quarter of 2001 in exchange
for a 20% ownership interest in a newly formed entity that plans to continue
the former Enliven operations. We also discontinued our DSL offering to @Work
customers in the first quarter of 2001 due to the dissolution of NorthPoint, a
wholesale provider of DSL connectivity.

   As of June 30, 2001, over 600 positions were eliminated as a result of the
January 23 and April 30 workforce reductions, and approximately 120 employees
remained on staff primarily for the purpose of shutting down our consolidated
European narrowband operations. We plan to complete the exit activities
associated with the January 23 and April 30 workforce reductions prior to the
end of 2001.

   We incurred restructuring costs of $158.7 million in the second quarter of
2001 and $17.1 million in the first quarter of 2001 related to our workforce
reductions announced on April 30, 2001 and January 23, 2001, respectively. We
did not incur restructuring costs in the comparable periods in 2000. The
restructuring costs in the second quarter of 2001 included $7.6 million for
severance and related employee benefit obligations, $150.9 million in estimated
losses on noncancellable leases related to facilities exited as a result of
consolidating personnel, net of expected sublease income and including
unrecoverable leasehold improvements, and $0.2 million of other costs such as
penalties incurred for terminated contracts. The $150.9 charge related to
facilities is comprised primarily of estimated losses on recently completed
facilities near our corporate headquarters, including leasehold improvements,
and approximately $125 million of this amount represents rental payments, net
of estimated sublease income, that are due more than one year in the future
assuming we are not successful in terminating, or assigning to third party
lessees the obligations under, our lease commitments. The restructuring costs
in the first quarter of 2001 included $5.5 million for severance, $5.8 million
for facilities, $4.5 million for equipment and other assets to be disposed of
that have been made redundant or will no longer be used as a result of the
activities exited, and $1.3 million of other costs.

   Incremental cash payments related to our restructuring plans consisted of
severance payments and payments for terminated contracts totaling approximately
$5 million in each of the first and second quarters of 2001, and we expect to
make incremental cash payments of approximately $5 million during the remainder
of 2001 related to these restructuring plans. We will also make rental payments
on exited facilities of approximately $4.5 million per quarter starting in the
third quarter of 2001 and these payments have been accrued in the accrual for
restructuring costs as of June 30, 2001. Although we expect to realize cash and
operational savings in future periods from these workforce reductions and
restructuring plans, the business activities associated with these actions
generated significant revenues on a historical basis and therefore we do not
believe that these actions will result in cash and operational savings that are
relevant for the purposes of projecting future cash flows or operating results
in comparison with our historical results.

   In August 2001, we commenced an operational and strategic realignment of our
entire business that has resulted in the identification of approximately 200
positions to be eliminated. We expect to undertake further restructuring
efforts in the third quarter of 2001 that may result in the elimination of
additional positions, but it is too early to determine the impact these actions
would have on our results of operations. Also, we may incur additional
restructuring charges during the remainder of 2001 as a result of incremental
workforce reductions and activities undertaken to further downsize or shut down
media operations.

  Cost and amortization of distribution agreements

   Cost and amortization of distribution agreements increased in the second
quarter of 2001 by 80% and decreased in the first half of 2001 by 38% as
compared to the respective periods in 2000, due primarily to the cost of
distribution agreements charged immediately to operations. Cost of distribution
agreements was

                                       24
<PAGE>

$26.1 million and $4.8 million in the second quarter of 2001 and 2000, and was
$26.1 million and $75.5 million in the first half of 2001 and 2000. The cost in
2001 was due to the vesting of warrants to purchase approximately 7.4 million
shares of Series A common stock issued to Comcast and Cox under our March 28,
2000 letter agreements. These warrants became exercisable as a result of
Comcast and Cox maintaining exclusivity through June 4, 2001 under the master
distribution agreement for the @Home service and were not related to any future
agreements or subject to forfeiture or future performance on the part of
Comcast or Cox. Therefore, the fair value of these warrants was charged to
operations on June 4, 2001. The cost in 2000 consisted of charges to operations
based on the fair value of warrants that were earned by Rogers and Shaw, our
principal Canadian cable partners. These warrants earned in 2000 were issued
subsequent to entering into exclusive distribution agreements as performance
incentives to increase the number of subscribers to the @Home service.
Therefore, such warrants were immediately charged to operations when earned
instead of being capitalized and amortized over a period of exclusivity.

   Amortization of distribution agreements was $24.7 million and $23.4 million
in the second quarter of 2001 and 2000, respectively, and was $49.3 million and
$46.6 million in the first half of 2001 and 2000, respectively. These amounts
result from the capitalization of the fair value of warrants earned by cable
partners and their amortization over the terms of the respective exclusive
distribution agreements in connection with which the warrants were issued. The
increase in amortization in the second quarter and first half of 2001 as
compared to the respective periods in 2000 was due to the cumulative
capitalization of the fair values of warrants as distribution agreements.

   We expect to incur significant cost and amortization of distribution
agreements in future periods, including that related to our new distribution
agreements with AT&T, Comcast and Cox. Under these new agreements executed in
March 2000, we issued warrants for an aggregate of 100.5 million shares of
common stock. Comcast and Cox will forfeit one-twelfth of the shares subject to
their warrants due to their termination of the exclusivity provisions during
the period from December 4, 2001 to June 4, 2002. Beginning in the third
quarter of 2001, we will no longer incur amortization of distribution
agreements related to Cablevision because we are formally seeking the
termination of our distribution agreement and relationship with Cablevision and
the recovery of warrants to purchase up to 21.9 million shares of our Series A
common stock granted under the distribution agreement.

  Costs and amortization of goodwill, intangible assets, deferred
  compensation and other acquisition-related amounts

   Acquisition-related costs were as follows for the periods indicated (in
thousands):

<TABLE>
<CAPTION>
                           Three Months Ended June 30,   Six Months Ended June 30,
                          ------------------------------ --------------------------
                            2001     Change      2000      2001   Change    2000
                          --------- -------------------- -------- ------ ----------
<S>                       <C>       <C>       <C>        <C>      <C>    <C>
Amortization of goodwill
 and other intangible
 assets.................  $  27,108    (95%)  $  581,074 $123,806  (89%) $1,148,422
Amortization of
 acquisition-related
 deferred compensation..      5,235     (2%)       5,331   10,493    3%      10,235
Other acquisition-
 related costs..........        --    (100%)       2,912      160  (96%)      3,793
                          ---------           ---------- --------        ----------
  Total acquisition-
   related costs and
   expenses.............  $  32,343    (95%)  $  589,317 $134,459  (88%) $1,162,450
                          =========           ========== ========        ==========
</TABLE>

   Amortization of goodwill and other intangible assets. Amortization of
goodwill and other intangible assets decreased in the second quarter and first
half of 2001 by 95% and 89%, respectively, as compared to the same periods in
2000, due to the impairment write-downs of these intangible assets amounting to
$4,609.1 million in the fourth quarter of 2000 and an additional $600.1 million
in the first quarter of 2001. Future amortization related to other intangible
assets will be based on new carrying values as adjusted by the impairment
write-downs and will result in lower levels of amortization expense. We will
stop amortizing the

                                       25
<PAGE>

approximately $50 million of remaining goodwill as well as an additional
approximately $50 million of intangible assets which we expect to reclassify to
goodwill upon the adoption of FAS 141, "Business Combinations" and FAS 142,
"Goodwill and Other Intangible Assets", effective January 1, 2002. We will
instead periodically evaluate goodwill for impairment in accordance with these
new accounting standards, which may result in additional impairment write-downs
in future periods.

   Amortization of acquisition-related deferred compensation. Amortization of
deferred compensation related to acquisitions decreased by 2% in the second
quarter of 2001 and increased by 3% in the first half of 2001 as compared to
the same periods in 2000 due to the impact on deferred compensation balances in
2000 related to the Bluemountain.com and DataInsight acquisitions.

   Other acquisition-related costs. There were no other acquisition-related
costs in the second quarter of 2001 as compared to costs of $2.9 million in the
second quarter of 2000. Other acquisition-related costs decreased by 96% in the
first half of 2001 compared to the first half of 2000. These decreases in 2001
were due to higher costs incurred in 2000 as a result of personnel, systems and
technology integration efforts related primarily to our acquisitions of Excite,
iMALL, Bluemountain.com, Kendara and Worldprints.

  Impairment write-down of goodwill, other intangible assets and other assets

   Write-down of goodwill, other intangible assets and other assets consisted
of $23.4 million in the second quarter of 2001, including $12.6 million related
to the Cablevision distribution agreement and $10.8 million for impaired
software. In the first half of 2001, write-down of goodwill, other intangible
assets and other assets was $623.5 million and consisted of the above-mentioned
amounts in the second quarter of 2001 and $600.1 million of impairment write-
downs to goodwill and other intangible assets in the first quarter of 2001.
There were no write-downs in the comparable periods in 2000.

   Software. In May 2001, several in-progress projects in our Media/Advertising
business segment were discontinued. This resulted in the impairment of
capitalized costs related to these projects, consisting of third-party software
recorded in property, equipment and improvements. The software has no alternate
use and cannot be sold, and therefore, the $10.8 million carrying amount of
this software was written-off in the second quarter of 2001.

   Cablevision Distribution Agreement. On April 23, 2001, we announced that we
are formally seeking the termination of our relationship with Cablevision and
the recovery of warrants to purchase up to 21.9 million shares of our Series A
common stock granted to Cablevision in 1997 and 1998 pursuant to a distribution
agreement for the deployment of the @Home service on an exclusive basis to
customers located in Cablevision's cable markets. We capitalized the fair
values of these warrants as distribution agreements in 1997 and 1998, and we
have been amortizing these balances on a straight-line basis through June 4,
2002, the term of exclusivity. However, based on our assessment of the
likelihood that the agreement will be terminated and the warrants returned to
us, we recorded a $12.6 million write-down of the Cablevision distribution
agreement and reclassified the remaining $37.4 million balance to other assets
in the second quarter of 2001. The remaining balance included in other assets
represents the current fair value of the warrants issued to Cablevision.

   Goodwill and Other Intangible Assets. In the first quarter of 2001, we
identified additional indicators of possible impairment of our long-lived
assets, principally goodwill and other intangible assets, on a basis similar to
the impairment indicators identified as of December 31, 2000. These impairment
indicators included continued deterioration in the business climate of, and
reduced levels of venture capital funding activity for, Internet advertising
and other Internet-related companies, continued significant declines in the
market values of our competitors in the Internet advertising industry, and
changes made and announced in April 2001 in our operating and cash flow
forecasts for the remainder of 2001. As a result, we recorded an impairment
write-down totaling $600.1 million in the first quarter of 2001. Please refer
to this section in our Form 10-Q for the

                                       26
<PAGE>

quarter ended March 31, 2001 for further details related to this write-down
including information on the impairment testing methodology.

   There were no further indicators of possible impairment of these long-lived
assets in the second quarter of 2001.

Interest and other income (expense), net

   Our net interest and other income consisted of the following for the periods
indicated (dollars in thousands):

<TABLE>
<CAPTION>
                         Three Months Ended June      Six Months Ended June
                                   30,                         30,
                         --------------------------  --------------------------
                           2001    Change    2000      2001    Change    2000
                         --------  ------  --------  --------  ------  --------
<S>                      <C>       <C>     <C>       <C>       <C>     <C>
Interest and other
 income................. $    977   (92%)  $ 11,989  $ 10,655   (59%)  $ 26,213
Interest and other
 expense................  (13,524)   21%    (11,131)  (26,498)   20%    (22,162)
                         --------          --------  --------          --------
  Interest and other
   income (expense),
   net.................. $(12,547)  n/a    $    858  $(15,843)  n/a    $  4,051
                         ========          ========  ========          ========
</TABLE>

   Interest and other income decreased in the second quarter and first half of
2001 by 92% and 59%, respectively, as compared to the same periods in 2000, due
to the decline in interest-bearing short-term investment balances and lower
realized gains from sales of strategic investments in publicly traded
companies. Interest and other expense increased in the second quarter and first
half of 2001 by 21% and 20%, respectively, as compared to the same periods in
2000, due to higher capital lease balances. As a result of the above, we had
net interest and other expense in the second quarter and first half of 2001
while we had net interest and other income in the same periods in 2000. We
expect interest and other expense to increase in the future due primarily to
interest payments under our revised backbone capacity agreement with AT&T,
which accrues interest at an annual rate of 8% on the current principal balance
of approximately $85 million, over the remaining 18-year term of the agreement.

Write-down of other investments

   We recorded impairment write-downs of other investments of $10.6 million and
$23.9 million in the second quarter and first half of 2001, respectively,
including $2.2 million and $9 million, respectively, of write-downs on publicly
traded equity securities representing other-than-temporary unrealized losses
included in accumulated other comprehensive income (loss) and $8.4 million and
$14.9 million, respectively, of write-downs on privately held investments
representing a reduction in the investment balance recorded in other
investments. There were no impairment write-downs of other investments recorded
in the comparable periods in 2000. The impairment write-downs related to
publicly traded equity securities resulted from our conclusion that declines in
the fair market values of such investments below their carrying values were not
temporary (generally, the fair market values were below the carrying values for
a continuous period of six months or more). The impairment write-downs related
to privately held investments resulted from our conclusion that the carrying
values of these investments were not recoverable, based on indicators such as
bankruptcy, limited liquidity and low probability of closing required near-term
financing.

Equity share of losses of affiliated companies

   Affiliated companies, which we consider to be related parties, include our
joint ventures that distribute the @Home and Excite services internationally.
Our Work.com joint venture discontinued operations on March 31, 2001 as a
result of the current decline in online advertising spending. We invested $15
million in this joint venture in April 2000 and we have fully reduced this
investment by our equity share of the joint venture's losses through March 31,
2001. Our ownership interests in these joint ventures generally range from 15%
to 50%, with the exception of Excite Japan and Excite UK. Although our
ownership interests in the Excite Japan and Excite UK joint ventures exceed
50%, because our majority voting rights are restricted in certain respects

                                       27
<PAGE>

by approval, veto, or participatory rights granted to the minority
shareholders, these joint ventures have not been consolidated in our financial
statements. Equity share of losses of affiliated companies decreased by 56% to
$5.3 million in the second quarter of 2001 from $12.1 million in the second
quarter of 2000 due to higher prior year losses experienced by joint ventures
in earlier stages of development. Equity share of losses of affiliated
companies increased by 12% to $19 million in the first half of 2001 from $16.9
million in the first half of 2000 due to the losses experienced by the Work.com
joint venture during its shut down in the first quarter of 2001. We expect to
continue to record losses related to our equity share in affiliated companies
in the future.

Income taxes

   Due to operating losses incurred since inception, we did not record a
provision for income taxes in the second quarter and first half of 2001 or
2000. A valuation allowance has been recorded for the net deferred tax assets
as of June 30, 2001 and 2000, since we lack an earnings history. Accordingly,
we have not recorded any income tax benefit for net losses incurred for any
period from inception through June 30, 2001.

Net loss

   Our net losses were $346.2 million and $668.3 million in the second quarter
of 2001 and 2000, respectively, and were $1,178.9 million and $1,344.8 million
in the first half of 2001 and 2000, respectively. The decrease in our net loss
for the second quarter of 2001 as compared to 2000 was due to lower levels of
goodwill and intangible asset amortization offset partially by restructuring
costs in the second quarter of 2001. The decrease in our net loss for the first
half of 2001 as compared to 2000 was also due to lower levels of goodwill and
intangible asset amortization offset partially by restructuring costs as well
as the write-down of goodwill and other intangible assets in the first half of
2001. We will continue to generate net losses in the foreseeable future
primarily due to the significant non-cash charges associated with the costs and
amortization related to acquisitions and distribution agreements. The amount of
future net loss or income before such costs and amortization will depend on the
level of our future revenues and the operating costs required to generate those
revenues.

Liquidity and Capital Resources

   On July 24, 2001, we announced that we would need to raise additional
funding prior to December 31, 2001 to support our operations. We made this
announcement because, for the remainder of the year, we do not expect to
experience a recovery in the demand for our online advertising and marketing
services, to secure financing terms from some of our equipment vendors, to
receive standard payment terms from several critical suppliers, or to recover
previously expected amounts in connection with real estate lease commitments,
as well as due to other factors. We plan to take further measures to conserve
cash in addition to the restructuring plans announced in January and April
2001, and we may raise additional funds through strategic means including the
possible sale or restructuring of our media operations, or financing
transactions. We have not yet completed any transactions in this regard and
there can be no assurance that we will be successful in achieving sufficient
cash conservation measures, completing strategic transactions or otherwise
raising sufficient additional funds to finance our operations on a timely
basis. If we are unable to successfully complete the necessary measures, there
would be a material adverse impact on our operations and liquidity.

   There can be no assurance that we will be successful in achieving our
targeted expense reductions or achieving positive cash flows, or otherwise
raising sufficient additional funds to finance our operations on a timely
basis. The trading price of our Series A common stock and the downturn in the
U.S. stock and debt markets generally make it more difficult for us to obtain
financing through the issuance of equity or debt securities. Financing may not
be available on terms acceptable to us or at all. Please also see "Risk
Factors--Risks Related to Our Business Generally."


                                       28
<PAGE>

   Since our inception, we have financed our operations primarily through
private and public sales of equity securities and convertible debt securities
and capital lease and other financing arrangements. As of June 30, 2001, our
principal source of liquidity was $162.3 million of cash, cash equivalents and
short-term investments, excluding restricted cash, compared to $166.6 million
as of December 31, 2000. Our short-term investments consist predominantly of
debt instruments that mature in less than one year, are highly liquid and have
a high-quality investment rating. We intend to make our short-term investments
available, if and when needed, for operating purposes.

   The following represents the summary of our cash flows as of the end of and
for the first half of each year indicated (dollars in thousands):

<TABLE>
<CAPTION>
                                                      2001    Change   2000
                                                    --------  ------ --------
<S>                                                 <C>       <C>    <C>
Cash and cash equivalents (including restricted
 cash) at the end of the period.................... $175,410     11% $157,508
Cash used in operating activities..................  (58,920)   300%  (14,722)
Cash used in investing activities..................   (9,638)  (89%)  (90,211)
Cash provided by financing activities..............  145,321    284%   37,893
</TABLE>

Operating Activities

   Cash used in operating activities in the first half of 2001 increased by
300% over 2000 due to a $58.2 million increase in net loss excluding non-cash
charges, partially offset by a $14 million decrease in cash used for accounts
payable and other operating assets and liabilities.

Investing Activities

   Cash used in investing activities in the first half of 2001 decreased by 89%
over 2000 primarily due to a $24.6 million increase in proceeds from sales of
short-term investments, $36.6 million decrease in investments in joint
ventures, and $22.5 million decrease in net purchases of other investments,
partially offset by a $14.7 million increase in purchases of property,
equipment and improvements. We anticipate that we will use cash in investing
activities in the future primarily for capital expenditures related to
equipment to support expansion of our broadband network operations.

Financing Activities

   Cash provided by financing activities in the first half of 2001 increased by
284% over 2000 due to the net proceeds of $183.2 million related to the
issuance of $100 million in convertible notes and the amendment of our backbone
capacity agreement with AT&T, partially offset by a decrease in proceeds from
issuance of common stock of $58.1 million as a result of the decline in our
stock price and an increase in payments on capital leases of $17.7 million. We
anticipate that payments on capital lease obligations will increase in the
future due to our principal repayment obligations under our new backbone
capacity agreement with AT&T and as we finance the purchase of network
equipment to support expansion of our broadband network.

Commitments

   As of June 30, 2001, we had commitments under our capital leases and other
equipment financings, including our amended backbone capacity agreement with
AT&T, to repay $228.3 million plus interest, with $76.6 million of this amount
due within 12 months.

   Under our $500 million of convertible subordinated notes issued in December
1999, we are required to make annual interest payments of $23.8 million. These
notes mature in December 2006. Annual interest payments on our $437 million
convertible subordinated debentures that mature in December 2018 are
$2.3 million.


                                       29
<PAGE>

   Under our $100 million of convertible notes issued in June 2001 and included
in current liabilities, the holders of these notes may elect to convert the
notes at the original issuance price on each anniversary of the date of
issuance starting on June 8, 2002, payable in Series A common stock or cash at
our option. However, if we have not met specified conditions for redeeming the
notes in stock, we may be obligated to pay cash rather than stock to satisfy
these redemption obligations. In addition, we may elect to pay cash if
redeeming the notes in stock results in an unacceptable level of dilution to
our stockholders.

   In connection with our workforce reductions and restructuring plans
announced in the first half of 2001, we expect to make cash severance and other
payments of approximately $5 million during the remainder of 2001. We will also
make rental payments on exited real estate facilities of approximately $4.5
million per quarter starting in the third quarter of 2001.

   Our current operating plan includes significant capital expenditures for the
remainder of 2001 related primarily to equipment to support expansion of our
broadband network operations. If we were to decrease the level of our capital
expenditures in the future in order to conserve cash, this action could curtail
the growth of our broadband operations and subscriber base.

   Our corporate headquarters consist of approximately 670,000 square feet in
Redwood City, California, which we occupy under 12 to 15 year leases. In
addition, we entered into leases for additional nearby facilities in the first
quarter of 2000 comprising approximately 250,000 square feet, and we do not
intend to occupy these facilities as a result of the restructuring plans that
we have committed to in 2001. Total annual rental payments for facilities with
remaining lease terms over one year were approximately $30 million as of June
30, 2001 and a substantial portion of these rent payments have been accrued as
restructuring costs net of estimated sublease income. Approximately $125
million of the restructuring accrual represents net rental payments that are
due more than one year in the future assuming we are not successful in
terminating, or assigning to third party lessees the obligations under, our
lease commitments. In addition, we had commitments for leasehold improvements
related to the additional nearby facilities under construction of approximately
$6 million as of June 30, 2001.

Impact of Adoption of New Accounting Standards

   In July 2001, the Financial Accounting Standards Board, or FASB, issued
Statement on Financial Accounting Standards No. (FAS) 141, "Business
Combinations" and FAS 142, "Goodwill and Other Intangible Assets". FAS 141 is
effective for all business combinations initiated after June 30, 2001 and
requires the use of the purchase method of accounting, includes criteria for
the recognition of intangible assets separately from goodwill, and mandates
that all goodwill created after June 30, 2001 will not be amortized. FAS 142
will be effective for fiscal years beginning after December 15, 2001 at which
time all goodwill amortization will be discontinued, and instead goodwill must
be tested for impairment on at least an annual basis using a fair value method.
In addition, separately identified and recognized intangible assets resulting
from business combinations completed before July 1, 2001 that do not meet the
new criteria for separate recognition of intangible assets will be reclassified
as goodwill at the effective date of FAS 142. Those intangible assets not
reclassified to goodwill must be reassessed and amortized over revised useful
lives in accordance with FAS 142. Prior to the effective date of FAS 142,
testing of goodwill for impairment, if required, will be based on our current
methodology that relies primarily on a discounted cash flow test. We expect
that the adoption of FAS 141 and FAS 142 will result in separately identified
intangible assets being reclassified to goodwill and a decrease in goodwill
amortization by approximately $50 million in 2002.

                                       30
<PAGE>

Risk Factors

   The risks described below are not the only ones facing our company. We have
also described additional risks facing our company in our annual report on Form
10-K for the year ended December 31, 2000. Additional risks not presently known
to us, or that we currently deem immaterial, may also impair our business
operations. Our business, financial condition or results of operations could be
seriously harmed by any of these risks. The trading price of our Series A
common stock could decline due to any of these risks, and you may lose all or
part of your investment.

Risks Related to Our Business Generally

We will need financing to support our operations in the future, and financing
may not be available to us on favorable terms or at all.

   Despite our recent convertible note financing and our recently announced
backbone capacity agreement with AT&T, we will need to raise additional funds
before the end of 2001 to support our business operations. If we are
unsuccessful at raising sufficient funds, this would have a material adverse
impact on our operations and liquidity. Potential sources of additional funds
may include sales of certain of our media operations or financing transactions.
We are also exploring other potential cost-cutting measures. Financing
transactions may include the issuance of equity or debt securities, obtaining
credit facilities, or other financing mechanisms. Even if we are able to raise
the funds required, it is possible that we could incur unexpected costs and
expenses, fail to collect significant amounts owed to us, or experience
unexpected cash requirements that would force us to seek alternative financing.
We may also need additional cash in the future to support our investment in the
enhancement and expansion of our network.

   The trading price of our Series A common stock and the downturn in the U.S.
stock and debt markets, as well as our existing debt leverage, could make it
more difficult for us to obtain financing through the issuance of equity or
debt securities in the future. We currently do not have any commitments for
additional financing and we cannot be certain that additional financing will be
available, when and to the extent required, or on desirable terms. We also
cannot guarantee that we will be successful in finding buyers for our media
operations. If we do not raise sufficient funds, we also may not be able to
fund expansion, take advantage of future opportunities, meet our existing debt
obligations or respond to competitive pressures or unanticipated requirements.
Further, if we issue additional equity or debt securities, stockholders may
experience additional dilution or the new equity securities may have rights,
preferences or privileges senior to those of existing holders of our Series A
common stock.

Our operating results may fluctuate.

   Our operating results may fluctuate significantly in the future as a result
of a variety of factors, many of which are outside of our control. These
factors include, but are not limited to, the following:

  .  subscriber growth rates and prices charged by our cable partners;

  .  changes in the technological, competitive and legal landscape of the
     broadband industry, and the continuation of our relationships with our
     cable partners, particularly Comcast and Cox, on the same terms;

  .  our ability to find buyers for certain business units within our media
     operations, or alternatively to streamline and integrate these
     operations into our core business and reduce expenses, in a timely
     manner;

  .  whether we are able to sustain network performance at or above levels
     required by our agreements with our cable partners and demanded by
     subscribers to the @Home service;

  .  general economic conditions;

  .  the introduction of new products or services by us or our competitors,
     and the integration of new services and features with existing services,
     such as self-installation kits for the @Home service;

                                       31
<PAGE>

  .  the amount and timing of capital expenditures and other costs relating
     to the expansion of our operations;

  .  demand for Internet advertising, including pricing changes for Internet-
     based advertising, changes in the mix of types of advertising we sell
     and the addition or loss of advertisers;

  .  the timely payment of amounts owed to us under our agreements; and

  .  charges to earnings for workforce reductions, and potential additional
     write-downs related to impairment of assets including goodwill and other
     intangible assets related to our acquisitions.

   In addition, our advertising revenue is subject to seasonal fluctuations.
Historically, advertisers spend less in the first and third calendar quarters,
and user traffic for our narrowband services has historically been lower during
the summer and during year-end vacation and holiday periods.

   Our expense levels are based in part on expectations of future revenue and,
to a large extent, are fixed. We may be unable to identify and react in a
timely manner to rapidly changing business conditions and therefore may not
adjust our operating plan or spending quickly enough to compensate for an
unexpected revenue or cash shortfall. Due to all of the foregoing factors and
the other risks described in this section, you should not rely on period-to-
period comparisons of our results of operations as an indication of future
performance. It is possible that in some future periods our results of
operations may be below the expectations of public market analysts and
investors. In this event, the trading price of our Series A common stock may
fall.

General economic conditions may prevent us from meeting our subscriber
forecasts and targeted subscriber and advertising revenues.

   Decisions by consumers and our business customers to subscribe to our
broadband services are to some extent discretionary. The slowdown in the U.S.
economy may cause consumers and business customers to defer decisions to open
new subscriptions to our broadband services, or could lead our cable partners
to reduce their investments in upgrading their cable infrastructure to support
our broadband services and in marketing to attract new subscribers. In
addition, we expect our advertising revenues to continue to decrease due to
weak demand for Internet advertising. As a result, there is continued
uncertainty with respect to our targeted revenues for the remainder of 2001,
and any unexpected decrease in demand for our broadband and advertising
services could have a material adverse effect on our revenues and operating
results. If our revenues were to decrease significantly and we were unable to
adjust our level of operations or reduce our spending in a timely manner, our
operating results would be materially harmed.

In light of our financial condition, our business partners may terminate their
relationships with us or seek to make the terms of their relationship with us
less favorable, which could impact our ability to conduct our business.

   We have agreements and relationships with many third parties, including
equipment suppliers, network engineering, management and maintenance
consultants, providers of telecommunications circuits and other service
providers that are integral to conducting our day-to-day operations,
particularly with respect to maintaining the performance of our network and
offering the @Home service. These service providers may perceive that there is
increased risk in doing business with us due to our current financial position.
Some providers of network equipment have ceased, and others may cease, to
finance our purchases of equipment, which could negatively impact our cash
flows. Also, if we are unable to make payments on a timely basis, our service
providers may terminate their arrangements or relationships with us, and this
would make it more difficult for us to conduct our business.

We have incurred and expect to continue to incur substantial losses.

   We have incurred net losses in every fiscal period since our formation in
1995. In addition, we intend to continue to incur significant capital
expenditures and operating expenses in order to expand our network and

                                       32
<PAGE>

enhance its performance, and market and provide our broadband services to
potential subscribers. As a result of our past acquisitions, we will incur
substantial non-cash charges in future periods, including charges relating to
the amortization of goodwill during the remainder of 2001 and other intangible
assets in future periods. In recent quarters, we have recorded significant
write-downs of these intangible assets, and we may have to record additional
write-downs in the future if we determine that these assets have suffered
additional impairment. Therefore, we anticipate that we will continue to incur
significant net losses and negative cash flows for the foreseeable future. Even
if we do achieve profitability in the future, we may not be able to sustain or
increase profitability in the long run.

If we fail to meet the continued listing requirements of the Nasdaq Stock
Market, our Series A common stock could be delisted and the liquidity of our
Series A common stock would decline, and harmful consequences may be triggered
under our convertible debt agreements.

   Our Series A common stock is listed on the Nasdaq National Market. The
Nasdaq Stock Market's Marketplace Rules impose requirements for companies
listed on the Nasdaq National Market to maintain their listing status,
including minimum bid price and net tangible assets or stockholders' equity
requirements. Because we currently do not meet the net tangible assets or
stockholders' equity requirements, the Nasdaq rules require us to maintain at
least a $3.00 minimum bid price. Our Series A common stock is currently trading
at levels lower than this threshold. Our stockholders have approved a reverse
stock split which would, if our board of directors elects to implement it,
increase the trading price of our Series A common stock above this threshold.
If we did implement a reverse stock split, we cannot assure you that this will
result in a sustained increase in the trading price of our Series A common
stock above the minimum bid price requirements.

   Delisting could reduce the ability of holders of our Series A common stock
to purchase or sell shares as quickly and as inexpensively as they have done
historically. For instance, failure to obtain listing on another market or
exchange may make it more difficult for traders to sell our securities. Broker-
dealers may be less willing or able to sell or make a market in our Series A
common stock. Not maintaining a listing on a major stock market may result in a
decrease in the trading price of our Series A common stock due to a decrease in
liquidity, reduced analyst coverage and less interest by institutions and
individuals in investing in our Series A common stock.

   Finally, under the terms of our recent $100 million convertible note
financing, we are required to maintain the listing of our Series A common stock
on either the New York Stock Exchange, the Nasdaq National Market or the
American Stock Exchange. If, at any time after receiving a redemption notice
from a noteholder and prior to the redemption, delisting of our Series A common
stock is threatened due to falling below the continued listing criteria or by
written notice of the commencement of delisting proceedings by one of these
stock markets, we would no longer be able to elect to issue shares of our
Series A common stock to satisfy our redemption obligations under the
convertible notes, and would instead be required to pay cash. Also, if our
Series A common stock were ultimately delisted from one of these stock markets,
the holders of the convertible notes would have the right to require us to
redeem the notes for cash at that time. Delisting from these stock markets
would also make it more difficult for us to raise capital in the future.

Our existing debt obligations may make it difficult for us to enter into
strategic transactions or to obtain financing in the future.

   The terms of the agreements governing our outstanding convertible notes and
debentures may restrict our ability to be acquired, sell our assets or obtain
financing in the future. Under the terms of these agreements, in the event of a
change of control of Excite@Home or a sale of all or substantially all of our
assets, the surviving entity would be obligated to assume our outstanding debt
obligations, and in the event of a change of control, the holders of each of
our outstanding convertible notes and debentures would have the right to redeem
their debt securities for cash. If such a transaction resulted in our
stockholders receiving securities that were not publicly-traded, the holders of
our recently-issued $100 million principal amount convertible notes could have

                                       33
<PAGE>

the right to redeem the notes for cash at a premium, based on when such a
transaction occurred. These provisions may make it difficult to enter into such
a transaction with potential acquirers. In addition, we issued a security
interest on some of our assets to secure our obligations under our $100 million
principal amount convertible notes. This security agreement would restrict our
use of the proceeds from a sale of secured assets if the aggregate book value
of our secured assets remaining after the sale was less than $100 million.

   Finally, our existing debt obligations may make it difficult for us to
attract financing in the future through the issuance of equity or debt
securities. Our convertible subordinated notes require that any subsequent
indebtedness be secured by our assets in order to be senior to the subordinated
convertible notes. Therefore, we may only issue additional senior debt up to
the amount of the book value of our assets, excluding $100 million of assets
already secured as collateral for our $100 million principal amount convertible
notes and excluding our backbone capacity agreement with AT&T. In addition, the
conversion of any of our outstanding debt securities could result in
substantial dilution to our stockholders. In particular, in the event of a
redemption of our $100 million principal amount convertible notes, if we elect
to satisfy this obligation by issuing shares of stock, this could result in
substantial dilution depending on the then-current trading price of our Series
A common stock. This potential dilution could dissuade potential investors from
investing in the event that we attempt to issue additional convertible debt
securities in the future. Finally, the $100 million principal amount
convertible notes also contain anti-dilution rights that could result in an
increase in the conversion ratio of these notes, and therefore additional
dilution, in the event of an issuance of shares in a financing transaction.

Our substantial debt leverage and debt service obligations may adversely affect
our cash flow.

   We have in excess of $1 billion in outstanding indebtedness, primarily from
outstanding convertible notes, debentures and capital lease obligations. We are
obligated to make annual interest payments of more than $40 million under our
indebtedness and we must repay in the near future significant amounts of
principal under our capital lease and other obligations, including
approximately $75 million within the next 12 months. We may be unable to
generate sufficient cash to make principal, interest and other payments under
our debt and capital lease obligations when due. In particular, although our
$100 million principal amount convertible notes do not mature until 2006, the
note holders may elect to redeem the notes for the original issuance price on
each anniversary of the date of issuance, payable in Series A common stock or
cash at our option. However, if we have not met specified conditions for
redeeming the notes in stock, we may be obligated to pay cash rather than stock
to satisfy these redemption obligations. In addition, we may elect to pay cash
if redeeming the notes in stock results in an unacceptable level of dilution to
our stockholders.

   Our substantial leverage could have significant negative consequences,
including:

  .  increasing our vulnerability to general adverse economic and industry
     conditions;

  .  requiring the dedication of a substantial portion of our expected cash
     flow from operations to service our debt, thereby reducing the amount of
     our expected cash flow available for other purposes, including capital
     expenditures;

  .  limiting our flexibility in planning for, or reacting to, changes in our
     business and the industry in which we compete; and

  .  placing us at a possible competitive disadvantage compared to less-
     leveraged competitors and competitors that have better access to capital
     resources.

If we are unable to comply with the obligations under any of our outstanding
debt or lease obligations, this could in turn result in a default under our
other debt obligations and the acceleration of repayments, which may result in
a foreclosure on our assets.

   Under the terms of the agreements governing our $100 million principal
amount convertible notes, we have agreed to several conditions, the failure of
which could result in obligations to make cash payments, an acceleration of the
amount due under the notes and/or an event of default under the notes.
Depending on the

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<PAGE>

condition, we may be obligated to pay, in addition to other possible damages, a
cash amount equal to the greater of the outstanding principal amount of the
notes, which is currently $100 million, or if the trading price of our Series A
common stock is greater than $4.38 per share, the then-current fair market
value of the shares issuable upon conversion of the outstanding principal of
the notes, which currently amounts to 22.8 million shares. Failure to register
the resale of the shares underlying the notes within specified timeframes could
result in obligations to make cash payments or an acceleration of the amount
due under the notes. Other events that would trigger an acceleration of the
amount due include failure by us to deliver shares upon a conversion of the
notes within specified timeframes for delivery, breach of any of our
representations or obligations under the notes and failure to cure the breach
on a timely basis, or suspension or delisting of our Series A common stock from
trading on the Nasdaq National Market. Events of default include failure to
meet our payment obligations under these notes or our other outstanding debt
obligations, failure to meet material provisions of the notes for a period of
30 days after receiving notice, or filing for bankruptcy. A default under these
notes could result in acceleration of the amounts due under our other
outstanding convertible subordinated notes and debentures.

   In addition, we granted AT&T a security interest in our backbone capacity
agreement with AT&T. We have also granted a security interest in other assets
to secure our obligations under our $100 million principal amount convertible
notes. If we default under any of these agreements, or any of our other
outstanding debt obligations, AT&T and the holders of our $100 million
principal amount convertible notes may elect to foreclose on our assets. If
this were to occur, we would be unable to conduct our business.

Conversion of our outstanding convertible debt securities and warrants, or the
sale of shares held by our cable partners, could result in substantial dilution
and a decrease in the trading price of our Series A common stock.

   Each of our outstanding convertible debt securities is convertible into
shares of our Series A common stock. In particular, our $100 million principal
amount convertible notes are currently convertible at the rate of $4.38 per
share, which represents 22.8 million shares. However, we may be obligated to
issue a larger number of shares in some circumstances. For example, if the note
holders elect to redeem the notes, and we elect to satisfy our redemption
obligations by issuing securities, the notes would convert based on a 5%
discount to the average of the volume-weighted average trading price of our
Series A common stock over the 10 trading days prior to issuance, and the stock
would be issued in eight equal installments over an 80-day period. Decreases in
the trading price of our Series A common stock could result in the issuance of
additional shares if we elect not to pay cash to satisfy our redemption
obligations. In addition, our other convertible debt securities are currently
convertible into an aggregate of 14.6 million shares.

   We have also issued a substantial number of warrants to our cable partners
in connection with our distribution agreements with these partners. Currently,
warrants to purchase 148.4 million shares of our Series A common stock are
outstanding, including warrants to purchase 21.9 million shares held by
Cablevision that we are seeking to recover in connection with the termination
of our agreement with that cable company. The substantial portion of our
outstanding warrants are not vested and most are exercisable at prices
substantially above the current trading price of our Series A common stock. In
addition, AT&T, Comcast and Cox hold substantial amounts of our outstanding
Series A common stock. We recently announced that our mutual exclusivity
arrangements with Comcast and Cox will terminate later this year, and if these
companies sell their shares, this could result in a decrease in the trading
price of our Series A common stock.

Our future success depends on our ability to attract, retain and motivate
highly skilled employees.

   Our future success depends on our ability to attract, retain and motivate
highly skilled and experienced employees. Competition for experienced
management, engineering and other key personnel is intense, particularly in the
market segment in which we compete and in the San Francisco Bay Area where our
headquarters is located. We grant stock options as a method of attracting and
retaining employees, to motivate performance and to align the interests of
management with those of our stockholders. Due to the decline in the trading
price of our Series A common stock, a substantial portion of the stock options
held by our employees have an exercise price that is higher than the current
trading price of our common stock, and therefore these

                                       35
<PAGE>

stock options may not be effective in helping us to retain valuable employees.
Also, we have recently executed workforce reductions and have announced that we
intend to sell or restructure media operations not directly supporting our
broadband strategy. This may create concern about job security among existing
employees that could lead to increased turnover. As a result of these factors,
we may have difficulties in retaining current employees and attracting new
employees. Employee turnover may result in a loss of knowledge about our
customers and our operations and our internal systems, which could materially
harm our business.

   We believe that our success will depend on the continued services of our
executive management team. In addition, other key employees possess marketing,
technical and other expertise that is important to the operations of our
business. Changes in our business and financial position, as well as changes in
the economic environment, especially in our industry sector, have increased the
risk of turnover of executives and key employees. We have recently announced
the departure of several members of our executive management team, which may
result in a loss of knowledge about the company's operations. All of our
current executive officers and other employees serve "at- will" and may elect
to pursue other opportunities at any time. If any of these employees leave, we
may not be able to replace them with employees possessing comparable skills.

Our management team must successfully integrate new members and must manage our
workforce reductions in order for our business to be successful.

   We face challenges in managing our operations due to changes in our
management team and our recent workforce reductions. In particular, Patti Hart
replaced George Bell as our new Chairman and Chief Executive Officer in April
2001, and Matt Jones became our Chief Operating Officer in June 2001. New
members of our management team may bring management styles, philosophies and
policies that could take time to implement. In addition, as a result of our
recent reductions in workforce we will need to operate with fewer employees and
existing employees may have to perform new tasks previously performed by former
employees. Our growth over the past few years, combined with significant
changes to our business and past changes in our management team, have placed
significant strain on our administrative, operational, and financial resources
and controls. If we cannot effectively establish and improve our processes,
this will impact our ability to manage our business, operations and financial
results.

We are controlled by AT&T, and our interests may not always align with AT&T's
interests.

   AT&T currently owns all 86.6 million outstanding shares of our Series B
common stock, each of which carries ten votes per share, and overall holds
approximately 74% of our voting power. In addition, this Series B common stock
ownership gives AT&T the right to elect a majority of our board of directors,
and currently six of the ten members of our board of directors are designees of
AT&T. Therefore, we are subject to both board and stockholder voting control by
AT&T. It is possible that AT&T's objectives will diverge from ours. In October
2000, AT&T announced that it will restructure its operations into four separate
companies or business groups and AT&T's interest in Excite@Home will be held by
one of these companies or business groups. In July 2001, AT&T received an
unsolicited offer from Comcast to acquire AT&T's broadband operations, and AT&T
announced that it would evaluate this proposal. We cannot predict what impact,
if any, the AT&T restructuring or any potential transaction between AT&T and
Comcast or any other potential acquirer of AT&T's broadband operations may have
on our company.

Risks Related to Our Broadband Business

We need to add subscribers at a rapid rate for our broadband business to
succeed, but we may not achieve our subscriber growth goals.

   Our actual revenues and the rate at which we add new subscribers to the
@Home service and our broadband content services may differ from our forecasts.
We may not be able to increase our subscriber base fast enough to meet our
internal forecasts, the forecasts of industry analysts or the expectations of
investors. The slowdown in the U.S. economy may lead to reduced demand for our
broadband services, delay the

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<PAGE>

development of new applications that could drive increased demand for our
broadband services, or lead our cable partners to reduce their investments in
upgrading their cable infrastructure to support our broadband services and in
marketing to attract new subscribers. The rate at which subscribers have
increased in the past does not necessarily indicate the rate at which
subscribers may be expected to grow in the future. If we do not meet subscriber
forecasts, our revenues and operating results could be materially harmed, and
the trading price of our Series A common stock may decrease.

Our relationships with our cable partners are critical to the success of our
broadband business.

   We currently are dependent on cable companies to provide the @Home service
since the cable companies' local networks are required to deliver the service
to residential homes. The cable infrastructure was originally designed to
handle one-way data transmission, and we are not able to offer the @Home
service until cable companies upgrade their networks to handle two-way high-
speed data transmission. We have entered into distribution agreements with
AT&T, Comcast, Cox and other cable partners to offer a co-branded version of
the @Home service to their customers, and we receive from our cable partners a
percentage of the fees paid by their customers that subscribe to the @Home
service. We recently announced that our mutual exclusivity obligations with
Comcast and Cox will end on December 4, 2001, although our distribution
agreements with these cable companies currently remain in place. We are
currently in discussions with these cable partners to restructure our
commercial relationships, but we cannot assure you that these transactions will
occur or that Comcast and/or Cox will not also elect to terminate their entire
relationships with us in the future. If our relationships with one or more of
these cable partners or AT&T were to terminate or diminish, we may not be able
to offer the @Home service to the customers served by those cable companies on
a cost-effective basis, or at all, or the revenues we receive from these
customers may decrease. Any of these results could materially harm our
business.

The sustainability of our broadband business in the long term is unproven.

   We have made significant up-front investments in our backbone network and
supporting network facilities in order to offer the @Home service and related
broadband content services. Whether or not our broadband business will achieve
profitability and long-term sustainability is dependent on several factors,
most notably the development of new applications to drive continued increases
in demand for broadband services, our ability to maintain our current
relationships with our cable partners and to successfully implement an "open
access" strategy, the ability of our cable partners to grow their subscriber
bases and the price that these subscribers pay for the service. Our costs are
not entirely fixed, and we incur incremental costs with each additional
subscriber in order to meet expected network performance and customer service
levels. As discussed below, if our cable partners elect to provide some or all
of our services through their own operations, this would negatively impact our
revenues and could materially harm our business. Our broadband operations have
not generated positive cash flows since our inception, and we cannot guarantee
you that we will be able to achieve positive cash flows in the future.

We could face significant competition in the event that our cable partners
offer competing Internet access services or other companies offer Internet
access services over our cable partners' cable systems.

   Our cable partners may determine in the future that they can provide
broadband services themselves or with the help of a competing Internet access
provider, rather than offering our services. As a result of the termination of
our exclusivity arrangements with Comcast and Cox which will become effective
December 4, 2001, after this date Comcast and/or Cox may allow alternative
providers to offer broadband Internet access services over their cable
infrastructure and may enter into commercial arrangements with competing
broadband Internet access providers. In addition, our March 28, 2000 letter
agreement provides for an implementation plan that would, at the election of
Comcast or Cox, require us to transfer specified subsystems and network
elements to Comcast or Cox to enable them to offer aspects of the @Home service
themselves, in which event we would negotiate a new revenue split to reflect
any expenses that are no longer incurred by us due to the transfer. The

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<PAGE>

agreement also provides for an exit plan that would, in the event that either
Comcast or Cox decides to terminate its relationship with us, require us to
transfer to Comcast or Cox specified assets used by us in delivering our
broadband services to them. If Comcast or Cox, or our other cable partners,
reduce their reliance on our broadband access services, we may receive a
smaller percentage of broadband access subscription fees collected by them. If
they elect to offer their own competing services or enter into relationships
with competing Internet access providers, or to terminate their relationships
with us altogether, we could lose current or potential subscribers and this may
adversely impact our future revenues and operating results.

   Most of our other cable partners are currently subject to exclusivity
obligations that prohibit them from obtaining high-speed, greater than 128
kilobits per second, residential consumer Internet services from any source
other than Excite@Home. In particular, the current exclusivity obligations of
AT&T, our largest cable partner, expire on June 4, 2002, and may be terminated
sooner under some circumstances, although in March 2000 we entered into an
agreement with AT&T providing for a modified commercial relationship which
extends from June 2002 until June 2008. In addition, the Federal Communications
Commission, or state or local governments, could impose regulations that
require our cable partners to grant competitors access to their cable systems.
As a result, we could lose potential new or existing subscribers, distribution
relationships and ultimately revenue to competitors in a voluntary or
regulation-mandated open access environment.

   The markets for consumer and business broadband services are already
extremely competitive, and we expect that competition will intensify in the
future. Our most direct competitors for broadband services include providers of
cable-based Internet services such as AOL Time Warner, as well as DSL and other
telecommunications providers, fixed wireless Internet access providers,
satellite Internet access providers, cable and fiber-optic system over-builders
and Internet and online service providers. For a more detailed description of
these competitors, see our annual report on Form 10-K filed with the Securities
and Exchange Commission on April 2, 2001. These competitors currently provide
alternative services, in many cases over different communications media, but
could compete with us directly in the business of broadband Internet access
services over the cable infrastructure in an open access environment. Some of
these competitors and potential competitors have substantially greater
financial, technical, marketing and other resources than we do. In particular,
because our cable partners provide the @Home service to consumers, our
competitors may have greater brand name recognition. These competitors may be
able to undertake more extensive marketing campaigns, adopt more aggressive
pricing policies and devote more resources to developing Internet services or
online content than we can. These competitive pressures could significantly
impact the growth of our broadband subscriber base.

If we cannot maintain the reliability, scalability and speed of our broadband
network, customer demand for our broadband services and our relationships with
our cable partners will suffer.

   The satisfactory performance, reliability and availability of our broadband
network is critical to our ability to attract and retain large numbers of
subscribers. Broadband networks face performance challenges that are different
from traditional data and telecommunications networks. Because the @Home
service offers high transmission speeds, our users are more likely to transfer
large amounts of data, such as multimedia applications, over our network. In
addition, because the @Home service is always on, users perform some tasks,
such as checking e-mail, much more frequently than narrowband users. As the
number of subscribers to our service increases and as broadband applications
are developed that require the transfer of large amounts of data
simultaneously, the performance of our network may decrease. Also, our network
performance may suffer in particular geographic areas due to our reliance on
regional data centers and the cable infrastructure located in those areas to
support our broadband services. If the existing infrastructure for a particular
geographic area does not accommodate additional subscribers, and if our cable
partners are unwilling to upgrade the cable infrastructure in such areas,
network performance for such areas could decline.

   In past periods, the performance of our broadband network has deteriorated
in some markets. For example, we have suffered performance problems with our e-
mail services. In addition, although our cable partners have implemented
policies to restrict our subscribers from inappropriate use of the @Home
service, such as

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<PAGE>

uploading excessive amounts of data, some of our subscribers have not adhered
to these policies, and this has contributed to performance problems in
locations where those subscribers reside. If we experience frequent or
persistent degradation in system performance, our reputation and brand could be
permanently harmed, and we may lose subscribers. Consumer litigation against us
and/or our cable partners may arise as a result of network performance
problems, and our cable partners may seek indemnification from us for damages
in the event of such consumer claims.

   Because we rely on our cable partners to offer the @Home service to
customers, if our network does not perform to the levels that our cable
partners demand, our relationships with our cable partners will suffer. We have
entered into service level agreements with Comcast and Cox under which we have
agreed to meet specified network performance standards and to pay Comcast and
Cox preset liquidated damages if we fail to achieve these network performance
levels during any reporting period. If the @Home service does not meet the
reliability levels that our cable partners seek, they may choose not to offer
the service or may attempt to terminate their relationships with us.

If our cable partners offer our broadband services at discount prices, our
operating results may be harmed.

   Under the terms of our distribution agreements with our cable partners, our
cable partners are generally free to price our broadband services at their
discretion. Because our agreements with each of our cable partners provide that
we will receive a percentage of the revenues that our cable partners receive
from sales of our broadband services, if our cable partners offer our broadband
services at discount prices, we will receive less revenue.

The equity incentives that we have granted to our cable partners might not have
the effect that we anticipated.

   The trading price of our Series A common stock has experienced a significant
decline since 2000. Some of our cable partners hold substantial amounts of our
outstanding common stock, and we have issued warrants to many of our cable
partners in connection with distribution agreements that we entered into with
these companies. Many of these warrants have exercise prices that are greater
than the current trading price of our Series A common stock. In particular, the
warrants that we granted to AT&T, Comcast and Cox under our March 28, 2000
letter agreement have exercise prices that are substantially above the current
trading price of our Series A common stock. As a result, these equity
securities may not sufficiently motivate our cable partners to maintain their
relationships with us.

We depend on our cable partners to upgrade to the two-way cable infrastructure
necessary to support the @Home service.

   The ability of a subscriber to receive the @Home service depends in large
part on whether the cable company in its area has upgraded its cable network to
support two-way high-speed data transmission. Only a portion of existing cable
plants in the United States and in some international markets have been
upgraded to two-way hybrid fiber-coax cable, and even less are capable of high-
speed two-way data transmission. Currently, approximately two-thirds of our
North American cable partners' cable infrastructure was capable of delivering
the @Home service. The efforts by our cable partners to upgrade their cable
networks places a significant strain on the financial, managerial, operating
and other resources of our cable partners, most of which are already highly
leveraged. Therefore, these infrastructure investments have been, and we expect
will continue to be, subject to change, delay or cancellation. Furthermore,
because of consolidation in the cable television industry, as well as the sale
or transfer of cable assets among cable television operators, many cable
companies have delayed upgrading particular systems that they plan to sell or
transfer. If these upgrades are not completed in a timely manner, our broadband
services may not be available on a widespread basis and we may not be able to
increase our subscriber base at the rate we anticipate. Although our commercial
success depends on the successful and timely completion of these infrastructure
upgrades, most of our cable partners are under no

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<PAGE>

obligation to upgrade systems or to introduce, market or promote our broadband
services. As has happened in the past, even if a cable partner upgrades its
cable infrastructure, the upgraded infrastructure may not function properly,
and therefore may cause a delay in the availability of our broadband services
for particular areas. The failure of our cable partners to complete these
upgrades in a timely and satisfactory manner, or at all, would significantly
harm our business.

We depend on our cable partners to promote our services and obtain new
subscribers.

   Because we do not offer the @Home service directly to customers, the rate at
which we are able to obtain new subscribers depends on the level and
effectiveness of the efforts of our cable partners to promote our broadband
services in particular regions. Our cable partners have achieved different
levels of subscriber penetration. We cannot predict the rate at which our cable
partners will add new subscribers to our services. If our cable partners do not
actively and effectively promote our services, we will not be able to reach the
level of subscribers necessary to achieve a profitable business model.

If we are unable to make it easier and quicker to install the @Home service,
this may constrain our subscriber growth, but increased purchases of cable
modems by subscribers choosing to self-install the @Home service may negatively
impact our revenue.

   Installation of the @Home service generally requires a customer service
representative employed by a cable partner to install a cable modem at a
customer's location and therefore can be time consuming. We believe that our
ability to meet our subscriber goals depends on the degree to which self-
installation initiatives and cable modems become more widely available in
channels such as personal computer manufacturers and retail outlets. In
addition, we must deploy systems that allow customers to self-provision the
@Home service through online and other means in order to increase the
attractiveness and usefulness of self-installed cable modems. If these
developments do not occur, it would be difficult for us to attract large
numbers of additional subscribers. In addition, subscriber growth could be
constrained and our business could be significantly harmed if our cable
partners slow the deployment of the @Home service because they are not able to
obtain a sufficient quantity of cable modems.

   Cable modem manufacturers have experienced, and may continue to experience,
production and delivery problems with cable modem components that may restrict
the number of modems available. Cable modem manufacturers may also delay the
production or delivery of cable modems for various economic or other reasons.
Delays due to component shortages or other reasons could materially impact our
subscriber growth.

   The amount of revenue that we receive for the @Home service depends on the
price that our cable partners charge subscribers, and many of our cable
partners charge a lower fee to subscribers that purchase their own cable modems
rather than rent them from the cable partner. We expect that broader deployment
and adoption of self-installation initiatives will result in a larger
proportion of subscribers purchasing cable modems. This may result in lower
average revenue per subscriber in future periods.

We face litigation risks due to our relationships with our cable partners.

   We currently face litigation in multiple class action lawsuits arising out
of our relationships with our cable partners. If we do not prevail in these
matters, we could be forced to pay damages, allow other service providers to
use our network, or a court could impose limitations on our relationships with
our cable partners or restrictions on the way we conduct our business. For a
summary of the most significant of these litigations, please refer to the
sections entitled "Legal Proceedings" in this and prior quarterly reports and
in our annual report filed with the Securities and Exchange Commission. Other
parties could file litigation based on similar or other legal theories in the
future. Lawsuits filed against us could divert the attention of management and
key personnel, could be expensive to defend and may result in adverse
settlements and judgments.


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<PAGE>

Our dependence on our network to provide our broadband services exposes us to a
significant risk of system failure.

   Our broadband service operations are dependent on the uninterrupted
operations of our highly complex network infrastructure and large numbers of
computer and communications hardware and software systems. These systems are
vulnerable to damage or interruption from fires, earthquakes, floods, power
losses, telecommunications failures and similar events. In particular,
California is experiencing an energy shortage and some regions have experienced
blackouts and may experience blackouts in the future. We have principal
facilities, including our headquarters and one of our network operations
centers, located in California. The occurrence of a natural disaster or other
unanticipated problem at our network operations center or at a number of our
regional data centers could cause interruptions in our broadband services.
Additionally, failure of our cable partners or companies from which we obtain
data transport services to provide the data communications capacity that we
require, for example as a result of natural disaster or operational disruption,
could cause interruptions in our broadband services. Any damage or failure that
causes interruptions in our network operations could result in a loss of
subscribers or consumer litigation.

We depend on telecommunication companies to provide local and regional data
circuits, and these companies may experience financial or other difficulties
that adversely affect the price or availability of such circuits.

   Delivering our commercial broadband services requires that we rent local and
regional data lines and facilities from local exchange carriers and wholesale
communication providers. In some areas, our residential broadband services also
rely on regional data lines connecting our backbone to the cable headend. A
number of telecommunication providers have recently changed their business
plans in reaction to market conditions, which may prevent us from maintaining
or expanding our services in accordance with our plans. As a result, we may be
required to seek alternative partners under terms that are less favorable than
current terms, or we may have to delay or curtail plans to expand our
commercial broadband services.

Risks Related to Our Media Business

We and other Internet advertisers have experienced weakened demand for Internet
advertising services, and if we are unable to grow or maintain our Internet
advertising revenues, our operating results would be harmed and our stock price
may decline.

   We derive a significant portion of our revenues from the sale of advertising
on our web sites. We have experienced a rapid deterioration in the demand for
our advertising services due to the slowdown in the U.S. economy, decreased
corporate spending, concerns about the effectiveness of Internet advertising
and concerns about the uncertainty regarding the future of our narrowband media
operations. We have attempted to focus our marketing of advertising services
towards companies in traditional lines of business rather than Internet
companies, but advertisers that have traditionally relied upon other media may
be reluctant to advertise online, or may not be willing to pay the same rates
as Internet companies. Furthermore, we have recently introduced a pricing
structure for advertising on our broadband services at premium rates, but we
cannot be certain whether advertisers will be willing to pay for these
services. If we are unable to convince advertisers of the effectiveness of
Internet advertising, particularly our premium services, or if the demand for
Internet advertising remains sluggish due to a weak U.S. economy, our revenues
and operating results could be materially harmed.

Our announcement that we intend to sell or restructure portions of our media
operations may have a material adverse impact on our operating results and cash
flows.

   We previously announced that we intend to sell or restructure portions of
our media operations that do not directly support our broadband strategy. This
announcement could impact our ability to operate our narrowband media business
in several ways:

  . Customers may be reluctant to enter into new long-term advertising
    arrangements with us.

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<PAGE>

  . It may become more difficult for us to continue our relationships with,
    or to collect amounts due from, existing advertising customers.

  . Potential partners may be reluctant to enter into new strategic
    relationships with us.

  . We may experience higher employee turnover due to concerns about job
    security and uncertainty about the future of this business.

   Although we are attempting to target our advertising services towards new
customers in more traditional non-Internet lines of business, a significant
portion of our current advertising arrangements are with Internet companies.
Many of these Internet companies are not yet profitable. With the recent
downturn in the economy generally and in the technology sector in particular,
many Internet companies have been unable to attract venture capital funding to
support their operations and are therefore shutting down operations. As a
result, we may not receive all of the payments owed to us under our current
advertising arrangements, which could materially harm our cash position and
results of operations in the future.

Our media services could lose users, advertisers and revenues to competitors.

   Our media services compete with a number of companies both for users and
advertisers and, therefore, for revenues. We compete with Internet portals,
online service providers, media companies such as AOL Time Warner and providers
of online information and other services. For a list of these competitors,
please see "Business--Competition" in our annual report on Form 10-K filed with
the Securities and Exchange Commission on April 2, 2001. Increased competition
for users of Internet services and content may result in lower subscriber
growth rates for our online and Internet services and lower advertising rates
and decreased demand for advertising space on our web sites.

   Many of our competitors for Internet advertising have longer operating
histories in the Internet market, greater name recognition, larger customer
bases and significantly greater financial, technical and marketing resources
than we have. These competitors may be able to undertake more extensive
marketing campaigns, adopt more aggressive pricing policies and make more
attractive offers to potential employees, distribution partners, advertisers
and content providers. Further, it is possible that our competitors could
develop services that are superior to ours or that achieve greater market
acceptance than our offerings.

   The Internet in general, and our media services specifically, also must
compete with traditional advertising media, such as print, radio and
television, for a share of advertisers' total advertising budgets. To the
extent that the Internet is not perceived as an effective advertising medium,
advertisers may be reluctant to devote a significant portion of their
advertising budgets to Internet advertising.

If usage of Internet portal sites by Internet users declines, our business
could be harmed.

   The success of our Internet web sites is also dependent on Internet users
continuing to use "portal" web sites for their information needs. Some Internet
measurement services have reported that the number of unique users of Internet
portal sites has been decreasing in recent periods. If Internet users begin to
become less dependent on portal sites, and instead go directly to particular
web sites, our traffic levels could decrease as measured by unique users, reach
and pages views. As a result, the number of advertising impressions and the
attractiveness of our sites to advertisers could be impacted, which would harm
our media and advertising revenues.

The sponsorship advertising we sell subjects us to financial and other risks.

   We derive a substantial portion of our advertising revenues from sponsorship
and promotion arrangements. These are advertising relationships under which
third parties receive sponsored services and placements on our services in
addition to traditional banner advertisements across our services. These
arrangements expose us to potential financial risks, including the risk that we
fail to deliver required minimum levels of user impressions,

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<PAGE>

that third party sponsors do not meet their payment obligations under these
agreements, or that they do not renew the agreements at the end of their term.
These arrangements also require us to integrate sponsors' content with our
services, which can require the dedication of resources and programming and
design efforts to accomplish. We may not be able to attract additional sponsors
or renew existing sponsorship arrangements when they expire.

   In addition, we have granted exclusivity provisions to some of our sponsors,
and may in the future grant additional exclusivity provisions. These
exclusivity provisions may have the effect of preventing us from accepting
advertising or sponsorship arrangements from other advertisers during the term
of the agreements. Our inability to enter into further sponsorship or
advertising arrangements as a result of any exclusivity arrangements could harm
our business.

We depend on several third-party relationships for users, advertisers and
revenues.

   We depend on a number of third party relationships to provide users and
content for our websites, including agreements for links to our services to be
placed on high-traffic web sites and agreements for third parties to provide
content, games and e-mail for our web sites. We have no guarantees that we will
recoup our investments in these relationships through additional users or
advertising revenues, and we may have to pay penalties for terminating
agreements early. Some of these third parties could become our competitors, or
provide their services to our competitors, upon termination of such
relationships. If these relationships are terminated and we are not able to
replace them, we could lose users or advertisers.

New technology could make it more difficult for us to deliver online
advertising.

   "Filter" software programs that limit or prevent advertising from being
delivered to a web user's computer are available. Filter software may prevent
the proper operation of our services, including the personalization features of
the Excite Network and targeted banner advertising. Widespread adoption of
software products such as these could reduce the attractiveness of our
personalization features and harm the commercial viability of online
advertising.

Current or future legislation addressing privacy concerns, litigation or
technology could make it more difficult for us to deliver targeted advertising
or generate revenues from the collection and use of user information.

   Cookies are bits of information keyed to a specific memory location and
passed to a web server through the user's browser software. They are placed on
a user's hard drive, often without the user's knowledge or consent. Our
services use cookies to deliver targeted advertising, enable the
personalization features of the Excite Network, help compile demographic
information about users and limit the frequency with which an advertisement is
shown to the user. In addition, we collect information from users to enable us
to activate the personalization features of the Excite Network and for
authentication and identification purposes, as well as through other online
services such as promotional sweepstakes offered by our MatchLogic subsidiary,
and we may with user permission sell this information to third parties or use
this information for other purposes. These practices may subject us to risk of
litigation or regulation related to the collection and use of this information,
as well as other misuses such as unauthorized marketing.

   For example, in the fourth quarter of 2000, a purported class action suit
was filed against our MatchLogic subsidiary, alleging unauthorized access to,
as well as interception and misuse of, customer data based on our advertising
targeting technology. In addition, the Federal Trade Commission and some states
have been investigating Internet companies regarding their use of personal
information, and some groups have initiated legal action against Internet
companies regarding their privacy practices. Also, the United States federal
and various state governments have proposed new laws restricting the collection
and use of information regarding Internet users. We could incur additional
expenses if new regulations regarding the use of personal information are
introduced or if government agencies choose to investigate our privacy
practices. Also, currently available

                                       43
<PAGE>

web browsers allow users to hide their identity and to prevent cookies from
being written to, or read from, the user's hard drive, and technology that
shields e-mail addresses, cookies and other electronic means of identification
could become commercially accepted. Any reduction or limitation in the use of
personal information or cookies through legislation, new technology or
otherwise could limit the effectiveness of our ad targeting and other services,
which could harm our business.

We may face potential liability from our advertising arrangements.

   Some of our advertising relationships provide that we may receive payments
based on the amount of goods or services purchased by consumers clicking from
our services to a seller's web site. These arrangements may expose us to legal
risks and uncertainties, including potential liabilities to consumers of the
advertised products and services. In other advertising relationships, we are
compensated based on the number of times users view the advertisements on our
web sites. These arrangements may expose us to legal claims based on the
content of the advertisements or the association of the advertisement with
specific web searches conducted by users. Although we carry general liability
insurance, our insurance may not cover potential claims of this type or may not
be adequate to indemnify us for all liability that may be imposed.

   Some of the liabilities that may result from the above arrangements include:

  . claims that advertisements displayed on our web sites infringe third
    party intellectual property rights or are false, misleading or
    defamatory;

  . potential liabilities for illegal activities that may be conducted by the
    sellers;

  . product liability or other tort claims relating to goods or services sold
    through third-party e-commerce sites;

  . claims for consumer fraud and false or deceptive advertising or sales
    practices;

  . breach of contract claims relating to purchases; and

  . claims that items sold through these sites infringe third-party
    intellectual property rights.

   Even to the extent that these claims do not result in material liability,
investigating and defending these claims could harm our business.

We may lose users, advertisers and revenue if we experience system failures on
our narrowband services.

   Our web sites on the Excite Network are currently hosted and operated on a
computer network infrastructure separate from our broadband services. The
Excite Network must accommodate a high volume of traffic and deliver frequently
updated information. The web sites on the Excite Network have in the past, and
may in the future, experience slower response times or other problems for a
variety of reasons. We also depend on third party information providers to make
available updated information and content for these services on a timely basis.
The Excite Network could experience disruptions or interruption in service due
to the failure or delay in the transmission or receipt of this information. In
addition, the users of Excite Network services depend on Internet service
providers, online service providers and other web site operators for access to
the Excite Network. Each of these parties has experienced significant outages
in the past, and could experience outages, delays and other difficulties due to
system failures unrelated to our systems. In particular, California is
experiencing an energy shortage and some regions have experienced blackouts and
may experience blackouts in the future. We and many of our third party
providers have principal facilities located in California. These types of
occurrences could cause users to perceive the Excite Network as not functioning
properly and therefore cause them to use other services.

                                       44
<PAGE>

Additional Risks Facing Our Business

We must develop and maintain the awareness of our brands to attract consumers
and advertisers.

   Maintaining and strengthening our brands is critical to achieving widespread
acceptance of our services by consumers and advertisers, particularly in light
of the competitive nature of our markets. This need will intensify in the event
that alternative providers begin offering broadband Internet access and/or
content services over the cable systems of our cable partners in an open access
environment. Promoting and positioning our brands will depend largely on the
success of our marketing efforts and our ability to provide high quality
services. We may find it necessary to increase our marketing budget or
otherwise increase our financial commitment to creating and maintaining brand
loyalty among users. If we fail to promote and maintain our brands or incur
excessive expenses in an attempt to promote and maintain our brands, our
business could be harmed.

If we do not develop new and enhanced features, products and services for our
media and broadband services, we may not be able to attract and retain a
sufficient number of users.

   Because of the competitiveness of our market, we believe it is important to
introduce additional or enhanced features, products and services in the future,
such as wholesale access services and premium broadband services, in order to
differentiate our services and retain our current users and attract new users.
Acquiring or developing new features, products and services may require a
substantial investment of personnel and financial and other resources. If we
introduce a feature, product or service that is not favorably received by our
current users, they may not continue using our services as frequently and they
may choose a competing service. We must also continually enhance our products
and services to incorporate rapidly changing Internet technologies. We could
incur substantial development costs if we need to modify our products, services
or infrastructure to adapt to changes in Internet technologies. Our business
could be harmed if we incur significant costs to adapt to these changes. If we
cannot adapt to these changes, users may discontinue using our services.

   We may also experience difficulties that could delay or prevent us from
introducing new features, products or services. Furthermore, these features,
products or services may contain errors that are discovered after the feature,
product or services are introduced. We may need to modify their design
significantly to correct these errors. In addition, we must consult with and
involve our cable partners in the development and design of new features,
products or services for our broadband services. Therefore, the process of
introducing new broadband features, products and services is time consuming and
if our cable partners object to a new feature, product or service, we could be
prohibited from offering it in particular areas. Our business could be
adversely affected if we experience difficulties in introducing new products
and services or if users do not accept these new products or services.

International growth is important to our business, but our international
operations are subject to additional risks and may not be successful.

   A key component of our strategy is to expand into international markets and
offer broadband services in those markets. We have limited experience in
developing localized versions of our products and services and in developing
relationships with international cable system operators. We may not be
successful in expanding our product and service offerings into foreign markets.
We have made substantial cash investments in many of our international joint
ventures and we may need to provide additional funding to these joint ventures
in the future to maintain their solvency. Some or all of these joint ventures
may never become profitable and should a decision be made to dissolve them, we
would likely lose our entire investment. For example, during 2001 we have shut
down our consolidated European narrowband operations.

   In addition to the uncertainty regarding our ability to generate revenues
from foreign operations and expand our international presence, we face specific
risks related to providing broadband services in foreign jurisdictions,
including:

  . regulatory requirements, including the regulation of Internet access;

                                       45
<PAGE>

  .  legal uncertainty regarding liability for information retrieved and
     replicated in foreign jurisdictions;

  .  potential inability to use European customer information due to new
     European governmental regulations; and

  .  lack of a developed cable infrastructure in many international markets.

Our equity investments in other companies may not yield any returns, and may
adversely affect our operating results.

   We have made equity investments in many Internet companies, including joint
ventures in other countries. Our investments in these companies may not yield
any return. Of these companies that now have publicly traded stock, a
significant portion are currently trading at prices lower than our original
purchase price for the stock. In addition, a substantial portion of these
investments is in the form of illiquid securities of private companies. These
companies typically are in an early stage of development and may be expected to
incur substantial losses. The recent decline in the stock market, particularly
in the technology sector, has made it less likely that the stock of private
companies will become liquid in the near future through an initial public
offering or an acquisition. We also are required to account for some of these
investments under the equity method of accounting, and therefore must record a
share of the net losses in some of these companies. We have incurred charges
related to write-downs or write-offs of assets with respect to some of these
investments, and may incur additional charges in the future if these companies
are not successful.

If we do not maintain the security of our networks, we could lose customers and
may be subject to litigation.

   We have in the past experienced security breaches in our networks. We have
taken steps to prevent these breaches, to prevent users from the unauthorized
sharing of files via the @Home service and to protect against bulk unsolicited
e-mail. However, actual problems with, as well as public concerns about, the
security, privacy and reliability of our networks may inhibit the acceptance of
our services.

   The need to securely transmit confidential information over the Internet has
been a significant barrier to electronic commerce and communications over the
Internet. Any well-publicized compromise of security could deter more people
from using the Internet or our services to conduct transactions that involve
transmitting confidential information, such as purchases of goods or services.
Because many of our advertisers seek to encourage people to use the Internet to
purchase goods or services, our business could be harmed if this were to occur.
We may also incur significant costs to protect against the threat of security
breaches or to alleviate problems caused by these breaches.

We could face liability for defamatory, indecent or infringing content provided
on our media services.

   Claims could be made against Internet and online service providers under
both United States and foreign law for defamation, negligence, copyright or
trademark infringement, or other theories based on the nature and content of
the materials disseminated through their networks. Several private lawsuits
seeking to impose this liability are currently pending against Internet and
online services providers. Our insurance may not adequately protect us from
these types of claims.

   In addition, legislation has been proposed that prohibits, or imposes
liability for, transmission over the Internet of indecent content. The
imposition upon Internet and online service providers of potential liability
for information carried on or disseminated through their systems could require
us to implement measures to reduce our exposure to this liability. This may
require that we expend substantial resources or discontinue service or product
offerings. The increased focus on liability issues as a result of these
lawsuits and legislative proposals could impact the growth of Internet use.
Furthermore, governments of some foreign countries, such as Germany, have
enacted laws and regulations governing content distributed over the Internet
that are more strict than those currently in place in the United States. One or
more of these factors could significantly harm our business.

                                       46
<PAGE>

We may be liable for our links to third party web sites.

   We could be exposed to liability with respect to the third party web sites
that may be accessible through our services. These claims may allege, among
other things, that by linking to web sites operated by third parties, we may be
liable for copyright or trademark infringement or other unauthorized actions by
third parties through these web sites. Other claims may be based on errors or
false or misleading information provided by our services. Our business could be
harmed due to the cost of investigating and defending these claims, even if
these types of claims do not result in liability.

We may be subject to intellectual property infringement claims which are costly
to defend and which could limit our ability to use certain technologies in the
future.

   Many parties are actively developing Internet-related technologies. We
believe that these parties will continue to take steps to protect these
technologies, including seeking patent protection. As a result, we believe that
disputes regarding the ownership of these technologies are likely to arise in
the future. Although we have several patents, copyrights, trademarks, trade
secrets and other intellectual property rights, these may not be sufficient to
protect our key products, business methods and processes. From time to time,
parties assert patent infringement claims against us in the form of letters,
lawsuits and other forms of communications. In addition to patent claims, third
parties may assert claims against us alleging unfair competition or
infringement of copyrights, trademark rights, trade secret rights or other
proprietary rights.

   We may incur substantial expenses in defending against third-party
infringement claims regardless of the merit of the claims. In the event that
there is a determination that we have infringed third-party proprietary rights,
we could incur substantial monetary liability and be forced to make changes to
the services and products we provide and the way that we provide them.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

   The following discusses our exposure to market risk related to changes in
interest rates, equity prices and foreign currency exchange rates.

Interest Rate Sensitivity

   As of June 30, 2001, we had two issuances of long-term convertible debt
outstanding and $100 million of zero-coupon convertible notes issued in June
2001 and classified as current liabilities. The balance of our convertible
debentures issued in December 1998, net of unamortized original issue discount,
was $247.2 million as of June 30, 2001 and bears an effective interest rate of
approximately 4%. Our convertible notes issued in December 1999 had an
outstanding balance of $500 million as of June 30, 2001 and bear a fixed rate
of interest of 4.75%. In some circumstances, we may be required to redeem these
debt instruments for our Series A common stock or cash. Our $100 million of
zero-coupon convertible notes may be converted at the holder's option at each
anniversary date or redeemed by us starting on the second anniversary date at a
5% discount from the then-current weighted average price of our Series A common
stock, which could result in significant dilution to our stockholders. Because
the interest rates on these debt instruments are fixed, a hypothetical 10
percent increase or decrease in market interest rates would not have a material
impact on us. Increases in market interest rates could, however, increase the
interest expense associated with future borrowings by us, if any. We do not
hedge against interest rate increases.

Equity Price Risk

   We own shares of privately held and publicly traded companies that we
classify as other investments in our consolidated balance sheets. We generally
value our investments in privately held companies at cost. Because many of
these companies are technology startups in an early stage of development and
may never

                                       47
<PAGE>

develop into commercially viable businesses, these investments are inherently
risky and we may incur losses related to our investments in these companies. We
value our investments in the equity securities of publicly traded companies
using the closing fair market value stated in the Wall Street Journal for the
last day of each month. We write-down our investments in privately held
investments and publicly traded equity securities when there is a permanent
decline in value. We wrote-down $129.5 million, $13.4 million and $10.6 million
of such investments in the fourth quarter of 2000, first quarter of 2001 and
second quarter of 2001, respectively. The fair market value of our other
investments was $22.4 million as of June 30, 2001, and these other investments
are at risk of further declines in the future. We do not hedge against equity
price changes.

Foreign Currency Exchange Rate Risk

   Substantially all of our revenues are realized in U.S. dollars and most of
our revenues are from customers located in the United States. Therefore, our
foreign currency exchange rate risk is substantially limited to funding
commitments to our international joint ventures. Because the timing and amount
of the required contributions is not predictable, we do not typically hedge
against foreign currency exchange rate changes and we did not hold any such
hedges as of June 30, 2001.

                                       48
<PAGE>

PART II. OTHER INFORMATION

ITEM 1.  Legal Proceedings

   On April 23, 2001, we filed suit against Cablevision Systems Corporation and
its affiliates in the Delaware Chancery Court, for rescission of our
distribution agreement with that company and warrants to purchase our Series A
common stock issued under that agreement, or alternatively for damages for
breach of that agreement. We have alleged that Cablevision has breached its
exclusivity obligations under the agreement by offering its own "Optimum
Online" service instead of the @Home service. Cablevision has answered the
complaint, denying our allegations. We intend to pursue this action vigorously.
If we do not succeed, Cablevision may be allowed to retain its warrants, which
could have a harmful dilutive effect on our stockholders.

   On March 19, 2001, Pogo.com, Inc., filed suit against us in San Mateo County
Superior Court for alleged breach of a merger agreement under which we were to
acquire Pogo.com in exchange for shares of our Series A common stock. On
January 5, 2001, we notified Pogo.com that we had terminated the merger
agreement in accordance with the provisions of the agreement. The complaint
seeks damages for breach of contract and breach of the implied covenant of good
faith and fair dealing. The case is currently set for trial on November 26,
2001. We believe this action is without merit and intend to defend against this
action vigorously. If we do not prevail in this action, we may be required to
pay substantial damages, which could seriously harm our business.

   On March 12, 2001, four present and former subscribers of the @Home
broadband Internet service initiated a purported class action suit in
California State Superior Court in San Mateo County against AT&T and us for
unfair business practices, false advertising, misrepresentation, and unjust
enrichment. On April 19, 2001, another subscriber filed a private attorney
general suit in the same court making similar allegations. Plaintiffs claim
that advertising for the @Home broadband Internet service is false, misleading,
and deceptive. In the complaints, plaintiffs seek an injunction prohibiting
certain of our advertising practices, disgorgement of profits, restitution of
monies acquired as a result of the alleged wrongful advertising and business
practices, unspecified compensatory damages, punitive damages, and attorneys'
fees. We believe this action is without merit and intend to defend against this
action vigorously. If we do not prevail in this action, we may be required to
alter our business practices and pay substantial damages, which could seriously
harm our business.

   Allen Ozdemir filed a purported class action on April 29, 1999 against two
of the former officers and directors of iMall for failing to halt or delay a
block sale of restricted iMall stock prior to our acquisition of iMall. On
October 27, 1999, we acquired iMall. On August 28, 2000, the plaintiff amended
his complaint to state two claims for breach of fiduciary duty, claiming that
Messrs. Rosenblatt and Mazzarella owed the purported plaintiff class duties to
halt or delay the stock sale both in their capacity as officers and directors
of iMall and in their capacity as attorneys in fact of the stockholders
participating in the stock transaction. The plaintiff seeks unspecified
compensatory damages, restitution, and punitive damages. The amended complaint
has been answered on behalf of Messrs. Rosenblatt and Mazzarella, denying the
plaintiff's claims. The court has granted the plaintiff's class certification
motion. We believe this action is without merit and the defendants intend to
defend against this action vigorously. If the defendants do not prevail in this
action, they may be required to pay substantial damages. We or iMall could
potentially be obligated to indemnify the defendants against some or all of any
damages awarded, which amount could materially impact our results of operations
and cash position.

   Please also refer to Item 3 of our annual report on Form 10-K for the year
ended December 31, 2000 for a description of other ongoing material legal
proceedings which neither first became a reportable event, nor included any
material development, during the second quarter of 2001.

   We cannot assure you that we will prevail in any litigation. Regardless of
the outcome, any litigation may require us to incur significant litigation
expenses and may result in significant diversion of management.


                                       49
<PAGE>

ITEM 2. Changes in Securities and Use of Proceeds

Recent Sales of Unregistered Securities

   On June 8, 2001, we issued and sold $100 million in aggregate principal
amount of zero-percent five-year convertible secured notes in a private
transaction that was exempt from registration under the Securities Act pursuant
to Section 4(2) of the Securities Act and/or Rule 506 promulgated under the
Securities Act. The notes are convertible at the holders' option at any time
into shares of our Series A common stock at a 10% premium to the weighted
average trading price of our shares on June 8, 2001, or $4.38 per share,
subject to adjustment in specified circumstances. The notes mature in July
2006, but may be redeemed by the holders on each anniversary of the date of
issuance of the notes or by us on the second, third and fourth anniversaries of
the date of issuance of the notes. The buyers of the notes were HFTP Investment
L.L.C., Gaia Offshore Master Fund, Ltd. and Leonardo, L.P.

Use of Proceeds from Sales of Registered Securities

   Not applicable.

ITEM 3. Default Upon Senior Securities

   Not applicable.

ITEM 4. Submission of Matters to a Vote of Security Holders

   Holders of our Series A common stock are entitled to one vote for each share
and holders of our Series B common stock, which are all held by AT&T, are
entitled to ten votes for each share, for a total of 1,187,856,484 eligible
votes based on holders of our common stock of record at the close of business
on May 25, 2001.

   On July 24, 2001, we held our annual meeting of stockholders. The matters
voted upon and approved by the stockholders at the meeting, and the number of
votes cast with respect to each such matter, were as follows:

   1. Amendments to our certification of incorporation authorizing the board of
directors, at their discretion, to elect to effect a reverse split of our
outstanding common stock at an exchange ratio of:

     (a) one-to-two:

<TABLE>
<CAPTION>
          For                            Against                                          Abstain
     -------------                      ---------                                         -------
     <S>                                <C>                                               <C>
     1,101,549,447                      5,402,388                                         504,287

     (b) one-to-three:

<CAPTION>
          For                            Against                                          Abstain
     -------------                      ---------                                         -------
     <S>                                <C>                                               <C>
     1,100,679,067                      6,223,213                                         553,842

     (c) one-to-four:

<CAPTION>
          For                            Against                                          Abstain
     -------------                      ---------                                         -------
     <S>                                <C>                                               <C>
     1,100,867,724                      6,056,380                                         532,018
</TABLE>

                                       50
<PAGE>

   2. The election of ten directors, consisting of two Series A directors, six
Series B directors and two additional directors, as follows:

<TABLE>
<CAPTION>
      Series A Directors                      For                                 Against
     ---------------------               -------------                           ---------
     <S>                                 <C>                                     <C>
     William R. Hearst III               1,104,241,939                           3,214,183
     Edward S. Rogers                    1,104,290,292                           3,165,830

<CAPTION>
      Series B Directors                      For                                 Against
     ---------------------               -------------                           ---------
     <S>                                 <C>                                     <C>
     C. Michael Armstrong                1,099,305,551                           8,150,571
     Frank Ianna                         1,103,344,964                           4,111,158
     David C. Nagel                      1,103,977,772                           3,478,350
     Charles H. Noski                    1,100,115,056                           7,341,066
     John C. Petrillo                    1,103,899,789                           3,556,333
     Daniel E. Somers                    1,103,967,234                           3,488,888

<CAPTION>
     Additional Directors                     For                                 Against
     ---------------------               -------------                           ---------
     <S>                                 <C>                                     <C>
     Matthew J. Hart                     1,104,170,760                           3,285,362
     Patti S. Hart                       1,099,840,856                           7,615,266
</TABLE>

   3. An amendment to our 1997 Equity Incentive Plan to increase the number of
shares reserved for issuance under this plan by 13,500,000 shares.

<TABLE>
<CAPTION>
          For                            Against                                           Abstain
     -------------                      ----------                                         -------
     <S>                                <C>                                                <C>
     1,081,716,455                      25,121,022                                         618,645
</TABLE>

   4. An amendment to our 1999 Employee Stock Purchase Plan to increase the
number of shares reserved for issuance under this plan by 1,500,000 shares.

<TABLE>
<CAPTION>
          For                            Against                                          Abstain
     -------------                      ---------                                         -------
     <S>                                <C>                                               <C>
     1,100,592,211                      6,228,240                                         635,671
</TABLE>

   5. Ratification of the selection of PricewaterhouseCoopers LLP as our
independent auditors for 2001.

<TABLE>
<CAPTION>
          For                            Against                                          Abstain
     -------------                      ---------                                         -------
     <S>                                <C>                                               <C>
     1,105,462,839                      1,485,841                                         507,442
</TABLE>

ITEM 5. Other Information

   In July 2001, Byron Smith, Executive Vice President of Consumer Broadband
Services and Chief Marketing Officer, and Mark O'Leary, Executive Vice
President of Commercial Broadband Services, left Excite@Home. In August 2001,
Mark Stevens, Executive Vice President of Corporate and Business Development,
and Megan Pierson, Senior Vice President and General Counsel, left Excite@Home.
Leilani Gayles, Senior Vice President of Human Resources, has also announced
she is leaving Excite@Home.

                                       51
<PAGE>

ITEM 6. Exhibits and Reports on Form 8-K

   (a) Exhibits. The exhibits listed in the accompanying exhibit index are
filed as part of this report.

   (b) Current Reports on Form 8-K.

   On April 19, 2001, we filed a current report on Form 8-K announcing under
Item 5 that (1) on April 17, 2001, we issued a press release announcing
preliminary operating results for the first quarter of 2001, stating that we
expected to report significantly lower revenues, greater operating losses and
more rapid use of cash than previously forecasted for the balance of 2001 and
(2) on April 17, 2001, we entered into a non-binding Letter of Agreement with
AT&T under which AT&T would provide us with between $75 and $85 million in
connection with the restructuring of the backbone fiber agreement and a joint
initiative to improve current network performance levels.

   On June 11, 2001, we filed a current report on Form 8-K announcing under
Item 5 that (1) on June 8, 2001 we sold $100 million of zero-percent five-year
convertible secured notes in a private financing arranged by Promethean Capital
Group LLC and (2) on May 30, 2001, our board of directors approved a change of
accountants from Ernst & Young LLP to PricewaterhouseCoopers LLP, subject to
stockholder approval.

   On June 21, 2001, we filed a current report on Form 8-K announcing under
Item 5 that (1) on June 19, 2001, we renegotiated our optical-fiber backbone
capacity contract with AT&T, resulting in AT&T paying us $85 million for the
cancellation of the original agreement and entry into a new agreement, and
providing for payments by us to AT&T of $8.8 million per year for the next 18
1/2 years, together with a one-time payment of $7 million in upgrade fees
accrued under the former contract, and (2) on December 4, 2001 our mutual
exclusivity obligations with Cox and Comcast will end, and that discussions
regarding a restructured commercial relationship are ongoing.

                                       52
<PAGE>

                                   SIGNATURES

   Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                          At Home Corporation
                                          (Registrant)


                                                   /s/ Mark A. McEachen
Dated: August 14, 2001                    By: _________________________________
                                                     Mark A. McEachen
                                               Executive Vice President and
                                                  Chief Financial Officer
                                               (Principal Financial Officer)

                                       53
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
                                               Incorporated by Reference
                                           ---------------------------------  Filed
 Exhibit Number    Exhibit Description     Form File No. Exhibit Filing Date Herewith
 --------------    -------------------     ---- -------- ------- ----------- --------
 <C>            <S>                        <C>  <C>      <C>     <C>         <C>
      4.01      Form of Convertible Note   8-K             4.01    6/11/01
                issued pursuant to the
                Securities Purchase
                Agreement (see exhibit
                10.01).

      4.02      Registration Rights        8-K             4.02    6/11/01
                Agreement, dated as of
                June 8, 2001, among the
                Registrant and the
                "Buyers" indicated
                therein.

     10.01      Securities Purchase        8-K            10.01    6/11/01
                Agreement, dated as of
                June 8, 2001, by and
                among the Registrant and
                the "Buyers" indicated
                therein.

     10.02      Security Agreement,        8-K            10.02    6/11/01
                dated as of June 8,
                2001, by and among the
                Registrant and the other
                parties indicated
                therein.

     10.03      Letter of Agreement,       8-K             99.2    4/19/01
                dated April 17, 2001,
                between the Registrant
                and AT&T Corp.

     10.04      IRU Capacity Agreement,                                          X
                dated as of June 19,
                2001, between the
                Registrant and AT&T
                Corp.

     10.05      Amendment Number                                                 X
                Fourteen to IRU Capacity
                Agreement, dated as of
                June 19, 2001, between
                the Registrant and AT&T
                Corp.

     10.06      Separation Agreement,                                            X
                dated as of April 23,
                2001, between the
                Registrant and George
                Bell*

     10.07      Separation Agreement,                                            X
                dated as of May 25,
                2001, between the
                Registrant and Byron
                Smith*

     10.08      Separation Agreement,                                            X
                dated as of May 30,
                2001, between the
                Registrant and Mark
                O'Leary*
</TABLE>
--------
*  Management contracts or compensatory plans required to be filed as an
   exhibit to this report.

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