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FORM 10-K
______________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ____________
Commission file number 000-50093
COMCAST CORPORATION
(formerly AT&T Comcast Corporation)
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 27-0000798
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Market Street, Philadelphia, PA 19102-2148
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
________________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
_________________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A Common Stock, $0.01 par value
Class A Special Common Stock, $0.01 par value
____________________________
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 _____
__________________________
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K.
[ ]
__________________________
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes X No _____
As of June 30, 2002, the aggregate market value of the Class A Common Stock and
Class A Special Common Stock held by non-affiliates of the Registrant was $505
million and $21.533 billion, respectively.
__________________________
As of December 31, 2002, there were 1,355,373,648 shares of Class A Common
Stock, 883,343,590 shares of Class A Special Common Stock and 9,444,375 shares
of Class B Common Stock outstanding.
__________________________
DOCUMENTS INCORPORATED BY REFERENCE
Part III - The Registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders presently scheduled to be held in May 2003.
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ORGANIZATION AND BUSINESS
Comcast Corporation was incorporated in December 2001 to effect the acquisition
of AT&T Corp.'s broadband business, which was consummated on November 18, 2002.
The Company is involved in three principal lines of business: cable, commerce
and content. The Company's cable business is principally involved in the
development, management and operation of broadband communications networks in
the United States. The Company conducts its commerce business through its
consolidated subsidiary, QVC, Inc. QVC, an electronic retailer, markets a wide
variety of products directly to consumers primarily on merchandise-focused
television programs. The Company's content business is provided through the
Company's consolidated programming investments, including Comcast Spectacor, E!
Entertainment Television, The Golf Channel, Outdoor Life Network and G4, and
through other programming investments.
To simplify the Company's capital structure, effective with the acquisition of
Broadband, the Company and four of its cable holding company subsidiaries fully
and unconditionally guaranteed each other's debt securities and other
indebtedness for borrowed money. Comcast Holdings is not a guarantor, and none
of its debt is guaranteed.
The following chart illustrates the Company's organizational structure on a
simplified basis and does not reflect all of the Company's subsidiaries.
Substantially all of the Company's operations are conducted at lower-tier
subsidiaries.
[GRAPHIC OMITTED]
(1) Part of guarantor group.
(2) Comcast MO of Delaware, Inc. (formerly, MediaOne of Delaware, Inc. and
Continental Cablevision, Inc.) is an indirect subsidiary of Comcast MO
Group, Inc. and was not originally part of the guarantor group. On March
12, 2003, we announced the successful completion of a bondholder consent
solicitation related to $1.7 billion aggregate principal amount of its debt
securities to permit it to become part of the cross-guarantee structure.
In the diagram above and throughout this Annual Report, we refer to Comcast
Corporation (formerly AT&T Comcast Corporation) as "Comcast"; Comcast and its
consolidated subsidiaries as the "Company", "we", "us" and "our"; Comcast
Holdings Corporation (formerly Comcast Corporation and our predecessor) as
"Comcast Holdings"; Comcast Cable Communications Holdings, Inc. (formerly AT&T
Broadband Corp.) as "Comcast Cable Communications Holdings" or "Broadband";
Comcast Cable Communications, Inc. as "Comcast Cable"; Comcast MO Group, Inc.
(formerly MediaOne Group, Inc.) as "Comcast MO Group"; Comcast Cable Holdings,
LLC (formerly AT&T Broadband, LLC and Tele-Communications, Inc.) as "Comcast
Cable Holdings"; and Comcast MO of Delaware, Inc. (formerly, MediaOne of
Delaware, Inc. and Continental Cablevision, Inc.) as "Comcast MO of Delaware."
COMCAST CORPORATION
2002 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business................................................................................................ 1
Item 2 Properties..............................................................................................15
Item 3 Legal Proceedings.......................................................................................16
Item 4 Submission of Matters to a Vote of Security Holders.....................................................18
Item 4A Executive Officers of the Registrant....................................................................19
PART II
Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters...............................20
Item 6 Selected Financial Data.................................................................................21
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations...................22
Item 8 Financial Statements and Supplementary Data.............................................................37
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................88
PART III
Item 10 Directors and Executive Officers of the Registrant......................................................88
Item 11 Executive Compensation..................................................................................88
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters..........88
Item 13 Certain Relationships and Related Transactions..........................................................88
PART IV
Item 14 Controls and Procedures.................................................................................88
Item 15 Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................88
SIGNATURES.......................................................................................................93
CERTIFICATIONS...................................................................................................96
-----------------------------
This Annual Report on Form 10-K is for the year ended December 31, 2002.
This Annual Report modifies and supersedes documents filed prior to this Annual
Report. The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you directly to those documents. Information incorporated by reference
is considered to be part of this Annual Report. In addition, information that we
file with the SEC in the future will automatically update and supersede
information contained in this Annual Report.
You should carefully review the information contained in this Annual
Report, and should particularly consider any risk factors that we set forth in
this Annual Report and in other reports or documents that we file from time to
time with the SEC. In this Annual Report, we state our beliefs of future events
and of our future financial performance. In some cases, you can identify those
so-called "forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
Factors Affecting Future Operations
We were incorporated in December 2001 under the name AT&T Comcast
Corporation to effect the acquisition of AT&T Corp.'s broadband business, which
we refer to as "Broadband." The acquisition, which we refer to as the "Broadband
acquisition," was consummated on November 18, 2002. On November 18, 2002, we
changed our name from AT&T Comcast Corporation to Comcast Corporation. For
purposes of this Annual Report, we treat Comcast Holdings Corporation (formerly
Comcast Corporation and now a wholly owned subsidiary) as our predecessor and as
the accounting acquiror of Broadband. In this Annual Report, we refer to cable
operations owned prior to the Broadband acquisition as "historical", and those
we acquired in the Broadband acquisition as "newly acquired."
As a result of the Broadband acquisition, we have newly acquired cable
operations in communities in which we do not have established relationships with
the subscribers, franchising authority and community leaders. Further, a
substantial number of new employees are being and must continue to be integrated
into our business practices and operations. Our results of operations may be
significantly affected by our ability to efficiently and effectively manage
these changes.
Factors that may cause our actual results to differ materially from any of
our forward-looking statements presented in this Annual Report include, but are
not limited to:
o we may not successfully integrate Broadband or the integration may be more
difficult, time-consuming or costly than we expect,
o we may not realize the combination benefits we expect from the Broadband
acquisition or these benefits may take longer to achieve, and
o we may incur greater-than-expected operating costs, financing costs,
subscriber loss and business disruption, including, without limitation,
difficulties in maintaining relationships with employees, subscribers,
suppliers or franchising authorities, following the Broadband acquisition.
In addition, our businesses may be affected by, among other things:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o industry consolidation and mergers,
o franchise related matters,
o market conditions that may adversely affect the availability of debt and
equity financing for working capital, capital expenditures or other
purposes,
o demand for the programming content we distribute or the willingness of
other video program distributors to carry our content, and
o general economic conditions.
As more fully described elsewhere in this Annual Report, the Broadband
acquisition substantially increased the size of our cable operations and caused
significant changes in our capital structure. As a result, direct comparisons of
our results of operations and financial condition for periods prior to November
18, 2002 to subsequent periods are not meaningful.
PART I
ITEM 1 BUSINESS
We are a Pennsylvania corporation and were incorporated in December 2001
under the name AT&T Comcast Corporation to effect the Broadband acquisition,
which was consummated on November 18, 2002.
We are involved in three principal lines of business:
o Cable-through the development, management and operation of broadband
communications networks, including video, high-speed Internet and
phone service,
o Commerce-through QVC, our electronic retail- ing subsidiary, and
o Content-through our consolidated programming investments, including
Comcast Spectacor, Comcast SportsNet, Comcast SportsNet Mid-Atlantic,
Cable Sports Southeast, E! Entertainment Television, Style, The Golf
Channel, Outdoor Life Network, G4, and through our other programming
investments.
As a result of the Broadband acquisition, we are the largest cable operator
in the United States. We have deployed digital cable and high-speed Internet
service to the substantial majority of our cable systems. As of December 31,
2002, our consolidated cable operations served 21.3 million subscribers in 41
states, passed 39.1 million homes, and provided digital cable to more than 6.6
million subscribers, high-speed Internet to more than 3.6 million subscribers
and phone service to more than 1.4 million subscribers. The Broadband
acquisition contributed approximately 60% of these subscribers, 64% of these
homes passed, 66% of the digital cable subscribers, 58% of the high-speed
Internet subscribers and 97% of the phone subscribers. We expect to make
substantial capital expenditures over the next two years to complete the upgrade
and rebuild of the newly acquired cable systems.
Through QVC, we market a wide variety of products directly to consumers
primarily on merchandise-focused
television programs. As of December 31, 2002, QVC was available, on a full and
part-time basis, to 85.9 million homes in the United States, 11.4 million homes
in the United Kingdom, 25.8 million homes in Germany and 8.4 million homes in
Japan.
We have our principal executive offices at 1500 Market Street,
Philadelphia, PA 19102-2148. Our telephone number is (215) 665-1700. We also
have a world wide web site at http://www.comcast.com. Copies of the annual,
quarterly and current reports we file with the SEC, and any amendments to those
reports, are available on our web site. The information posted on our web site
is not incorporated into this Annual Report.
FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
Refer to Note 14 to our consolidated financial statements included in Item
8 for information about our operations by business segment.
GENERAL DEVELOPMENTS OF OUR BUSINESS
Broadband Acquisition
On November 18, 2002, we consummated the Broadband acquisition. The
consideration to complete the Broadband acquisition was $50.780 billion,
consisting of 1.348 billion shares of our common stock and options valued at
$25.495 billion, assumed Broadband debt of $24.860 billion and $425 million of
transaction costs directly related to the Broadband acquisition. Refer to Note 5
to our consolidated financial statements included in Item 8 for more information
about the Broadband acquisition.
TWE Restructuring
As a result of the Broadband acquisition, we now own AT&T's 27.6% interest
in Time Warner Entertainment Company L.P., or TWE. In August 2002, we and AT&T
reached agreement with AOL Time Warner, Inc. to restructure the TWE partnership.
Upon closing of the restructuring agreement, we will receive $1.5 billion in
common stock of AOL Time Warner, valued at the time of closing, and an
approximate 21% equity interest in a new cable company, expected to be named
Time Warner Cable, Inc., or TWC, serving 10.8 million subscribers. We also will
receive $2.1 billion in cash. We will receive certain priority demand and other
registration rights with respect to the AOL Time Warner and TWC shares that
should facilitate their disposition or monetization. The closing of the TWE
restructuring is expected to occur by the end of the second quarter of 2003, and
is subject to customary closing conditions.
TWC will be formed from TWE's existing cable properties and additional
cable properties to be contributed by AOL Time Warner. AOL Time Warner will
assume complete ownership of TWE's major content assets, which include Home Box
Office (HBO), Warner Bros. and stakes in The WB Network, Comedy Central and
Court TV. Pursuant to the order of the Federal Communications Commission, or
FCC, we have placed our entire interest in TWE in trust. Any non-cash
consideration received by us with respect to our interest in TWE as a result of
the TWE restructuring, including the AOL Time Warner and TWC common stock, will
also be placed in this trust. We will account for our investment in TWE (or any
successor securities) under the cost method as we will not have the ability to
exercise significant influence over the operating and financial policies of TWE,
AOL Time Warner or TWC.
Under the trust, the trustee will have exclusive authority to exercise any
management or governance rights associated with the securities in trust. The
trustee will also have the obligation, subject to our rights as described in the
last sentence of this paragraph, to exercise available registration rights to
effect the sale of such securities in a manner intended to maximize the value
received consistent with the goal of disposing such securities in their entirety
by November 2007. Following this time, if any securities remain in trust, the
trustee will be obligated to dispose of them as quickly as possible, and in any
event by May 2008. The trustee is also obligated, through November 2007, to
effect certain specified types of sale or monetization transactions with respect
to the securities as may be proposed by us from time to time.
As a condition of the closing of the TWE restructuring, we will enter into
a three-year non- exclusive agreement with AOL Time Warner under which the AOL
High-Speed Broadband service would be made available on a portion of our cable
systems passing about 10 million homes.
Bresnan Transaction
In February 2003, we announced that we had entered into a definitive
agreement with Bresnan Broadband Holdings, LLC and Bresnan Communications, LLC
for us to transfer to Bresnan cable systems serving approximately 317,000
subscribers in Montana, Wyoming, Colorado and Utah that we had acquired in
connection with the Broadband acquisition. We will
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receive approximately $525 million in cash, plus preferred and common equity
interests in Bresnan Broadband Holdings, in exchange for these cable systems.
The assets for these cable systems are reported as assets held for sale in our
consolidated balance sheet at December 31, 2002 and the results of operations
for the period from November 19, 2002 through December 31, 2002 for these cable
systems are presented as discontinued operations in our consolidated statement
of operations. We have not included these cable systems in our cable operating
statistics. We expect this transaction to close by March 31, 2003, subject to
customary closing conditions.
Charter Put
In connection with the Broadband acquisition, we acquired an indirect
interest in a cable joint venture with Charter Communications, Inc. In April
2002, AT&T exercised its rights to cause Paul G. Allen, Charter's Chairman, or
his designee to purchase this indirect interest for approximately $725 million
in cash. The parties agreed to delay the settlement of the purchase until April
14, 2003 while they negotiated alternatives to the purchase. We currently
believe that Mr. Allen or his designee will purchase our indirect interest as
described above.
The Cross-Guarantee Structure
To simplify our capital structure, effective with the acquisition of
Broadband, we and four of our cable holding company subsidiaries fully and
unconditionally guaranteed each other's debt securities and other indebtedness
for borrowed money. Comcast Holdings is not a guarantor, and none of its debt is
guaranteed. As of December 31, 2002, $24.729 billion of our and our
subsidiaries' debt securities were entitled to the benefits of the
cross-guarantee structure. Comcast MO of Delaware, Inc. (formerly, MediaOne of
Delaware, Inc. and Continental Cablevision, Inc.) was not originally part of the
cross-guarantee structure. On March 12, 2003, we announced the successful
completion of a bondholder consent solicitation related to Comcast MO of
Delaware's $1.7 billion aggregate principal amount in debt securities to permit
it to become part of the cross- guarantee structure.
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DESCRIPTION OF OUR BUSINESSES
We are involved in three principal lines of business: Cable, Commerce
and Content. The following section describes each of these lines of business.
Cable
We currently are the largest cable operator in the United States. As of December
31, 2002, our consolidated cable operations served 21.3 million subscribers in
41 states, passed 39.1 million homes, and provided digital cable to more than
6.6 million subscribers, high-speed Internet to more than 3.6 million
subscribers and phone service to more than 1.4 million subscribers.
The table below summarizes certain information for our cable systems as of
December 31 (homes and subscribers in thousands):
2002(1)
-----------------------------
Newly
Total Acquired Historical 2001(2) 2000(2) 1999(2) 1998
-------- --------- ------------------- --------- --------- ---------
Cable
Homes Passed (3)..................... 39,150 24,961 14,189 13,929 12,679 9,522 7,382
Subscribers (4)...................... 21,305 12,766 8,539 8,471 7,607 5,720 4,511
Penetration.......................... 54.4 % 51.1 % 60.2% 60.8% 60.0% 60.1% 61.1%
Digital Cable
"Digital Ready" Subscribers (5)...... 21,305 12,766 8,539 8,375 7,258 4,637 1,570
Subscribers (6)...................... 6,620 4,374 2,246 1,741 1,207 454 72
Penetration.......................... 31.1 % 34.3 % 26.3% 20.8% 16.6% 9.8% 4.6%
High-Speed Internet
"Available" Homes (7)................ 30,072 17,461 12,611 10,400 6,360 3,259 1,804
Subscribers.......................... 3,620 2,094 1,526 948 400 142 51
Penetration.......................... 12.0 % 12.0 % 12.1% 9.1% 6.3% 4.4% 2.8%
Phone (8)
"Available" Homes (7)................ 8,712 8,438 274
Subscribers.......................... 1,438 1,398 40
Penetration.......................... 16.5 % 16.6 % 14.4%
<FN>
(1) On November 18, 2002, we consummated the Broadband acquisition. For
information as of December 31, 2002, we provide data with respect to cable
systems attributable to Comcast Holdings Corporation (formerly Comcast
Corporation and now our wholly owned subsidiary) under the heading
"Historical" and data with respect to cable systems attributable to
Broadband under the heading "Newly Acquired." The Broadband acquisition
substantially increased the size of our cable operations and direct
comparisons of our cable information for periods prior to November 18,
2002 to subsequent periods are not meaningful. The information as of
December 31, 2002 excludes the operating statistics for the cable systems
held for sale to Bresnan.
(2) In April 1999, we acquired a controlling interest in Jones Intercable,
Inc. In January 2000, we acquired Lenfest Communications, Inc. and began
consolidating the results of Comcast Cablevision of Garden State, L.P. In
August 2000, we acquired Prime Communications LLC. On December 31, 2000
and January 1, 2001, we completed our cable systems exchanges with AT&T
and Adelphia Communications, respectively. In April and June 2001, we
acquired cable systems serving an aggregate of approximately 697,000
subscribers from AT&T. The subscriber information as of December 31, 2000
excludes the effects of our exchange with AT&T.
(3) A home is "passed" if we can connect it to our distribution system without
further extending the transmission lines. As described in Note 4 below, in
the case of certain multiple dwelling units, or MDUs, homes "passed" are
counted on an adjusted basis.
(4) Generally, a dwelling or commercial unit with one or more television sets
connected to a system counts as one cable subscriber. In the case of
certain MDUs, we count cable subscribers on an FCC equivalent basis.
(5) A subscriber is "digital ready" if the subscriber is in a market where we
have launched our digital cable service.
(6) A dwelling with one or more digital converter boxes counts as one digital
cable subscriber. On average, as of December 31, 2002, each digital cable
subscriber had 1.4 digital set-top boxes.
(7) A home is "available" if we can connect it to our distribution system
without further upgrading the transmission lines and we offer the service
in that area.
(8) Prior to the Broadband acquisition, the number of phone "available" homes
and subscribers was not material.
</FN>
Cable Services
We offer a variety of services over our cable networks, including
traditional analog video, digital cable, high-speed Internet and phone service.
Available service offerings depend on the bandwidth capacity of the cable
system. The greater the bandwidth, the greater the information carrying capacity
of the system. Prior to the Broadband acquisition, 86% of our cable subscribers
were served by a system with a capacity of at least 750-MHz and 95% with a
capacity of at least 550-MHz and capable of handling two-way communications. As
of December 31, 2002, approximately 82% of our cable subscribers were served by
a system with a capacity of at least 550-MHz and capable of handling two-way
communications. We expect to make substantial capital expenditures over the next
two years to complete the rebuild and upgrade of the newly acquired cable
systems. By deploying fiber optic cable and upgrading the technical quality of
our cable networks, we can increase
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the reliability and capacity of our systems and we can deliver additional video
programming and other services such as enhanced digital video, high-speed
Internet and phone.
Traditional Analog Video Services
We receive the majority of our revenues from subscription services.
Subscribers typically pay us on a monthly basis and generally may discontinue
services at any time. Monthly subscription rates and related charges vary
according to the type of service selected and the type of equipment used by
subscribers.
We offer a full range of traditional analog video services. We tailor both
our basic channel line-up and our additional channel offerings to each system
according to demographics, programming preferences and local regulation. Our
analog service offerings include the following:
Basic programming. Our basic cable service typically consists of between
10-20 channels of programming. This service generally consists of programming
provided by national television networks, local broadcast television stations,
locally-originated programming, including governmental and public access, and
limited satellite-delivered programming.
Expanded basic programming. Our expanded basic cable service, which may
vary in size depending on the system's channel capacity, generally includes a
group of satellite-delivered or non-broadcast channels in addition to the basic
channel line-up.
Premium services. Our premium services generally offer, without commercial
interruption, feature motion pictures, live and taped sporting events, concerts
and other special features. The charge for premium services depends upon the
type and number of premium channels selected by the subscriber.
Pay-per-view programming. Our pay-per-view service permits our subscribers
to order, for a separate fee, individual feature motion pictures and special
event programs, such as professional boxing, professional wrestling and concerts
on an unedited, commercial-free basis.
Digital Cable Services
Digital compression technology enables us to substantially increase the
number of channels our cable systems can carry, thereby providing a significant
number of additional programming choices to our subscribers. Digital compression
technology can convert up to twelve analog signals into a digital format and
compress these signals into the bandwidth normally occupied by one analog
signal. At the home, a set-top video terminal, often referred to as a "digital
set-top box," converts the digital signal into analog signals that can be viewed
on a television set.
Subscribers typically pay us on a monthly basis for digital cable services
and generally may discontinue services at any time. Monthly rates vary generally
according to the level of service and the number of digital set-top boxes
selected by the subscriber.
Subscribers to our digital cable service receive one or more of the
following:
o an interactive program guide,
o multiple channels of digital music,
o basic and expanded basic programming,
o "multiplexes" of premium channels which are varied as to time of
broadcast or programming content theme,
o additional pay-per-view programming, such as more pay-per-view
options and/or frequent showings of the most popular films,
o video-on-demand service, commonly known as VOD, including popular
television programs at no additional charge, and
o high-definition television.
We have and will continue to upgrade our cable systems so that we are able
to provide these and other new services such as interactive television to our
subscribers.
High-Speed Internet Services
Residential subscribers can connect their personal computers via cable
modems to access online information, including the Internet, at faster speeds
than that of conventional modems. Prior to March 2002, in areas served by our
cable systems we marketed high- speed Internet services operated by a
third-party Internet service provider. By March 2002, we had moved all of our
high-speed Internet subscribers to our own high- speed Internet gateway. In
addition to offering our own high-speed Internet service, we have agreements
with a number of third-party Internet service providers, or ISPs, under which we
make available access to our facilities and the ISP markets a high-speed
Internet service that is provided over our cable systems. We also provide
businesses with Internet connectivity solutions and networked business
applications.
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Phone Services
In some of the areas where cable plant has been upgraded, we use our cable
network to provide local telephone services and to resell third-party long
distance services to our phone subscribers. We currently offer phone services to
subscribers in 15 markets.
Advertising Sales
We generate revenues from the sale of advertising time to local, regional
and national advertisers on non- broadcast channels we carry over our cable
systems.
Other Revenue Sources
We also generate revenues from installation services, commissions from
third-party electronic retailing and from other services.
Sales and Marketing
Our sales efforts are primarily directed toward generating incremental
revenues in our franchise areas and increasing the number of subscribers we
serve. We sell our products and services through:
o telemarketing,
o direct mail advertising,
o door-to-door selling,
o cable television advertising,
o local media advertising, and
o retail outlets.
Programming
We generally acquire a license for the programming we sell to our
subscribers by paying a monthly fee to the licensor on a per subscriber per
channel basis. Our programming costs are increased by:
o growth in the number of subscribers,
o expansion of the number of channels provided to subscribers, and
o increases in contract rates from programming suppliers.
We attempt to secure long-term programming contracts with volume discounts
and/or marketing support and incentives from programming suppliers. Our
programming contracts are generally for a fixed period of time and are subject
to negotiated renewal. We expect our programming costs to remain our largest
single expense item for the foreseeable future. In recent years, the cable and
satellite video industries have experienced a substantial increase in the cost
of programming, particularly sports programming. We expect this increase to
continue, and we may not be able to pass programming cost increases on to our
subscribers. The inability to pass these programming cost increases on to our
subscribers would have a material adverse impact on our operating results. In
addition, as we upgrade the channel capacity of our systems and add programming
to our basic, expanded basic and digital programming tiers, we may face
increased programming costs.
We also expect to be subject to increasing financial and other demands by
broadcasters to obtain the required consent for the retransmission of broadcast
programming to our subscribers. We cannot predict the financial impact of these
negotiations or the effect on our subscribers should we be required to stop
offering this programming.
Customer Service
We have organized most of our cable systems into geographic clusters.
Clustering improves our ability to sell advertising, enhances our ability to
efficiently introduce and market new products, and allows us to more efficiently
and effectively provide customer service and support. As part of our clustering
strategy, we have consolidated our local customer service operations of our
historical operations into large regional call centers. These regional call
centers have technologically advanced telephone systems that provide 24-hour per
day, 7-day per week call answering capability, telemarketing and other services.
In 2003, we anticipate opening new call centers and expanding certain of our
existing call centers to provide customer service and support to the newly
acquired cable systems.
Competition
Analog Video and Digital Cable Services
Our cable systems compete with a number of different sources which provide
news, information and entertainment programming to consumers, including:
o program distributors that use direct broadcast satellite, or DBS,
systems that transmit satellite signals containing video
programming, data and other information to receiving dishes of
varying sizes located on the subscriber's premises,
o local television broadcast stations that provide off-air programming
which can be received using an antenna and a television set,
o satellite master antenna television systems, commonly known as
SMATVs, which generally
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serve condominiums, apartment and office complexes and residential
developments,
o other operators who build and operate wireline communications
systems in the same communities that we serve, including those
operating as franchised cable operations or under an alternative
regulatory scheme known as Open Video Systems, or OVS,
o interactive online computer services, including Internet
distribution of movies,
o newspapers, magazines and book stores,
o movie theaters,
o live concerts and sporting events, and
o video stores and home video products.
In recent years, Congress has enacted legislation and the FCC has adopted
regulatory policies intended to provide a favorable operating environment for
existing competitors and for potential new competitors to our cable systems.
These competitors include DBS, wireline communications providers, also known as
overbuilders, SMATVs and Multichannel Multipoint Distribution Service, or MMDS.
The FCC has recently created a new wireless service, known as Multichannel Video
Distribution and Data Service, or MVDDS, that we also expect to compete with our
cable systems. In order to compete effectively, our cable systems strive to
provide, at a reasonable price to subscribers, new products and services,
superior technical performance, superior customer service and a greater variety
of video programming.
DBS Systems. According to recent government and industry reports,
conventional, medium and high-power satellites currently provide video
programming to over 20 million customers in the United States. DBS providers
with high-power satellites typically offer to their subscribers more than 300
channels of programming, including programming services substantially similar to
those provided by our cable systems. Two companies, DIRECTV and EchoStar,
provide service to substantially all of these DBS subscribers.
DBS service can be received throughout the continental United States
through the installation of a small roof top or side-mounted antenna. DBS
systems use video compression technology to increase channel capacity and
digital technology to improve the quality and quantity of the signals
transmitted to their subscribers. Our digital cable service is competitive with
the programming, channel capacity and the digital quality of signals delivered
to subscribers by DBS systems.
Federal legislation establishes, among other things, a permanent compulsory
copyright license that permits satellite carriers to retransmit local broadcast
television signals to subscribers who reside in the local television station's
market. These companies are transmitting local broadcast signals in most markets
which we serve. As a result, satellite carriers are competitive to cable system
operators like us because they offer programming which closely resembles what we
offer. These satellite carriers are attempting to expand their service offerings
to include, among other things, high-speed Internet service.
SMATV. Our cable systems also compete for subscribers with SMATV systems.
SMATV system operators typically are not subject to regulation like local
franchised cable system operators. SMATV systems offer subscribers both improved
reception of local television stations and many of the same satellite- delivered
programming services offered by franchised cable systems. In addition, some
SMATV operators are developing and/or offering packages of telephony, data and
video services to private residential and commercial developments. SMATV system
operators often enter into exclusive service agreements with building owners or
homeowners' associations, although some states have enacted laws to provide
cable systems access to these complexes.
Overbuilds. We operate our cable systems pursuant to a non-exclusive
franchise that is issued by the community's governing body such as a city
council, a county board of supervisors or a state regulatory agency. Federal law
prohibits franchising authorities from unreasonably denying requests for
additional franchises, and it permits franchising authorities to operate cable
systems. Companies that traditionally have not provided cable services and that
have substantial financial resources (such as public utilities that own certain
of the poles to which our cables are attached) may also obtain cable franchises
and may provide competing communications services. Certain facilities-based
competitors offer cable and other communications services in various areas where
we hold franchises. We anticipate that facilities-based competitors will develop
in other franchise areas that we serve.
Local telephone companies. Federal law allows local telephone companies to
provide, directly to subscribers, a wide variety of services that are
competitive with our cable services, including video and Internet services
within and outside their telephone service areas. Telephone companies and other
businesses construct and operate communications facilities that provide access
to the Internet and distribute interactive computer-based services, data and
other non-video services to homes and businesses.
- 7 -
High-Speed Internet Services
Most of our cable systems are currently offering high-speed Internet
services to subscribers. These systems compete with a number of other companies,
many of whom have substantial resources, such as:
o existing ISPs,
o local telephone companies, and
o long distance telephone companies.
The deployment of digital subscriber line, or DSL, technology allows
Internet access to be provided to subscribers over telephone lines at data
transmission speeds substantially greater than that of conventional analog
modems. Numerous companies, including telephone companies, have introduced DSL
service, and certain telephone companies are seeking to provide high- speed
Internet services without regard to present service boundaries and other
regulatory restrictions. The FCC recently adopted an order that will reduce the
obligations of local telephone companies to offer their broadband facilities on
a wholesale basis to competitors, and the FCC is considering further measures to
deregulate the retail broadband offerings of local telephone companies as well.
Congress may also consider measures to deregulate such broadband offerings.
A number of cable operators have reached agreements to provide unaffiliated
ISPs access to their cable systems in the absence of regulatory requirements. We
reached "access" agreements with several national and regional third-party ISPs.
In addition, in connection with the restructuring of TWE, we will enter into a
three- year non-exclusive access agreement with AOL Time Warner. We also have
agreed to offer Microsoft an access agreement on terms no less favorable than
those provided to other ISPs with respect to specified cable systems. We cannot
provide any assurance, however, that regulatory authorities will not impose
"open access" or similar requirements on us as part of an industry-wide
requirement. These requirements could adversely affect our results of
operations.
Phone Services
Our phone service competes against incumbent local exchange carriers,
cellular telephone service providers and competitive local exchange carriers
(including established long distance companies) in the provision of local voice
services. Many of these carriers are expanding their offerings to include
high-speed Internet service, such as DSL. The incumbent local exchange carriers
have substantial capital and other resources, longstanding customer
relationships and extensive existing facilities and network rights-of-way. A few
competitive local exchange carriers also have existing local networks and
significant financial resources.
We expect advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment to occur in the
future. We refer you to page 11 for a detailed discussion of legislative and
regulatory factors. Other new technologies and services may develop and may
compete with services that our cable systems offer. Consequently, we are unable
to predict the effect that ongoing or future developments might have on our
business and operations.
Commerce
QVC is a domestic and international electronic media general merchandise
retailer which produces and distributes merchandise-focused television programs,
via satellite, to affiliated video program distributors for retransmission to
subscribers. At QVC, program hosts and guests describe and demonstrate the
products and viewers place orders directly with QVC. As of December 31, 2002,
QVC was available, on a full and part-time basis, to 85.9 million homes in the
United States, 11.4 million homes in the United Kingdom ("UK"), 25.8 million
homes in Germany and 8.4 million homes in Japan. We estimate that 13.3 million
homes in Germany have programmed their television sets to receive this service.
We own approximately 57% of QVC.
On March 3, 2003, we announced that Liberty Media Corporation delivered a
notice to us, pursuant to the stockholders agreement between us and Liberty,
that triggers an exit rights process with respect to Liberty's approximate 42%
interest in QVC. We and Liberty will attempt to negotiate the fair market value
of QVC prior to March 31, 2003. If we and Liberty cannot agree, an appraisal
process will determine the value of QVC. We will then have the right to purchase
Liberty's interest in QVC at the determined value. We may pay Liberty for the
QVC stock in cash, in a promissory note maturing not more than three years after
issuance, in our equity securities or in a combination of these, subject to
Liberty's right to request payment in all equity securities and the parties'
obligation to use reasonable efforts to consummate the purchase in the most tax
efficient method available (provided that we are not required to issue
securities representing more than 4.9% of the outstanding equity or vote of our
common stock). If we elect not to purchase Liberty's interest in QVC, Liberty
then will have a similar right to purchase our approximate 57% interest in QVC.
If neither we nor Liberty elect to purchase the interest of the other, then we
and Liberty are required to use our best efforts to sell QVC; either company is
permitted to be a purchaser in any such sale. We and Liberty may agree not to
enter into a transaction, or may agree to a transaction other than that
specified in the
- 8 -
stockholders agreement. Under the current terms of the stockholders agreement
between us and Liberty, we would no longer control QVC if we elect not to
purchase Liberty's interest in QVC.
Revenue Sources
QVC sells a variety of consumer products and accessories including jewelry,
housewares, electronics, apparel and accessories, collectibles, toys and
cosmetics. QVC purchases, or obtains on consignment, products from domestic and
foreign manufacturers and wholesalers, often on favorable terms based on the
volume of the transactions. QVC intends to continue introducing new products and
product lines. QVC does not depend upon any one particular supplier for any
significant portion of its inventory. QVC's business is seasonal, with the
highest amount of net sales occurring in the fourth quarter.
Viewers place orders to purchase QVC merchandise by either calling a
toll-free telephone number to speak to a telemarketing operator, by using their
touch-tone telephone to call QVC's integrated automated ordering system which
gives customers the ability to place orders without speaking to a telemarketing
operator, or by using their personal computer to place orders on QVC.com. QVC
uses automatic call distributing equipment to distribute calls to its operators.
The majority of all payments for purchases are made with a major credit card or
QVC's private label credit card. QVC's private label credit card program is
serviced by an unrelated third party. QVC ships merchandise from its
distribution centers, typically within 24 hours after receipt of an order. QVC's
return policy permits customers to return, within 30 days, any merchandise
purchased for a full refund of the purchase price and original shipping charges.
Distribution Channels
In the United States, QVC is transmitted live 24 hours a day, 7 days a
week, to 65.5 million cable television homes. An additional 0.4 million cable
television homes receive QVC on a less than full time basis and 20.0 million
home satellite dish users receive QVC programming. The QVC program schedule
consists of one-hour and multi-hour program segments. Each program theme is
devoted to a particular category of product or lifestyle. From time to time,
special program segments are devoted to merchandise associated with a particular
celebrity, event, geographical region or seasonal interest.
QVC also offers an interactive shopping service, QVC.com, on the Internet.
QVC.com offers a diverse array of merchandise, on-line, 24 hours a day, 7 days a
week. QVC.com also maintains a mailing list which e- mails product news to
customers who choose to receive it.
QVC Transmission
A transponder on a communications satellite transmits the QVC domestic
signal. QVC subleases transponders for the transmission of its signals to the
UK, Germany and Japan. QVC has made arrangements in the U.S. for redundant
coverage through other satellites in case of a failure. To date, QVC has never
had an interruption in programming due to transponder failure. We cannot offer
assurances that there will not be an interruption or termination of satellite
transmission due to transponder failure. Interruption or termination could have
a material adverse effect on QVC's results of operations.
Program Distributors
QVC has entered into affiliation agreements with video program distributors
to carry QVC programming. There are no charges to the programming distributors
for the distribution of QVC. In return for carrying QVC, each programming
distributor receives an allocated portion, based upon market share, of up to
five percent of the net sales of merchandise sold to customers located in the
programming distributor's service area. QVC has entered into multi-year
affiliation agreements with various cable and satellite system operators for
carriage of QVC programming. The terms of most affiliation agreements are
automatically renewable for one-year terms unless terminated by either party on
at least 90 days notice prior to the end of the term. Most of the affiliation
agreements provide for the programming distributor to broadcast commercials
regarding QVC on other channels and to distribute QVC's advertising material to
subscribers.
QVC's business depends on its affiliation with programming distributors for
the transmission of QVC programming. If a significant number of homes were no
longer served because of termination or non-renewal of affiliation agreements,
our financial results could be adversely affected. QVC has incentive programs to
induce programming distributors to enter into or extend affiliation agreements,
to increase the number of homes under existing affiliation agreements, or to
enhance channel placement of the QVC programming. These incentives include
various forms of marketing, carriage and launch support. QVC will continue to
recruit additional programming distributors and seek to enlarge its audience.
Competition
QVC operates in a highly competitive environment. As a general merchandise
retailer, QVC competes for
- 9 -
consumer expenditures with the entire retail industry, including department,
discount, warehouse and specialty stores, mail order and other direct sellers,
Internet retailers, shopping center and mall tenants and conventional retail
stores. On television, QVC competes with other programs for channel space and
viewer loyalty against similar electronic retailing programming, as well as
against alternative programming supplied by other sources, including news,
public affairs, entertainment and sports programmers. The use of digital
compression provides programming distributors with greater channel capacity.
While greater channel capacity increases the opportunity for QVC to be
distributed, it also may adversely impact QVC's ability to compete for
television viewers to the extent it results in higher channel position,
placement of QVC in separate programming tiers, or the addition of competitive
channels.
Content
We have made investments in cable television networks and other
programming-related enterprises as a means of generating additional revenues and
subscriber interest. Our consolidated programming investments as of December 31,
2002 include:
Economic
Ownership
Investment Percentage Description
- -------------------------------------------------------------------------------------------------------------
Comcast Spectacor 66.3% Live sporting events, concerts and other events
Comcast SportsNet 78.3 Regional sports programming and events
Comcast SportsNet Mid-Atlantic 100.0 Regional sports programming and events
Cable Sports Southeast 62.2 Regional sports programming and events
E! Entertainment 50.1 Entertainment-related news and original programming
Style 50.1 Lifestyle-related programming
The Golf Channel 91.3 Golf-related programming
Outdoor Life Network 100.0 Outdoor sports and leisure programming
CN8-The Comcast Network 100.0 Regional and local programming
G4 93.6 Programming focused on video and computer games
---------------------------
Consolidated Programming Investments
Comcast Spectacor. Comcast Spectacor is our group of businesses that
perform live sporting events and that own or manage facilities and venues for
sports activities, sports events, concerts and other special events. Comcast
Spectacor consists principally of the Philadelphia Flyers NHL hockey team, the
Philadelphia 76ers NBA basketball team and two large multi-purpose arenas in
Philadelphia.
We and the minority owner group in Comcast Spectacor each have the right to
initiate an "exit" process under which the fair market value of Comcast
Spectacor would be determined by appraisal. Following such determination, we
would have the option to acquire the interests in Comcast Spectacor owned by the
minority owner group based on the appraised fair market value. If we do not
exercise this option, we and the minority owner group would then be required to
use our best efforts to sell Comcast Spectacor.
Comcast SportsNet. Comcast SportsNet, or CSN, is our 24-hour
terrestrially-delivered network which provides sports-related programming,
including the Philadelphia Flyers NHL hockey team, the Philadelphia 76ers NBA
basketball team and the Philadelphia Phillies MLB baseball team to approximately
2.9 million subscribers in the Philadelphia region. The exit process described
in the previous paragraph includes the minority owner group's interest in CSN.
Comcast SportsNet Mid-Atlantic. Comcast SportsNet Mid-Atlantic, or CSN
Mid-Atlantic, is our 24-hour satellite-delivered network which provides
sports-related programming, including the Baltimore Orioles MLB baseball team,
the Washington Wizards NBA basketball team and the Washington Capitals NHL
hockey team. CSN Mid-Atlantic serves approximately 4.3 million subscribers
primarily in Delaware, Maryland, Pennsylvania, Virginia, Washington, D.C. and
West Virginia.
Cable Sports Southeast. Cable Sports Southeast, or CSS, is a
satellite-delivered network which provides sports-related programming and sports
news geared toward college athletics to approximately 3.9 million subscribers
primarily in Alabama, Arkansas, Florida, Georgia, Kentucky, Mississippi, North
Carolina, South Carolina and Tennessee.
E! Entertainment. E! Entertainment is our 24-hour network with programming
dedicated to the world of entertainment. Programming formats include behind-the-
- 10 -
scenes specials, original movies and series, news, talk shows and comprehensive
coverage of entertainment industry awards shows and film festivals worldwide.
The network has distribution to approximately 71 million subscribers in the
United States.
We hold the majority of our interest in E! Entertainment through Comcast
Entertainment Holdings, LLC, which is owned 50.1% by us and 49.9% by The Walt
Disney Company. Under a limited liability company agreement between Disney and
us, we control E! Entertainment's operations. As a result of the Broadband
acquisition and in certain other circumstances, under the agreement Disney is
entitled to trigger a potential exit process in which Entertainment Holdings
would have the right to purchase Disney's entire interest in Entertainment
Holdings at its then fair market value (as determined by an appraisal process).
If Disney exercises this right within a specified time period, and Entertainment
Holdings elects not to purchase Disney's interest, Disney then has the right to
purchase, at appraised fair market value, either our entire interest in
Entertainment Holdings or all of the shares of stock of E! Entertainment held by
Entertainment Holdings. In the event that Disney exercises its right and neither
Disney's nor our interest is purchased, Entertainment Holdings will continue to
be owned as it is today, as if the exit process had not been triggered.
Style. Style, a division of E! Entertainment, is our 24-hour network
dedicated to fashion, home design, beauty, health, fitness and more, with
distribution to approximately 24 million subscribers in the United States.
The Golf Channel. The Golf Channel is our 24-hour network devoted
exclusively to golf programming with distribution to approximately 47 million
subscribers in the United States. The programming schedule includes live
tournaments, golf instruction programs and golf news.
Outdoor Life Network. Outdoor Life Network is our 24-hour network devoted
exclusively to outdoor adventure sports and outdoor leisure recreation with
distribution to approximately 43 million subscribers in the United States. Its
programming features the premiere events and series in a wide range of outdoor
activities including biking, sailing, skiing, snowboarding, professional
bullriding and fishing.
CN8-The Comcast Network. CN8-The Comcast Network is our regional
programming network delivered to approximately 6 million cable subscribers in
Maryland, Delaware, Pennsylvania, New Jersey, Connecticut, Massachusetts and New
Hampshire. CN8 provides exclusive original programs, including news, talk, high
school, college and professional sports, cooking, music, comedy and other
family-oriented entertainment.
G4. G4 is our 24-hour network dedicated to the world of video games.
Targeted to young viewers 12-34, G4 is committed to creating a lifestyle brand
that is the source of entertainment, news and information about electronic
games, including video, computer, online and wireless platforms. We launched G4
in April 2002. G4 has distribution to approximately 9 million subscribers.
Other Programming Interests. We also own other non-controlling interests in
programming investments including iN DEMAND, a pay-per-view and video-on- demand
service, the Discovery Health Channel, Fox Sports New England, New England Cable
News and Pittsburgh Cable News Channel.
---------------------------
LEGISLATION AND REGULATION
Our cable and phone businesses are subject to numerous regulatory
requirements, prohibitions and limitations imposed by various federal and state
laws, local ordinances and our franchise agreements. Our commerce and content
businesses are generally not subject to direct governmental regulation. Our
high-speed Internet business, while not currently regulated, may be subject to
regulation in the future. Laws and regulations affect the prices we can charge
for some services, such as basic cable service and associated customer-premises
equipment, the costs we incur - for example, for attaching our wires to poles
owned by utility companies, the relationships we establish with our suppliers,
subscribers and competitors, and many other aspects of our business.
The most significant federal law affecting our cable businesses is the
Communications Act of 1934, as amended. The provisions of the Communications Act
and the manner in which the FCC, state and local authorities, and the courts
implement and interpret those provisions, affect our ability to develop and
execute business plans, our ability to raise capital and the competitive
dynamics between and among different sectors of the communications and
entertainment industries in which we operate. The FCC also has the authority to
enforce its regulations through the imposition of substantial fines, the
issuance of cease and desist orders and the imposition of other administrative
sanctions, such as the revocation of FCC licenses needed to operate some of the
transmission facilities we use in connection with our cable businesses.
We believe we are currently in substantial
- 11 -
compliance with all applicable statutory and regulatory requirements imposed by,
or under, the Communications Act, but caution that the precise requirements of
the law are not always clear. Moreover, many laws and regulations can be
interpreted in after-the-fact enforcement proceedings or private party
litigation in a manner that is inconsistent with the judgments we have made. We
also note that regulators at all levels of government frequently consider
changing, and sometimes do change, existing rules or interpretations of existing
rules, or prescribe new ones. Judicial decisions often alter the regulatory
framework in ways that are inconsistent with regulator, business and investor
expectations. In addition, our cable business can be significantly affected by
the enactment of new legislation. Owing in part to the "public interest"
ramifications traditionally associated with ownership of electronic media,
Congress seriously considers the enactment of new legislative requirements
virtually every year. Even though new laws infrequently result, we always face
the risk that Congress will approve legislation significantly affecting the
cable industry.
A major objective of Congress and the FCC is to increase competition in all
communications services, including those central to our business. For example,
over the last ten years, Congress removed barriers to local telephone companies
offering video services in their local service areas, and the FCC has authorized
MVDDS, a new wireless service for providing multichannel video programming, and
may soon consider a proposal that could allow utility power lines to be used to
provide video and high-speed Internet services. Our cable business could be
affected by any new competitors that enter the video marketplace as a result of
these and similar efforts by Congress or the FCC. In particular, we could be
materially disadvantaged if we are subject to new regulations that do not
equally affect our satellite, wireline and wireless competitors.
There are potential risks associated with various proceedings that are
currently pending at the FCC, in the courts, and before federal and state
legislatures and local franchise authorities. We believe few of these
proceedings hold the potential to materially affect our ability to conduct our
cable business. Among the more substantial areas of exposure are the following:
Broadband Acquisition. The FCC approved the Broadband acquisition in
November 2002 subject to various conditions. The most significant are a
requirement for the divestiture of our interest in TWE, a requirement that the
TWE interest be placed in trust pending divesture, and safeguards that limit our
involvement in the programming-related activities of TWE and two partnerships
held jointly by us and TWE. Complying with these conditions will limit our
flexibility as to the timing and nature of a sale of the TWE interest and, in
the interim, will constrain our business dealings with TWE and AOL Time Warner.
We have fully complied with those conditions, and are committed to meeting our
obligations under the FCC's merger order going-forward.
Ownership Limits. The FCC is considering imposing "horizontal ownership
limits" that would limit the percentage of multichannel video subscribers -
those that subscribe to cable, DBS, MMDS and other multichannel distributors -
that any single provider could serve nationwide. A federal appellate court
struck down the previous 30% limit, and the FCC is now considering this issue
anew. As we already serve nearly 29% of multichannel video subscribers, limits
similar to those originally imposed would restrict our ability to take advantage
of future growth opportunities. The FCC is also assessing whether it should
reinstate "vertical ownership limits" on the number of affiliated programming
services a cable operator may carry on its cable systems (the previous limit of
40% of the first 75 channels had also been invalidated by the federal appellate
court). While our video programming interests are modest, new vertical limits
could affect our content- related business plans. Finally, the FCC is
considering revisions to its ownership attribution rules that would affect which
cable subscribers are counted under any horizontal ownership limit and which
programming interests are counted for purposes of a vertical ownership limit.
Pricing. The Communications Act and the FCC's regulations and policies
limit the prices that cable systems may charge for basic services and equipment
in communities that are not subject to effective competition, as defined by
federal law. Failure to comply with these rate rules could result in rate
reductions and refunds for subscribers. In addition, various advocacy groups are
urging Congress to impose new rate regulations on the cable industry. We cannot
now predict whether or when Congress may agree to these or similar proposals.
Also, various competitors are trying to persuade the FCC and the Justice
Department to limit our ability to respond to increased competition by offering
promotions or other discounts in an effort to retain existing subscribers or
regain those we have lost. We believe our competitive pricing practices are
lawful and pro-competitive. If we cannot make individualized offers to
subscribers that would otherwise choose a different provider, our subscriber
attrition may increase, or our overall prices may need to be reduced, or both.
High-Speed Internet Service. Ever since high-speed cable Internet service
was introduced, some local governments and various competitors sought to impose
regulatory requirements on how we deal with third-party ISPs. Thus far, only a
few local governments have
- 12 -
imposed such requirements, and the courts have invalidated all of them.
Likewise, the FCC has refused to treat our service as a common carrier
"telecommunications service," but has instead classified it as an "interstate
information service," which has historically meant that no regulations apply.
Nonetheless, the FCC's decision remains subject to judicial review - a decision
by a federal appellate court is expected later this year. In addition, the FCC
itself is still considering whether it should impose any regulatory requirements
and also whether local franchising authorities should be permitted to impose
fees or other requirements, such as service quality or customer service
standards. A few franchising authorities have sued us seeking payment of
franchise fees on high-speed Internet service revenues. Further, a number of
software and content providers and electronic retailers are now urging the FCC
to adopt certain "nondiscrimination principles" that purport to be intended to
allow Internet customers access to the Internet content of their choosing
(something we already provide). We cannot now predict whether these or similar
regulations will be adopted and, if so, what effects, if any, they would have on
our business.
Internet Regulation. Congress and federal regulators have adopted a wide
range of measures affecting Internet use, including, for example, consumer
privacy, copyright protection, defamation liability, taxation and obscenity, and
state and local governmental organizations have adopted Internet-related
regulations, as well. These various governmental jurisdictions are also
considering additional regulations in these and other areas, such as service
pricing, service and product quality, and intellectual property ownership. The
adoption of new laws or the adaptation of existing laws to the Internet could
have a material adverse effect on our Internet business.
Must-Carry/Retransmission Consent. Cable companies are currently subject to
a requirement that they carry, without compensation, the programming transmitted
by most commercial and non-commercial local television stations. Alternatively,
local television stations may negotiate for "retransmission consent," that is,
terms and conditions to govern our ability to transmit the TV broadcast signals
that cable subscribers expect to receive. As broadcasters transition from analog
to digital transmission technologies, the FCC is considering whether to require
cable companies to simultaneously carry both analog and digital signals of a
single broadcaster, and once digital carriage is required, whether cable
companies may be required to carry multiple digital program streams that each
broadcaster may transmit. If either of those questions is answered in the
affirmative, we would have less freedom to allocate the usable spectrum of our
cable plant to provide the services that we believe will be of greatest interest
to our subscribers. This could diminish our ability to attract and retain
subscribers. We cannot now predict whether the FCC will impose these or similar
carriage obligations on us.
Program Access. The Communications Act and the FCC's "program access" rules
prevent satellite video programmers affiliated with cable operators from
favoring cable operators over competing multichannel video distributors, such as
DBS, and limit the ability of such programmers to offer exclusive programming
arrangements to cable operators. The FCC recently extended the exclusivity
restrictions through October 2007. The FCC has concluded that the program access
rules do not apply to programming services, such as Comcast SportsNet, that are
delivered terrestrially. However, the FCC has indicated that it may reconsider
how it regulates cable operators with regional sports programming interests in
its cable ownership rulemaking. Any decision by the FCC or Congress to single
out for new regulation cable operators like us who have regional sports
programming interests, could have an adverse impact on our cable and programming
businesses. Some initiatives are underway to enact program access-type
regulations at the state or local level. We believe any such regulations would
be preempted by federal law or otherwise unlawful, but we cannot predict at this
time whether such regulations will be enacted or enforceable.
Consumer Electronics Equipment Compatibility. The FCC has launched a
rulemaking to implement a recent agreement between the cable and consumer
electronics industries aimed at promoting the manufacture of "plug- and-play" TV
sets that can connect directly to the cable network without the need for a
set-top box. The FCC is considering adopting a number of proposed rules that
would, among other things: direct cable operators to implement technical
standards in their networks to support these digital television sets; require
operators to provide a sufficient supply of conditional access devices to
subscribers who want to receive scrambled programming services on their digital
television sets; and require operators to support basic home recording rights
and copy protection rules for digital programming content. Failure by the FCC to
implement the agreement could adversely affect our relationships with consumer
electronics retail outlets (where DBS has traditionally enjoyed an advantage)
and slow the growth of subscribership to our digital cable service.
Phone Service. Our phone business is subject to federal, state and local
regulation. In general, the Communications Act imposes interconnection
requirements and universal service obligations on all telecommunications service
providers, including those that provide traditional circuit-switched phone
service over cable facilities, and more significant regulations on incumbent
local exchange carriers, such as Verizon and
- 13 -
SBC. The FCC has initiated several rulemakings which, in the aggregate, could
significantly change the rules that apply to telephone competition, including
the relationship between wireless and wireline providers, long distance and
local providers, and incumbents and new entrants, and it is unclear how those
proceedings will affect our phone business. We are also conducting trials of
Internet Protocol phone service on our cable network, and will begin a limited
commercial offering in 2003. While the FCC and most state public utility
commissions have thus far refrained from regulating Internet Protocol phone
service, it is uncertain whether regulators will continue to follow that
approach.
Franchise Matters. Cable operators generally operate their cable systems
pursuant to non-exclusive franchises granted by a franchising authority or other
state or local governmental entity. While the terms and conditions of franchises
vary materially from jurisdiction to jurisdiction, these franchises typically
last for a fixed term, obligate the franchisee to pay franchise fees and meet
service quality, customer service and other requirements, and are terminable if
the franchisee fails to comply with material provisions. The Communications Act
includes provisions governing the franchising process, including, among other
things, renewal procedures designed to protect incumbent franchisees against
arbitrary denials of renewal. We anticipate that our future franchise renewal
prospects generally will be favorable.
State Taxes. Some states are considering imposing new taxes, including
sales taxes, on cable service. We cannot predict at this time whether such taxes
will be enacted or what impact they might have on our business.
Other Regulatory Issues. There are a number of other regulatory matters
under review by Congress, the FCC, and other federal agencies that could affect
our cable business. We briefly highlight those issues below:
o Cable/Broadcast Cross-Ownership: The FCC eliminated regulations
precluding the cross- ownership of a national broadcasting network
and a cable system and, pursuant to a federal court order, the FCC
recently repealed its regulations prohibiting the common ownership
of other broadcasting interests and cable systems in the same
geographical areas.
o Tier Buy Through: The Communications Act requires cable operators to
allow subscribers to purchase premium or pay-per-view services
without the necessity of subscribing to any tier of service, other
than the basic service tier. The applicability of this rule in
certain situations remains unclear, and adverse decisions by the FCC
on this issue could affect our pricing and packaging of such
services.
o Leased Access/PEG: The Communications Act permits franchising
authorities to require cable operators to set aside channels for
public, educational and governmental access programming, and
requires a cable system with 36 or more activated channels to
designate a significant portion of its channel capacity for
commercial leased access by third parties to provide programming
that may compete with services offered by the cable operator.
Neither Congress nor the FCC is considering changes to these
requirements, but it is always possible that revisions could be made
that would place further burdens on the channel capacity of our
cable systems.
o Obscenity: The Communications Act prohibits the transmission of
obscene programming over cable systems. Some members of Congress and
the FCC and some consumers have expressed concerns about the
distribution of certain adult programming over cable systems.
o Set-Top Box Regulation: Current FCC rules bar cable operators from
leasing subscribers integrated digital set-top boxes effective
January 1, 2005. We have urged elimination of the ban on the grounds
that it will limit consumer choice, increase the cost of set-top box
equipment, and slow the deployment of digital cable services, but
there is no assurance that the FCC will accept our position.
o MDU Access: The FCC has adopted rules to promote competitive entry
into the MDU market. These rules are intended to make it easier for
new multichannel video service providers to compete with established
cable operators. Although the FCC has declined to prohibit exclusive
MDU service agreements held by incumbent cable operators including
us, that decision could be appealed and possibly changed.
o Pole Attachments: The Communications Act requires that utilities
provide cable systems with nondiscriminatory access to any pole,
conduit or right-of-way controlled by the utility, and the FCC has
adopted rules, upheld by the courts, that regulate the rates
utilities may charge for such access. The utilities continue to
litigate various aspects of the FCC's pole attachment rulemakings,
and recent court decisions leave open the possibility that the FCC
could alter the pole attachment rate levels paid by cable
- 14 -
operators that provide high-speed Internet and cable television
offerings over those attachments, although the FCC has given no
indication that it will do so. Adverse decisions in these
proceedings could potentially increase our pole attachment costs.
o Privacy Regulation: The Communications Act generally restricts the
nonconsensual collection and disclosure of subscribers' personal
information by cable operators. A strict interpretation of the
Communications Act could severely limit the ability of service
providers to collect and use personal information for commercial
purposes. In addition, the Federal Trade Commission has adopted
rules that will place sharp limits on the telemarketing practices of
cable operators, and the FCC is considering adopting similar rules
as well.
o Copyright Regulation. In exchange for filing certain reports and
contributing a percentage of their revenue to a U.S. federal
copyright royalty pool, cable operators can obtain blanket
permission to retransmit copyrighted material on broadcast signals.
The U.S. Copyright Office has recommended that Congress revise this
compulsory licensing scheme, although Congress has thus far declined
to do so. The elimination or substantial modification of the cable
compulsory license could adversely affect our ability to obtain
certain programming and substantially increase our programming
costs. In addition, we pay standard industry licensing fees to use
music in the programs we provide to subscribers, including local
advertising, local origination programming and pay-per-view events.
These licensing fees have been the source of litigation between the
cable industry and music performance rights organizations in the
past, and we cannot predict with certainty whether license fee
disputes may arise in the future.
o Other Areas: The FCC actively regulates other aspects of our cable
business, including, among other things: (1) the blackout of
syndicated, network, and sports programming; (2) customer service
standards; (3) advertising in children's programming; (4) political
advertising; (5) origination cablecasting; (6) sponsorship
identification; (7) closed captioning of video programming; (8)
equal employment opportunity; (9) lottery programming; (10)
emergency alert systems; and (11) technical standards relating to
operation of the cable network. The FCC is not considering any
significant revisions to these rules at this time, but we are unable
to predict how these regulations might be changed in the future and
how any such changes might affect our business.
In all these areas and a variety of others, we face the potential of
increased regulation. Given the intensely competitive nature of every aspect of
our business, we believe that increased regulation is not warranted. We can not
provide any assurance, however, that regulation of our business will not
increase.
EMPLOYEES
As of December 31, 2002, we had approximately 82,000 employees. Of these
employees, approximately 60,000 were associated with cable, approximately 15,000
were associated with commerce and approximately 7,000 were associated with our
other divisions. Approximately 4,000 of our employees are covered by collective
bargaining agreements or have organized but are not covered by collective
bargaining agreements. We believe that our relationships with our employees are
good.
ITEM 2 PROPERTIES
Cable
A central receiving apparatus, distribution cables, servers, analog and
digital converters, cable modems, customer service call centers and local
business offices are the principal physical assets of a cable system. We own or
lease the receiving and distribution equipment of each system and own or lease
parcels of real property for the receiving sites, customer service call centers
and local business offices.
Commerce
Television studios, customer service call centers, business offices,
product warehouses and distribution centers are the principal physical assets of
our commerce operations. These assets include QVC's studios and offices, Studio
Park, located in West Chester, Pennsylvania, and office, customer service call
centers and warehouses in the US, UK, Germany and Japan. QVC owns the majority
of these assets. In order to keep pace with technological advances, QVC is
maintaining, periodically upgrading and rebuilding the physical
- 15 -
components of our commerce operations.
Content
Two large multi-purpose arenas, television studios and business offices are
the principal physical assets of our content operations. We own the arenas and
own or lease the television studios and business offices of our content
operations.
We believe that substantially all of our physical assets are in good
operating condition.
ITEM 3 LEGAL PROCEEDINGS
Litigation has been filed against us as a result of our alleged conduct
with respect to our investment in and distribution relationship with At Home
Corporation. At Home was a provider of high-speed Internet access and content
services which filed for bankruptcy protection in September 2001. Filed actions
are: (i) class action lawsuits against us, Brian L. Roberts (our President and
Chief Executive Officer and a director), AT&T (the former controlling
shareholder of At Home and also a former distributor of the At Home service) and
other corporate and individual defendants in the Superior Court of San Mateo
County, California, alleging breaches of fiduciary duty on the part of us and
the other defendants in connection with transactions agreed to in March 2000
among At Home, us, AT&T and Cox Communications, Inc. (Cox is also an investor in
At Home and a former distributor of the At Home service); (ii) class action
lawsuits against Comcast Cable Communications, Inc., AT&T and others in the
United States District Court for the Southern District of New York, alleging
securities law violations and common law fraud in connection with disclosures
made by At Home in 2001; and (iii) a lawsuit brought in the United States
District Court for the District of Delaware in the name of At Home by certain At
Home bondholders against us, Brian L. Roberts, Cox and others, alleging breaches
of fiduciary duty relating to the March 2000 transactions and seeking recovery
of alleged short- swing profits of at least $600 million pursuant to Section
16(b) of the Securities Exchange Act of 1934 purported to have arisen in
connection with certain transactions relating to At Home stock effected pursuant
to the March 2000 agreements. The actions in San Mateo County, California have
been stayed by the United States Bankruptcy Court for the Northern District of
California, the court in which At Home filed for bankruptcy, as violating the
automatic bankruptcy stay. In the Southern District of New York actions, the
court ordered the actions consolidated into a single action. An amended
consolidated class action complaint was filed on November 8, 2002. All of the
defendants served motions to dismiss on February 11, 2003.
Under the terms of the Broadband acquisition, we are contractually liable
for 50% of any liabilities of AT&T relating to At Home, including any resulting
from any pending or threatened litigation. AT&T will be liable for the other 50%
of these liabilities. In addition to the actions against AT&T described above,
where we are also a defendant, there are two additional actions brought by At
Home's bondholders' liquidating trust against AT&T, not naming us: (i) a lawsuit
filed against AT&T and certain of its senior officers in Santa Clara, California
state court alleging various breaches of fiduciary duties, misappropriation of
trade secrets and other causes of action in connection with the transactions in
March 2000 described above, and prior and subsequent alleged conduct on the part
of the defendants, and (ii) an action filed against AT&T in the District Court
for the Northern District of California, alleging that AT&T infringes an At Home
patent by using its broadband distribution and high-speed Internet backbone
networks and equipment. AT&T moved to dismiss the Santa Clara action on the
grounds that California is an inconvenient forum, but the court denied AT&T's
motion. AT&T also moved to transfer the Northern District of California action
to the Southern District of New York as being a more convenient venue. AT&T's
motion is pending.
We deny any wrongdoing in connection with the claims which have been made
directly against us, our subsidiaries and Brian L. Roberts, and intend to defend
all of these claims vigorously. In management's opinion, the final disposition
of these claims is not expected to have a material adverse effect on our
consolidated financial position, but could possibly be material to our
consolidated results of operations of any one period. Further, no assurance can
be given that any adverse outcome would not be material to our consolidated
financial position.
Management is continuing to evaluate this litigation and is unable to
currently determine what impact, if any, that our 50% share of the At Home
potential liabilities would have on our consolidated financial position or
results of operations. No assurance can be given that any adverse outcome would
not be material.
Some of the entities formerly attributed to Broadband which are now our
subsidiaries are parties to an affiliation term sheet with Starz Encore Group
LLC, an affiliate of Liberty Media Corporation, which extends to 2022. The term
sheet requires annual fixed price payments, subject to adjustment for various
factors, including inflation. The term sheet also requires us to pay two-thirds
of Starz Encore's programming costs above levels designated in the term sheet.
Excess programming costs that may be
- 16 -
payable by us in future years are not presently estimable, and could be
significant.
By letter dated May 29, 2001, Broadband disputed the enforceability of the
excess programming pass- through provisions of the Starz Encore term sheet and
questioned the validity of the term sheet as a whole. Broadband also has raised
certain issues concerning the uncertainty of the provisions of the term sheet
and the contractual interpretation and application of certain of its provisions
to, among other things, the acquisition and disposition of cable systems. In
July 2001, Starz Encore filed a lawsuit in Colorado state court seeking payment
of the 2001 excess programming costs and a declaration that the term sheet is a
binding and enforceable contract. In October 2001, Broadband and Starz Encore
agreed to delay any further proceedings in the litigation until August 31, 2002
to allow the parties time to continue negotiations toward a potential business
resolution of this dispute. As part of this standstill agreement, Broadband and
Starz Encore settled Starz Encore's claim for the 2001 excess programming costs,
and Broadband agreed to continue to make the standard monthly payments due under
the term sheet, with a full reservation of rights with respect to these
payments. In connection with the standstill agreement, the court granted a stay
on October 30, 2001. The terms of the stay order allowed either party to
petition the court to lift the stay after April 30, 2002 and to proceed with the
litigation. Broadband and Starz Encore agreed to extend the standstill agreement
to and including January 31, 2003, with a requirement that the parties attempt
to mediate the dispute. A mediation session held in January 2003 did not result
in any resolution of the matter.
On November 18, 2002, we filed suit against Starz Encore in the United
States District Court for the Eastern District of Pennsylvania. We seek a
declaratory judgment that, pursuant to our rights under a March 17, 1999
contract with a predecessor of Starz Encore, upon the completion of the
Broadband acquisition that contract now provides the terms under which Starz
Encore programming is acquired and transmitted by our cable systems. On January
8, 2003, Starz Encore filed a motion to dismiss the lawsuit on the grounds that
claims asserted by us raised issues of state law that the United States District
Court should decline to decide. We have responded contesting these assertions.
The motion has been submitted to the Court for decision.
On January 31, 2003, Starz Encore filed an amended complaint in its lawsuit
against Broadband in Colorado state court. The amended complaint adds us and
Comcast Holdings as defendants and adds new claims against us, Comcast Holdings
and Broadband asserting alleged breaches of, and interference with, the
standstill agreement relating to the lawsuit filed by us and Comcast Holdings in
federal District Court in Pennsylvania and to the defendants' position that
since the completion of the Broadband acquisition the March 17, 1999 contract
provides the terms under which Starz Encore programming is acquired and
transmitted by our cable systems.
On March 3, 2003, Starz Encore filed a motion for leave to file a second
amended complaint that would add allegations that Broadband has breached certain
joint-marketing obligations under the term sheet and that we and Comcast
Holdings have breached certain joint-marketing obligations under the March 17,
1999 contract and other agreements. We, Comcast Holdings and Broadband intend to
oppose Starz Encore's motion for leave to file a second amended complaint and,
in light of Starz Encore's pending motion for leave to amend, have sought an
extension of time from the Court to respond to Starz Encore's amended complaint.
An entity formerly attributed to Broadband, which is now our subsidiary, is
party to a master agreement that may not expire until December 31, 2012, under
which it purchases certain billing services from CSG Systems, Inc. The master
agreement requires monthly payments, subject to adjustment for inflation. The
master agreement also contains a most favored nation provision that may affect
the amounts paid thereunder.
On May 10, 2002, Broadband filed a demand for arbitration against CSG
before the American Arbitration Association asserting, among other things, the
right to terminate the master agreement and seeking damages under the most
favored nation provision or otherwise. On May 31, 2002, CSG answered Broadband's
arbitration demand and asserted various counterclaims, including for (i) breach
of the master agreement; (ii) a declaration that we are now bound by the master
agreement to use CSG as our exclusive provider for certain billing and customer
care services; (iii) tortious interference with prospective contractual
relations; and (iv) civil conspiracy. A hearing in the arbitration is scheduled
to commence on May 5, 2003.
On June 21, 2002, CSG filed a lawsuit against Comcast Holdings in federal
court in Denver, Colorado asserting claims related to the master agreement and
the pending arbitration. On November 4, 2002, CSG withdrew its complaint against
Comcast Holdings without prejudice. On November 15, 2002, we initiated a lawsuit
against CSG in federal court in Philadelphia, Pennsylvania asserting that cable
systems owned by Comcast Holdings are not required to use CSG as a billing
service or customer care provider pursuant to the master agreement, and that the
former Broadband cable systems we now own may be added to a billing service
agreement between us and CSG. CSG moved to dismiss
- 17 -
or stay the lawsuit on the ground that the issues raised by the complaint could
be wholly or substantially determined by the above-mentioned arbitration. By
Order dated February 10, 2003, the Court stayed the lawsuit until further
notice.
On January 8, 2003, Liberty Digital, Inc. filed a complaint in Colorado
state court against us and Comcast Cable Holdings, LLC (formerly AT&T Broadband
LLC and Tele-Communications, Inc.), our wholly owned subsidiary. The complaint
alleges that Comcast Cable Holdings breached a 1997 "contribution agreement"
between Liberty Digital and Comcast Cable Holdings and that we tortiously
interfered with that agreement. The complaint alleges that this purported
agreement obligates Comcast Cable Holdings to pay fees to Liberty Digital
totaling $18 million (increasing at CPI) per year through 2017. We and Comcast
Cable Holdings filed our answer to the complaint on March 5, 2003, in which we
denied the essential allegations of the complaint and asserted various
affirmative defenses.
In management's opinion, the final disposition of the Starz Encore, CSG and
Liberty Digital contractual disputes is not expected to have a material adverse
effect on our consolidated financial position or results of operations. However,
no assurance can be given that any adverse outcome would not be material to our
consolidated financial position or results of operations.
We are subject to other legal proceedings and claims which arise in the
ordinary course of our business. In the opinion of our management, the amount of
ultimate liability with respect to such actions is not expected to materially
affect our financial condition, results of operations or liquidity.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
- 18 -
ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT
Except as explained below for our Chairman of the Board and our Chief
Executive Officer, the current term of office of each of our officers expires at
the first meeting of our Board of Directors following the next Annual Meeting of
Shareholders, presently scheduled to be held in May 2003, or as soon thereafter
as each of their successors is elected and qualified. The following table sets
forth certain information concerning our executive officers, including their
ages, positions and tenure as of December 31, 2002:
Officer
Name Age Since Position with Comcast
- ---------------------------- ---------- ------------ --------------------------------------------------------
Ralph J. Roberts 82 1969 Chairman of the Executive and Finance Committee of
the Board of Directors; Director
C. Michael Armstrong 64 2002 Chairman of the Board of Directors; Director
Brian L. Roberts 43 1986 President and Chief Executive Officer; Director
Julian A. Brodsky 69 1969 Vice Chairman; Director
John R. Alchin 54 1990 Co-Chief Financial Officer; Executive Vice President
and Treasurer
Stephen B. Burke 44 1998 Executive Vice President
David L. Cohen 47 2002 Executive Vice President
Lawrence S. Smith 55 1988 Co-Chief Financial Officer; Executive Vice President
Arthur R. Block 48 1993 Senior Vice President; General Counsel; Secretary
Lawrence J. Salva 46 2000 Senior Vice President and Controller
____________________
Ralph J. Roberts has served as a director and as our Chairman of the
Executive and Finance Committee of the Board of Directors since November 2002.
Prior to November 2002, Mr. Roberts served as a director and Chairman of the
Board of Directors of Comcast Holdings for more than five years. He is the
father of Mr. Brian L. Roberts.
C. Michael Armstrong has served as a director and as our Chairman of the
Board of Directors since November 2002. Mr. Armstrong has notified us that as of
May 7, 2003, the date of our 2003 annual shareholders meeting, he will exercise
his election to become Non-Executive Chairman of the Board of Directors. Prior
to November 2002, Mr. Armstrong served as Chairman and Chief Executive Officer
of AT&T since 1997. Mr. Armstrong was formerly the Chairman and Chief Executive
Officer of Hughes Electronics, a publicly traded tracking stock of General
Motors Corporation. Mr. Armstrong is also a director of Citigroup Inc.
Brian L. Roberts has served as a director and as our President and Chief
Executive Officer since November 2002. Upon Mr. Armstrong's election to become
Non-Executive Chairman of the Board of Directors, Mr. Roberts will become our
Chairman of the Board of Directors. Prior to November 2002, Mr. Roberts served
as a director and President of Comcast Holdings for more than five years. As of
December 31, 2002, Mr. Roberts has sole voting power over approximately 33 1/3%
of the combined voting power of our two classes of voting common stock. He is a
son of Mr. Ralph J. Roberts. Mr. Roberts is also a director of Comcast Holdings
and The Bank of New York Company, Inc.
Julian A. Brodsky has served as a director and as our Vice Chairman since
November 2002. Prior to November 2002, he served as a director and Vice Chairman
of Comcast Holdings for more than five years. Mr. Brodsky is also Chairman of
Comcast Interactive Capital, LP, a venture fund that is consolidated in our
financial statements. He is also a director of RBB Fund, Inc. and NDS Group plc.
John R. Alchin has served as our Co-Chief Financial Officer, Executive Vice
President and Treasurer since November 2002. Prior to November 2002, Mr. Alchin
served as an Executive Vice President and Treasurer of Comcast Holdings since
January 2000. Prior to January 2000, Mr. Alchin served as a Senior Vice
President and Treasurer of Comcast Holdings for more than five years. Mr. Alchin
is also a director of BNY Capital Markets, Inc.
Stephen B. Burke has served as our Executive Vice President and President
of Comcast Cable and Comcast Cable Communications Holdings since November 2002.
Prior to November 2002, Mr. Burke served as an Executive Vice President of
Comcast Holdings and President of Comcast Cable since January 2000. Mr. Burke
joined Comcast Holdings in June 1998 as Senior Vice President and President of
Comcast Cable. Prior to joining Comcast Holdings, Mr. Burke served with The Walt
Disney Company as President of ABC Broadcasting from January 1996 to June 1998.
Mr. Burke is also a director of Bank One Corporation.
David L. Cohen has served as our Executive Vice President since November
2002. Mr. Cohen joined
- 19 -
Comcast Holdings in July 2002 as an Executive Vice President. Prior to that
time, he was partner in, and Chairman of, the law firm of Ballard Spahr Andrews
& Ingersoll, LLP for more than five years. Mr. Cohen is also a director of
Comcast Holdings.
Lawrence S. Smith has served as our Co-Chief Financial Officer and
Executive Vice President since November 2002. Prior to November 2002, Mr. Smith
served as an Executive Vice President of Comcast Holdings for more than five
years. For more than five years prior to January 2000, Mr. Smith served as
Principal Accounting Officer of Comcast Holdings. Mr. Smith is also a director
of Comcast Holdings.
Arthur R. Block has served as our Senior Vice President, General Counsel
and Secretary since November 2002. Prior to November 2002, Mr. Block served as
General Counsel of Comcast Holdings since June 2000 and as Senior Vice President
of Comcast Holdings since January 2000. Prior to January 2000, Mr. Block served
as Vice President and Senior Deputy General Counsel of Comcast Holdings for more
than five years. Mr. Block is also a director of Comcast Holdings.
Lawrence J. Salva has served as our Senior Vice President and Controller
since November 2002. Mr. Salva joined Comcast Holdings in January 2000 as Senior
Vice President and Chief Accounting Officer. Prior to that time, Mr. Salva was a
national accounting consulting partner in the public accounting firm of
PricewaterhouseCoopers for more than five years.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our Class A common stock is included on Nasdaq under the symbol CMCSA and
our Class A Special common stock is included on Nasdaq under the symbol CMCSK.
There is no established public trading market for our Class B common stock. Our
Class B common stock can be converted, on a share for share basis, into Class A
or Class A Special common stock. The following table sets forth, for the
indicated periods, the closing price range of our Class A and Class A Special
common stock as furnished by Nasdaq.
Class A
Class A Special
-------------------------------------------------------------
High Low High Low
------------- ----------- ------------- ------------
2001
First Quarter...................................... $45.25 $38.06 $45.88 $38.69
Second Quarter..................................... 44.75 38.88 45.50 39.50
Third Quarter...................................... 42.70 32.79 43.30 32.51
Fourth Quarter..................................... 40.06 34.95 40.18 35.19
2002
First Quarter...................................... $37.13 $30.10 $37.33 $29.65
Second Quarter..................................... 33.67 23.35 32.15 22.33
Third Quarter...................................... 25.87 17.57 25.12 16.80
Fourth Quarter..................................... 26.78 17.40 26.24 16.93
____________________
Our Board of Directors eliminated the quarterly cash dividend on all
classes of our common stock in March 1999. We do not intend to pay dividends on
our Class A, Class A Special or Class B common stock for the foreseeable future.
Holders of our Class A common stock in the aggregate hold 66 2/3% of the
aggregate voting power of our capital stock. The number of votes that each share
of our Class A common stock will have at any given time will depend on the
number of shares of Class A common stock and Class B common stock then
outstanding. If you hold shares of our Class A Special common stock, you cannot
vote in the election of directors or otherwise, except where class voting is
required by law. In that case, if you hold Class A Special common stock, you
will have the same number of votes per share as each share of Class A common
stock. Our Class B common stock has a 33 1/3% nondilutable voting interest and
each share of Class B common stock has 15 votes per share. Mr. Brian L. Roberts
beneficially owns all outstanding shares of our Class B common stock. Generally,
including as to the election of directors, holders of Class A common stock and
Class B common stock vote as one class except where class voting is required by
law.
As of December 31, 2002, there were 1,410,983 record holders of our Class A
common stock, 4,981 record holders of our Class A Special common stock and three
record holders of our Class B common stock.
- 20 -
ITEM 6 SELECTED FINANCIAL DATA
Year Ended December 31,
2002(1) 2001(1) 2000(1) 1999 1998
-----------------------------------------------------------
(Dollars in millions, except per share data)
Statement of Operations Data:
Revenues........................................... $12,460 $9,836 $8,357 $6,632 $5,513
Operating income (loss)............................ 1,659 (746) (161) 664 557
Income (loss) from continuing operations before
cumulative effect of accounting change........ (276) 224 2,021 730 1,003
Discontinued operations............................ 2 336 (31)
Cumulative effect of accounting change............. 385
Net income (loss).................................. (274) 609 2,021 1,066 972
Basic earnings (loss) for common stockholders
per common share (2)
Income (loss) from continuing operations
before cumulative effect of accounting
change..................................... ($.25) $.24 $2.24 $.93 $1.33
Discontinued operations....................... .45 (.04)
Cumulative effect of accounting change........ .40
---------- ------------- ---------- ---------- ----------
Net income (loss)............................. ($.25) $.64 $2.24 $1.38 $1.29
========== ============= ========== ========== ==========
Diluted earnings (loss) for common
stockholders per common share (2)
Income (loss) from continuing operations
before cumulative effect of accounting
change..................................... ($.25) $.23 $2.13 $.89 $1.24
Discontinued operations ...................... .41 (.03)
Cumulative effect of accounting change ....... .40
---------- ------------- ---------- ---------- ----------
Net income (loss)............................. ($.25) $.63 $2.13 $1.30 $1.21
========== ============= ========== ========== ==========
Cash dividends declared per common share (2)....... $.0467
Balance Sheet Data (at year end) (3):
Total assets....................................... $113,105 $38,261 $35,874 $28,823 $14,711
Working capital.................................... (8,307) 1,455 1,695 4,786 2,505
Long-term debt..................................... 27,957 11,742 10,517 8,707 5,464
Stockholders' equity............................... 38,329 14,473 14,086 10,341 3,815
Supplementary Financial Data:
Operating income before depreciation and
amortization (4).............................. $3,691 $2,670 $2,458 $1,880 $1,496
Net cash provided by (used in) (5)
Operating activities.......................... 2,995 1,577 1,189 1,249 1,068
Financing activities.......................... (1,292) 1,495 (241) 1,341 809
Investing activities.......................... (1,272) (3,374) (1,219) (2,539) (1,415)
- ---------------------------------------------------
<FN>
(1) You should see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Item 7 of this Annual Report for a discussion
of events which affect the comparability of the information reflected in
this financial data.
(2) We have adjusted these for our two-for-one stock split in the form of a
100% stock dividend in May 1999.
(3) On November 18, 2002, we completed the acquisition of Broadband. Our
estimates associated with the accounting for the Broadband acquisition have
and will continue to change as final reports from valuation specialists are
obtained and additional information becomes available regarding assets
acquired and liabilities assumed. Since the publication of our 2002 year
end earnings release, the ongoing valuation and allocation process has
resulted in inconsequential changes to the balance sheet, primarily
affecting non-amortizable intangible assets and related deferred tax
liabilities. Changes in the amounts assigned to other acquisition related
assets and liabilities may affect operating results, or gains or losses
upon the disposition of assets acquired, in future periods.
(4) Operating income before depreciation and amortization is commonly referred
to in our businesses as "EBITDA." EBITDA is a measure of a company's
ability to generate cash to service its obligations, including debt service
obligations, and to finance capital and other expenditures. In part due to
the capital intensive nature of our businesses and the resulting
significant level of non-cash depreciation and amortization expense, EBITDA
is frequently used as one of the bases for comparing businesses in our
industries, although our measure of EBITDA may not be comparable to
similarly titled measures of other companies. EBITDA is the primary basis
used by our management to measure the operating performance of our
businesses. EBITDA does not purport to represent net income or net cash
provided by operating activities, as those terms are defined under
generally accepted accounting principles, and should not be considered as
an alternative to those measurements as an indicator of our performance.
(5) This represents net cash provided by (used in) operating activities,
financing activities and investing activities as presented in our
consolidated statement of cash flows which is included in Item 8 of this
Annual Report.
</FN>
- 21 -
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We have grown significantly in recent years through both strategic
acquisitions and growth in our existing businesses. On November 18, 2002, we
completed the acquisition of AT&T Corp.'s broadband business (the "Broadband
acquisition"). The Broadband acquisition substantially increased the size of our
cable operations and caused significant changes in our capital structure,
including a substantially higher amount of debt. As a result, direct comparisons
of our results of operations and financial condition for periods prior to
November 18, 2002 to subsequent periods are not meaningful.
In February 2003, we announced that we had entered into a definitive
agreement with Bresnan Broadband Holdings, LLC and Bresnan Communications, LLC
(together "Bresnan") pursuant to which we agreed to transfer to Bresnan cable
systems serving approximately 317,000 subscribers in Montana, Wyoming, Colorado
and Utah that we had acquired in connection with the Broadband acquisition. We
reflect these systems as assets held for sale in our consolidated balance sheet
and as discontinued operations in our consolidated statement of operations.
Accordingly, we have excluded these systems' results in our discussions of
liquidity and capital resources, statement of cash flows and results of
operations for all periods presented.
We have historically met our cash needs for operations through our cash
flows from operating activities. We have generally financed our acquisitions and
capital expenditures through issuances of our common stock, borrowings of
long-term debt, sales of investments and from existing cash, cash equivalents
and short-term investments.
General Developments of Business
Refer to "General Developments of Our Business" in Part I and Note 5 to our
financial statements included in Item 8 for a discussion of our acquisitions and
other significant events.
Significant and Subjective Estimates
The following discussion and analysis of our financial condition and
results of operations is based upon our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires us
to make estimates that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. We base our judgments on historical experience and on various other
assumptions that we believe are reasonable under the circumstances, the results
of which form the basis for making estimates about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
Refer to Note 2 to our financial statements included in Item 8 for a
discussion of our accounting policies with respect to these and other items.
Critical Accounting Judgments and Estimates
We believe our judgments and related estimates associated with the
impairment testing and valuation of our cable franchise rights, and the
valuation of acquisition related assets, liabilities and legal contingencies, to
be critical in the preparation of our consolidated financial statements.
Management has discussed the development and selection of these critical
accounting judgments and estimates with the Audit Committee of our Board of
Directors and the Audit Committee has reviewed our disclosures relating to them
presented below.
Impairment Testing and Valuation of Cable Franchise Rights
Our cable systems are constructed and operated under non-exclusive
franchises granted by state or local governmental authorities for varying
lengths of time. As of December 31, 2002, we served approximately 4,600
franchise areas in the United States. We have concluded that our cable franchise
rights have an indefinite useful life since there are no legal, regulatory,
contractual, competitive, economic or other factors limiting the period over
which these rights will contribute to our cash flows. Accordingly, our cable
franchise rights are not subject to amortization but are assessed periodically
for impairment in accordance with Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets."
We have acquired these franchise rights either directly from local
franchise authorities or through many separate cable system acquisitions that
include multiple franchise territories. Upon acquisition, we integrate the
individual franchise territories into our national footprint. While our Cable
Division is organized nationally into six geographic divisions, which are
further organized into geographic clusters of cable systems, we operate our
cable operations and their associated franchise rights as a single asset,
essentially inseparable from one another.
- 22 -
We have concluded that the preponderance of indicators in Emerging Issues Task
Force ("EITF") 02-7, "Unit of Accounting for Testing Impairment of
Indefinite-Lived Intangible Assets," supports the testing of our cable franchise
rights for impairment at the cable segment level, which is the same unit of
accounting used by us to test cable-related goodwill for impairment.
We assess the recoverability of our cable franchise rights annually or more
frequently whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. We estimate the fair value of our cable
franchise rights primarily based on a multiple of operating income before
depreciation and amortization ("EBITDA") generated by the underlying assets. The
EBITDA multiple used in our evaluation is determined based on our analyses of
current market transactions, profitability information, including estimated
future operating results, trends or other determinants of fair value. We also
consider other valuation methods such as discounted cash flow analyses. If the
value of our cable franchise rights determined by these evaluations is less than
its carrying amount, an impairment charge would be recognized for the difference
between the estimated fair value and the carrying value of the assets. Future
adverse changes in market conditions or poor operating results of the related
business may indicate an inability to recover the carrying value of the assets,
thereby possibly requiring a future impairment charge.
As more fully described in Note 5 to our financial statements included in
Item 8 (see Acquisition of Broadband), the fair value of the shares issued for
Broadband was based on the date the non-equity, or "other" consideration being
paid was substantively changed from the terms of the original merger agreement.
The fair value of the shares issued for Broadband based on the new measurement
date was approximately one-half the fair value assigned to the shares as of the
date of the original merger agreement. Accordingly, the effect of the
modification was to reduce by approximately one-half (approximately $23 billion)
the value assigned to the equity consideration issued in connection with the
Broadband acquisition. As a significant portion of the purchase price was
allocated to indefinite-lived cable franchise rights and to goodwill, the
reduction in the fair value of the equity consideration reduces the likelihood
of a future impairment charge related to our cable franchise rights or goodwill.
The carrying amount of cable franchise rights related to our historical
cable systems is significantly less than their current estimated fair value
largely because we acquired many of these rights directly from local franchise
authorities rather than through separate cable system acquisitions. Conversely,
the carrying amount of cable franchise rights for our more recent cable system
acquisitions has not been significantly reduced through amortization (and has
not been reduced at all for acquisitions made subsequent to the adoption of SFAS
No. 142). Nevertheless, testing for impairment at the cable segment level
reduces the likelihood of a future impairment charge related to our cable
franchise rights.
Fair Value of Acquisition Related Assets, Liabilities and Legal
Contingencies
We allocate the purchase price of acquired companies to the tangible and
intangible assets acquired and liabilities assumed based on their estimated fair
values. In determining fair value, management is required to make estimates and
assumptions that affect the recorded amounts. To assist in this process, third
party valuation specialists are engaged to value certain of these assets and
liabilities.
Estimates used in valuing acquired assets and liabilities include but are
not limited to: expected future cash flows; market rate assumptions for
contractual obligations; actuarial assumptions for benefit plans; settlement
plans for litigation and contingencies; and appropriate discount rates.
Management's estimates of fair value are based upon assumptions believed to be
reasonable, but which are inherently uncertain. In addition, estimated
liabilities to exit activities of the acquired operations, including the exiting
of contractual obligations and the termination of employees, are subject to
change as management continues its assessment of operations and finalizes its
integration plans.
The assets and assumed liabilities related to the Broadband acquisition
requiring significant judgment in estimating fair value include investments,
cable franchise rights, franchise related customer relationships, assumed
contractual and other obligations, and costs related to terminating certain of
Broadband's contractual obligations and employees. In addition, we are party to
certain Broadband legal contingencies, including those described in Item 3,
Legal Proceedings. If, based on information available, a potential loss arising
from these lawsuits, claims and actions was deemed probable and reasonably
estimable, we recorded the estimated liability in the purchase price allocation.
While management believes the recorded liabilities are adequate, additional
information related to these cases is still being obtained. In addition, the
inherent limitations in the estimation process may cause future actual losses to
exceed expected losses.
Our estimates associated with the accounting for the Broadband acquisition
have and will continue to change as final reports from valuation specialists are
obtained and additional information becomes available regarding
- 23 -
assets acquired and liabilities assumed. Since the publication of our 2002 year
end earnings release, the ongoing valuation and allocation process has resulted
in inconsequential changes to the balance sheet, primarily affecting
non-amortizable intangible assets and related deferred tax liabilities. Changes
in the amounts assigned to other acquisition related assets and liabilities may
affect operating results, or gains or losses upon the disposition of assets
acquired, in future periods.
Liquidity and Capital Resources
The cable and the electronic retailing industries are experiencing
increasing competition and rapid technological changes. Our future results of
operations will be affected by our ability to react to changes in the
competitive environment and by our ability to implement new technologies. We
believe that competition and technological changes will not significantly affect
our ability to obtain financing.
In order to preserve the treatment of the Broadband acquisition as
tax-free, our ability to redeem stock or issue equity securities will be limited
through December 2004. As of December 31, 2002, we had the ability to issue at
least 250 million shares of our common stock without affecting the tax treatment
of the Broadband acquisition.
We believe that we will be able to meet our current and long-term liquidity
and capital requirements, including fixed charges, through our cash flows from
operating activities, existing cash, cash equivalents and investments, and
through available borrowings under our existing credit facilities.
Available sources of financing to fund these requirements include:
o our existing cash and cash equivalents, which totaled $781 million
as of December 31, 2002,
o amounts available under our and our subsidiaries' lines of credit,
which totaled $5.949 billion as of December 31, 2002,
o proceeds of approximately $525 million from the sale of cable
systems to Bresnan Broadband Holdings, LLC and Bresnan
Communications, LLC, a transaction we expect will close by the end
of the first quarter of 2003,
o proceeds of approximately $725 million from the sale of our interest
in a cable joint venture with Charter Communications, Inc., a
transaction we expect to close in April 2003, and
o through the sales or restructurings of our other investments,
including $2.1 billion of cash due upon the restructuring of Time
Warner Entertainment L.P. ("TWE").
In addition, as more fully described in Note 5 to our financial statements
included in Item 8 (see TWE Restructuring), upon closing of the TWE
restructuring agreement, we will receive $1.5 billion in common stock of AOL
Time Warner and an approximate 21% equity interest in Time Warner Cable, Inc.
Refer to the Contractual Obligations table on page 29 and to Note 13 to our
financial statements included in Item 8 for a discussion of our commitments and
contingencies.
Cash and Cash Equivalents
We have traditionally maintained significant levels of cash and cash
equivalents to meet our short-term liquidity requirements. Our cash equivalents
are recorded at fair value. Cash and cash equivalents as of December 31, 2002
were $781 million, substantially all of which is unrestricted.
Investments
A significant portion of our investments are in publicly traded companies
and are reflected at fair value, which fluctuates with market changes.
We do not have any significant contractual funding commitments with respect
to any of our investments. Our ownership interests in these investments may,
however, be diluted if we do not fund our investees' non-binding capital calls.
We continually evaluate our existing investments, as well as new investment
opportunities.
Refer to Note 6 to our financial statements included in Item 8 for a
discussion of our investments.
Capital Expenditures
During 2003, we expect to incur approximately $4.2 billion of capital
expenditures in our cable, commerce and content businesses, including
approximately $4 billion for our cable operations.
We anticipate capital expenditures for years subsequent to 2003 will
continue to be significant. As of December 31, 2002, we do not have any
significant contractual obligations for capital expenditures.
Cable
We expect our 2003 cable capital expenditures will include approximately
$1.3 billion for the upgrading and rebuilding of certain of our cable systems,
approximately
- 24 -
$1.8 billion for the deployment of cable modems, digital converters and new
service offerings, and approximately $0.9 billion for recurring capital
projects.
We expect to substantially complete the upgrade and rebuild of the newly
acquired systems by the end of 2004 for a total cost of $2.2 billion to $2.5
billion. The amount of our capital expenditures for years subsequent to 2003
will depend on numerous factors, some of which are beyond our control including:
o competition,
o changes in technology, and
o the timing and rate of deployment of new services.
Commerce
During 2003, we expect to incur approximately $125 million of capital
expenditures for QVC, primarily to maintain QVC's distribution facilities and
information systems. Capital expenditures in QVC's international operations
represent nearly 40% of QVC's total capital expenditures.
On March 3, 2003, we announced that Liberty Media Corporation delivered a
notice to us, pursuant to the stockholders agreement between us and Liberty,
that triggers an exit rights process with respect to Liberty's approximate 42%
interest in QVC. We and Liberty will attempt to negotiate the fair market value
of QVC prior to March 31, 2003. If we and Liberty cannot agree, an appraisal
process will determine the value of QVC. We will then have the right to purchase
Liberty's interest in QVC at the determined value. We may pay Liberty for the
QVC stock in cash, in a promissory note maturing not more than three years after
issuance, in our equity securities or in a combination of these, subject to
Liberty's right to request payment in all equity securities and the parties'
obligation to use reasonable efforts to consummate the purchase in the most tax
efficient method available (provided that we are not required to issue
securities representing more than 4.9% of the outstanding equity or vote of our
common stock). If we elect not to purchase Liberty's interest in QVC, Liberty
then will have a similar right to purchase our approximate 57% interest in QVC.
If neither we nor Liberty elect to purchase the interest of the other, then we
and Liberty are required to use our best efforts to sell QVC; either company is
permitted to be a purchaser in any such sale. We and Liberty may agree not to
enter into a transaction, or may agree to a transaction other than that
specified in the stockholders agreement. Under the current terms of the
stockholders agreement between us and Liberty, we would no longer control QVC if
we elect not to purchase Liberty's interest in QVC.
Affiliation Agreements
Certain of our content subsidiaries and QVC enter into multi-year
affiliation agreements with various cable and satellite system operators for
carriage of their respective programming. In connection with these affiliation
agreements, we generally pay a fee to the cable or satellite operator based upon
the number of subscribers. During 2003, we expect to incur $150 million to $200
million related to these affiliation agreements, excluding amounts applicable to
our cable systems.
Financing
As of December 31, 2002 and 2001, our debt, including capital lease
obligations, was $34.910 billion and $12.202 billion, respectively. The $22.708
billion increase from December 31, 2001 to December 31, 2002 results from the
effects of the Broadband acquisition, offset by the effects of net debt
repayments. Included in our debt as of December 31, 2002 was short-term debt and
current portion of long-term debt of $6.953 billion.
In January and March 2003, we sold an aggregate of $3.0 billion of public
debt consisting of $600 million of 5.85% senior notes due 2010, $900 million of
6.50% senior notes due 2015, $750 million of 5.50% senior notes due 2011 and
$750 million of 7.05% senior notes due 2033. We used all of the net proceeds
from the offerings to repay a portion of our short-term debt.
As a result of the Broadband acquisition, we assumed notes exchangeable
into the common stock of Cablevision NY Group Class A common stock, Microsoft
Corporation ("Microsoft") common stock, Vodafone ADRs, and Comcast Class A
Special common stock (together, the "Exchangeable Notes"). At maturity the
Exchangeable Notes are mandatorily redeemable at our option into (i) a number of
shares of common stock or ADRs equal to the underlying shares multiplied by an
exchange ratio (as defined), or (ii) its cash equivalent. The maturity value of
the Exchangeable Notes varies based upon the fair market value of the security
to which it is indexed. The Exchangeable Notes are collateralized by our
investments in Cablevision, Microsoft and Vodafone, respectively, and our Class
A Special common stock held in treasury.
As of December 31, 2002, our debt includes an aggregate of $5.459 billion
of Exchangeable Notes, including $1.555 billion and $3.904 billion within
current portion of long-term debt and long-term debt, respectively. As of
December 31, 2002, our investments include Cablevision, Microsoft and Vodafone
securities with an aggregate fair value of $4.420 billion, including $1.993
billion and $2.427 billion within short-term and
- 25 -
noncurrent investments, respectively. Upon closing of the Broadband acquisition,
we classified the Comcast shares, which are held by a subsidiary of ours, as
treasury stock within stockholders' equity. As of December 31, 2002, the
securities held by us collateralizing the Exchangeable Notes were sufficient to
satisfy the debt obligations associated with the outstanding Exchangeable Notes.
Excluding the effects of interest rate risk management instruments, 31.8%
and 13.4% of our long- term debt, including short-term debt and current portion,
as of December 31, 2002 and 2001, respectively, was at variable rates. The
increase from December 31, 2001 to December 31, 2002 in the percentage of our
variable rate debt was due principally to the effects of the Broadband
acquisition.
We have, and may from time to time in the future, depending on certain
factors including market conditions, make optional repayments on our debt
obligations, which may include open market repurchases of our outstanding public
notes and debentures.
Refer to Notes 8 and 10 to our financial statements included in Item 8 for
a discussion of our financing activities.
Interest Rate Risk Management
We are exposed to the market risk of adverse changes in interest rates. We
maintain a mix of fixed and variable rate debt and enter into various derivative
transactions pursuant to our policies to manage the volatility relating to these
exposures. We monitor our interest rate risk exposures using techniques
including market value and sensitivity analyses. We do not hold or issue any
derivative financial instruments for trading purposes and are not a party to
leveraged instruments. We manage the credit risks associated with our derivative
financial instruments through the evaluation and monitoring of the
creditworthiness of the counterparties. Although we may be exposed to losses in
the event of nonperformance by the counterparties, we do not expect such losses,
if any, to be significant.
We use interest rate exchange agreements ("Swaps") to exchange, at
specified intervals, the difference between fixed and variable interest amounts
calculated by reference to an agreed-upon notional principal amount. We use
interest rate lock agreements ("Rate Locks") to hedge the risk that cash flows
related to the interest payments on an anticipated issuance or assumption of
fixed rate debt may be adversely affected by interest rate fluctuations. We use
interest rate cap agreements ("Caps") to lock in a maximum interest rate should
variable rates rise, but enable us to otherwise pay lower market rates. We use
interest rate collar agreements ("Collars") to limit our exposure to and
benefits from interest rate fluctuations on variable rate debt to within a
certain range of rates.
The table set forth below summarizes the fair values and contract terms of
financial instruments subject to interest rate risk maintained by us as of
December 31, 2002 (dollars in millions):
Fair
Value at
2003 2004 2005 2006 2007 Thereafter Total 12/31/02
Debt
Fixed Rate.......................... $2,162 $1,720 $2,637 $1,789 $1,131 $14,363 $23,802 $25,719
Average Interest Rate............ 7.1% 6.7% 7.2% 7.2% 8.2% 8.0% 7.7%
Variable Rate....................... $4,791 $4,415 $1,817 $45 $39 $1 $11,108 $11,108
Average Interest Rate............ 2.4% 2.6% 2.8% 4.0% 3.0% 7.4% 2.6%
Interest Rate Instruments
Variable to Fixed Swaps............. $608 $715 $488 $1,811 $64
Average Pay Rate................. 7.3% 7.6% 7.6% 7.5%
Average Receive Rate............. 1.4% 1.7% 2.2% 1.7%
Fixed to Variable Swaps............. $300 $300 $41
Average Pay Rate................. 7.8% 7.8%
Average Receive Rate............. 9.7% 9.7%
---------------------------
The notional amounts of interest rate instruments, as presented in the
table above, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds to settle the outstanding contracts. We estimate
interest rates on variable debt using the average implied forward London
Interbank Offer Rate ("LIBOR") rates for the year of maturity based on the yield
curve in effect at December 31, 2002, plus the borrowing margin in effect for
each credit facility at
- 26 -
December 31, 2002. We estimate average receive rates on the Variable to Fixed
Swaps using the average implied forward LIBOR rates for the year of maturity
based on the yield curve in effect at December 31, 2002. While Swaps, Rate
Locks, Caps and Collars represent an integral part of our interest rate risk
management program, their incremental effect on interest expense for the years
ended December 31, 2002, 2001 and 2000 was not significant.
Equity Price Risk Management
We have entered into cashless collar agreements (the "Equity Collars") and
prepaid forward sales agreements ("Prepaid Forward Sales") which we account for
at fair value. The Equity Collars and Prepaid Forward Sales limit our exposure
to and benefits from price fluctuations in the common stock of certain of our
investments accounted for as trading securities. Refer to Note 6 to our
financial statements included in Item 8 for a discussion of our Prepaid Forward
Sales.
The change in the fair value of our investments accounted for as trading
securities was substantially offset by the changes in the fair value of the
Equity Collars, the derivative components of the ZONES, the Exchangeable Notes
and the Prepaid Forward Sales. See "Results of Operations - Investment Income
(Expense)" below.
Accumulated Other Comprehensive Income (Loss)
The change in accumulated other comprehensive income (loss) from December
31, 2001 to December 31, 2002 is principally attributable to unrealized losses
on our Rate Locks classified as cash flow hedges entered into in 2002, to
declines in unrealized gains on our investments classified as available for sale
held throughout the period, and to realized losses on sales of investments and
investment impairment losses on investments classified as available for sale
during 2002. Refer to Notes 6 and 8 to our financial statements in Item 8.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
In January 2003, the Securities and Exchange Commission ("SEC") issued
final rules which require the disclosure of material off-balance sheet
arrangements and known contractual obligations as of the most recent balance
sheet date. The new rules are effective with our 2003 Annual Report. The
disclosures below are based on the requirements of the new rules.
We do not have any off-balance sheet arrangements that are reasonably
likely to have a current or future effect on our financial condition, results of
operations, liquidity, capital expenditures or capital resources, as defined
under the new rules. Refer to Notes 8 and 13 to our financial statements
included in Item 8 of this Annual Report for a description of our obligations
related to guarantees, operating leases and other commitments.
We have summarized our known contractual obligations as of December 31,
2002, and the effect such obligations are expected to have on our liquidity and
cash flow in future periods, in a tabular format prescribed by the new SEC
rules. Refer to Note 8 to our financial statements included in Item 8 for a
description of our long-term debt. Refer to Note 13 to our financial statements
included in Item 8 for a description of our operating lease and purchase
obligations. Refer to Note 5 to our financial statements included in Item 8 for
a description of our acquisition related obligations.
Contractual Obligations Payments Due by Period
-------------------------------------------------
More
Years Years than 5
Total Year 1 2 - 3 4 - 5 years
---------- ---------- ---------- ---------- ----------
(dollars in millions)
Debt obligations ............................... $34,678 $6,936 $10,474 $2,923 $14,345
Capital lease obligations ...................... 232 17 115 81 19
Operating lease obligations..................... 1,120 248 354 220 298
Purchase obligations (1)........................ 1,373 230 392 258 493
Other long-term liabilities reflected
on the balance sheet
Acquisition related obligations (2)........ 2,377 869 516 261 731
Other long-term obligations (3)............ 935 294 334 69 238
---------- ---------- ---------- ---------- ----------
Total........................................... $40,715 $8,594 $12,185 $3,812 $16,124
========== ========== ========== ========== ==========
____________
<FN>
(1) Purchase obligations consist of agreements to purchase goods and services
that are enforceable and legally binding on us and that specify all
significant terms including fixed or minimum quantities to be purchased,
price provisions and timing of the transaction. Our purchase obligations
consist of the employment agreements that we, through Comcast Spectacor,
have with both players and coaches of our professional sports teams and
license agreements that our programming networks have entered into for
programs and sporting events which will be available
- 27 -
for telecast subsequent to December 31, 2002. Certain of these employment
agreements, which provide for payments that are guaranteed regardless of
employee injury or termination, are covered by disability insurance if
certain conditions are met.
(2) Acquisition related obligations consist primarily of costs related to
terminating employees, costs relating to exiting contractual obligations,
and other assumed contractual obligations of the acquired entity.
(3) Other long-term obligations consist principally of our deferred
compensation obligations, pension, post-retirement and post-employment
benefit obligations, and program rights payable under license agreements.
</FN>
---------------------------
Statement of Cash Flows
Cash and cash equivalents increased $431 million as of December 31, 2002
from December 31, 2001. The increase in cash and cash equivalents resulted from
cash flows from operating, financing and investing activities as explained
below.
Net cash provided by operating activities from continuing operations
amounted to $2.995 billion for the year ended December 31, 2002, due principally
to our operating income before depreciation and amortization (see "Results of
Operations"), offset by changes in working capital as a result of the timing of
receipts and disbursements and the effects of net interest and current income
tax expense.
Net cash used in financing activities from continuing operations includes
borrowings and repayments of debt, proceeds from settlements of Swaps, issuances
and repurchases of our equity securities and deferred financing costs. Net cash
used in financing activities from continuing operations was $1.292 billion for
the year ended December 31, 2002. During 2002, we borrowed $8.759 billion,
consisting of:
o $7.180 billion under our New Credit Facilities,
o $1.135 billion under revolving credit facilities, and
o $444 million under Comcast Cable's commercial paper program.
During 2002, we repaid $9.808 billion of our debt, consisting of:
o $5.85 billion of Broadband intercompany indebtedness due at closing
of the Broadband acquisition,
o $1.525 billion on certain of our revolving credit facilities,
o $1.023 billion of our Zero Coupon Debentures,
o $841 million under Comcast Cable's commercial paper program,
o $250 million of short-term debt,
o $200 million of our senior subordinated debentures, and
o $119 million under capital leases and other.
During 2002, we received proceeds of $57 million from settlement of certain
of our Swaps, and incurred $332 million of deferred financing costs.
Net cash used in investing activities from continuing operations includes
the effects of acquisitions, net of cash acquired, purchases of investments,
capital expenditures and additions to intangible assets, offset by proceeds from
sales of investments. Net cash used in investing activities from continuing
operations was $1.272 billion for the year ended December 31, 2002.
During 2002, acquisitions, net of cash acquired, amounted to $251 million,
related primarily to our acquisition of Broadband. Capital expenditures were
$1.975 billion and additions to intangible and other noncurrent assets were $221
million, including $65 million related to the satellite and cable television
affiliation agreements of QVC and our content subsidiaries. Such amounts were
offset, in part, by proceeds from sales and settlements of investments of $1.263
billion.
Results of Operations
The effects of the Broadband acquisition and our other recent acquisitions
were to increase our revenues and expenses, resulting in increases in our
operating income before depreciation and amortization. The increases in our
property and equipment, intangible assets and long-term debt, and the
corresponding increases in depreciation expense and interest expense from 2001
to 2002 are primarily due to the effects of the Broadband acquisition, and the
increases from 2000 to 2001 are primarily due to the effects of our
acquisitions, our cable systems exchanges and our increased levels of capital
expenditures.
As the effect of the Broadband acquisition was to substantially increase
the size of our cable operations, direct comparisons of our results of
operations and financial condition for periods prior to November 18, 2002 to
subsequent periods are not meaningful. Refer to "Pro Forma 2002 Results" below
for our 2002 supplemental pro forma financial information prepared as if the
Broadband acquisition occurred on January 1, 2002.
Refer to Notes 5 and 12 to our financial statements included in Item 8 for
a discussion of our acquisitions and cable systems exchanges, and of the effect
of these
- 28 -
transactions on our balance sheet.
We adopted SFAS No. 142 on January 1, 2002, as required by the new
statement. See "Amortization" on page 32 for a discussion of the impact the
adoption of the new statement had on our consolidated financial condition and
results of operations.
Our summarized consolidated financial information for the three years ended
December 31, 2002 is as follows (dollars in millions, "NM" denotes percentage is
not meaningful):
Year Ended
December 31, Increase/(Decrease)
2002 2001 $ %
---------- --------- --------- ---------
Revenues........................................................ $12,460 $9,836 $2,624 26.7%
Cost of goods sold from electronic retailing.................... 2,793 2,514 279 11.1
Operating, selling, general and administrative expenses......... 5,976 4,652 1,324 28.5
Depreciation.................................................... 1,775 1,211 564 46.6
Amortization.................................................... 257 2,205 (1,948) (88.3)
---------- --------- --------- ---------
Operating income (loss)......................................... 1,659 (746) 2,405 NM
---------- --------- --------- ---------
Interest expense................................................ (884) (734) 150 20.4
Investment income (expense)..................................... (605) 1,062 (1,667) NM
Equity in net losses of affiliates.............................. (103) (29) 74 255.2
Other income.................................................... 3 1,301 (1,298) (99.8)
Income tax expense.............................................. (134) (470) (336) (71.5)
Minority interest............................................... (212) (160) 52 32.5
---------- --------- --------- ---------
Income (loss) from continuing operations before
cumulative effect of accounting change....................... ($276) $224 ($500) NM
========== ========= ========= =========
Operating income before depreciation and amortization (1) ...... $3,691 $2,670 $1,021 38.2%
========== ========= ========= =========
Year Ended
December 31, Increase/(Decrease)
2001 2000 $ %
---------- --------- --------- ---------
Revenues........................................................ $9,836 $8,357 $1,479 17.7%
Cost of goods sold from electronic retailing.................... 2,514 2,285 229 10.0
Operating, selling, general and administrative expenses......... 4,652 3,614 1,038 28.7
Depreciation.................................................... 1,211 837 374 44.7
Amortization.................................................... 2,205 1,782 423 23.7
---------- --------- --------- ---------
Operating loss.................................................. (746) (161) 585 363.4
---------- --------- --------- ---------
Interest expense................................................ (734) (728) 6 0.8
Investment income............................................... 1,062 984 78 7.9
Income related to indexed debt.................................. 666 (666) (100.0)
Equity in net losses of affiliates.............................. (29) (22) 7 31.8
Other income.................................................... 1,301 2,826 (1,525) (54.0)
Income tax expense.............................................. (470) (1,429) (959) (67.1)
Minority interest............................................... (160) (115) 45 39.1
---------- --------- --------- ---------
Income before cumulative effect of accounting change............ $224 $2,021 ($1,797) (88.9%)
========== ========= ========= =========
Operating income before depreciation and amortization (1) ...... $2,670 $2,458 $212 8.6%
========== ========= ========= =========
____________
<FN>
(1) Operating income before depreciation and amortization is commonly referred
to in our businesses as "EBITDA." EBITDA is a measure of a company's
ability to generate cash to service its obligations, including debt service
obligations, and to finance capital and other expenditures. In part due to
the capital intensive nature of our businesses and the resulting
significant level of non-cash depreciation and amortization expense, EBITDA
is frequently used as one of the bases for comparing businesses in our
industries, although our measure of EBITDA may not be comparable to
similarly titled measures of other companies. EBITDA is the primary basis
used by our management to measure the operating performance of our
businesses. EBITDA does not purport to represent net income or net cash
provided by operating activities, as those terms are defined under
generally accepted accounting principles, and should not be considered as
an alternative to such measurements as an indicator of our performance. See
"Statement of Cash Flows" above for a discussion of net cash provided by
operating activities.
</FN>
- 29 -
Consolidated Operating Results
Revenues
The increases in consolidated revenues from 2001 to 2002 and from 2000 to
2001 are primarily attributable to increases in service revenues in our Cable
segment and to increases in net sales in our Commerce segment (see "Operating
Results by Business Segment" below). The remaining increases are primarily the
result of increases in revenues from our content operations, principally due to
growth in our historical operations and the effects of our acquisitions in 2001.
On January 1, 2002, we adopted EITF 01-9, "Accounting for Consideration
Given to a Customer (Including a Reseller of the Vendor's Products)" and EITF
01-14, "Income Statement Characterization of Reimbursements Received for
'Out-of-Pocket' Expenses Incurred." We have reclassified our statement of
operations for all periods presented to reflect the adoption of EITF 01-9 and
EITF 01-14. The changes in classification had no impact on our reported
operating income (loss) or financial condition. Refer to Note 2 to our financial
statements included in Item 8 for a discussion of EITF 01-9 and EITF 01-14.
Cost of goods sold from electronic retailing
Refer to the "Commerce" section of "Operating Results by Business Segment"
below for a discussion of the increases in cost of goods sold from electronic
retailing.
Operating, selling, general and administrative expenses
The increases in consolidated operating, selling, general and
administrative expenses from 2001 to 2002 and from 2000 to 2001 are primarily
attributable to increases in expenses in our Cable segment and, to a lesser
extent, to increases in expenses in our Commerce segment (see "Operating Results
by Business Segment" below). The remaining increases are primarily the result of
increased expenses in our content operations, principally due to growth in our
historical operations and the effects of our acquisitions in 2001.
Depreciation
The increases in depreciation expense from 2001 to 2002 and from 2000 to
2001 are primarily attributable to our Cable segment and are principally due to
the effects of our recent acquisitions, our cable systems exchanges and our
increased levels of capital expenditures. Depreciation expense in our Commerce
segment was essentially unchanged. The remaining increases in depreciation
expense from 2000 to 2001 are primarily the result of increases in depreciation
in our content operations, principally due to the effects of our acquisitions
and increased levels of capital expenditures.
Amortization
Of the $1.948 billion decrease in amortization expense from 2001 to 2002,
$2.002 billion is attributable to the adoption of SFAS No. 142 on January 1,
2002. The remaining change is primarily the result of increases in amortization
expense in our content operations, principally due to the effects of our
acquisitions. The $423 million increase in amortization expense from 2000 to
2001 is primarily due to the effects of our acquisitions. Refer to Note 7 to our
financial statements included in Item 8 for the pro forma impact of adoption of
SFAS No. 142 on amortization expense.
Operating Results by Business Segment
The following represent the operating results of our significant business
segments, "Cable" and "Commerce." The remaining components of our operations are
not independently significant to our consolidated financial condition or results
of operations. Refer to Note 14 to our financial statements included in Item 8
for a summary of our financial data by business segment.
---------------------------
- 30 -
Cable
The following table presents financial information for our Cable segment
(dollars in millions). The effect of the Broadband acquisition was to
substantially increase the size of our cable operations, thereby increasing our
revenues and expenses, resulting in increases in our operating income before
depreciation and amortization. Accordingly, direct comparisons of our results of
operations for periods prior to November 18, 2002 to subsequent periods are not
meaningful. Refer to "Pro Forma 2002 Results" below for our 2002 supplemental
pro forma financial information prepared as if the Broadband acquisition
occurred on January 1, 2002.
Year Ended
December 31, Increase
2002 2001 $ %
---------- ---------- -------- -------
Video......................................................... $5,516 $4,278 $1,238 28.9%
High-speed Internet........................................... 715 294 421 143.2
Advertising sales............................................. 474 326 148 45.4
Other......................................................... 402 232 170 73.3
Franchise fees................................................ 243 193 50 25.9
---------- ---------- -------- -------
Revenues................................................. 7,350 5,323 2,027 38.1
Operating, selling, general and administrative expenses....... 4,552 3,269 1,283 39.2
---------- ---------- -------- -------
Operating income before depreciation and
amortization (a).............................................. $2,798 $2,054 $744 36.2%
========== ========== ======== =======
Year Ended
December 31, Increase
2001 2000 $ %
---------- ---------- -------- -------
Video......................................................... $4,278 $3,651 $627 17.2%
High-speed Internet........................................... 294 114 180 157.9
Advertising sales............................................. 326 290 36 12.4
Other......................................................... 232 153 79 51.6
Franchise fees................................................ 193 154 39 25.3
---------- ---------- -------- -------
Revenues................................................. 5,323 4,362 961 22.0
Operating, selling, general and administrative expenses....... 3,269 2,459 810 32.9
---------- ---------- -------- -------
Operating income before depreciation and
amortization (a)......................................... $2,054 $1,903 $151 7.9%
========== ========== ======== =======
_______________
<FN>
(a) See footnote (1) on page 29.
</FN>
Video revenue consists of our basic, expanded basic, premium, pay-per-view,
equipment and digital cable services. Of the $1.238 billion and $627 million
increases in video revenues from 2001 to 2002 and from 2000 to 2001, $945
million and $339 million, respectively, are attributable to the effects of our
acquisitions of cable systems and $293 million and $288 million, respectively,
relate to changes in rates and subscriber growth in our historical operations,
driven principally by growth in digital subscribers, and to a lesser extent, to
the effects of a higher- priced digital service offering made in the second half
of 2000. During 2002, we added approximately 4,374,000 digital subscribers as a
result of the Broadband acquisition and we added approximately 505,000 digital
subscribers through growth in our historical operations. During 2001 and 2000,
through acquisitions and growth in our historical operations, we added
approximately 534,000 and 753,000 digital subscribers, respectively.
The increases in high-speed Internet revenue from 2001 to 2002 and from
2000 to 2001 are primarily due to the addition of high-speed Internet
subscribers. During 2002, we added approximately 2,094,000 high-speed Internet
subscribers as a result of the Broadband acquisition and we added approximately
578,000 high- speed Internet subscribers through growth in our historical
operations. During 2001 and 2000, through acquisitions and growth in our
historical operations, we added approximately 548,000 and 258,000 high-speed
Internet subscribers, respectively.
The increase in advertising sales revenue from 2001 to 2002 is due to the
effects of the Broadband acquisition, as well as to the effects of a stronger
advertising market and the continued leveraging of our market-wide fiber
interconnects. The increase in advertising sales revenue from 2000 to 2001 was
attributable to the effects of new advertising contracts, market-wide fiber
interconnects and
- 31 -
the continued leveraging of our existing fiber networks, helping to offset an
otherwise weak advertising environment.
Other revenue includes phone revenues, installation revenues, guide
revenues, commissions from electronic retailing, revenues of our regional sports
programming networks and revenue from other product offerings. The increase from
2001 to 2002 in other revenue is primarily attributable to increased phone
revenues and other product revenues as a result of the Broadband acquisition.
The increase from 2000 to 2001 in other revenue is primarily attributable to the
effects of our acquisition of Home Team Sports (now known as CSN Mid-Atlantic).
The remaining increases from 2000 to 2001 and from 2001 to 2002 are attributable
to growth in our historical operations.
The increase in operating, selling, general and administrative expenses
from 2001 to 2002 is primarily attributable to the effects of the Broadband
acquisition, as well as to the effects of increases in the costs of cable
programming, increases in labor costs and other volume- related expenses in our
historical operations, and, to a lesser extent, to the effects of high-speed
Internet subscriber growth.
On September 28, 2001, At Home Corporation ("At Home"), our former provider
of high-speed Internet services, filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. In October 2001, we amended our agreement with At Home to
continue service to our existing and new subscribers during October and November
2001. We agreed to be charged a higher rate than we had incurred under our
previous agreement. On December 3, 2001, we reached a definitive agreement,
approved by the Bankruptcy Court, with At Home pursuant to which At Home agreed
to continue to provide high-speed Internet services to our existing and new
subscribers through February 28, 2002. In December 2001, we began to transfer
our high-speed Internet subscribers from the At Home network to our new
Comcast-owned and managed network. We completed this transition in February
2002. Operating expenses in our consolidated statement of operations for the
year ended December 31, 2001 include $140 million of net incremental expenses
incurred in the fourth quarter of 2001 in the continuation of service to and
transition of our high-speed Internet subscribers from At Home's network to our
network.
The remaining increases from 2000 to 2001 in operating, selling, general
and administrative expenses are primarily due to the effects of our acquisitions
and exchanges of cable systems, as well as to the effects of increases in the
costs of cable programming, high-speed Internet subscriber growth, and, to a
lesser extent, increases in labor costs and other volume related expenses in our
historical operations.
Our cost of programming increases as a result of changes in rates,
subscriber growth, additional channel offerings and our acquisitions and
exchanges of cable systems. We anticipate the cost of cable programming will
increase in the future as cable programming rates increase and additional
sources of cable programming become available.
- 32 -
Commerce
The following table sets forth the operating results for our Commerce
segment, which consists of QVC, Inc. and subsidiaries (dollars in millions):
Year Ended
December 31, Increase
2002 2001 $ %
--------- -------- ------- ------
Net sales from electronic retailing........................... $4,381 $3,917 $464 11.8%
Cost of goods sold from electronic retailing.................. 2,793 2,514 279 11.1
Operating, selling, general and administrative expenses....... 730 681 49 7.2
--------- -------- ------- ------
Operating income before depreciation and
amortization (a)......................................... $858 $722 $136 18.7%
--------- -------- ------- ------
Gross margin.................................................. 36.3% 35.8%
========= ========
Year Ended
December 31, Increase
2001 2000 $ %
--------- -------- ------- ------
Net sales from electronic retailing........................... $3,917 $3,536 $381 10.8%
Cost of goods sold from electronic retailing.................. 2,514 2,285 229 10.0
Operating, selling, general and administrative expenses....... 681 632 49 7.8
--------- -------- ------- ------
Operating income before depreciation and
amortization (a)......................................... $722 $619 $103 16.7%
--------- -------- ------- ------
Gross margin.................................................. 35.8% 35.4%
========= ========
_______________
<FN>
(a) See footnote (1) on page 29.
</FN>
Of the $464 million and $381 million increases in net sales from electronic
retailing from 2001 to 2002 and from 2000 to 2001, $296 million and $332
million, respectively, is attributable to increases in net sales in the United
States. This growth is principally the result of increases in the average number
of homes receiving QVC services and in net sales per home as follows:
Year Ended December 31,
2002 2001
--------------------- ---------------------
Increase in average number of homes in U.S.................... 3.6% 3.8%
Increase in net sales per home in U.S......................... 5.3% 6.5%
It is unlikely that the number of homes receiving the QVC service
domestically will continue to grow at rates comparable to prior periods given
that the QVC service is already received by approximately 97% of all U.S. cable
television homes and substantially all satellite television homes in the U.S.
Future growth in sales will depend increasingly on continued additions of new
customers from homes already receiving the QVC service and continued growth in
repeat sales to existing customers.
The remaining increases of $168 million and $49 million in net sales from
electronic retailing from 2001 to 2002 and from 2000 to 2001 are primarily
attributable to increases in net sales in Germany, Japan and the United Kingdom,
offset, in part, by the effects of fluctuations in foreign currency exchange
rates during the periods.
The increases in cost of goods sold from 2001 to 2002 and from 2000 to 2001
are primarily related to the growth in net sales. The increases in gross margin
are primarily due to the effects of increases in product margins.
The increases in operating, selling, general and administrative expenses
from 2001 to 2002 and from 2000 to 2001 are primarily attributable to higher
variable costs and personnel costs associated with the increase in sales volume.
---------------------------
- 33 -
Consolidated Analysis
Interest Expense
The increase in interest expense from 2001 to 2002 is due to our increased
amount of debt outstanding as a result of the Broadband acquisition. The
increase in interest expense from 2000 to 2001 is primarily due to the increases
in our net borrowings.
We anticipate that, for the foreseeable future, interest expense will be
significant. We believe we will continue to be able to meet our obligations
through our ability both to generate operating income before depreciation and
amortization and to obtain external financing.
---------------------------
Investment Income (Expense)
Investment income (expense) includes the following (in millions):
Year Ended December 31,
2002 2001 2000
--------- --------- ---------
Interest and dividend income........................................... $63 $77 $171
(Losses) gains on sales and exchanges of investments, net.............. (48) 485 887
Investment impairment losses........................................... (247) (972) (74)
Reclassification of unrealized gains................................... 1,330
Unrealized (loss) gain on trading securities........................... (1,569) 285
Mark to market adjustments on derivatives related
to trading securities............................................. 1,340 (185)
Mark to market adjustments on derivatives and hedged items............. (144) 42
--------- --------- ---------
Investment income (expense)....................................... ($605) $1,062 $984
========= ========= =========
The investment impairment losses for the years ended December 31, 2002 and
2001 relate principally to an other than temporary decline in our investment in
AT&T.
During the year ended December 31, 2001, we wrote-off our investment in At
Home common stock based upon a decline in the investment that was considered
other than temporary. In connection with the realization of this impairment
loss, we reclassified to investment income (expense) the accumulated unrealized
gain of $238 million on our investment in At Home common stock which was
previously recorded as a component of accumulated other comprehensive income
(loss). We recorded this accumulated unrealized gain prior to our designation of
our right under a stockholders' agreement as a hedge of our investment in the At
Home common stock.
In June 2001, we and AT&T entered into an Amended and Restated Share
Issuance Agreement (the "Share Issuance Agreement"). AT&T issued to us
approximately 80.3 million unregistered shares of AT&T common stock and we
agreed to settle our right under the Share Exchange Agreement to exchange an
aggregate 31.2 million At Home shares and warrants held by us for shares of AT&T
common stock. Under the terms of the Share Issuance Agreement, we retained the
At Home shares and warrants held by us. We recorded to investment income
(expense) a pre-tax gain of $296 million, representing the fair value of the
increased consideration received by us to settle our right under the Share
Exchange Agreement.
In connection with the reclassification of our investment in Sprint PCS
from an available for sale security to a trading security in 2001, we
reclassified to investment income (expense) the accumulated unrealized gain of
$1.092 billion on our investment in Sprint PCS which was previously recorded as
a component of accumulated other comprehensive income (loss).
Income Related to Indexed Debt
Prior to the adoption of SFAS No. 133 on January 1, 2001, we accounted for
the ZONES as an indexed debt instrument since the maturity value is dependent
upon the fair value of Sprint PCS common stock. During the year ended December
31, 2000, we recorded income related to indexed debt of $666 million to reflect
the fair value of the underlying Sprint PCS stock.
Equity in Net Losses of Affiliates
The increase in equity in net losses of affiliates from 2001 to 2002 is
primarily due to other than temporary declines in certain of our equity method
investees, the effects of our additional investments, changes in the net
- 34 -
income or loss of our equity method investees, as well as to the effects of the
discontinuance of amortization of equity method goodwill as a result of the
adoption of SFAS No. 142 on January 1, 2002. The increase from 2000 to 2001 is
primarily attributable to the effects of our additional investments, as well as
the effects of changes in the net income or loss of our equity method investees.
Other Income
On October 30, 2001, we acquired from Fox Entertainment Group, Inc. ("Fox
Entertainment") the approximate 83.2% interest in Outdoor Life Network ("OLN")
not previously owned by us. Upon closing of the acquisition, we exchanged our
14.5% interest in Speedvision Network ("SVN"), together with a previously made
loan, for Fox Entertainment's interest in OLN. In connection with the exchange
of our interest in SVN, we recorded a pre-tax gain of $107 million, representing
the difference between the estimated fair value of our interest in SVN as of the
closing date of the transaction and our cost basis in SVN.
On January 1, 2001, we completed our cable systems exchange with Adelphia
Communications Corporation ("Adelphia"). We received cable systems serving
approximately 445,000 subscribers from Adelphia and Adelphia received certain of
our cable systems serving approximately 441,000 subscribers. We recorded a pre-
tax gain of $1.199 billion, representing the difference between the estimated
fair value of $1.799 billion as of the closing date of the transaction and our
cost basis in the systems exchanged.
On December 31, 2000, we completed our cable systems exchange with AT&T. We
received cable systems serving approximately 770,000 subscribers from AT&T and
AT&T received certain of our cable systems serving approximately 700,000
subscribers. We recorded a pre-tax gain of $1.711 billion, representing the
difference between the estimated fair value of $2.840 billion as of the closing
date of the transaction and our cost basis in the systems exchanged.
In August 2000, we obtained the right to exchange our At Home Series A
Common Stock with AT&T and we waived certain of our At Home Board level and
shareholder rights under a stockholders' agreement. We also agreed to cause our
existing appointee to the At Home Board of Directors to resign. In connection
with the transaction, we recorded a pre-tax gain of $1.045 billion, representing
the estimated fair value of the investment as of the closing date.
In August 2000, we exchanged all of the capital stock of a wholly owned
subsidiary which held certain wireless licenses for approximately 3.2 million
shares of AT&T common stock. In connection with the exchange, we recognized a
pre-tax gain of $98 million, representing the difference between the fair value
of the AT&T shares received of $100 million and our cost basis in the
subsidiary.
Income Tax Expense
The decreases in income tax expense from 2001 to 2002 and from 2000 to 2001
are primarily the result of the effects of changes in our income before taxes
and minority interest, and non-deductible goodwill amortization.
Minority Interest
The increase in minority interest from 2001 to 2002 is attributable to
increases in the net income of our less than wholly owned consolidated
subsidiaries, as well as to the minority interests in certain subsidiaries
acquired in connection with the Broadband acquisition. The increase in minority
interest from 2000 to 2001 is primarily attributable to the effects of changes
in the net income or loss of our less than wholly owned consolidated
subsidiaries.
Cumulative Effect of Accounting Change
Upon adoption of SFAS No. 133, we recognized as income a cumulative effect
of accounting change, net of related income taxes, of $385 million during the
year ended December 31, 2001. The income consisted of a $400 million adjustment
to record the debt component of our ZONES at a discount from its value at
maturity and $192 million principally related to the reclassification of gains
previously recognized as a component of accumulated other comprehensive income
(loss) on our equity derivative instruments, net of related deferred income
taxes of $207 million.
We believe that our operations are not materially affected by inflation.
---------------------------
- 35 -
Pro Forma 2002 Results
As described above, the Broadband acquisition substantially increased the
size of our cable operations. As a result, direct comparisons of our results of
operations from the periods prior to November 18, 2002 to subsequent periods are
not meaningful. The following tables reconcile our 2002 consolidated and Cable
segment reported financial information to pro forma amounts and present our 2002
pro forma financial information on a quarterly basis as if the Broadband
acquisition occurred on January 1, 2002. This information has been prepared in
accordance with SEC rules and guidance and is based on our and Broadband's
historical results of operations. In the opinion of management, this information
is not indicative of what our results would have been had we operated Broadband
since January 1, 2002, nor of our future results. The financial information for
Broadband represents Broadband's results for the period from January 1, 2002
through November 18, 2002. The consolidated pro forma results reflect the
elimination of all significant transactions between Broadband and Comcast's
commerce and content businesses during 2002. This pro forma financial
information is presented as supplemental information to assist users of this
Annual Report in analyzing the impact the Broadband acquisition may have on our
future results of operations (dollars in millions).
Year Ended December 31, 2002
Consolidated Pro Forma Reconciliation Comcast Broadband Adjustments Pro Forma
--------- ----------- -------------- ------------
Revenues.................................................. $12,460 $8,693 ($41) $21,112
Cost of goods sold from electronic retailing.............. 2,793 2,793
Operating, selling, general and administrative expenses... 5,976 7,023 (37) 12,962
--------- ----------- ------------ ----------
Operating income before depreciation and
amortization (a)....................................... 3,691 1,670 (4) 5,357
Depreciation and amortization............................. 2,032 2,602 140 4,774
--------- ----------- ------------ ----------
Operating income.......................................... $1,659 ($932) ($144) $583
========= =========== ============ ==========
Three Months Ended
-----------------------------------------------------
March 31, June 30, September 30, December 31,
Consolidated Pro Forma Results 2002 2002 2002 2002
--------- --------- ---------- ----------
Revenues................................................ $5,036 $5,167 $5,181 $5,728
Cost of goods sold from electronic
retailing............................................ 631 629 643 890
Operating, selling, general and
administrative expenses ............................. 3,153 3,146 3,162 3,501
--------- --------- ---------- ----------
Operating income before depreciation
and amortization (a)................................. $1,252 $1,392 $1,376 $1,337
========= ========== ========== ==========
Year Ended December 31, 2002
Cable Segment Pro Forma Reconciliation Comcast Broadband Pro Forma
---------- ------------ ------------
Revenues.......................................................... $7,350 $8,693 $16,043
Operating, selling, general and administrative expenses .......... 4,552 7,023 11,575
---------- ----------- -----------
Operating income before depreciation and amortization (a)......... $2,798 $1,670 $4,468
========== =========== ===========
Three Months Ended
-----------------------------------------------------
March 31, June 30, September 30, December 31,
Cable Segment Pro Forma Results 2002 2002 2002 2002
---------- --------- ---------- ----------
Revenues................................................ $3,845 $4,011 $4,036 $4,151
Operating, selling, general and
administrative expenses.............................. 2,800 2,833 2,839 3,103
---------- --------- ---------- ----------
Operating income before depreciation
and amortization (a)................................. $1,045 $1,178 $1,197 $1,048
========== ========= ========== ==========
_______________
(a) See footnote (1) on page 29.
- 36 -
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Comcast Corporation
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheet of Comcast
Corporation (formerly known as AT&T Comcast Corporation) and its subsidiaries
(the "Company") as of December 31, 2002 and 2001, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2002. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Comcast Corporation and its
subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States of America.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended, effective January 1,
2001, and Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets," effective January 1, 2002.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 17, 2003
- 37 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions, except share data)
December 31,
2002 2001
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................. $781 $350
Investments................................................................ 3,266 2,623
Accounts receivable, less allowance for doubtful accounts of $233 and $154 1,383 967
Inventories, net........................................................... 479 455
Assets held for sale....................................................... 613
Deferred income taxes...................................................... 129 129
Other current assets....................................................... 425 154
--------- ---------
Total current assets................................................... 7,076 4,678
--------- ---------
INVESTMENTS................................................................... 15,207 1,679
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $4,061 and $2,726. 18,866 7,011
FRANCHISE RIGHTS.............................................................. 48,222 16,533
GOODWILL...................................................................... 17,397 6,289
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $1,022 and $665... 5,599 1,687
OTHER NONCURRENT ASSETS, net.................................................. 738 384
--------- ---------
$113,105 $38,261
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable........................................................... $1,663 $698
Accrued expenses and other current liabilities............................. 5,649 1,661
Liabilities related to assets held for sale................................ 13
Deferred income taxes...................................................... 1,105 404
Short-term debt............................................................ 3,750
Current portion of long-term debt.......................................... 3,203 460
--------- ---------
Total current liabilities.............................................. 15,383 3,223
--------- ---------
LONG-TERM DEBT, less current portion.......................................... 27,957 11,742
--------- ---------
DEFERRED INCOME TAXES......................................................... 23,110 6,376
--------- ---------
OTHER NONCURRENT LIABILITIES.................................................. 5,652 1,567
--------- ---------
MINORITY INTEREST............................................................. 2,674 880
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 13)
STOCKHOLDERS' EQUITY
Preferred stock - authorized 20,000,000 shares; issued, zero...............
Class A common stock, $0.01 par value - authorized,
7,500,000,000 shares; issued, 1,599,014,148 and 21,829,422;
outstanding, 1,355,373,648 and 21,829,422 ............................... 16
Class A special common stock, $0.01 par value - authorized,
7,500,000,000 shares; issued 930,633,433 and 937,256,465; outstanding,
883,343,590 and 913,931,554.............................................. 9 9
Class B common stock, $0.01 par value - authorized, 75,000,000 shares;
issued, 9,444,375........................................................
Additional capital......................................................... 44,620 12,688
Retained earnings.......................................................... 1,340 1,632
Treasury stock, 243,640,500 Class A common shares and 47,289,843 Class A special
common shares.............................................................. (7,517)
Accumulated other comprehensive income (loss).............................. (139) 144
--------- ---------
Total stockholders' equity............................................. 38,329 14,473
--------- ---------
$113,105 $38,261
========= =========
See notes to consolidated financial statements.
- 38 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in millions, except per share data)
Year Ended December 31,
2002 2001 2000
-------- -------- --------
REVENUES
Service revenues...................................................................... $8,079 $5,919 $4,821
Net sales from electronic retailing................................................... 4,381 3,917 3,536
-------- -------- --------
12,460 9,836 8,357
-------- -------- --------
COSTS AND EXPENSES
Operating (excluding depreciation).................................................... 3,511 2,906 2,210
Cost of goods sold from electronic retailing (excluding depreciation)................. 2,793 2,514 2,285
Selling, general and administrative................................................... 2,465 1,746 1,404
Depreciation.......................................................................... 1,775 1,211 837
Amortization.......................................................................... 257 2,205 1,782
-------- -------- --------
10,801 10,582 8,518
-------- -------- --------
OPERATING INCOME (LOSS).................................................................. 1,659 (746) (161)
OTHER INCOME (EXPENSE)
Interest expense...................................................................... (884) (734) (728)
Investment income (expense)........................................................... (605) 1,062 984
Income related to indexed debt........................................................ 666
Equity in net losses of affiliates.................................................... (103) (29) (22)
Other income.......................................................................... 3 1,301 2,826
-------- -------- --------
(1,589) 1,600 3,726
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES, MINORITY
INTEREST AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE................................... 70 854 3,565
INCOME TAX EXPENSE....................................................................... (134) (470) (1,429)
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE MINORITY
INTEREST AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE................................... (64) 384 2,136
MINORITY INTEREST........................................................................ (212) (160) (115)
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE................................................................. (276) 224 2,021
DISCONTINUED OPERATIONS.................................................................. 2
-------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE.............................. (274) 224 2,021
CUMULATIVE EFFECT OF ACCOUNTING CHANGE................................................... 385
-------- -------- --------
NET INCOME (LOSS)........................................................................ ($274) $609 $2,021
-------- -------- --------
BASIC EARNINGS (LOSS) FOR COMMON STOCKHOLDERS PER COMMON SHARE
Income (loss) from continuing operations before cumulative effect of accounting change ($0.25) $0.24 $2.24
Discontinued operations ..............................................................
Cumulative effect of accounting change................................................ 0.40
-------- -------- --------
Net income (loss)..................................................................... ($0.25) $0.64 $2.24
-------- -------- --------
DILUTED EARNINGS (LOSS) FOR COMMON STOCKHOLDERS PER COMMON SHARE
Income (loss) from continuing operations before cumulative effect of accounting change ($0.25) $0.23 $2.13
Discontinued operations ..............................................................
Cumulative effect of accounting change................................................ 0.40
-------- -------- --------
Net income (loss)..................................................................... ($0.25) $0.63 $2.13
======== ======== ========
See notes to consolidated financial statements.
- 39 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
Year Ended December 31,
2002 2001 2000
--------- --------- ---------
OPERATING ACTIVITIES
Net income (loss).................................................... ($274) $609 $2,021
Adjustments to reconcile net income (loss) to net cash provided
by operating activities from continuing operations:
Depreciation....................................................... 1,775 1,211 837
Amortization....................................................... 257 2,205 1,782
Non-cash interest expense, net..................................... 10 43 14
Non-cash income related to indexed debt............................ (666)
Equity in net losses of affiliates................................. 103 29 22
Losses (gains) on investments and other (income) expense, net...... 673 (2,303) (3,679)
Minority interest.................................................. 212 160 115
Cumulative effect of accounting change............................. (385)
Deferred income taxes.............................................. (100) (241) 1,075
Proceeds from sales of trading securities.......................... 367
Other.............................................................. (21) 55 63
--------- --------- ---------
2,635 1,750 1,584
Changes in working capital, net of effects of acquisitions
and divestitures
Decrease (increase) in accounts receivable, net.................. 87 (16) (196)
Increase in inventories, net..................................... (25) (16) (36)
(Increase) decrease in other current assets...................... (40) (27) 14
Increase (decrease) in accounts payable, accrued expenses and other
current liabilities............................................ 340 (114) (177)
--------- --------- ---------
362 (173) (395)
Discontinued operations............................................ (2)
--------- --------- ---------
Net cash provided by operating activities from continuing operations 2,995 1,577 1,189
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings............................................. 8,759 5,687 5,435
Retirements and repayments of debt................................... (9,808) (4,188) (5,356)
Proceeds from settlement of interest rate exchange agreements........ 57
Issuances of common stock and sales of put options on common stock... 19 27 31
Repurchases of common stock.......................................... (27) (325)
Equity contributions from a minority partner to a subsidiary......... 13 19 30
Deferred financing costs............................................. (332) (23) (56)
--------- --------- ---------
Net cash (used in) provided by financing activities from
continuing operations......................................... (1,292) 1,495 (241)
--------- --------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired................................... (251) (1,329) (187)
Proceeds from sales of (purchases of) short-term investments, net.... (21) (6) 1,028
Capital contributions to and purchases of investments................ (67) (317) (1,011)
Proceeds from sales and settlements of investments................... 1,263 806 997
Capital expenditures................................................. (1,975) (2,182) (1,637)
Additions to intangible and other noncurrent assets.................. (221) (346) (409)
--------- --------- ---------
Net cash used in investing activities from continuing operations. (1,272) (3,374) (1,219)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................ 431 (302) (271)
CASH AND CASH EQUIVALENTS, beginning of year............................ 350 652 923
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year.................................. $781 $350 $652
========= ========= =========
See notes to consolidated financial statements.
- 40 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in millions)
Accumulated Other
Comprehensive
Income (Loss)
--------------------
Retained
Common Stock Earnings Unreal- Cumul-
Series B ---------------------- (Accumu- Treasury ized ative
Stock Class A Additional lated Stock Gains Translation
Preferred Class A Special Class B Capital Deficit) At Cost (Losses) Adjustments Total
------------ ------- ------- ------ --------- ---------- -------- --------- ---------- --------
BALANCE, JANUARY 1, 2000 ..... $570 $7 $4,271 ($620) $6,120 ($7) $10,341
Comprehensive loss:
Net income................... 2,021
Unrealized losses on
marketable securities,
net of deferred taxes
of $2,789................... (5,180)
Reclassification adjustments
for gains included in net
income, net of deferred
taxes of $266............... (494)
Cumulative translation
adjustments................. (6)
Total comprehensive loss...... (3,659)
Acquisitions................. 2 7,739 7,741
Stock compensation plans..... 57 (28) 29
Retirement of common stock... (51) (274) (325)
Conversion of Series B
preferred................... (533) 533
Series B preferred dividends. 23 (23)
Share exchange............... 44 (44)
Temporary equity related to
put options................. (41) (41)
------------ ------- ------- ------ --------- ---------- -------- --------- ---------- --------
BALANCE, DECEMBER 31, 2000.... 60 9 12,529 1,055 446 (13) 14,086
Comprehensive income:
Net income................... 609
Unrealized gains on
marketable securities,
net of deferred taxes of
$114........................ 212
Reclassification adjustments
for gains included in net
income, net of deferred
taxes of $264............... (491)
Unrealized losses on
effective portion of cash
flow hedges, net of deferred
taxes of $0.3............... (1)
Cumulative translation
adjustments................. (9)
Total comprehensive income.... 320
Stock compensation plans..... 55 (16) 39
Retirement of common stock... (11) (16) (27)
Conversion of Series B
preferred................... (60) 60
Temporary equity related to
put options................. 55 55
------------ ------- ------- ------ --------- ---------- -------- --------- ---------- --------
BALANCE, DECEMBER 31, 2001.... 9 12,688 1,632 166 (22) 14,473
Comprehensive loss:
Net loss..................... (274)
Unrealized losses on
marketable securities, net
of deferred taxes of $165... (307)
Reclassification adjustments
for losses included in net
loss, net of deferred taxes
of $92...................... 169
Unrealized losses on
effective portion of cash
flow hedges, net of
deferred taxes of $79....... (146)
Cumulative translation
adjustments................. 1
Total comprehensive loss...... (557)
Acquisitions................. 16 31,870 (7,517) 24,369
Stock compensation plans..... 52 (18) 34
Employee stock purchase plan. 10 10
------------ ------- ------- ------ --------- ---------- -------- --------- ---------- --------
BALANCE, DECEMBER 31, 2002.... $ $16 $9 $ $44,620 $1,340 ($7,517) ($118) ($21) $38,329
============ ======= ======= ====== ========= ========== ======== ========= ========== ========
See notes to consolidated financial statements.
- 41 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
1. ORGANIZATION AND BUSINESS
Comcast Corporation (formerly AT&T Comcast Corporation) and its
subsidiaries (the "Company") was incorporated in December 2001 to effect
the acquisition of AT&T Corp.'s ("AT&T") broadband division ("Broadband").
On November 18, 2002, the Company, Comcast Holdings Corporation (formerly
Comcast Corporation) ("Comcast Holdings") and AT&T completed a transaction
that resulted in the combination of Comcast Holdings and Broadband (the
"Broadband acquisition"). Upon completion of the Broadband acquisition,
Comcast Holdings and Broadband are wholly owned subsidiaries of the
Company, with Comcast Holdings as the predecessor to the Company.
Accordingly, the accompanying financial statements include the results of
Comcast Holdings for all periods presented and the results of Broadband
from the date of the Broadband acquisition (see Note 5).
The Company is involved in three principal lines of business: cable,
commerce and content.
The Company's cable business is principally involved in the development,
management and operation of broadband communications networks in the United
States. The Company's consolidated cable operations served approximately
21.3 million subscribers and passed approximately 39.1 million homes as of
December 31, 2002.
The Company conducts its commerce business through its consolidated
subsidiary, QVC, Inc. ("QVC"). QVC, an electronic retailer, markets a wide
variety of products directly to consumers primarily on merchandise-focused
television programs. QVC was available, on a full and part-time basis, to
approximately 85.9 million homes in the US, approximately 11.4 million
homes in the United Kingdom ("UK"), approximately 25.8 million homes in
Germany and approximately 8.4 million homes in Japan as of December 31,
2002.
The Company's content business is provided through the Company's
consolidated subsidiaries, including Comcast Spectacor, E! Entertainment
Television, Inc. ("E! Entertainment"), The Golf Channel ("TGC"), Outdoor
Life Network ("OLN") and G4 Media, LLC ("G4"), and through other
programming investments (see Note 5). The Company's content business also
includes the Company's three 24-hour regional sports programming networks,
Comcast SportsNet ("CSN"), Comcast SportsNet Mid-Atlantic ("CSN
Mid-Atlantic") and Cable Sports Southeast ("CSS"). The Company's regional
sports programming networks are included in the Company's cable segment as
they derive a substantial portion of their revenues from the Company's
cable operations and are managed by cable segment management.
The Company's cable and commerce operations represent the Company's two
reportable segments under accounting principles generally accepted in the
United States. See Note 14 for a summary of the Company's financial data by
business segment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all entities that the Company directly or indirectly controls. All
significant intercompany accounts and transactions among consolidated
entities have been eliminated.
Variable Interest Entities
The Company accounts for its interests in variable interest entities in
accordance with Financial Accounting Standards Board ("FASB")
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN
46"). The Company consolidates all variable interest entities for which it
is the primary beneficiary and for which the entities do not effectively
disperse risks among parties involved. Variable interest entities that
effectively disperse risks are not consolidated unless the Company holds an
interest or combination of interests that effectively recombines risks that
were previously dispersed. The Company adopted the initial recognition and
measurement provisions of FIN
- 42 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
46 effective January 1, 2002, as permitted by the Interpretation. The
adoption of FIN 46 had no impact on the Company's financial condition or
results of operations.
Following the Broadband acquisition, the Company consolidates variable
interest entities that lease certain office and call center facilities to a
subsidiary of the Company under operating leases which mature between 2004
and 2006. The property and debt of the variable interest entities included
in the Company's consolidated balance sheet as of December 31, 2002 was not
material to the Company's consolidated financial position.
Management's Use of Estimates
The Company prepares its financial statements in conformity with accounting
principles generally accepted in the United States which require management
to make estimates and assumptions that affect the reported amounts and
disclosures. Actual results could differ from those estimates. Estimates
are used when accounting for certain items such as sales returns and
allowances, allowances for doubtful accounts, reserves for inventory
obsolescence, investments and derivative financial instruments,
depreciation and amortization, asset impairment, non-monetary transactions,
certain acquisition-related liabilities, pensions and other postretirement
benefits, income taxes and contingencies.
Fair Values
The Company has determined the estimated fair value amounts presented in
these consolidated financial statements using available market information
and appropriate methodologies. However, considerable judgment is required
in interpreting market data to develop the estimates of fair value. The
estimates presented in these consolidated financial statements are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts. The Company based these fair value estimates on pertinent
information available to management as of December 31, 2002 and 2001. The
Company has not comprehensively updated these fair value estimates for
purposes of these consolidated financial statements since such dates.
Cash Equivalents
Cash equivalents consist principally of commercial paper, money market
funds, US Government obligations and certificates of deposit with
maturities of three months or less when purchased. The carrying amounts of
the Company's cash equivalents approximate their fair values.
Inventories - Electronic Retailing
Inventories are stated at the lower of cost or market. Cost is determined
by the average cost method, which approximates the first-in, first-out
method.
Investments
Investments consist principally of equity securities.
Investments in entities in which the Company has the ability to exercise
significant influence over the operating and financial policies of the
investee are accounted for under the equity method. Equity method
investments are recorded at original cost and adjusted periodically to
recognize the Company's proportionate share of the investees' net income or
losses after the date of investment, additional contributions made and
dividends received, and impairment losses resulting from adjustments to net
realizable value. Prior to the adoption of Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142") on January 1, 2002, the goodwill resulting from
differences between the Company's recorded investments and its
proportionate interests in the book value of the investees' net assets were
amortized to equity in net income or loss, primarily over a period of 20
years. Subsequent to the adoption of SFAS No. 142, the Company no longer
amortizes such equity method goodwill (see Note 7).
- 43 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Unrestricted publicly traded investments are classified as available for
sale or trading securities and recorded at their fair value. Unrealized
gains or losses resulting from changes in fair value between measurement
dates for available for sale securities are recorded as a component of
other comprehensive income (loss). Unrealized gains or losses resulting
from changes in fair value between measurement dates for trading securities
are recorded as a component of investment income (expense). Cash flows from
all trading securities are classified as cash flows from operating
activities while cash flows from all other investment securities are
classified as cash flows from investing activities in the Company's
statement of cash flows.
Restricted publicly traded investments and investments in privately held
companies are stated at cost, adjusted for any known diminution in value
(see Note 6).
Property and Equipment
The Company records property and equipment at cost. Depreciation is
provided by the straight-line method over estimated useful lives as
follows:
Buildings and improvements.........................2-40 years
Operating facilities...............................2-12 years
Other equipment....................................2-15 years
The Company capitalizes improvements that extend asset lives and expenses
other repairs and maintenance charges as incurred. The cost and related
accumulated depreciation applicable to assets sold or retired are removed
from the accounts and the gain or loss on disposition is recognized as a
component of depreciation expense.
The Company capitalizes the costs associated with the construction of cable
transmission and distribution facilities and new cable service
installations. Costs include all direct labor and materials, as well as
certain indirect costs.
Intangible Assets
Cable franchise rights represent the value attributed to agreements with
local authorities that allow access to homes in cable service areas
acquired in connection with a business combination. The Company capitalizes
these contractual rights. Prior to the adoption of SFAS No. 142 on January
1, 2002, the Company amortized them over periods related to the term of the
related franchise agreements. Subsequent to the adoption of SFAS No. 142,
the Company no longer amortizes cable franchise rights as the Company has
determined that they have an indefinite life. Costs incurred by the Company
in negotiating and renewing cable franchise agreements are included in
other intangible assets and are amortized on a straight-line basis over the
term of the franchise renewal period, generally 10 to 15 years.
Goodwill is the excess of the acquisition cost of an acquired entity over
the fair value of the identifiable net assets acquired. Prior to the
adoption of SFAS No. 142 on January 1, 2002, the Company amortized goodwill
over estimated useful lives ranging principally from 20 to 30 years.
Subsequent to the adoption of SFAS No. 142, the Company no longer amortizes
goodwill.
Other intangible assets consist principally of franchise related customer
relationships, cable and satellite television distribution rights, cable
franchise renewal costs, contractual operating rights, computer software,
programming costs and rights, and non-competition agreements. The Company
capitalizes these costs and amortizes them on a straight-line basis over
the term of the related agreements or estimated useful life.
Certain of the Company's content subsidiaries and QVC have entered into
multi-year affiliation agreements with various cable and satellite system
operators for carriage of their respective programming. The Company
capitalizes cable or satellite distribution rights and amortizes them on a
straight-line basis over the term of the related distribution agreements of
5 to 15 years. The Company classifies the amortization of distribution fees
paid by its content subsidiaries pursuant to Emerging Issues Task Force
("EITF") 01-9, "Accounting for Consideration Given
- 44 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
to a Customer (including a reseller of the Vendors Products"). Under EITF
01-9, the amortization of such fees is classified as a reduction of revenue
unless the content subsidiary receives, or will receive, an identifiable
benefit from the cable or satellite system operator separate from the
distribution fee, in which case the Company recognizes the fair value of
the identified benefit as an operating expense in the period in which it is
received. The Company classifies the amortization of distribution fees paid
by QVC as amortization expense as the counterparties to QVC's distribution
agreements do not make revenue payments to QVC. Amortization expense
includes $23 million, $24 million and $28 million for 2002, 2001 and 2000,
respectively, related to QVC distribution fees.
Certain direct development costs associated with internal-use software are
capitalized, including external direct costs of material and services, and
payroll costs for employees devoting time to the software projects. Such
costs are included within other assets and are amortized over a period not
to exceed five years beginning when the asset is substantially ready for
use. Costs incurred during the preliminary project stage, as well as
maintenance and training costs, are expensed as incurred. Initial
operating-system software costs are capitalized and amortized over the life
of the associated hardware.
See Note 7 for additional information related to goodwill and intangible
assets.
Valuation of Long-Lived and Indefinite-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets, including property and equipment and intangible assets subject to
amortization, whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Such evaluations include analyses
based on the cash flows generated by the underlying assets, profitability
information, including estimated future operating results, trends or other
determinants of fair value. If the total of the expected future
undiscounted cash flows is less than the carrying amount of the asset, a
loss is recognized for the difference between the fair value and the
carrying value of the asset. Unless presented separately, the loss is
included as a component of either depreciation expense or amortization
expense, as appropriate.
The Company evaluates the recoverability of its goodwill and indefinite
life intangible assets annually or more frequently whenever events or
changes in circumstances indicate that the asset might be impaired. The
Company performs an impairment assessment of its goodwill one level below
the segment level for its businesses, except for its cable business. In its
cable business, components with similar economic characteristics are
aggregated into one reporting unit at the cable segment level. The Company
performs an impairment assessment of its cable franchise rights at the
cable segment level based on how the Company operates its cable operations.
The Company estimates the fair value of its cable franchise rights
primarily based on a multiple of operating income before depreciation and
amortization ("EBITDA") generated by the underlying assets. The EBITDA
multiple used in the Company's evaluation is determined based on the
Company's analyses of current market transactions, profitability
information, including estimated future operating results, trends or other
determinants of fair value. The Company also considers other valuation
methods such as discounted cash flow analyses. If the value of the
Company's cable franchise rights determined by these evaluations is less
than its carrying amount, an impairment charge would be recognized for the
difference between the estimated fair value and the carrying value of the
assets.
Foreign Currency Translation
The Company translates assets and liabilities of its foreign subsidiaries,
where the functional currency is the local currency, into US dollars at the
December 31 exchange rate and records the related translation adjustments
as a component of other comprehensive income (loss). The Company translates
revenues and expenses using average exchange rates prevailing during the
year. Foreign currency transaction gains and losses are included in other
income.
- 45 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Revenue Recognition
The Company recognizes video, high-speed Internet, and phone revenues as
service is provided. The Company manages credit risk by disconnecting
services to customers who are delinquent. The Company recognizes
advertising sales revenue at estimated realizable values when the
advertising is aired. Installation revenues obtained from the connection of
subscribers to the broadband communications network are less than related
direct selling costs. Therefore, such revenues are recognized as
connections are completed. Revenues derived from other sources are
recognized when services are provided or events occur. Under the terms of
its franchise agreements, the Company is generally required to pay up to 5%
of its gross revenues derived from providing cable services to the local
franchising authority. The Company normally passes these fees through to
its cable subscribers. The Company classifies fees collected from cable
subscribers as a component of service revenues pursuant to EITF 01-14,
"Income Statement Characterization of Reimbursements Received for
'Out-of-Pocket' Expenses Incurred."
The Company recognizes net sales from electronic retailing at the time of
shipment to customers. The Company classifies all amounts billed to a
customer for shipping and handling within net sales from electronic
retailing. The Company's policy is to allow customers to return merchandise
for up to thirty days after date of shipment. An allowance for returned
merchandise is provided as a percentage of sales based on historical
experience.
The Company's content businesses recognize affiliate fees from cable and
satellite system operators as programming is provided. Advertising revenue
is recognized in the period in which commercial announcements or programs
are telecast in accordance with the broadcast calendar. In certain
instances, the Company's content businesses guarantee viewer ratings for
their programming. A liability for deferred revenue is provided for
estimated shortfalls, which are primarily settled by providing additional
advertising time.
Programming Costs
The Company's cable subsidiaries have received or may receive distribution
fees from programming networks for carriage of their programming. The
Company reflects the deferred portion of these fees within noncurrent
liabilities and recognizes the fees as a reduction of programming costs
(which are included in operating expenses) over the term of the programming
contract.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations, as permitted by SFAS No.
123, "Accounting for Stock-Based Compensation," as amended. Compensation
expense for stock options is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock. The Company records
compensation expense for restricted stock awards based on the quoted market
price of the Company's stock at the date of the grant and the vesting
period. The Company records compensation expense for stock appreciation
rights based on the changes in quoted market prices of the Company's stock
or other determinants of fair value (see Notes 3 and 10).
- 46 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The following table illustrates the effect on net income (loss) and
earnings (loss) per share if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based compensation (dollars
in millions, except per share data):
Year Ended December 31,
2002 2001 2000
---------- ---------- ----------
Net income (loss), as reported.................................. ($274) $609 $2,021
Deduct: Total stock-based compensation
expense determined under fair value based method
for all awards, net of related tax effects................. (143) (127) (103)
---------- ---------- ----------
Pro forma, net income (loss).................................... ($417) $482 $1,918
========== ========== ==========
Basic earnings (loss) for common stockholders per common share:
As reported................................................ ($0.25) $0.64 $2.24
Pro forma.................................................. ($0.38) $0.51 $2.13
Diluted earnings (loss) for common stockholders per common share:
As reported................................................ ($0.25) $0.63 $2.13
Pro forma.................................................. ($0.38) $0.50 $2.02
Total stock-based compensation expense was determined under the fair value
method for all awards assuming accelerated vesting of the Company's stock
options as permitted under SFAS No. 123. Had the Company applied the fair
value recognition provisions of SFAS No. 123 assuming straight-line rather
than accelerated vesting of its stock options, total stock-based
compensation expense, net of related tax effects, would have been $114
million, $89 million, and $67 million for 2002, 2001 and 2000,
respectively.
The weighted-average fair value at date of grant of a Class A common stock
option granted under the Company's option plans during 2002 was $10.72. The
weighted-average fair value at date of grant of a Class A Special common
stock option granted under the option plans during 2002, 2001 and 2000 was
$14.93, $19.07 and $21.20, respectively. The fair value of each option
granted during 2002, 2001 and 2000 was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
Year Ended December 31,
2002 2001 2000
--------------------------------- ----------------- ----------------
Class A Class A Special Class A Special Class A Special
Common Stock Common Stock Common Stock Common Stock
--------------- ---------------- ----------------- ----------------
Dividend yield..................... 0% 0% 0% 0%
Expected volatility................ 29.2% 29.6% 35.7% 35.8%
Risk-free interest rate............ 4.0% 5.1% 5.1% 6.3%
Expected option lives (in years)... 8.0 8.0 8.0 8.0
Forfeiture rate.................... 3.0% 3.0% 3.0% 3.0%
- 47 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The pro forma effect on net income (loss) and net income (loss) per share
for the years ended December 31, 2002, 2001 and 2000 by applying SFAS No.
123 may not be indicative of the pro forma effect on net income or loss in
future years since SFAS No. 123 does not take into consideration pro forma
compensation expense related to awards made prior to January 1, 1995 and
since additional awards in future years are anticipated.
Postretirement and Postemployment Benefits
The Company charges to operations the estimated costs of retiree benefits
and benefits for former or inactive employees, after employment but before
retirement, during the years the employees provide services (see Note 9).
Investment Income (Expense)
Investment income (expense) includes interest income, dividend income and
gains, net of losses, on the sales and exchanges of marketable securities
and long-term investments. The Company recognizes gross realized gains and
losses using the specific identification method. Investment income
(expense) also includes unrealized gains or losses on trading securities,
mark to market adjustments on derivatives and hedged items, and impairment
losses resulting from adjustments to the net realizable value of certain of
the Company's investments (see Note 6).
Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities and expected benefits of utilizing net
operating loss carryforwards. The impact on deferred taxes of changes in
tax rates and laws, if any, applied to the years during which temporary
differences are expected to be settled, are reflected in the consolidated
financial statements in the period of enactment (see Note 11).
Derivative Financial Instruments
The Company uses derivative financial instruments for a number of purposes.
The Company manages its exposure to fluctuations in interest rates by
entering into interest rate exchange agreements ("Swaps"), interest rate
lock agreements ("Rate Locks"), interest rate cap agreements ("Caps") and
interest rate collar agreements ("Collars"). The Company manages the cost
of its share repurchases through the sale of equity put option contracts
("Comcast Put Options"). The Company manages its exposure to fluctuations
in the value of certain of its investments by entering into equity collar
agreements ("Equity Collars") and equity put option agreements ("Equity Put
Options"). The Company makes investments in businesses, to some degree,
through the purchase of equity call option or call warrant agreements
("Equity Warrants"). The Company has issued indexed debt instruments and
entered into prepaid forward sale agreements ("Prepaid Forward Sales")
whose value, in part, is derived from the market value of Sprint PCS common
stock, and has also sold call options on certain of its investments in
equity securities in order to monetize a portion of those investments. In
connection with the Broadband acquisition, the Company assumed indexed debt
instruments whose value, in part, is derived from the market values of
Comcast Class A Special common stock, Cablevision NY Group ("Cablevision")
Class A common stock, Microsoft Corporation ("Microsoft") common stock and
Vodafone ADRs, respectively. Equity hedges are used to manage exposure to
changes in equity prices associated with stock appreciation rights of
certain of Broadband's previously affiliated companies and are undesignated
in accordance with SFAS No. 133, "Accounting for Derivatives and Hedging
Activities," as amended ("SFAS No. 133"). These instruments are recorded at
fair value based on market quotes.
Prior to the adoption on January 1, 2001 of SFAS No. 133, Swaps, Caps and
Collars were matched with either fixed or variable rate debt and periodic
cash payments were accrued on a settlement basis as an adjustment to
interest expense. Any premiums associated with these instruments were
amortized over their term and realized gains or losses as a result of the
termination of the instruments were deferred and amortized over the
remaining term of the underlying debt. Unrealized gains and losses as a
result of these instruments were recognized when the underlying hedged item
was extinguished or otherwise terminated. Equity Collars, Equity Put
Options and Equity Warrants were marked to market on a current basis with
the result included in accumulated other comprehensive income (loss) in the
Company's consolidated balance sheet.
- 48 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
On January 1, 2001, the Company adopted SFAS No. 133. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and
hedging activities. SFAS No. 133 requires that all derivative instruments,
whether designated in hedging relationships or not, be recorded on the
balance sheet at their fair values. Upon adoption of SFAS No. 133, the
Company recognized as income a cumulative effect of accounting change, net
of related income taxes, of $385 million. The increase in income consisted
of a $400 million adjustment to record the debt component of indexed debt
at a discount from its value at maturity and $192 million principally
related to the reclassification of gains previously recognized as a
component of accumulated other comprehensive income (loss) on the Company's
equity derivative instruments, net of related income taxes of $207 million.
For derivative instruments designated and effective as fair value hedges,
such as the Company's Equity Collars, Equity Put Options and Fixed to
Variable Swaps, changes in the fair value of the derivative instrument are
substantially offset in the consolidated statement of operations by changes
in the fair value of the hedged item. For derivative instruments designated
as cash flow hedges, such as the Company's Variable to Fixed Swaps and Rate
Locks, the effective portion of any hedge is reported in other
comprehensive income (loss) until it is recognized in earnings during the
same period in which the hedged item affects earnings. The ineffective
portion of all hedges is recognized in current earnings each period.
Changes in the fair value of derivative instruments that are not designated
as a hedge are recorded each period in current earnings.
When a fair value hedge is terminated, sold, exercised or has expired, the
adjustment in the carrying amount of the fair value hedged item is deferred
and recognized into earnings when the hedged item is recognized in
earnings. When a hedged item is extinguished or sold, the adjustment in the
carrying amount of the hedged item is recognized in earnings. When hedged
variable rate debt is extinguished, the previously deferred effective
portion of the hedge is written off similar to debt extinguishment costs.
Subsequent to the adoption of SFAS No. 133, Equity Warrants and
undesignated Equity Collars are marked to market on a current basis with
the result included in investment income (expense) in the Company's
consolidated statement of operations.
Subsequent to the adoption of SFAS No. 133, derivative instruments embedded
in other contracts, such as the Company's indexed debt instruments and
Prepaid Forward Sale, are bifurcated into their host and derivative
financial instrument components. The derivative component is recorded at
its estimated fair value in the Company's consolidated balance sheet with
changes in estimated fair value recorded in investment income (expense).
Proceeds from sales of Comcast Put Options are recorded in stockholders'
equity and an amount equal to the redemption price of the common stock is
reclassified from permanent equity to temporary equity. Subsequent changes
in the market value of Comcast Put Options are not recorded.
The Company periodically examines those instruments that have been entered
into by the Company to hedge exposure to interest rate and equity price
risks to ensure that the instruments are matched with underlying assets or
liabilities, reduce the Company's risks relating to interest rates or
equity prices and, through market value and sensitivity analysis, maintain
a high correlation to the risk inherent in the hedged item. For those
instruments that do not meet the above criteria, variations in their fair
value are marked-to-market on a current basis in the Company's consolidated
statement of operations.
The Company does not hold or issue any derivative financial instruments for
trading purposes and is not a party to leveraged instruments (see Note 8).
The Company manages the credit risks associated with its derivative
financial instruments through the evaluation and monitoring of the
creditworthiness of the counterparties. Although the Company may be exposed
to losses in the event of nonperformance by the counterparties, the Company
does not expect such losses, if any, to be significant.
- 49 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Sale of Stock by a Subsidiary or Equity Method Investee
Changes in the Company's proportionate share of the underlying equity of a
consolidated subsidiary or equity method investee which result from the
issuance of additional securities by such subsidiary or investee are
recognized as gains or losses in the Company's consolidated statement of
operations unless gain realization is not assured in the circumstances.
Gains for which realization is not assured are credited directly to
additional capital.
Securities Lending Transactions
The Company may enter into securities lending transactions pursuant to
which the Company requires the borrower to provide cash collateral equal to
the value of the loaned securities, as adjusted for any changes in the
value of the underlying loaned securities. Loaned securities for which the
Company maintains effective control are included in investments in the
Company's consolidated balance sheet.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 2002.
3. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 143
SFAS No. 143, "Accounting for Asset Retirement Obligations," addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. The Company adopted SFAS No. 143 on January 1, 2003.
The adoption of SFAS No. 143 will not have a material impact on the
Company's financial condition or results of operations.
SFAS No. 148
The FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure," in December 2002. SFAS No. 148 amends SFAS No.
123 to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for
stock-based employee compensation. SFAS No. 148 also amends the disclosure
provisions of SFAS No. 123 to require disclosure about the effects on
reported net income of an entity's stock-based employee compensation in
interim financial statements. SFAS No. 148 is effective for fiscal years
beginning after December 31, 2002. The Company adopted SFAS No. 148 on
January 1, 2003. The Company did not change to the fair value based method
of accounting for stock-based employee compensation. Accordingly, the
adoption of SFAS No. 148 would only affect the Company's financial
condition or results of operations if the Company elects to change to the
fair value method specified in SFAS No. 123. The adoption of SFAS No. 148
will, however, require the Company to disclose the effects of its
stock-based employee compensation in interim financial statements beginning
with the first quarter of 2003.
FIN 45
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 expands on the
accounting guidance of SFAS No.'s 5, 57, and 107 and supercedes FIN 34. FIN
45 clarifies that a guarantor is required to disclose in its interim and
annual financial statements its obligations under certain guarantees that
it has issued, including the nature and terms of the guarantee, the maximum
potential amount of future payments under the guarantee, the carrying
amount, if any, for the guarantor's obligations under the guarantee, and
the nature and extent of any recourse provisions or available collateral
that would enable the guarantor to recover the amounts paid under the
guarantee. FIN 45 also clarifies that, for certain guarantees, a guarantor
is required to recognize, at the inception of a guarantee, a liability for
the fair value of the obligation undertaken in issuing the guarantee. FIN
45 does not prescribe a specific approach for subsequently measuring the
guarantor's recognized liability over the term of the related guarantee.
The initial recognition and initial measurement provisions of FIN 45 apply
on a prospective basis to certain guarantees issued or modified after
December 31, 2002. The disclosure requirements in FIN 45 are
- 50 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
effective for financial statements of interim or annual periods ending
after December 15, 2002. The Company adopted the disclosure provisions of
FIN 45 in the fourth quarter of 2002 and adopted the initial recognition
and measurement provisions of FIN 45 on January 1, 2003, as required by the
Interpretation (see Note 13). The impact of the adoption of FIN 45 will
depend on the nature and terms of guarantees entered into or modified by
the Company in the future.
4. EARNINGS PER SHARE
Earnings (loss) per common share is computed by dividing net income (loss)
for common stockholders by the weighted average number of common shares
outstanding during the period on a basic and diluted basis. Weighted
average shares outstanding for 2002 include 158.8 million of the 1.348
billion of the Company's shares issued in connection with the Broadband
acquisition on November 18, 2002.
The Company's potentially dilutive securities include potential common
shares related to the Company's Zero Coupon Convertible Debentures due 2020
(the "Zero Coupon Debentures" - see Note 8), stock options, restricted
stock, Class A Special common stock held in treasury, Series B convertible
preferred stock, and Comcast Put Options. Diluted earnings for common
stockholders per common share ("Diluted EPS") considers the impact of
potentially dilutive securities except in periods in which there is a loss
as the inclusion of the potential common shares would have an antidilutive
effect. Diluted EPS excludes the impact of potential common shares related
to the Company's Zero Coupon Debentures in periods in which the weighted
average closing sale price of the Company's Class A Special common stock
during the period is not greater than 110% of the accreted conversion
price. Diluted EPS excludes the impact of potential common shares related
to the Company's stock options in periods in which the option exercise
price is greater than the average market price of the Company's common
stock for the period. Diluted EPS excludes the impact of potential common
shares related to Comcast Put Options in periods in which the Comcast Put
Options' exercise price was less than the average market price of the
Company's Class A Special common stock during the period.
Diluted EPS for 2002, 2001 and 2000, respectively, excludes approximately
17.0 million, 21.0 million and 1.6 million potential common shares related
to the Zero Coupon Debentures, respectively, as the weighted average
closing sale price of the Company's Class A Special common stock was not
greater than 110% of the accreted conversion price.
Diluted EPS for 2002 excludes approximately 73.8 million potential common
shares related to the Company's stock option and restricted stock plans,
and potential common shares related to the Company's common stock held in
treasury because the assumed issuance of such potential common shares is
antidilutive in periods in which there is a loss.
Diluted EPS for 2001 and 2000 excludes approximately 4.7 million and 2.6
million potential common shares, respectively, related to the Company's
stock option plans because the option exercise price was greater than the
average market price of the Company's common stock for the period.
Diluted EPS for 2001 and 2000 excludes approximately 0.2 million and 1.5
million potential common shares, respectively, related to Comcast Put
Options because the Comcast Put Options' exercise price was less than the
average market price of the Company's Class A Special common stock during
the period.
- 51 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The following table reconciles the numerator and denominator of the
computations of Diluted EPS for common stockholders before cumulative
effect of accounting change for the years presented.
(Amounts in millions, except per share data)
Year Ended December 31,
2002 2001 2000
------------------------ ------------------------- -------------------------
Per Share Per Share Per Share
Loss Shares Amount Income Shares Amount Income Shares Amount
------ ------ ---------- ------- ------- ---------- --------- ------ ----------
Basic EPS for common
stockholders............. ($274) 1,110 ($0.25) $224 950 $0.24 $1,998 891 $2.24
Effect of preferred
dividends................ 23
Effect of Dilutive Securities
Assumed conversion
of Series B convertible
preferred stock......... 1 43
Assumed exercise of
stock option and
restricted stock plans.. 14 15
------ ------ -------- ------- ------- -------- --------- ------ --------
Diluted EPS................ ($274) 1,110 ($0.25) $224 965 $0.23 $2,021 949 $2.13
====== ====== ======== ======= ======= ======== ========= ====== ========
5. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Acquisition of Broadband
On November 18, 2002, the Company completed the acquisition of Broadband.
The results of the Broadband operations have been included in the
consolidated financial statements since that date. The acquisition creates
the largest cable operator in the United States by combining the Company's
and Broadband's extensive cable networks and technologically advanced
broadband delivery systems.
The consideration to complete the acquisition of Broadband was $50.780
billion, consisting of $25.495 billion of the Company's common stock and
options, $24.860 billion of assumed debt, and $425 million of transaction
costs directly related to the acquisition. The Company issued approximately
1.348 billion shares of its common stock (excluding shares of Class A
common stock issued and classified as treasury stock) consisting of 1.233
billion shares of its Class A common stock to Broadband shareholders in
exchange for all of AT&T's interests in Broadband, and the issuance of
approximately 100.6 million shares and 14.4 million shares of its Class A
and Class A Special common stock, respectively, to Microsoft in exchange
for Broadband shares that Microsoft received immediately prior to the
completion of the Broadband acquisition for settlement of its $5 billion
aggregate principal amount in quarterly income preferred securities. The
Company also issued 61.1 million options in exchange for outstanding
Broadband options. The shares issued for Broadband were valued based on a
price per share of $18.80 which reflects the weighted average market price
of Comcast Holdings common stock during the period beginning two days
before and ending two days after August 12, 2002. The acquisition was
structured as a tax-free transaction to the Company, to Comcast Holdings
and to AT&T.
Under the terms of the original merger agreement dated December 19, 2001,
the Company was to assume public debt of Broadband's subsidiaries and fund
Broadband's intercompany payable due to AT&T. Subsequent to the original
merger agreement, economic and business factors changed resulting in a
modification of the consideration to be exchanged. On August 12, 2002, in
connection with the filing of a proposed exchange offer by AT&T, the form
of consideration to be exchanged was modified to provide for the assumption
by Broadband of a portion of AT&T's public debt securities, thereby
increasing the amount of debt assumed by the Company by $3.5 billion and
- 52 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
reducing the amount of intercompany indebtedness paid at closing. This
modification represented a substantive change in the non-equity, or "other"
consideration, being paid, resulting in a new measurement date for
determining the value of the common stock issued in the acquisition.
Accordingly, the fair value of the shares issued for Broadband was based on
the August 12, 2002 measurement date.
Purchase Price Allocation. The application of purchase accounting under
SFAS No. 141, "Business Combinations" ("SFAS No. 141"), requires that the
total purchase price be allocated to the fair value of the assets acquired
and liabilities assumed based on their fair values at the acquisition date.
The allocation process requires an analysis of acquired contracts,
franchise related customer relationships, employee benefit plans,
contractual commitments and legal contingencies to identify and record the
fair value of all assets acquired and liabilities assumed. In valuing
acquired assets and liabilities, fair value estimates are based on, but are
not limited to: future expected cash flows; market rate assumptions for
contractual obligations; actuarial assumptions for benefit plans;
settlement plans for litigation and contingencies; and appropriate discount
rates.
As of the acquisition date, the Company initiated certain integration
activities based on a preliminary plan to terminate employees and exit
certain contractual obligations. Under the guidance in EITF 95-3
"Recognition of Liabilities in Connection with a Purchase Business
Combination," the plan must be finalized within one year of the acquisition
date and must identify all significant actions to be taken to complete the
plan. Therefore, costs related to terminating employees and exiting
contractual obligations of the acquired entity are included in the purchase
price allocation. Changes to these estimated termination or exit costs are
reflected as adjustments to the purchase price allocation to the extent
they occur within one year of the acquisition date or if there are
reductions in the amount of estimated termination or exit costs accrued.
Otherwise, changes will affect future results of operations.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed and the related deferred income taxes as
of the acquisition date. Given the size of the Broadband acquisition and
close proximity to year-end, the value of certain assets and liabilities
are based on preliminary valuations and are subject to adjustment as
additional information is obtained. Such additional information includes:
reports from valuation specialists; information related to the cost of
terminating or meeting contractual obligations; and information related to
preacquisition contingencies.
Current assets...................................................... $ 1,533
Investments, including TWE.......................................... 17,325
Property, plant & equipment......................................... 11,757
Amortizable intangible assets:
Franchise related customer relationships....................... 4,019
Other.......................................................... 146
Cable franchise rights.............................................. 31,689
Goodwill............................................................ 10,951
Other noncurrent assets............................................. 300
----------
Total assets............................................... 77,720
----------
Accounts payable, accrued expenses and other current liabilities.... (4,694)
Short-term debt and current portion of long-term debt............... (8,049)
Long-term debt...................................................... (16,811)
Deferred income taxes............................................... (17,541)
Other non-current liabilities....................................... ( 4,277)
Minority interest................................................... (1,554)
----------
Total liabilities.......................................... (52,926)
----------
Comcast shares held by Broadband, classified as treasury stock...... 1,126
----------
Net assets acquired........................................ $25,920
==========
- 53 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
In the aggregate, the intangible assets which are subject to amortization
have a weighted average useful life of 4 years. Franchise related customer
relationships have a weighted average useful life of 4 years. The $10.951
billion of goodwill, none of which was deductible for income tax purposes,
was assigned to the Company's cable segment.
Liabilities associated with exit activities recorded in the above
allocation consist of accrued employee termination and related costs of
$602 million and $929 million associated with either the cost of
terminating contracts or the present value of remaining amounts payable
under non-cancelable contracts. Amounts paid against these accruals totaled
$110 million and $16 million, respectively, as of December 31, 2002.
Identification of Comcast Holdings as Acquiring Entity. The identification
of Comcast Holdings as the acquiring entity was made after careful
consideration of all facts and circumstances, including those outlined in
SFAS No. 141 related to voting rights, the existence of a large minority
voting interest, governance arrangements and composition of senior
management. As more fully described below, based on Brian L. Roberts' ("Mr.
Roberts") nondilutable minority voting interest, his role on the Governance
and Directors Nominating Committee of the Board of Directors, his position
as President and Chief Executive Officer ("CEO"), and his right to appoint
other members of senior management, as well as the other factors described
below, it was concluded that Comcast Holdings was the acquiring entity.
Voting Rights in the Company. Upon closing, former AT&T shareholders owned
approximately 60.7% of the Company's voting common stock. Mr. Roberts, the
President and controlling shareholder prior to the acquisition owns a
33.33% non-dilutable voting interest after the acquisition through
ownership of the Company's Class B common stock, representing the largest
minority voting interest in the Company. The next largest voting interest
held by an individual shareholder was 4.95%, held by Microsoft. As a result
of his ownership of the Class B common stock, Mr. Roberts has the right to
approve any merger involving the Company or any other transaction in which
any other person would own more than 10% of the common stock of the
Company, the right to approve any issuances of Class B common stock, and
any charter amendments or other actions that would limit the rights of the
Class B common stock.
Governance Arrangements Relating to the Board of Directors. The Company's
Board of Directors has twelve members, five of whom were designated by
Comcast Holdings, five of whom were designated by AT&T, and two of whom
were jointly designated and are independent persons. As long as Mr. Roberts
is the Chairman or CEO of the Company he will be the chairman of the Board
committee that nominates the slate of directors for the Company (the
"Governance and Directors Nominating Committee"). Prior to the 2004 annual
meeting of shareholders, the remaining four members of the Governance and
Directors Nominating Committee will consist of independent directors
selected by the Comcast Holdings director designees. After the 2004 annual
meeting of shareholders, the remaining four members of the Governance and
Directors Nominating Committee will be selected by Mr. Roberts from among
the Company's independent directors. Nominations of the Governance and
Directors Nominating Committee will be submitted directly to the
shareholders without any requirement of Board approval or ratification.
Governance Arrangements Relating to Management. The Company has an Office
of the Chairman, comprised of the Chairman of the Board (the "Chairman")
and the CEO. The Office of the Chairman is the Company's principal
executive deliberative body with responsibility for corporate strategy,
policy and direction, governmental affairs and other significant matters.
Mr. Roberts is the President and CEO of the Company and he will remain
President of the Company for as long as he is the CEO. The CEO's powers and
responsibilities include the supervision and management of the Company's
business and operations, all matters related to officers and employees,
including hiring and termination, all rights and powers typically exercised
by the chief executive officer and president of a corporation, and the
authority to call special meetings of the Board of Directors. Mr. Roberts
has the right to fill all senior management positions of the Company after
consultation with the Chairman. After the 2005 annual meeting of
shareholders, or if the current Chairman ceases to serve as Chairman prior
to that date, Mr. Roberts will become the Chairman. Prior to the sixth
anniversary of the 2004 annual meeting of shareholders, removal of Mr.
Roberts as CEO (or Chairman) will require the vote of at least 75% of the
entire Board.
- 54 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Other Factors. Comcast Holdings made an unsolicited offer to purchase all
of AT&T Broadband. Subsequent to Comcast Holdings' offer, AT&T solicited
bids from other potential purchasers. The headquarters of the Company is in
Philadelphia, Pennsylvania, the headquarters of Comcast Holdings. Following
the acquisition, the name of the combined company is Comcast Corporation.
TWE Restructuring
Included in investments acquired in the Broadband acquisition is a 27.6%
interest in Time Warner Entertainment Company L.P. ("TWE"). In August 2002,
AT&T and Comcast Holdings announced that they had entered into an agreement
with AOL Time Warner, Inc. ("AOL Time Warner") providing for the
restructuring of TWE. The restructuring agreement is intended to provide
for a more orderly and timely disposition of the Company's 27.6% ownership
interest in TWE than would likely be available under the registration
rights provisions of the existing TWE partnership agreement. Upon
consummation of the Broadband acquisition, the Company assumed all of
AT&T's interest in TWE and in the restructuring agreement. As part of the
restructuring, TWE will distribute to AOL Time Warner all of TWE's major
content assets, which include Home Box Office, Warner Bros., and stakes in
The WB Network, Comedy Central and Court TV, and receive in exchange
therefor AOL Time Warner's cable assets not currently held through TWE.
Upon closing of the restructuring agreement, the Company will receive $1.5
billion in common stock of AOL Time Warner (valued at the time of the
closing and subject to certain limitations), and an approximate 21% equity
interest in the successor entity to TWE ("Time Warner Cable", which will
then hold all of AOL Time Warner's cable properties), in exchange for its
approximate 27.6% interest in TWE. The Company will also receive $2.1
billion in cash. Time Warner Cable is expected to conduct an initial public
offering of common stock following closing under the restructuring
agreement. Also, under the restructuring agreement, the Company will have
registration rights that should facilitate the disposal or monetization of
its shares in Time Warner Cable and in AOL Time Warner.
As part of the process of obtaining approval of the Broadband acquisition
from the Federal Communications Commission ("FCC"), at the closing of the
Broadband acquisition, the Company placed its entire interest in TWE in
trust for orderly disposition. Any non-cash consideration received in
respect of such interest as a result of the TWE restructuring, including
the AOL Time Warner and Time Warner Cable common stock, will remain in
trust until disposed of or FCC approval is obtained to remove such
interests from the trust (see Note 6).
Under the trust, the trustee will have exclusive authority to exercise any
management or governance rights associated with the securities in trust.
The trustee will also have the obligation, subject to the rights of the
Company as described in the last sentence of this paragraph, to exercise
available registration rights to effect the sale of such interests in a
manner intended to maximize the value received consistent with the goal of
disposing such securities in their entirety by November 2007. Following
this time, if any securities remain in trust, the trustee will be obligated
to dispose of the remaining interests as quickly as possible, and in any
event by May 2008. The trustee is also obligated, through November 2007, to
effect certain specified types of sale or monetization transactions with
respect to the securities as may be proposed by the Company from time to
time.
As a condition of the closing of the TWE restructuring, the Company will
enter into a three-year nonexclusive agreement with AOL Time Warner under
which the AOL High-Speed Broadband service would be made available over a
three-year period on certain of the Company's cable systems which pass
approximately 10 million homes.
The TWE restructuring is subject to receipt of certain regulatory approvals
and other closing conditions, and is expected to close by the end of the
second quarter of 2003. If the restructuring agreement is terminated
without the restructuring being consummated, the parties will return to the
registration rights process under the TWE partnership agreement.
Bresnan Transaction
In February 2003, the Company announced that it had entered into a
definitive agreement with Bresnan Broadband Holdings, LLC and Bresnan
Communications, LLC (together, "Bresnan") pursuant to which the Company
would
- 55 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
transfer cable systems serving approximately 317,000 subscribers in
Montana, Wyoming, Colorado and Utah to Bresnan that the Company had
acquired in connection with the Broadband acquisition. The Company will
receive approximately $525 million in cash, plus preferred and common
equity interests in Bresnan in exchange for these cable systems. The assets
(which consist primarily of cable franchise rights and property and
equipment) for these cable systems are reported as assets held for sale in
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," in the Company's consolidated balance sheet. The
results of operations for period from November 19, 2002 through December
31, 2002 for these cable systems are presented as discontinued operations,
net of tax, in the Company's consolidated statement of operations. Revenues
and operating income for these cable systems during the period from
November 19, 2002 through December 31, 2002 were $21 million and $3
million, respectively. The Company expects this transaction to close by
March 31, 2003, subject to customary closing conditions.
2001 and 2000 Acquisitions and Exchanges
In 2001, the Company acquired the regional sports programming network Home
Team Sports ("HTS") from Viacom, Inc. ("Viacom") and Affiliated Regional
Communications, Ltd. ("ARC"), various cable systems serving an aggregate of
697,000 subscribers from AT&T, and additional interests in programming
networks TGC and OLN from Fox Entertainment Group, Inc. ("Fox
Entertainment"). Upon closing of the OLN acquisition, the Company exchanged
its 14.5% interest in the Speedvision Network ("SVN"), together with a
previously made loan, for Fox Entertainment's interest in OLN and recorded
to other income a pre-tax gain of $107 million, representing the difference
between the estimated fair value of the Company's interest in SVN as of the
closing date of the transaction and the Company's cost basis in SVN. In
2001, the Company also completed its cable systems exchange with Adelphia
Communications Corporation ("Adelphia"). The Company recorded to other
income a pre-tax gain of $1.199 billion, representing the difference
between the estimated fair value of $1.799 billion as of the closing date
of the transaction and the Company's cost basis in the systems exchanged.
In 2000, the Company acquired cable operations consisting of Lenfest
Communications, Inc. ("Lenfest"), including Lenfest's 50% interest in
Comcast Cablevision of Garden State, L.P. ("Garden State Cable"), from AT&T
and the other Lenfest stockholders, the minority interest in Comcast MHCP
Holdings, L.L.C. ("Comcast MHCP") from the California Public Employees
Retirement System ("CalPERS"), the minority interest in Jones Intercable,
Inc. ("Jones Intercable") from the Jones Intercable shareholders, and Prime
Communications LLC ("Prime") from Prime's shareholders. In 2000, the
Company also completed its cable systems exchange with AT&T. The Company
recorded to other income a pre-tax gain of $1.711 billion, representing the
difference between the estimated fair value of $2.840 billion as of the
closing date of the transaction and the Company's cost basis in the systems
exchanged.
- 56 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The acquisitions completed by the Company during 2001 and 2000 were
accounted for under the purchase method of accounting. As such, the
Company's results include the operating results of the acquired businesses
from the dates of acquisition. A summary of the Company's acquisitions and
cable systems exchanges for 2001 and 2000 is as follows (dollars in
millions):
% Interest
Acquisition/Exchange Acquired Date Seller Consideration Value
- ----------------------------- ------------ --------------- ------------------- -------------------------------- --------
2001
- ----
OLN 83.2% October 30 Fox Entertainment Cash and 14.5% interest in SVN $512
AT&T Cable System 100% June 30 AT&T Cash $519
TGC 30.8% June 8 Fox Entertainment Cash $365
AT&T Cable Systems 100% April 30 AT&T 63.9 million shares of AT&T $1,423
common stock
HTS 100% February 14 Viacom and ARC Cable distribution of $240
programming
Adelphia Exchange 100% January 1 Adelphia Cable systems $1,799
2000
- ----
AT&T Exchange 100% December 31 AT&T Cable systems $2,840
Prime 100% August 1 Shareholders Converted loans, cash and $1,525
assumed debt
Jones Intercable 60.4% March 2 Shareholders 35.6 million shares of Comcast $1,727
common stock
Comcast MHCP 45% February 10 CalPERS Cash $750
Lenfest and 100% January 18 AT&T and 120.1 million shares of Comcast $7,340
Garden State Cable 50% shareholders common stock and assumed
debt
The Broadband acquisition, the Company's cable systems exchanges with
Adelphia and AT&T, and certain of the Company's acquisitions did not result
in cash payments but affected recognized assets and liabilities (see Note
12).
- 57 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Unaudited Pro Forma Information
The following unaudited pro forma information has been presented as if the
Broadband acquisition occurred on January 1, 2001, the acquisitions and
cable systems exchange made by the Company in 2001 each occurred on January
1, 2000, and the acquisitions and cable systems exchange made by the
Company in 2000 each occurred on January 1, 1999. This information is based
on historical results of operations, adjusted for acquisition costs, and,
in the opinion of management, is not necessarily indicative of what the
results would have been had the Company operated the entities acquired
since such dates.
(Amounts in millions,
except per share data)
Year Ended December 31,
2002 2001 2000
----------- ----------- -----------
Revenues....................................................... $21,112 $20,112 $9,151
Income (loss) before cumulative effect of accounting change.... ($15,071) ($3,178) $1,629
Net income (loss).............................................. ($15,071) ($2,793) $1,629
Diluted EPS.................................................... ($6.55) ($1.22) $1.68
The unaudited pro forma information for the year ended December 31, 2002
includes $11.781 billion, net of tax, of goodwill and franchise impairment
charges, and $56 million of asset impairment, restructuring and other
charges recorded by Broadband prior to the closing of the Broadband
acquisition. The unaudited pro forma information for the year ended
December 31, 2001 includes $1.494 billion of asset impairment,
restructuring and other charges recorded by Broadband prior to the closing
of the Broadband acquisition. The unaudited pro forma information for the
year ended December 31, 2001 reflects the elimination of Broadband's
amortization expense related to goodwill and cable franchise rights since
the Broadband acquisition was accounted for under the provisions of SFAS
No. 142.
Other Income
In August 2000, the Company obtained the right to exchange its At Home
Corporation ("At Home") Series A Common Stock with AT&T and waived certain
of its At Home Board level and shareholder rights under a stockholders
agreement (the "Share Exchange Agreement"- see Note 6). The Company also
agreed to cause its existing appointee to the At Home Board of Directors to
resign. In connection with the transaction, the Company recorded to other
income a pre-tax gain of $1.045 billion, representing the estimated fair
value of the investment as of the closing date.
In August 2000, the Company exchanged all of the capital stock of a wholly
owned subsidiary which held certain wireless licenses for approximately 3.2
million shares of AT&T common stock. In connection with the exchange, the
Company recorded to other income a pre-tax gain of $98 million,
representing the difference between the fair value of the AT&T shares
received of $100 million and the Company's cost basis in the subsidiary.
- 58 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
6. INVESTMENTS
December 31,
2002 2001
----------- -----------
(Dollars in millions)
Fair value method
AT&T Corp.................................................... $287 $1,515
Cablevision.................................................. 694
Microsoft.................................................... 1,967
Sprint Corp. PCS Group....................................... 369 2,109
Vodaphone.................................................... 1,759
Other........................................................ 82 136
----------- -----------
5,158 3,760
----------- -----------
Equity Method
Cable related................................................ 2,542 142
Other........................................................ 236 245
----------- -----------
2,778 387
----------- -----------
Cost method, principally TWE in 2002.............................. 10,537 155
----------- -----------
Total investments........................................ 18,473 4,302
Less, current investments......................................... 3,266 2,623
----------- -----------
Non-current investments........................................... $15,207 $1,679
=========== ===========
Fair Value Method
The Company holds unrestricted equity investments in certain publicly
traded companies, which it accounts for as available for sale or trading
securities. The net unrealized pre-tax gains on investments accounted for
as available for sale securities as of December 31, 2002 and 2001 of $72
million and $280 million, respectively, have been reported in the Company's
consolidated balance sheet principally as a component of other
comprehensive income (loss), net of related deferred income taxes of $25
million and $95 million, respectively.
The cost, fair value and gross unrealized gains and losses related to the
Company's available for sale securities are as follows:
December 31,
2002 2001
----------- -----------
(Dollars in millions)
-----------
Cost............................................................. $322 $1,355
Gross unrealized gains........................................... 73 283
Gross unrealized losses.......................................... (1) (3)
----------- -----------
Fair value....................................................... $394 $1,635
=========== ===========
In connection with the Broadband acquisition, the Company acquired
investments in Cablevision, Microsoft and Vodafone which are accounted for
under the fair value method. The Company designated all of the acquired
Microsoft and Vodafone shares, and substantially all of the Cablevision
shares, as trading securities upon closing of the Broadband acquisition.
The Company has entered into Equity Collars and Prepaid Forward Sales which
are accounted for at fair value. The Equity Collars and Prepaid Forward
Sales limit the Company's exposure to and benefits from price fluctuations
in Sprint PCS common stock.
- 59 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
In connection with the Broadband acquisition, the Company also acquired a
series of option agreements (the "Microsoft Collars" and "Vodaphone
Collars") with a single bank counterparty which limit the Company's
exposure to and benefits from price fluctuations in the Microsoft common
stock and Vodafone ADRs. The Microsoft Collars and Vodafone Collars are
undesignated for accounting purposes in accordance with SFAS No. 133 and
are recorded in investments at fair value, with unrealized gains or losses
being recorded to investment income (expense). These unrealized gains or
losses are substantially offset by the changes in the fair value of shares
of Microsoft common stock and Vodafone ADRs.
Equity Method
The Company's recorded investments exceed its proportionate interests in
the book value of the investees' net assets by $1.473 billion as of
December 31, 2002 (principally related to the Company's investments in
Texas Cable Partners, Kansas City Cable Partners and Insight Midwest). As a
result of the adoption of SFAS No. 142, the Company does not amortize the
goodwill resulting from this excess but rather will continue to test such
excess for impairment in accordance with APB Opinion 18, "The Equity Method
of Accounting for Investments in Common Stock."
Equity in net losses of affiliates for the year ended December 31, 2002
includes impairment losses of $53 million, related principally to other
than temporary declines in the Company's investments in and advances to
certain of the Company's equity method investees.
The Company does not have any additional significant contractual
commitments with respect to any of its investments. However, to the extent
the Company does not fund its investees' capital calls, it exposes itself
to dilution of its ownership interests.
Cost Method
In connection with the Broadband acquisition, the Company acquired two
series of preferred stock of AirTouch Communications, Inc., a subsidiary of
Vodafone, which were recorded at $1.394 billion as of December 31, 2002.
The dividend and redemption activity of the AirTouch preferred stock is
tied to the dividend and redemption payments associated with substantially
all of the preferred shares issued by a subsidiary of the Company. The
subsidiary has outstanding three series of preferred stock with an
aggregate redemption value of $1.750 billion. Substantially all of the
preferred shares are redeemable in April 2020 at a redemption value of
$1.650 billion with one of the series bearing a 9.08% dividend rate. The
subsidiary preferred shares are recorded at $1.511 billion and such amount
is included in minority interest as of December 31, 2002.
In connection with the Broadband acquisition, the Company acquired an
indirect interest in Charter Communications VIII, LLC, a cable joint
venture with Charter Communications, Inc. ("Charter"). In April 2002, AT&T
exercised its rights to cause Paul G. Allen, Charter's Chairman, or his
designee to purchase this indirect interest for approximately $725 million
in cash. The parties agreed to delay the settlement of the purchase until
April 14, 2003 while they negotiated alternatives to the purchase.
In connection with the Broadband acquisition, the Company acquired a 27.6%
interest in TWE. This investment is accounted for under the cost method as
the Company does not have the ability to exercise significant influence
over the operating and financial policies of TWE (see Note 5).
- 60 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Investment Income (Expense)
Investment income (expense) includes the following (in millions):
Year Ended December 31,
2002 2001 2000
--------- --------- ---------
Interest and dividend income........................................... $63 $77 $171
(Losses) gains on sales and exchanges of investments, net.............. (48) 485 887
Investment impairment losses........................................... (247) (972) (74)
Reclassification of unrealized gains................................... 1,330
Unrealized (loss) gain on trading securities........................... (1,569) 285
Mark to market adjustments on derivatives related to trading
securities........................................................ 1,340 (185)
Mark to market adjustments on derivatives and hedged items............. (144) 42
--------- --------- ---------
Investment income (expense)....................................... ($605) $1,062 $984
========= ========= =========
The investment impairment losses for the years ended December 31, 2002 and
2001 relate principally to other than temporary declines in the Company's
investment in AT&T.
During the year ended December 31, 2001, the Company wrote-off its
investment in At Home common stock based upon a decline in the investment
that was considered other than temporary. In connection with the
realization of this impairment loss, the Company reclassified to investment
income (expense) the accumulated unrealized gain of $238 million on the
Company's investment in At Home common stock which was previously recorded
as a component of accumulated other comprehensive income (loss). The
Company recorded this accumulated unrealized gain prior to the Company's
designation of its right under the Share Exchange Agreement as a hedge of
the Company's investment in the At Home common stock (see Note 5 - Other
Income).
In June 2001, the Company and AT&T entered into an Amended and Restated
Share Issuance Agreement (the "Share Issuance Agreement"). AT&T issued to
the Company approximately 80.3 million unregistered shares of AT&T common
stock and the Company agreed to settle its right under the Share Exchange
Agreement (see Note 5 - Other Income) to exchange an aggregate 31.2 million
At Home shares and warrants held by the Company for shares of AT&T common
stock. Under the terms of the Share Issuance Agreement, the Company
retained the At Home shares and warrants held by it. The Company recorded
to investment income (expense) a pre-tax gain of $296 million, representing
the fair value of the increased consideration received by the Company to
settle its right under the Share Exchange Agreement.
In August 2001, the Company entered into a ten year Prepaid Forward Sale of
4.0 million shares of Sprint PCS common stock held by the Company with a
fair value of approximately $98 million and the Company received $78
million in cash. At maturity, the counterparty is entitled to receive
between 2.5 million and 4.0 million shares of Sprint PCS common stock, or
an equivalent amount of cash at the Company's option, based upon the market
value of Sprint PCS common stock at that time. The Company split the
Prepaid Forward Sale into its liability and derivative components and
recorded both components of the Prepaid Forward Sale obligation in other
long-term liabilities. The Company records the change in the fair value of
the derivative component and the accretion of the liability component to
investment income (expense).
The Company reclassified its investment in Sprint PCS from an available for
sale security to a trading security in connection with the adoption of SFAS
No. 133 on January 1, 2001. In connection with this reclassification, the
Company recorded to investment income (expense) the accumulated unrealized
gain of $1.092 billion on the Company's investment in Sprint PCS which was
previously recorded as a component of accumulated other comprehensive
income (loss).
- 61 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
7. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill by business segment (see
Note 14) for the periods presented are as follows (in millions):
Corporate
Cable Commerce and Other Total
------------ ------------ ------------ ------------
Balance, December 31, 2001...................... $4,688 $835 $766 $6,289
Acquisitions.................................... 10,951 10,951
Purchase price allocation adjustments........... 5 152 157
------------ ------------ ------------ ------------
Balance, December 31, 2002...................... $15,644 $835 $918 $17,397
============ ============ ============ ============
In connection with the Company's preliminary purchase price allocation
related to the Broadband acquisition (see Note 5), the Company recorded
$10.951 billion of goodwill to the Company's cable segment.
During 2002, the Company recorded the final purchase price allocation
related to the Company's acquisition of OLN, which resulted in an increase
in goodwill and a corresponding decrease in cable and satellite television
distribution rights. In addition, during 2002, the Company recorded the
final purchase price allocation related to certain of its cable system
acquisitions, which resulted in an increase in goodwill and a corresponding
decrease in franchise rights.
The gross carrying amount and accumulated amortization of the Company's
intangible assets subject to amortization for the periods presented are as
follows (in millions):
As of December 31, 2002 As of December 31, 2001
-------------------------------- -------------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------------- --------------- ------------- ----------------
Franchise related customer
relationships....................... $4,019 ($42) $ $
Cable and satellite television
distribution rights................. 1,618 (491) 1,588 (316)
Cable franchise renewal costs and
contractual operating rights........ 314 (100) 267 (70)
Computer software........................ 186 (58) 125 (45)
Programming costs and rights............. 194 (144) 162 (117)
Non-competition agreements and other..... 290 (187) 210 (117)
------------- -------------- ------------- --------------
$6,621 ($1,022) $2,352 ($665)
============= ============== ============= ==============
- 62 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
As of December 31, 2002, the weighted average amortization period for the
Company's intangible assets subject to amortization is 5.3 years and
estimated related amortization expense for each of the five years ended
December 31 is as follows (in millions):
2003............................. $1,524
2004............................. $1,329
2005............................. $1,178
2006............................. $667
2007............................. $233
The following pro forma financial information for 2002, 2001 and 2000 is
presented as if SFAS No. 142 was adopted as of January 1, 2000 (amounts in
millions, except per share data):
Years Ended December 31,
2002 2001 2000
----------- ---------- ---------
Net Income (Loss)
As reported......................................... ($274) $609 $2,021
Amortization of goodwill.......................... 335 304
Amortization of equity method goodwill............ 15 15
Amortization of franchise rights.................. 1,083 858
----------- ---------- ---------
As adjusted......................................... ($274) $2,042 $3,198
=========== ========== =========
Income (loss) before cumulative effect of
accounting change, as adjusted.................... ($274) $1,657 $3,198
=========== ========== =========
Basic EPS
As reported......................................... ($0.25) $0.64 $2.24
Amortization of goodwill.......................... 0.35 0.34
Amortization of equity method goodwill............ 0.02 0.02
Amortization of franchise rights.................. 1.14 0.96
----------- ---------- ---------
As adjusted......................................... ($0.25) $2.15 $3.56
=========== ========== =========
Diluted EPS
As reported......................................... ($0.25) $0.63 $2.13
Amortization of goodwill.......................... 0.35 0.32
Amortization of equity method goodwill............ 0.02 0.02
Amortization of franchise rights.................. 1.12 0.90
----------- ---------- ---------
As adjusted......................................... ($0.25) $2.12 $3.37
=========== ========== =========
- 63 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
8. LONG-TERM DEBT
December 31,
2002 2001
---------- ----------
(in millions)
Notes exchangeable into common stock, due 2003-2007.......................... $5,459 $
Commercial Paper............................................................. 397
Notes payable to banks due in installments through 2009...................... 7,767 1,223
6.20% - 6.95% Senior notes, due 2003-2037.................................... 4,267 3,054
7.08% - 7.95% Senior notes, due 2003-2097.................................... 2,832 1,103
8% - 8-7/8% Senior notes, due 2003-2032...................................... 8,710 2,660
9% - 10-1/8% Senior notes, due 2002 and 2023................................. 3,015 200
8-1/4% - 10-5/8% Senior subordinated debentures, due 2006-2012................ 521 521
Zero Coupon Convertible Debentures, due 2020................................. 86 1,096
ZONES at principal amount, due 2029.......................................... 699 1,613
9.04% - 9.65% Trust Preferred Securities, due 2027 and 2038.................. 805
Other, including capital lease obligations................................... 749 335
---------- ----------
34,910 12,202
Less current portion......................................................... 3,203 460
Less short-term debt......................................................... 3,750
---------- ----------
$27,957 $11,742
========== ==========
Maturities of long-term debt outstanding as of December 31, 2002 for the
four years after 2003 are as follows (in millions):
2004............................... $6,135
2005............................... $4,454
2006............................... $1,834
2007............................... $1,170
The Cross-Guarantee Structure
To simplify the Company's capital structure, effective with the acquisition
of Broadband, the Company and four of its cable holding company
subsidiaries fully and unconditionally guaranteed each other's debt
securities (the "Cross-Guarantee Structure"). Comcast Holdings is not a
guarantor, and none of its debt is guaranteed. In connection with the
Broadband acquisition, the Company borrowed $4 billion of short-term
indebtedness and $3.2 billion of long-term indebtedness under the New
Credit Facilities (see below) that is also a part of the Cross-Guarantee
Structure. As of December 31, 2002, $24.729 billion of the Company's debt
securities were entitled to the benefits of the Cross-Guarantee Structure,
including $3.5 billion of AT&T's debt securities assumed by the Company in
the Broadband acquisition (see Notes 5 and 16).
Comcast MO of Delaware, Inc. (formerly, MediaOne of Delaware, Inc. and
Continental Cablevision, Inc.) was not originally a part of the
Cross-Guarantee Structure. On March 12, 2003, the Company announced the
successful completion of a bondholder consent solicitation related to
Comcast MO of Delaware, Inc.'s $1.7 billion aggregate principal amount in
debt securities to permit it to become part of the Cross-Guarantee
Structure.
- 64 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Senior Notes Offerings
In January and March 2003, the Company sold an aggregate of $3.0 billion of
public debt consisting of $600 million of 5.85% senior notes due 2010, $900
million of 6.50% senior notes due 2015, $750 million of 5.50% senior notes
due 2011 and $750 million of 7.05% senior notes due 2033. The Company used
all of the net proceeds from the offerings to repay a portion of the
Company's short-term debt outstanding under the Company's Bridge Credit
Facility (see New Credit Facilities below).
New Credit Facilities
In May 2002, the Company entered into definitive credit agreements with a
syndicate of lenders for an aggregate of $12.825 billion of financing (the
"New Credit Facilities") to complete the Broadband acquisition (see Note 5)
and to provide for the Company's financing needs after the Broadband
acquisition. On November 18, 2002, in connection with the Broadband
acquisition, the Company borrowed an aggregate of $7.2 billion under the
New Credit Facilities and canceled $3.0 billion of the $12.825 billion of
New Credit Facilities. Borrowings consisted of $4.0 billion of variable
rate short-term debt (the "Bridge Credit Facility") and $3.2 billion of
variable rate debt maturing November 2004.
Zero Coupon Convertible Debentures
The Company's Zero Coupon Debentures have a yield to maturity of 1.25%,
computed on a semi-annual bond equivalent basis. The Zero Coupon Debentures
may be converted, subject to certain restrictions, into shares of the
Company's Class A Special common stock at the option of the holder at a
conversion rate of 14.2566 shares per $1,000 principal amount at maturity,
representing an initial conversion price of $54.67 per share. The Zero
Coupon Debentures are senior unsecured obligations. The Company may redeem
for cash, at their accreted value, all or part of the Zero Coupon
Debentures on or after December 19, 2005.
Holders may require the Company to repurchase, at their accreted value, the
Zero Coupon Debentures on December 19, 2003, 2005, 2010 and 2015. The
Company may choose to pay the repurchase price for 2003 and 2005
repurchases in cash or shares of its Class A Special common stock or a
combination of cash and shares of its Class A Special common stock. The
Company may pay the repurchase price for the 2010 and 2015 repurchases in
cash only.
Holders may surrender the Zero Coupon Debentures for conversion at any time
prior to maturity if the closing price of the Company's Class A Special
common stock is greater than 110% of the accreted conversion price for at
least 20 trading days of the 30 trading days prior to conversion. During
the year ended 2002, the Company repurchased from holders an aggregate of
$1.023 billion accreted value of Zero Coupon Debentures for cash. The
Company refinanced the redemption with borrowings under its New Credit
Facilities.
Amounts outstanding under the Zero Coupon Debentures are classified as
long-term in the Company's consolidated balance sheet as of December 31,
2002 and 2001 as the Company has both the ability and the intent to
refinance the Zero Coupon Debentures on a long-term basis with amounts
available under the Company's credit facilities in the event holders of the
Zero Coupon Debentures exercise their rights to require the Company to
repurchase the Zero Coupon Debentures in December 2003.
Notes Exchangeable into Common Stock
As a result of the Broadband acquisition, the Company assumed exchangeable
notes (the "Exchangeable Notes") which are mandatorily redeemable at the
Company's option into shares of Cablevision Class A common stock or its
cash equivalent (the "Cablevision Exchangeable Notes"), Microsoft common
stock or its cash equivalent (the "Microsoft Exchangeable Notes"), (i)
Vodafone ADRs, (ii) the cash equivalent, or (iii) a combination of cash and
Vodafone ADRs (the "Vodafone Exchangeable Notes"), and Comcast Class A
Special common stock or its cash equivalent (the "Comcast Exchangeable
Notes"). The maturity value of the Exchangeable Notes varies based upon the
fair market value of the security to which it is indexed. The Company's
Exchangeable Notes are collateralized by the Company's investments in
Cablevision, Microsoft and Vodafone, respectively, and the Comcast Class A
- 65 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Special common stock held in treasury (see Note 10). As of December 31,
2002, $3.161 billion of Exchangeable Notes bear interest at variable rates
(three-month LIBOR plus 0.4% to 0.5%) and $2.298 billion of Exchangeable
Notes bear interest at fixed rates ranging from 4.63% to 7.04%. As of
December 31, 2002, the securities held by the Company collateralizing the
Exchangeable Notes were sufficient to satisfy the debt obligations
associated with the outstanding Exchangeable Notes.
ZONES
At maturity, holders of the Company's 2.0% Exchangeable Subordinated
Debentures due 2029 (the "ZONES") are entitled to receive in cash an amount
equal to the higher of the principal amount of the ZONES of $1.807 billion
or the market value of Sprint PCS Stock. Prior to maturity, each ZONES is
exchangeable at the holder's option for an amount of cash equal to 95% of
the market value of Sprint PCS Stock. As of December 31, 2002, the number
of Sprint PCS shares held by the Company exceeded the number of ZONES
outstanding.
Prior to the adoption of SFAS No. 133 on January 1, 2001, the Company
accounted for the ZONES as an indexed debt instrument since the maturity
value is dependent upon the fair value of Sprint PCS Stock. Therefore, the
carrying value of the ZONES was adjusted each balance sheet date to reflect
the fair value of the underlying Sprint PCS Stock with the change included
in income related to indexed debt in the Company's consolidated statement
of operations.
Upon adoption of SFAS No. 133, the Company split the accounting for the
ZONES into derivative and debt components. The Company also split the
accounting for the Exchangeable Notes into derivative and debt components.
The Company records the change in the fair value of the derivative
component of the ZONES and the Exchangeable Notes (see Note 6) and the
change in the carrying value of the debt component of the ZONES and the
Exchangeable Notes as follows (in millions):
Year Ended December 31, 2002
Exchangeable
Zones Notes
-------------- --------------
Balance at Beginning of Year:
Debt component.......................................................... $ 468 $
Derivative component.................................................... 1,145
-------------- --------------
Total...................................................................... 1,613
Acquisition of Broadband, debt component................................... 6,993
Acquisition of Broadband, derivative component............................. (1,461)
-------------- --------------
Total...................................................................... 5,532
Increase (decrease) in debt component to interest expense.................. 23 (12)
Decrease in derivative component to investment income/expense.............. (937) (61)
Balance at End of Year:
Debt component.......................................................... 491 6,981
Derivative component.................................................... 208 (1,522)
-------------- --------------
Total...................................................................... $699 $ 5,459
============== ==============
Trust Preferred Securities
As a result of the Broadband acquisition, the Company assumed certain
subsidiary trust preferred securities ("Trust Preferred Securities") which
are recorded within long-term debt in the Company's consolidated balance
sheet at December 31, 2002. AT&T agreed to guarantee the Trust Preferred
Securities due 2038 through their call date of
- 66 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
October 2003, at which time the Company will either redeem them or provide
substitute credit support. The Trust Preferred Securities are not part of
the Cross-Guarantee Structure.
Interest Rates;
Bank debt interest rates vary based upon one or more of the following rates
at the option of the Company:
Prime rate to Prime plus .875%;
Federal Funds rate plus .5% to 1.375%; and
LIBOR plus .14% to 1.875%.
The weighted average interest rate on the Company's short-term debt was
2.53% as of December 31, 2002. Excluding the derivative component of the
ZONES and Exchangeable Notes whose changes in fair value are recorded to
investment income (expense), the Company's effective weighted average
interest rate on its total debt outstanding was 5.86% and 6.31% as of
December 31, 2002 and 2001, respectively.
Interest Rate Risk Management
The Company is exposed to the market risk of adverse changes in interest
rates. To manage the volatility relating to these exposures, the Company's
policy is to maintain a mix of fixed and variable rate debt and to enter
into various interest rate derivative transactions as described below.
Using Swaps, the Company agrees to exchange, at specified intervals, the
difference between fixed and variable interest amounts calculated by
reference to an agreed-upon notional principal amount. Rate Locks are used
to hedge the risk that the cash flows related to the interest payments on
an anticipated issuance or assumption of fixed rate debt may be adversely
affected by interest rate fluctuations. Caps are used to lock in a maximum
interest rate should variable rates rise, but enable the Company to
otherwise pay lower market rates. Collars limit the Company's exposure to
and benefits from interest rate fluctuations on variable rate debt to
within a certain range of rates.
All derivative transactions must comply with a board-approved derivatives
policy. In addition to prohibiting the use of derivatives for trading
purposes or that increase risk, this policy requires quarterly monitoring
of the portfolio, including portfolio valuation, measuring counterparty
exposure and performing sensitivity analyses.
The following table summarizes the terms of the Company's existing Swaps
(dollars in millions):
Notional Average Average Estimated
Amount Maturities Pay Rate Receive Rate Fair Value
------------- ------------- -------------- --------------- --------------
As of December 31, 2002
-----------------------
Variable to Fixed Swaps $1,811 2003-2005 7.5% 1.9% $64
Fixed to Variable Swaps $300 2027 3.7% 9.7% $41
As of December 31, 2001
-----------------------
Variable to Fixed Swaps $250 2002-2003 4.9% 2.2% ($6)
Fixed to Variable Swaps $950 2004-2008 3.6% 7.5% $47
The notional amounts of interest rate instruments, as presented in the
above table, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts.
While Swaps, Rate Locks, Caps and Collars represent an integral part of the
Company's interest rate risk management program, their incremental effect
on interest expense for the years ended December 31, 2002, 2001 and 2000
was not significant.
- 67 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
In 2002, the Company entered into Rate Locks to hedge the risk that the
cash flows related to the interest payments on an anticipated issuance or
assumption of certain fixed rate debt in connection with the Broadband
acquisition may be adversely affected by interest rate fluctuations. To the
extent the Rate Locks are effective in offsetting the variability of the
hedged cash flows, changes in the fair value of the Rate Locks are not
included in earnings but are reported as a component of accumulated other
comprehensive income (loss). Upon the assumption of certain fixed rate debt
in connection with the Broadband acquisition, the value of the Rate Locks
is being recognized as an adjustment to interest expense, similar to a
deferred financing cost, over the same period in which the related interest
costs on the debt are recognized in earnings. The unrealized pre-tax losses
on cash flow hedges as of December 31, 2002 and 2001 of $225 million and $1
million have been reported in the Company's balance sheet as a component of
accumulated other comprehensive income (loss), net of related deferred
income taxes of $79 million and $0.3 million, respectively.
Estimated Fair Value
The Company's debt had estimated fair values of $36.827 billion and $12.559
billion as of December 31, 2002 and 2001, respectively. The estimated fair
value of the Company's publicly traded debt is based on quoted market
prices for that debt. Interest rates that are currently available to the
Company for issuance of debt with similar terms and remaining maturities
are used to estimate fair value for debt issues for which quoted market
prices are not available.
Debt Covenants
The Company's and certain of the Company's subsidiaries' loan agreements
contain financial covenants which require that certain ratios and cash flow
levels be maintained and contain certain restrictions on dividend payments
and advances of funds to the Company. The Company and its subsidiaries were
in compliance with all financial covenants for all periods presented.
As of December 31, 2002, $37 million of the Company's cash and cash
equivalents is restricted under contractual or other arrangements.
Restricted net assets of the Company's subsidiaries were approximately
$12.597 billion as of December 31, 2002.
Lines and Letters of Credit
As of December 31, 2002, certain subsidiaries of the Company had unused
lines of credit of $5.949 billion under their respective credit facilities.
As of December 31, 2002, the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totaling $370 million to cover
potential fundings under various agreements.
9. PENSION, POSTRETIREMENT AND OTHER EMPLOYEE BENEFIT PLANS
Following the Broadband acquisition, the Company sponsors two pension plans
which together provide benefits to substantially all former Broadband
employees. Future benefits for both plans have been frozen, except for some
union groups and some change-in-control payments. In addition, following
the Broadband acquisition, the Company now sponsors a separate retiree
medical plan for a small number of former Broadband employees.
- 68 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The following table shows the components of the net periodic benefit costs
for the year ended December 31, 2002, which are included in the Company's
consolidated statement of operations (dollars in millions):
Pension Postretirement
Benefits Benefits
--------- ----------------
Service cost-benefits earned during the period............................. $1 $6
Interest cost on benefit obligations....................................... 3 4
Credit for expected return on plan assets.................................. (1)
--------- -------------
Net periodic benefit cost.................................................. $3 $10
========= =============
The following table provides a reconciliation of the changes in the plans'
benefit obligations for the year ended December 31, 2002 (dollars in
millions):
Pension Postretirement
Benefits Benefits
--------- ----------------
Benefit obligation, beginning of year...................................... $ $50
Acquisition of Broadband................................................... 352 108
Service cost............................................................... 1 6
Interest cost.............................................................. 3 4
Plan amendments............................................................ (17)
Actuarial loss............................................................. 3
Benefit payments........................................................... (6)
--------- -------------
Benefit obligation, end of year............................................ $350 $154
========= =============
The following table provides a reconciliation of the changes in the plans'
fair value of assets for the year ended December 31, 2002 (dollars in
millions):
Pension Postretirement
Benefits Benefits
--------- ----------------
Fair value of plan assets, beginning of year............................... $ $
Acquisition of Broadband................................................... 78 1
Benefit payments........................................................... (6)
--------- -------------
Fair value of plan assets, end of year..................................... $72 $1
========= =============
- 69 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The following table provides a statement of the plans' funded status as of
December 31, 2002 (dollars in millions):
Pension Postretirement
Benefits Benefits
--------- ----------------
Unfunded benefit obligation................................................ ($278) ($153)
Unrecognized net loss (gain)............................................... 1 (9)
Unrecognized prior service cost............................................ (14)
--------- -------------
Net amount recorded........................................................ ($277) ($176)
========= =============
The following table provides the amounts recorded in the Company's
consolidated balance sheet as of December 31, 2002 (dollars in millions):
Pension Postretirement
Benefits Benefits
--------- ----------------
Benefit obligation......................................................... ($277) ($176)
Benefit related liabilities................................................ (1)
Accumulated other comprehensive income..................................... 1
--------- -------------
Net amount recorded........................................................ ($277) ($176)
========= =============
The weighted-average assumptions in the following table were used in the
measurement of the pension and postretirement benefit obligations and the
net periodic benefit costs as applicable as of December 31, 2002:
Pension Postretirement
Benefits Benefits
--------- ----------------
Discount rate.............................................................. 6.50% 6.75%
Expected return on plan assets............................................. 7.00% 5.00%
An 11% rate of increase in the per capita cost of covered healthcare
benefits (the healthcare cost trend rate) was assumed. This rate was
assumed to decline gradually after 2002 to 5% by the year 2014 and then
remain level. Assumed healthcare cost trend rates have a significant effect
on the amounts reported for the healthcare plans. A one percentage point
increase or decrease in the assumed healthcare cost trend rate would
increase or decrease the healthcare component of the accumulated
postretirement benefit obligation by $6-7 million but would not have a
material impact on the service and interest cost components of net periodic
postretirement healthcare benefit costs.
10. STOCKHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue, in one or more series, up to a maximum
of 20 million shares of preferred stock. The shares can be issued with such
designations, preferences, qualifications, privileges, limitations,
restrictions, options, conversion rights and other special or related
rights as the Company's board of directors shall from time to time fix by
resolution.
The Company's Series B Preferred Stock had a 5.25% pay-in-kind annual
dividend. Dividends were paid quarterly through the issuance of additional
shares of Series B Preferred Stock (the "Additional Shares") and were
- 70 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
cumulative from the issuance date (except that dividends on the Additional
Shares accrued from the date such Additional Shares were issued). The
Series B Preferred Stock, including the Additional Shares, was convertible,
at the option of the holder, into approximately 43 million shares of the
Company's Class A Special common stock, subject to adjustment in certain
limited circumstances, which equaled an initial conversion price of $11.77
per share, increasing as a result of the Additional Shares to $16.96 per
share on June 30, 2004. The Series B Preferred Stock was mandatorily
redeemable on June 30, 2017, or, at the option of the Company beginning on
June 30, 2004 or at the option of the holder on June 30, 2004 or on June
30, 2012. Upon redemption, the Company, at its option, could redeem the
Series B Preferred Stock with cash, Class A Special common stock or a
combination thereof. The Series B Preferred Stock was generally non-voting.
In December 2000, the Company issued approximately 38.3 million shares of
its Class A Special common stock to the holder in connection with the
holder's election to convert $533 million at redemption value of Series B
Preferred Stock. In March 2001, the Company issued approximately 4.2
million shares of its Class A Special common stock to the holder in
connection with the holder's election to convert the remaining $60 million
at redemption value of Series B Preferred Stock.
Common Stock
The Company's Class A Special Common Stock is generally nonvoting. Holders
of the Company's Class A common stock in the aggregate hold 66 2/3% of the
aggregate voting power of the Company's capital stock. The number of votes
that each share of the Company's Class A common stock will have at any
given time will depend on the number of shares of Class A common stock and
Class B common stock then outstanding. Each share of the Company's Class B
common stock is entitled to fifteen votes and all shares of the Class B
common stock in the aggregate have 33 1/3% of the voting power of all of
the Company's common stock. The 33 1/3% aggregate voting power of the Class
B common stock will not be diluted by additional issuances of any other
class of the Company's common stock. The Class B common stock is
convertible, share for share, into Class A or Class A Special common stock,
subject to certain restrictions.
Treasury Stock
Certain Broadband subsidiaries held AT&T preferred stock convertible into
AT&T common stock. Prior to the closing of the Broadband acquisition, these
subsidiaries converted the AT&T preferred stock into AT&T common stock.
Upon closing of the Broadband acquisition, the shares of Broadband common
stock were exchanged for approximately 243.6 million shares of the
Company's Class A common stock. The Company classified these shares, which
are held by certain subsidiaries of the Company, as treasury stock within
stockholders' equity. The shares were valued at $6.391 billion based on the
closing share price of the Comcast Class A common stock as of the closing
date of the Broadband acquisition and will continue to be carried at this
amount. The shares are deemed issued but not outstanding and will not be
included in the computation of Diluted EPS.
Prior to the Broadband acquisition, Broadband held approximately 47.3
million shares of the Company's Class A Special common stock which
collateralize the related Comcast Exchangeable Notes (see Note 8). Upon
closing of the Broadband acquisition, the Company classified these shares,
which are held by a subsidiary of the Company, as treasury stock within
stockholders' equity. The shares were valued based on the closing share
price of the Comcast Class A Special common stock as of the closing date of
the Broadband acquisition and will continue to be carried at this amount.
The shares are deemed issued but not outstanding and because they are
related to the Comcast Exchangeable Notes will be included in the
computation of Diluted EPS in periods in which the Company has income.
Board-Authorized Repurchase Programs
The following table summarizes the Company's repurchases and sales of
Comcast Put Options under its Board- authorized share repurchase programs
(shares and dollars in millions):
- 71 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Year Ended December 31,
2001 2000
--------- ---------
Shares repurchased........................................................ 1 9
Aggregate consideration................................................... $27 $325
Comcast Put Options sold.................................................. 2
As part of the Company's Board-authorized repurchase programs, the Company
sold Comcast Put Options on shares of its Class A Special common stock. The
Comcast Put Options give the holder the right to require the Company to
repurchase such shares at specified prices on specific dates. All Comcast
Put Options sold expired unexercised. The Company reclassified the amount
it would have been obligated to pay to repurchase such shares had the
Comcast Put Options been exercised, from common equity put options to
additional capital upon expiration of the Comcast Put Options.
The following table summarizes the Company's share activity for the three
years ended December 31, 2002:
Common Stock
----------------------------------------------
Series B
Preferred Class A
Stock Class A Special Class B
------------ ---------------- ------------- -------------
Balance, January 1, 2000................... 569,640 25,993,380 716,442,482 9,444,375
Acquisitions............................... 155,702,851
Stock compensation plans................... (330) 2,599,151
Retirement of common stock................. (3,106,500) (6,006,800)
Conversion of Series B Preferred........... (533,685) 38,278,558
Series B preferred dividends............... 23,495
Share exchange............................. (1,054,300) 998,950
------------ ---------------- ------------- -------------
Balance, December 31, 2000................. 59,450 21,832,250 908,015,192 9,444,375
Stock compensation plans................... (2,828) 2,515,538
Retirement of common stock................. (808,000)
Conversion of Series B Preferred........... (59,450) 4,208,824
------------ ---------------- ------------- -------------
Balance, December 31, 2001................. 21,829,422 913,931,554 9,444,375
Acquisitions............................... 1,577,117,883 14,376,283
Shares classified as treasury stock........ (243,640,500) (47,289,843)
Stock compensation plans................... 66,843 1,861,961
Employee Stock Purchase Plan............... 463,635
------------ ---------------- ------------- -------------
Balance, December 31, 2002................. 1,355,373,648 883,343,590 9,444,375
============ ================ ============= =============
Stock-Based Compensation Plans
As of December 31, 2002, the Company and its subsidiaries have several
stock-based compensation plans for certain employees, officers, directors
and other persons designated by the applicable compensation committees of
the boards of directors of the Company and its subsidiaries. These plans are
described below.
- 72 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Comcast Option Plans. The Company maintains stock option plans for certain
employees, directors and other persons under which fixed stock options are
granted and the option price is generally not less than the fair value of a
share of the underlying stock at the date of grant (collectively, the
"Comcast Option Plans"). Under the Comcast Option Plans, 138.9 million
shares of Class A and Class A Special common stock were reserved for
issuance upon the exercise of options, including those outstanding as of
December 31, 2002. Option terms are generally from five to 10 1/2 years,
with options generally becoming exercisable between two and 9 1/2 years from
the date of grant.
The following table summarizes the activity of the Comcast Option Plans
(options in thousands):
2002 2001 2000
------------------ --------------------- -----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----------- --------- ----------- --------- -----------
Class A Common Stock
Outstanding at beginning of year...
Options exchanged for
outstanding Broadband
options in connection with
acquisition..................... 61,094 $44.17
Granted............................ 2,762 24.85
Exercised.......................... (43) 17.79
Canceled........................... (238) 55.19
------
Outstanding at end of year......... 63,575 43.31
======
Exercisable at end of year......... 58,135 44.91
======
Class A Special Common Stock
Outstanding at beginning of year... 55,521 $26.89 49,618 $23.69 40,416 $16.01
Granted............................ 13,857 32.29 10,084 37.52 15,300 39.43
Exercised.......................... (2,347) 8.83 (3,360) 10.62 (4,805) 8.60
Canceled........................... (2,141) 30.38 (821) 30.69 (1,293) 25.98
------ ------ ------
Outstanding at end of year......... 64,890 28.57 55,521 26.89 49,618 23.69
====== ====== ======
Exercisable at end of year......... 22,798 21.08 16,892 15.57 13,267 11.35
====== ====== ======
- 73 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The following table summarizes information about the options outstanding
under the Comcast Option Plans as of December 31, 2002 (options in
thousands):
Options Outstanding Options Exercisable
------------------------------------------ -------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/02 Life Price at 12/31/02 Price
------------------- ------------- --------------- ----------- ----------- ------------
Class A Common Stock
$3.89 - $15.21 2,291 3.3 years $9.59 2,291 $9.59
$16.11 - $27.74 10,377 8.1 years 24.98 4,975 23.69
$27.76 - $33.73 13,574 6.9 years 32.36 13,549 32.36
$33.74 - $45.07 13,852 3.9 years 38.37 13,839 38.37
$45.08 - $60.89 13,967 5.6 years 54.64 13,967 54.64
$60.90 - $89.85 9,514 5.5 years 77.59 9,514 77.59
---------- ----------
63,575 58,135
========== ==========
Class A Special Common Stock
$6.00 - $15.66 10,963 2.9 years $9.97 8,751 $9.96
$16.94 - $25.58 13,431 6.5 years 18.39 6,367 17.03
$27.04 - $35.49 16,968 8.1 years 34.13 3,241 32.15
$35.53 - $45.94 22,042 7.8 years 38.26 3,810 39.13
$46.00 - $53.13 1,486 6.9 years 50.53 629 50.40
---------- ----------
64,890 22,798
========== ==========
- 74 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Subsidiary Option Plans. Certain of the Company's subsidiaries maintain
combination stock option/stock appreciation rights ("SAR") plans
(collectively, the "Tandem Plans") for employees, officers, directors and
other designated persons. Under the Tandem Plans, the option price is
generally not less than the fair value, as determined by an independent
appraisal, of a share of the underlying common stock at the date of grant.
If the eligible participant elects the SAR feature of the Tandem Plans, the
participant receives 75% of the excess of the fair value of a share of the
underlying common stock over the exercise price of the option to which it
is attached at the exercise date. The holders of a majority of the
outstanding options have stated an intention not to exercise the SAR
feature of the Tandem Plans. Because the exercise of the option component
is more likely than the exercise of the SAR feature, compensation expense
is measured based on the stock option component. Under the Tandem Plans,
option/SAR terms are ten years from the date of grant, with options/SARs
generally becoming exercisable over four to five years from the date of
grant.
The QVC Tandem Plan is the most significant of the Tandem Plans. The
following table summarizes information related to the QVC Tandem Plan
(options/SARs in thousands):
At December 31,
2002 2001 2000
----------- ---------- -----------
Options/SARs outstanding at end
of year...................................................... 240 253 219
=========== ========== ===========
Weighted-average exercise price of
options/SARs outstanding
at end of year............................................... $1,086.37 $913.88 $789.51
=========== ========== ===========
Options/SARs exercisable at end
of year...................................................... 115 113 79
=========== ========== ===========
Weighted-average exercise price
of options/SARs exercisable
at end of year............................................... $839.59 $706.51 $606.92
=========== ========== ===========
As of the latest valuation date, the fair value of a share of QVC Common
Stock was $1,768.15.
Other Stock-Based Compensation Plans
The Company maintains a restricted stock plan under which management
employees may be granted restricted share awards in the Company's Class A
or Class A Special common stock (the "Restricted Stock Plan"). The share
awards vest annually, generally over a period not to exceed five years from
the date of the award, and do not have voting rights. At December 31, 2002,
there were 150,000 shares of Class A common stock and 763,000 shares of
Comcast Class A Special common stock issuable in connection with restricted
share awards under the Restricted Stock Plan, of which zero shares and
166,000 shares were issued in January 2003, respectively.
The Company maintains a deferred stock option plan for certain employees,
officers and directors which provides the optionees with the opportunity to
defer the receipt of shares of the Company's Class A or Class A Special
common stock which would otherwise be deliverable upon exercise by the
optionees of their stock options. As of December 31, 2002, 6.1 million
shares of Class A Special common stock were issuable under options
exercised but the receipt of which was irrevocably deferred by the
optionees pursuant to the Company's deferred stock option plan.
- 75 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Certain of the Company's subsidiaries have SAR plans for certain employees,
officers, directors and other persons (the "SAR Plans"). Under the SAR
Plans, eligible participants are entitled to receive a cash payment equal
to 100% of the excess, if any, of the fair value of a share of the
underlying common stock at the exercise date over the fair value of such a
share at the grant date. The SARs have a term of ten years from the date of
grant and become exercisable over four to five years from the date of
grant.
The following table summarizes information related to the Company's
Restricted Stock Plan and SAR Plans:
Year Ended December 31,
2002 2001 2000
--------- --------- -------
Restricted Stock Plan
Shares granted (in thousands)............................... 61 157 504
Weighted-average fair value per share at date of grant...... $28.47 $39.52 $37.80
Compensation expense (in millions).......................... $8 $9 $9
SAR Plans
Compensation expense (in millions).......................... $3 $4 $2
11. INCOME TAXES
The Company joins with its 80% or more owned subsidiaries (the
"Consolidated Group") in filing consolidated federal income tax returns.
QVC and E! Entertainment each file separate consolidated federal income tax
returns. Income tax expense consists of the following components (in
millions):
Year Ended December 31,
2002 2001 2000
--------- --------- ---------
Current expense
Federal......................................................... $168 $622 $309
State........................................................... 61 85 43
Foreign......................................................... 5 3 2
--------- --------- ---------
234 710 354
--------- --------- ---------
Deferred expense (benefit)
Federal......................................................... (93) (255) 999
State........................................................... (6) 15 76
Foreign......................................................... (1)
--------- --------- ---------
(100) (240) 1,075
--------- --------- ---------
Income tax expense.............................................. $134 $470 $1,429
========= ========= =========
- 76 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The Company's effective income tax expense differs from the statutory
amount because of the effect of the following items (in millions):
Year Ended December 31,
2002 2001 2000
--------- --------- ----------
Federal tax at statutory rate................................... $25 $299 $1,248
Non-deductible depreciation and amortization.................... 107 102
State income taxes, net of federal benefit...................... 36 65 77
Foreign losses and equity in net losses of affiliates........... 14 7 8
Increase in valuation allowance................................. 12
Adjustment to prior year accrual................................ 45
Other........................................................... 2 (8) (6)
--------- --------- ----------
Income tax expense.............................................. $134 $470 $1,429
========= ========= ==========
The Company's net deferred tax liability consists of the following
components (in millions):
December 31,
2002 2001
--------- ---------
Deferred tax assets:
Net operating loss carryforwards............................. $530 $243
Allowances for doubtful accounts and excess
and obsolete inventory.................................... 105 109
Differences between book and tax basis of long-term debt..... 424
Non- deductible accruals and other........................... 1,866 167
Less: Valuation allowance.................................... (12)
--------- ---------
2,913 519
--------- ---------
Deferred tax liabilities:
Temporary differences, principally book and tax basis
of property and equipment and intangible assets............ $20,552 6,329
Differences between book and tax basis
of investments............................................. 6,038 645
Differences between book and tax basis of
indexed debt securities.................................... 409 196
--------- ---------
26,999 7,170
--------- ---------
Net deferred tax liability...................................... $24,086 $6,651
========= =========
The Company recorded $17.541 billion of deferred income tax liabilities in
2002 in connection with the Broadband acquisition, principally related to
basis differences in investments, property and equipment and intangible
assets. Changes in estimates as it relates to Broadband's preacquisition
tax liabilities will be adjusted through an increase or decrease in
goodwill attributable to the acquisition. The Company recorded a decrease
of ($221) million, ($149) million and ($3.055) billion to deferred income
tax liabilities in 2002, 2001 and 2000, respectively, in connection with
unrealized losses on marketable securities which are included in other
comprehensive income (loss). The Company recorded $207 million of deferred
income tax liabilities in 2001 in connection with the cumulative effect of
accounting change related to the adoption of SFAS No. 133 (see Note 2).
- 77 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The Company has recorded net deferred tax liabilities of $976 million and
$275 million, as of December 31, 2002 and 2001, respectively, which have
been included in current liabilities, related primarily to current
investments. The Company has federal net operating loss carryforwards of
approximately $950 million and various state net operating loss
carryforwards, which expire in periods through 2022.
12. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The following table summarizes the fair values of the assets and
liabilities associated with acquisitions by the Company through noncash
transactions (see Note 5) (in millions):
Year Ended December 31,
2002 2001 2000
--------- ---------- ----------
Current assets................................................. $1,533 $57 $216
Investments.................................................... 17,325 437
Property and equipment......................................... 11,757 580 1,296
Intangible assets.............................................. 46,510 3,043 15,400
Other noncurrent assets........................................ 300
Current liabilities............................................ (4,694) (37) (277)
Short-term debt and current portion of long-term debt.......... (8,049)
Long-term debt................................................. (16,811) (2,147)
Deferred income taxes.......................................... (17,541) (77) (3,308)
Other noncurrent liabilities and minority interest............. (5,831)
Comcast shares held by Broadband............................... 1,126
--------- ---------- ----------
Net assets acquired....................................... $25,625 $3,566 $11,617
========= ========== ==========
The following table summarizes the Company's cash payments for interest and
income taxes (in millions):
Year Ended December 31,
2002 2001 2000
-------- -------- --------
Interest................................................................. $803 $660 $706
Income taxes............................................................. $288 $561 $709
13. COMMITMENTS AND CONTINGENCIES
Commitments
The Company's programming networks have entered into license agreements for
programs and sporting events which will be available for telecast
subsequent to December 31, 2002. In addition, the Company, through Comcast-
Spectacor, has employment agreements with both players and coaches of its
professional sports teams. Certain of these employment agreements, which
provide for payments that are guaranteed regardless of employee injury or
termination, are covered by disability insurance if certain conditions are
met.
Following the Broadband acquisition, certain subsidiaries of the Company
support debt compliance with respect to obligations aggregating $1.461
billion as of December 31, 2002 of certain cable television partnerships
which the Company accounts for under the equity method (see Note 6). The
obligations expire between May 2008 and May 2009. Although there can be no
assurance, management believes that it will not be required to meet its
obligations under such guarantees. The total notional amount of guarantees
for the Company was $1.461 billion as of December 31, 2002, at which time
there were no quoted market prices for similar agreements.
The following table summarizes the Company's minimum annual programming
commitments under network launch and program license agreements, the
Company's future commitments under long-term professional sports contracts,
- 78 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
and the Company's minimum annual rental commitments for office space,
equipment and transponder service agreements under noncancellable operating
and capital leases as of December 31, 2002 (in millions):
Professional
Programming Sports Operating
Agreements Contracts Leases Total
-------------- ------------- ---------- ----------
2003........................... $104 $126 $248 $478
2004........................... 98 113 201 412
2005........................... 97 84 153 334
2006........................... 101 50 120 271
2007........................... 83 24 100 207
Thereafter..................... 485 8 298 791
The following table summarizes the Company's rental expense charged to
operations (in millions):
Year Ended December 31,
2002 2001 2000
-------- -------- --------
Rental expense............................................................. $172 $121 $98
Contingencies
On March 3, 2003, the Company announced that Liberty Media Corporation
("Liberty") delivered a notice to it, pursuant to the stockholders
agreement between the Company and Liberty, that triggers an exit rights
process with respect to Liberty's approximate 42% interest in QVC. The
Company and Liberty will attempt to negotiate the fair market value of QVC
prior to March 31, 2003. If the Company and Liberty cannot agree, an
appraisal process will determine the value of QVC. The Company will then
have the right to purchase Liberty's interest in QVC at the determined
value. The Company may pay Liberty for the QVC stock in cash, in a
promissory note maturing not more than three years after issuance, in its
equity securities or in a combination of these, subject to Liberty's right
to request payment in all equity securities and the parties' obligation to
use reasonable efforts to consummate the purchase in the most tax efficient
method available (provided that the Company is not required to issue
securities representing more than 4.9% of the outstanding equity or vote of
the Company's common stock). If the Company elects not to purchase
Liberty's interest in QVC, Liberty then will have a similar right to
purchase the Company's approximate 57% interest in QVC. If neither the
Company nor Liberty elect to purchase the interest of the other, then the
Company and Liberty are required to use their best efforts to sell QVC;
either company is permitted to be a purchaser in any such sale. The Company
and Liberty may agree not to enter into a transaction, or may agree to a
transaction other than that specified in the stockholders agreement. Under
the current terms of the stockholders agreement between the Company and
Liberty, the Company would no longer control QVC if it elects not to
purchase Liberty's interest in QVC.
The Company and the minority owner group in Comcast Spectacor each have the
right to initiate an "exit" process under which the fair market value of
Comcast Spectacor would be determined by appraisal. Following such
determination, the Company would have the option to acquire the interests
in Comcast Spectacor owned by the minority owner group based on the
appraised fair market value. In the event the Company does not exercise
this option, the Company and the minority owner group would then be
required to use their best efforts to sell Comcast Spectacor. This exit
process includes the minority owner group's interest in CSN.
The Company holds the majority of its interest in E! Entertainment through
Comcast Entertainment Holdings, LLC ("Entertainment Holdings"), which is
owned 50.1% by the Company and 49.9% by The Walt Disney Company ("Disney").
Under a limited liability company agreement between the Company and Disney,
the Company controls E! Entertainment's operations. As a result of the
Broadband acquisition and in certain other circumstances, under the
agreement Disney is entitled to trigger a potential exit process in which
Entertainment Holdings would have
- 79 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
the right to purchase Disney's entire interest in Entertainment Holdings at
its then fair market value (as determined by an appraisal process). If
Disney exercises this right within a specified time period, and
Entertainment Holdings elects not to purchase Disney's interest, Disney
then has the right to purchase, at appraised fair market value, either the
Company's entire interest in Entertainment Holdings or all of the shares of
stock of E! Entertainment held by Entertainment Holdings. In the event that
Disney exercises its right and neither Disney's nor the Company's interest
is purchased, Entertainment Holdings will continue to be owned as it is
today, as if the exit process had not been triggered.
Litigation has been filed against the Company as a result of alleged
conduct of the Company with respect to its investment in and distribution
relationship with At Home Corporation. At Home was a provider of high-speed
Internet access and content services which filed for bankruptcy protection
in September 2001. Filed actions are: (i) class action lawsuits against the
Company, Brian L. Roberts (the Company's President and Chief Executive
Officer and a director), AT&T (the former controlling shareholder of At
Home and also a former distributor of the At Home service) and other
corporate and individual defendants in the Superior Court of San Mateo
County, California, alleging breaches of fiduciary duty on the part of the
Company and the other defendants in connection with transactions agreed to
in March 2000 among At Home, the Company, AT&T and Cox Communications, Inc.
(Cox is also an investor in At Home and a former distributor of the At Home
service); (ii) class action lawsuits against Comcast Cable Communications,
Inc., AT&T and others in the United States District Court for the Southern
District of New York, alleging securities law violations and common law
fraud in connection with disclosures made by At Home in 2001; and (iii) a
lawsuit brought in the United States District Court for the District of
Delaware in the name of At Home by certain At Home bondholders against the
Company, Brian L. Roberts, Cox and others, alleging breaches of fiduciary
duty relating to the March 2000 transactions and seeking recovery of
alleged short- swing profits of at least $600 million pursuant to Section
16(b) of the Securities Exchange Act of 1934 purported to have arisen in
connection with certain transactions relating to At Home stock effected
pursuant to the March 2000 agreements. The actions in San Mateo County,
California have been stayed by the United States Bankruptcy Court for the
Northern District of California, the court in which At Home filed for
bankruptcy, as violating the automatic bankruptcy stay. In the Southern
District of New York actions, the court ordered the actions consolidated
into a single action. An amended consolidated class action complaint was
filed on November 8, 2002. All of the defendants served motions to dismiss
on February 11, 2003.
Under the terms of the Broadband acquisition, the Company is contractually
liable for 50% of any liabilities of AT&T relating to At Home, including
any resulting from any pending or threatened litigation. AT&T will be
liable for the other 50% of these liabilities. In addition to the actions
against AT&T described above, where the Company is also a defendant, there
are two additional actions brought by At Home's bondholders' liquidating
trust against AT&T, not naming the Company: (i) a lawsuit filed against
AT&T and certain of its senior officers in Santa Clara, California state
court alleging various breaches of fiduciary duties, misappropriation of
trade secrets and other causes of action in connection with the
transactions in March 2000 described above, and prior and subsequent
alleged conduct on the part of the defendants, and (ii) an action filed
against AT&T in the District Court for the Northern District of California,
alleging that AT&T infringes an At Home patent by using its broadband
distribution and high-speed Internet backbone networks and equipment. AT&T
moved to dismiss the Santa Clara action on the grounds that California is
an inconvenient forum, but the court denied AT&T's motion. AT&T also moved
to transfer the Northern District of California action to the Southern
District of New York as being a more convenient venue. AT&T's motion is
pending.
The Company denies any wrongdoing in connection with the claims which have
been made directly against the Company, its subsidiaries and Brian L.
Roberts, and intends to defend all of these claims vigorously. In
management's opinion, the final disposition of these claims is not expected
to have a material adverse effect on the Company's consolidated financial
position, but could possibly be material to the Company's consolidated
results of operations of any one period. Further, no assurance can be given
that any adverse outcome would not be material to such consolidated
financial position.
- 80 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Management is continuing to evaluate this litigation and is unable to
currently determine what impact, if any, that the Company's 50% share of
the AT&T At Home potential liabilities would have on the Company's
consolidated financial position or results of operations. No assurance can
be given that any adverse outcome would not be material.
Some of the entities formerly attributed to Broadband which are now
subsidiaries of the Company are parties to an affiliation term sheet with
Starz Encore Group LLC, an affiliate of Liberty Media Corporation, which
extends to 2022. The term sheet requires annual fixed price payments,
subject to adjustment for various factors, including inflation. The term
sheet also requires the Company to pay two-thirds of Starz Encore's
programming costs above levels designated in the term sheet. Excess
programming costs that may be payable by the Company in future years are
not presently estimable, and could be significant.
By letter dated May 29, 2001, Broadband disputed the enforceability of the
excess programming pass-through provisions of the Starz Encore term sheet
and questioned the validity of the term sheet as a whole. Broadband also
has raised certain issues concerning the uncertainty of the provisions of
the term sheet and the contractual interpretation and application of
certain of its provisions to, among other things, the acquisition and
disposition of cable systems. In July 2001, Starz Encore filed a lawsuit in
Colorado state court seeking payment of the 2001 excess programming costs
and a declaration that the term sheet is a binding and enforceable
contract. In October 2001, Broadband and Starz Encore agreed to delay any
further proceedings in the litigation until August 31, 2002 to allow the
parties time to continue negotiations toward a potential business
resolution of this dispute. As part of this standstill agreement, Broadband
and Starz Encore settled Starz Encore's claim for the 2001 excess
programming costs, and Broadband agreed to continue to make the standard
monthly payments due under the term sheet, with a full reservation of
rights with respect to these payments. In connection with the standstill
agreement, the court granted a stay on October 30, 2001. The terms of the
stay order allowed either party to petition the court to lift the stay
after April 30, 2002 and to proceed with the litigation. Broadband and
Starz Encore agreed to extend the standstill agreement to and including
January 31, 2003, with a requirement that the parties attempt to mediate
the dispute. A mediation session held in January 2003 did not result in any
resolution of the matter.
On November 18, 2002, the Company and Comcast Holdings filed suit against
Starz Encore in the United States District Court for the Eastern District
of Pennsylvania. The Company and Comcast Holdings seek a declaratory
judgment that, pursuant to their rights under a March 17, 1999 contract
with a predecessor of Starz Encore, upon the completion of the Broadband
acquisition that contract now provides the terms under which Starz Encore
programming is acquired and transmitted by the Company's cable systems. On
January 8, 2003, Starz Encore filed a motion to dismiss the lawsuit on the
grounds that claims asserted by the Company and Comcast Holdings raised
issues of state law that the United States District Court should decline to
decide. The Company has responded contesting these assertions. That motion
has been submitted to the Court for decision.
On January 31, 2003, Starz Encore filed an amended complaint in its lawsuit
against Broadband in Colorado state court. The amended complaint adds the
Company and Comcast Holdings as defendants and adds new claims against the
Company, Comcast Holdings and Broadband asserting alleged breaches of, and
interference with, the standstill agreement relating to the lawsuit filed
by the Company and Comcast Holdings in federal District Court in
Pennsylvania and to the defendants' position that since the completion of
the Broadband acquisition, the March 17, 1999 contract now provides the
terms under which Starz Encore programming is acquired and transmitted by
the Company's cable systems.
On March 3, 2003, Starz Encore filed a motion for leave to file a second
amended complaint that would add allegations that Broadband has breached
certain joint-marketing obligations under the term sheet and that the
Company and Comcast Holdings have breached certain joint-marketing
obligations under the March 17, 1999 contract and other agreements. The
Company, Comcast Holdings and Broadband intend to oppose Starz Encore's
motion for leave to file a second amended complaint and, in light of Starz
Encore's pending motion for leave to amend, have sought an extension of
time from the Court to respond to Starz Encore's amended complaint.
- 81 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
An entity formerly attributed to Broadband, which is now a subsidiary of
the Company, is party to a master agreement that may not expire until
December 31, 2012, under which it purchases certain billing services from
CSG Systems, Inc. The master agreement requires monthly payments, subject
to adjustment for inflation. The master agreement also contains a most
favored nation provision that may affect the amounts paid thereunder.
On May 10, 2002, Broadband filed a demand for arbitration against CSG
before the American Arbitration Association asserting, among other things,
the right to terminate the master agreement and seeking damages under the
most favored nation provision or otherwise. On May 31, 2002, CSG answered
Broadband's arbitration demand and asserted various counterclaims,
including for (i) breach of the master agreement; (ii) a declaration that
the Company is now bound by the master agreement to use CSG as its
exclusive provider for certain billing and customer care services; (iii)
tortious interference with prospective contractual relations; and (iv)
civil conspiracy. A hearing in the arbitration is scheduled to commence on
May 5, 2003.
On June 21, 2002, CSG filed a lawsuit against Comcast Holdings in federal
court in Denver, Colorado asserting claims related to the master agreement
and the pending arbitration. On November 4, 2002, CSG withdrew its
complaint against Comcast Holdings without prejudice. On November 15, 2002,
the Company initiated a lawsuit against CSG in federal court in
Philadelphia, Pennsylvania asserting that cable systems owned by Comcast
Holdings are not required to use CSG as a billing service or customer care
provider pursuant to the master agreement, and that the former Broadband
cable systems owned by the Company may be added to a billing service
agreement between the Company and CSG. CSG moved to dismiss or stay the
lawsuit on the ground that the issues raised by the complaint could be
wholly or substantially determined by the above-mentioned arbitration. By
Order dated February 10, 2003, the Court stayed the lawsuit until further
notice.
On January 8, 2003, Liberty Digital, Inc. filed a complaint in Colorado
state court against the Company and Comcast Cable Holdings, LLC (formerly
AT&T Broadband LLC and Tele-Communications, Inc.), a wholly owned
subsidiary of the Company. The complaint alleges that Comcast Cable
Holdings breached a 1997 "contribution agreement" between Liberty Digital
and Comcast Cable Holdings and that the Company tortiously interfered with
that agreement. The complaint alleges that this purported agreement
obligates Comcast Cable Holdings to pay fees to Liberty Digital totaling
$18 million (increasing at CPI) per year through 2017. The Company and
Comcast Cable Holdings filed their answer to the complaint on March 5,
2003, in which they denied the essential allegations of the complaint and
asserted various affirmative defenses.
In management's opinion, the final disposition of the Starz Encore, CSG and
Liberty Digital contractual disputes is not expected to have a material
adverse effect on the Company's consolidated financial position or results
of operations. However, no assurance can be given that any adverse outcome
would not be material to such consolidated financial position or results of
operations.
The Company is subject to other legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to such actions is not expected
to materially affect the financial condition, results of operations or
liquidity of the Company.
In connection with a license awarded to an affiliate, the Company is
contingently liable in the event of nonperformance by the affiliate to
reimburse a bank which has provided a performance guarantee. The amount of
the performance guarantee is approximately $200 million; however the
Company's current estimate of the amount of expenditures (principally in
the form of capital expenditures) that will be made by the affiliate
necessary to comply with the performance requirements will not exceed $75
million.
- 82 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
14. FINANCIAL DATA BY BUSINESS SEGMENT
The following represents the Company's significant business segments,
"Cable" and "Commerce." The components of net income (loss) below operating
income (loss) before depreciation and amortization are not separately
evaluated by the Company's management on a segment basis (dollars in
millions).
Corporate
Cable Commerce and Other(1) Total
--------- ---------- ------------- ------------
2002
- ----
Revenues (2)........................................................... $7,350 $4,381 $729 $12,460
Operating income before depreciation and amortization (3).............. 2,798 858 35 3,691
Depreciation and amortization.......................................... 1,670 119 243 2,032
Operating income (loss) ............................................... 1,128 739 (208) 1,659
Interest expense....................................................... 723 14 147 884
Assets................................................................. 106,291 3,000 3,814 113,105
Long-term debt......................................................... 26,033 1 1,923 27,957
Capital expenditures................................................... 1,814 123 38 1,975
2001
- ----
Revenues (2)........................................................... $5,323 $3,917 $596 $9,836
Operating income (loss) before depreciation and amortization (3)...... 2,054 722 (106) 2,670
Depreciation and amortization.......................................... 3,044 143 229 3,416
Operating income (loss)................................................ (990) 579 (335) (746)
Interest expense....................................................... 546 26 162 734
Assets................................................................. 29,085 2,809 6,367 38,261
Long-term debt......................................................... 8,363 63 3,316 11,742
Capital expenditures................................................... 1,855 143 184 2,182
2000
- ----
Revenues (2)........................................................... $4,362 $3,536 $459 $8,357
Operating income (loss) before depreciation and amortization (3)...... 1,903 619 (64) 2,458
Depreciation and amortization.......................................... 2,419 126 74 2,619
Operating income (loss)................................................ (516) 493 (138) (161)
Interest expense....................................................... 516 35 177 728
Assets................................................................. 25,764 2,632 7,478 35,874
Long-term debt......................................................... 6,711 302 3,504 10,517
Capital expenditures................................................... 1,249 156 232 1,637
______________
<FN>
(1) Other includes segments not meeting certain quantitative guidelines for
reporting including the Company's content (see Note 1) and business
communications operations, as well as elimination entries related to the
segments presented. Corporate and other assets consist primarily of the
Company's investments and intangible assets related to the Company's
content operations (see Notes 6 and 7).
(2) Revenues include $678 million, $508 million and $458 million in 2002, 2001
and 2000, respectively, of non-US revenues, principally related to the
Company's Commerce segment. No single customer accounted for a significant
amount of the Company's revenues in any period.
(3) Operating income (loss) before depreciation and amortization is commonly
referred to in the Company's businesses as "EBITDA." EBITDA is a measure of
a company's ability to generate cash to service its obligations, including
debt service obligations, and to finance capital and other expenditures. In
part due to the capital intensive nature of the Company's businesses and
the resulting significant level of non-cash depreciation and amortization
expense, EBITDA is frequently used as one of the bases for comparing
businesses in the Company's industries, although the Company's measure of
EBITDA may not be comparable to similarly titled measures of other
companies. EBITDA is the primary basis used by the Company's management to
measure the operating performance of its businesses. EBITDA does not
purport to represent net income or net cash provided by operating
activities, as those terms are defined under generally accepted accounting
principles, and should not be considered as an alternative to such
measurements as an indicator of the Company's performance.
</FN>
- 83 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
--------- --------- --------- ------------ ---------
(Dollars in millions, except per share data)
2002
----
Revenues.................................................. $2,672 $2,709 $2,705 $4,374 $12,460
Operating income.......................................... 421 478 431 329 1,659
Income (loss) before cumulative effect of
accounting change...................................... (89) (210) 76 (51) (274)
Basic earnings (loss) for common
stockholders per common share
Income (loss) before cumulative effect of
accounting change...................................... (0.09) (0.22) 0.08 (0.03) (0.25)
Net income (loss)....................................... (0.09) (0.22) 0.08 (0.03) (0.25)
Diluted earnings (loss) for common
stockholders per common share
Income (loss) before cumulative effect of
accounting change...................................... (0.09) (0.22) 0.08 (0.03) (0.25)
Net income (loss)....................................... (0.09) (0.22) 0.08 (0.03) (0.25)
Operating income before depreciation and
amortization (1)....................................... 808 867 826 1,190 3,691
2001
----
Revenues.................................................. $2,232 $2,338 $2,401 $2,865 $9,836
Operating loss............................................ (101) (133) (178) (334) (746)
Income (loss) before cumulative effect of accounting
change............................................... 617 35 (107) (321) 224
Basic earnings (loss) for common
stockholders per common share
Income (loss) before cumulative effect of accounting
change............................................... 0.65 0.04 (0.11) (0.34) 0.24
Net income (loss)....................................... 1.06 0.04 (0.11) (0.34) 0.64
Diluted earnings (loss) for common
stockholders per common share
Income (loss) before cumulative effect of accounting
change............................................... 0.64 0.04 (0.11) (0.34) 0.23
Net income (loss)....................................... 1.04 0.04 (0.11) (0.34) 0.63
Operating income before depreciation and
amortization (1)..................................... 634 693 701 642 2,670
<FN>
______________
(1) See Note 14, note 3.
</FN>
- 84 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
16. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In November 2002, in order to simplify the Company's capital structure, the
Company and four of its cable holding company subsidiaries, Comcast Cable
Communications, Inc. (Comcast Cable or "CCCI"), Comcast Cable
Communications Holdings, Inc. (Comcast Cable Communications Holdings or
"CCCH"), Comcast MO Group, Inc. ("Comcast MO Group"), and Comcast Cable
Holdings, LLC (Comcast Cable Holdings or "CCH", and together with Comcast
MO Group, "CCHMO"), fully and unconditionally guaranteed each other's debt
securities (see Note 8). Condensed consolidating financial information of
the Company as of and for the year ended December 31, 2002 is as follows
(in millions):
Comcast Corporation
Condensed Consolidating Balance Sheet
As of December 31, 2002
Elimination
Combined Non- and Consolidated
Comcast CCCI CCCH CCHMO Guarantor Consolidation Comcast
Parent Parent Parent Parents Subsidiaries Adjustments Corporation
-------- -------- -------- ------- ------------ ----------- -----------
ASSETS
Cash and cash equivalents................ $ $ $ $ $781 $ $781
Investments.............................. 30 3,236 3,266
Accounts receivable, net................. 1,383 1,383
Inventories, net......................... 479 479
Assets held for sale..................... 613 613
Deferred income taxes.................... 129 129
Other current assets..................... 22 403 425
-------- -------- -------- --------- -------- --------- -----------
Total current assets................... 52 7,024 7,076
-------- -------- -------- --------- -------- --------- -----------
INVESTMENTS.............................. 15,207 15,207
INVESTMENTS IN AND AMOUNTS DUE FROM
SUBSIDIARIES ELIMINATED UPON
CONSOLIDATION.......................... 39,356 21,818 33,683 40,749 13,913 (149,519)
PROPERTY AND EQUIPMENT, net.............. 18,866 18,866
FRANCHISE RIGHTS......................... 48,222 48,222
GOODWILL................................. 17,397 17,397
OTHER INTANGIBLE ASSETS, net............. 5,599 5,599
OTHER NONCURRENT ASSETS, net............ 74 99 121 444 738
-------- -------- -------- --------- -------- --------- -----------
Total Assets............................. $39,482 $21,917 $33,804 $40,749 $126,672 ($149,519) $113,105
======== ======== ======== ========= ======== ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable......................... $1 $ $ $ $1,662 $ $1,663
Accrued expenses and other current
liabilities ........................... 208 107 46 469 4,819 5,649
Liabilities related to assets held
for sale............................... 13 13
Deferred income taxes.................... 1,105 1,105
Short-term debt.......................... 3,750 3,750
Current portion of long-term debt........ 1,465 1,738 3,203
-------- -------- -------- --------- -------- --------- -----------
Total current liabilities.............. 209 107 3,796 1,934 9,337 15,383
-------- -------- -------- --------- -------- --------- -----------
LONG-TERM DEBT, less current portion..... 680 7,897 6,005 4,932 8,443 27,957
DEFERRED INCOME TAXES.................... 23,110 23,110
OTHER NONCURRENT LIABILITIES............. 264 200 5,188 5,652
MINORITY INTEREST........................ 2,674 2,674
STOCKHOLDERS' EQUITY
Common stock............................. 25 25
Other stockholders' equity............... 38,304 13,913 24,003 33,683 77,920 (149,519) 38,304
-------- -------- -------- --------- -------- --------- -----------
Total Stockholders' Equity............. 38,329 13,913 24,003 33,683 77,920 (149,519) 38,329
-------- -------- -------- --------- -------- --------- -----------
Total Liabilities and Stockholders'
Equity.............................. $39,482 $21,917 $33,804 $40,749 $126,672 ($149,519) $113,105
======== ======== ======== ========= ======== ========= ===========
- 85 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Comcast Corporation
Condensed Consolidating Statement of Operations
For the Year Ended December 31, 2002
Elimination
Combined Non- and Consolidated
Comcast CCCI CCCH CCHMO Guarantor Consolidation Comcast
Parent Parent Parent Parents Subsidiaries Adjustments Corporation
-------- -------- -------- ------- ------------ ----------- -----------
REVENUES
Service revenues......................... $ $ $ $ $8,079 $ $8,079
Net sales from electronic retailing...... 4,381 4,381
-------- ------- --------- -------- -------- ---------- ----------
12,460 12,460
-------- ------- --------- -------- -------- ---------- ----------
COSTS AND EXPENSES
Operating (excluding depreciation)....... 3,511 3,511
Cost of goods sold from electronic
retailing (excluding depreciation).... 2,793 2,793
Selling, general and administrative...... 24 37 2,404 2,465
Depreciation............................. 1,775 1,775
Amortization............................. 257 257
-------- ------- --------- -------- -------- ---------- ----------
24 37 10,740 10,801
-------- ------- --------- -------- -------- ---------- ----------
OPERATING INCOME (LOSS)..................... (24) (37) 1,720 1,659
OTHER INCOME (EXPENSE)
Interest expense......................... (2) (566) (59) (46) (211) (884)
Investment expense....................... (605) (605)
Equity in net losses of affiliates....... (124) 847 (176) (125) 399 (924) (103)
Other income............................. 3 3
-------- ------- --------- -------- -------- ---------- ----------
(126) 281 (235) (171) (414) (924) (1,589)
-------- ------- --------- -------- -------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY
INTEREST.................................. (150) 281 (235) (208) 1,306 (924) 70
INCOME TAX (EXPENSE) BENEFIT................ 10 221 23 32 (420) (134)
-------- ------- --------- -------- -------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST................. (140) 502 (212) (176) 886 (924) (64)
MINORITY INTEREST........................... (212) (212)
-------- ------- --------- -------- -------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS.... (140) 502 (212) (176) 674 (924) (276)
DISCONTINUED OPERATIONS..................... 2 2
-------- ------- --------- -------- -------- ---------- ----------
NET INCOME (LOSS)........................... ($140) $502 ($212) ($176) $676 ($924) ($274)
======== ======= ========= ======== ======== ========== ==========
- 86 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Concluded)
Comcast Corporation
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2002
Elimination
Combined Non- and Consolidated
Comcast CCCI CCCH CCHMO Guarantor Consolidation Comcast
Parent Parent Parent Parents Subsidiaries Adjustments Corporation
-------- -------- -------- ------- ------------ ----------- -----------
OPERATING ACTIVITIES
Net income (loss)........................... ($140) $502 ($212) ($176) 676 ($924) ($274)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities from continuing operations:
Depreciation............................. 1,775 1,775
Amortization............................. 257 257
Non-cash interest expense, net........... (16) (11) 37 10
Equity in net losses (income) of
affiliates............................. 124 (847) 176 125 (399) 924 103
Losses (gains) on investments and
other (income) expense, net............ 673 673
Minority interest........................ 212 212
Deferred income taxes.................... (100) (100)
Other.................................... (21) (21)
-------- ------- -------- ------- --------- -------- ---------
(16) (361) (36) (62) 3,110 2,635
Changes in working capital
Decrease in accounts receivable, net... 87 87
Increase in inventories, net........... (25) (25)
Increase in other assets............... (40) (40)
Increase in accounts payable, accrued
expenses and other current
liabilities......................... 16 3 (15) (112) 448 340
-------- ------- -------- ------- --------- -------- ---------
16 3 (15) (112) 470 362
Discontinued operations.................. (2) (2)
-------- ------- -------- ------- --------- -------- ---------
Net cash provided by (used in) operating
activities from continuing operations.. (358) (51) (174) 3,578 2,995
-------- ------- -------- ------- --------- -------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings................. 680 1,568 6,501 10 8,759
Retirements and repayments of debt....... (2,216) (6,100) (10) (1,482) (9,808)
Proceeds from settlement of interest rate
exchange agreements................... 57 57
Issuances of common stock................ 19 19
Equity contributions from a minority
partner to a subsidiary............... 13 13
Deferred financings costs................ (225) (107) (332)
-------- ------- -------- ------- --------- -------- ---------
Net cash (used in) provided by
financing activities from continuing
operations............................. 680 (816) 401 (10) (1,547) (1,292)
-------- ------- -------- ------- --------- -------- ---------
INVESTING ACTIVITIES
Net transactions with affiliates............ (680) 1,174 (350) 184 (328)
Acquisitions, net of cash required.......... (251) (251)
Proceeds from sales of (purchases of)
short-term investments, net.............. (21) (21)
Capital contributions to and purchases of
investments.............................. (67) (67)
Proceeds from sales and settlements of
investments.............................. 1,263 1,263
Capital expenditures........................ (1,975) (1,975)
Additions to intangible and other
noncurrent assets........................ (221) (221)
-------- ------- -------- ------- --------- -------- ---------
Net cash (used in) provided by
investing activities from
continuing operations.................... (680) 1,174 (350) 184 (1,600) (1,272)
-------- ------- -------- ------- --------- -------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS....... 431 431
CASH AND CASH EQUIVALENTS
beginning of year........................ 350 350
-------- ------- -------- ------- --------- -------- ---------
CASH AND CASH EQUIVALENTS
end of year.............................. $ $ $ $ $781 $ $781
======== ======= ======== ======= ========= ======== =========
- 87 -
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Except for the information regarding executive officers required by Item
401 of Regulation S-K, which is included in Part I of this Annual Report on Form
10-K as Item 4A in accordance with General Instruction G(3), the following
required information is incorporated by reference to our definitive Proxy
Statement for our Annual Meeting of Shareholders presently scheduled to be held
in May 2003:
Item 10 Directors and Executive Officers of the Registrant
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
Item 13 Certain Relationships and Related Transactions
We will file our definitive Proxy Statement for our Annual Meeting of
Shareholders with the Securities and Exchange Commission on or before April 30,
2003.
PART IV
ITEM 14 CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures. Our chief executive officer
and our co-chief financial officers, after evaluating the
effectiveness of our "disclosure controls and procedures" (as
defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and
15d-14(c)) as of a date (the "Evaluation Date") within 90 days
before the filing date of this annual report, have concluded that
as of the Evaluation Date, our disclosure controls and procedures
were adequate and designed to ensure that material information
relating to us and our consolidated subsidiaries would be made
known to them by others within those entities.
(b) Changes in internal controls. There were no significant changes in
our internal controls or to our knowledge, in other factors that
could significantly affect our internal controls and procedures
subsequent to the Evaluation Date.
ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements of the Company are
included in Part II, Item 8:
Independent Auditors' Report..................................37
Consolidated Balance Sheet--December 31, 2002 and 2001........38
Consolidated Statement of Operations--Years
Ended December 31, 2002, 2001 and 2000......................39
Consolidated Statement of Cash Flows--Years
Ended December 31, 2002, 2001 and 2000......................40
Consolidated Statement of Stockholders' Equity--
Years Ended December 31, 2002, 2001 and 2000................41
Notes to Consolidated Financial Statements....................42
(b) (i) The following financial statement schedules required to be
filed by Items 8 and 14(d) of Form 10-K are included in Part IV:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable,
not required or the required information is included in the
consolidated financial statements or notes thereto.
(c) Reports on Form 8-K:
(i) We filed a Current Report on Form 8-K under Item 5 on October 30,
2002 for purposes of incorporating by reference the Quarterly
Report on Form 10-Q of Comcast Holdings Corporation (f/k/a Comcast
Corporation) into the registration statement on Form S-4 relating
to AT&T Corp.'s pending exchange offer
- 88 -
in respect of an aggregate of $11.8 billion of AT&T's existing
debt securities. We were a co-registrant on the exchange offer
registration statement.
(ii) We filed a Current Report on Form 8-K12g3 under Items 2, 5 and 7
on November 18, 2002 announcing (a) the completion of the
Agreement and Plan of AT&T Broadband Merger with AT&T Corp. which
resulted in the combination of Comcast Holdings Corporation (f/k/a
Comcast Corporation) and AT&T Broadband, a holding company of
AT&T's broadband business, (b) the conditioned approval by the
Federal Communications Commission ("FCC") of the transfer of
certain FCC licenses to complete the transaction, (c) the adoption
of a shareholder rights plan, (d) the repayment of certain
intracompany debt, (e) certain corporate name changes, (f) certain
technical amendments to the transaction agreements, and (g) the
names of the new Comcast Corporation board of directors.
(iii)We filed a Current Report on Form 8-K/A under Items 2 and 7 on
December 16, 2002 amending our Current Report on Form 8-K12g3
filed on November 18, 2002 to include the pro forma financial
information of Comcast Corporation, giving effect to the merger
with AT&T's broadband business.
(d) Exhibits required to be filed by Item 601 of Regulation S-K:
2.1 Composite copy of Agreement and Plan of Merger dated as of
December 19, 2001, as amended, among Comcast Holdings
Corporation (f/k/a Comcast Corporation), AT&T Corp., Comcast
Cable Communications Holdings, Inc. (f/k/a AT&T Broadband
Corp.), Comcast Corporation (f/k/a AT&T Comcast Corporation)
and the other parties signatory thereto (incorporated by
reference to Exhibit 2.1 to our Current Report on Form
8-K12g3 filed on November 18, 2002).
2.2 Composite copy of Separation and Distribution Agreement
dated as of December 19, 2001, as amended, between AT&T
Corp. and Comcast Cable Communications Holdings, Inc. (f/k/a
AT&T Broadband Corp.) (incorporated by reference to Exhibit
2.3 to our Current Report on Form 8- K12g3 filed on November
18, 2002).
2.3 Support Agreement dated as of December 19, 2001, as amended,
among AT&T Corp., Comcast Holdings Corporation (f/k/a
Comcast Corporation), Comcast Corporation (f/k/a AT&T
Comcast Corporation), Sural LLC and Brian L. Roberts
(incorporated by reference to Exhibit 2.3 to our
registration statement on Form S-4 filed on February 11,
2002).
2.4 Tax Sharing Agreement dated as of December 19, 2001 between
AT&T Corp. and Comcast Cable Communications Holdings, Inc.
(f/k/a AT&T Broadband Corp.) (incorporated by reference to
Exhibit 2.4 to our registration statement on Form S-4 filed
on February 11, 2002).
2.5 Composite Copy of Employee Benefits Agreement dated as of
December 19, 2001, as amended, between AT&T Corp. and
Comcast Cable Communications Holdings, Inc. (f/k/a AT&T
Broadband Corp.)
2.6 Exchange Agreement dated as of December 7, 2001, as amended,
between Microsoft Corporation and Comcast Holdings
Corporation (f/k/a Comcast Corporation) (incorporated by
reference to Exhibit 2.6 to our registration statement on
Form S-4 filed on February 11, 2002).
2.7 Instrument of Admission dated as of December 19, 2001, as
amended, between Comcast Corporation (f/k/a AT&T Comcast
Corporation) and AT&T Corp. (incorporated by reference to
Exhibit 2.7 to our amended registration statement on Form
S-4/A filed on April 10, 2002.
3.1 Composite copy of Amended and Restated Articles of
Incorporation of Comcast Corporation (f/k/a AT&T Comcast
Corporation) (incorporated by reference to Exhibit 2.2 to
our Current Report on Form 8-K12g3 filed on November 18,
2002).
3.2 Amended and Restated By-Laws.
4.1 Specimen Class A Common Stock Certificate.
4.2 Specimen Class A Special Common Stock Certificate.
4.3 Rights Agreement dated as of November 18, 2002 between
Comcast Corporation (f/k/a AT&T Comcast Corporation) and
EquiServe Trust Company, N.A., as Rights Agent, which
includes the Form of Certificate of Designation of Series A
Participant's Cumulative Preferred Stock as Exhibit A and
the Form of Right Certificate as Exhibit B (incorporated by
reference to our registration statement on Form 8-A12g filed
on November 18, 2002).
4.4 Credit Agreement dated as of April 26, 2002 among Comcast
Corporation (f/k/a AT&T Comcast Corporation), Comcast Cable
Communications Holdings, Inc. (f/k/a AT&T Broadband Corp.),
the Financial Institutions party thereto, JPMorgan Chase
Bank, as Administrative Agent, Swing Line Lender and Issuing
Lender, Citibank, N.A., as Syndication Agent, and Bank of
America, N.A., Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Morgan Stanley Senior
Funding, Inc., as Co-Documentation Agent (incorporated by
reference to Exhibit 4.1 to our amended registration
statement on Form S-4/A filed on May 14, 2002).
4.5 Bridge Credit Agreement dated as of April 26, 2002 among
Comcast Corporation (f/k/a AT&T Comcast Corporation),
Comcast Cable Communications Holdings, Inc. (f/k/a AT&T
Broadband Corp.), the Financial Institutions party thereto,
JPMorgan Chase Bank, as Administrative Agent, Citibank,
N.A., as Syndication Agent, and Bank of America, N.A.,
Merrill Lynch & Co., Merrill
- 89 -
Lynch, Pierce, Fenner & Smith Incorporated and Morgan
Stanley Senior Funding, Inc., as Co- Documentation Agents
(incorporated by reference to Exhibit 4.2 to our amended
registration statement on Form S-4/A filed on May 14, 2002).
4.6 Amended and Restated Five-Year Revolving Credit Agreement
effective as of November 18, 2002, amending and restating
the Five-Year Revolving Credit Agreement dated as of August
24, 2000, among Comcast Cable Communications, Inc., Comcast
Corporation (f/k/a AT&T Comcast Corporation), the Lenders
party thereto and Bank of America, N.A., as Administrative
Agent. (incorporated by reference to Annex I of Exhibit 10.3
to the Comcast Cable Communications, Inc. Quarterly Report
on Form 10-Q for the quarter ended March 31, 2002).
4.7 First Amendment to Amended and Restated Five-Year Revolving
Credit Agreement dated as of February 7, 2003, among Comcast
Cable Communications, Inc., Comcast Corporation (f/k/a AT&T
Comcast Corporation), the Lenders party thereto and Bank of
America, N.A., as Administrative Agent.
4.8 Amended and Restated 364-Day Revolving Credit Agreement
effective as of November 18, 2002, amending and restating
the 364-Day Revolving Credit Agreement dated as of August
24, 2000, among Comcast Cable Communications, Inc., Comcast
Corporation (f/k/a AT&T Comcast Corporation), the Lenders
party thereto and Bank of America, N.A., as Administrative
Agent. (incorporated by reference to Annex I of Exhibit 10.4
to the Comcast Cable Communications, Inc. Quarterly Report
on Form 10-Q for the quarter ended March 31, 2002).
4.9 First Amendment to Amended and Restated 364-Day Revolving
Credit Agreement dated as of February 7, 2003, among Comcast
Cable Communications, Inc., Comcast Corporation (f/k/a AT&T
Comcast Corporation), the Lenders party to thereto and Bank
of America, N.A., as Administrative Agent.
4.10 Indenture, dated as of October 17, 1991, between Comcast
Holdings Corporation (f/k/a Comcast Corporation) and Bank of
Montreal/Harris Trust (successor to Morgan Guaranty Trust
Company of New York), as Trustee, relating to Comcast
Holdings' 10-5/8% Senior Subordinated Debentures due 2012
(incorporated by reference to Exhibit 2 to the Comcast
Holdings Corporation Current Report on Form 8-K filed on
October 31, 1991).
4.11 Form of Debenture relating to Comcast Holdings Corporation's
(f/k/a Comcast Corporation) 10- 5/8% Senior Subordinated
Debentures due 2012 (incorporated by reference to Exhibit
4(17) to the Comcast Holdings Corporation Annual Report on
Form 10-K for the year ended December 31, 1992).
4.12 Senior Indenture dated as of June 15, 1999 between Comcast
Holdings Corporation (f/k/a Comcast Corporation) and The
Bank of New York (as successor in interest to Bank of
Montreal Trust Company), as Trustee (incorporated by
reference to Exhibit 4.1 to the registration statement on
Form S-3 of Comcast Holdings filed on June 23, 1999).
4.13 Form of Debenture relating to Comcast Holdings Corporation's
(f/k/a Comcast Corporation) Zero Coupon Convertible
Debentures due 2020 (incorporated by reference to Exhibit
4.7 to the Comcast Holdings Corporation Annual Report on
Form 10-K for the year ended December 31, 2000).
4.14 Indenture dated as of May 1, 1997, between Comcast Cable
Communications, Inc. and The Bank of New York (as successor
in interest to Bank of Montreal Trust Company), as Trustee,
relating to Comcast Cable Communications, Inc.'s 8-1/8%
Notes due 2004, 8-3/8% Notes due 2007, 8- 7/8% Notes due
2017, 8-1/2% Notes due 2027, 6.20% Notes due 2008, 6.375%
Notes due 2006, 6.75% Notes due 2011, 6.875% Notes due 2009
and 7.125% Notes due 2013 (incorporated by reference to
Exhibit 4.1(a) to the registration statement on Form S-4 of
Comcast Cable Communications, Inc. filed on June 3, 1997).
4.15 Form of Comcast Cable Communications Inc.'s 8-1/8% Notes due
2004, 8-3/8% Notes due 2007, 8-7/8% Notes due 2017 and
8-1/2% Notes due 2027, 6.20% Notes due 2008, 6.375% Notes
due 2006, 6.75% Notes due 2011, 6.875% Notes due 2009 and
7.125% Notes due 2013 (incorporated by reference to Exhibit
4.1(b) to the registration statement on Form S-4 of Comcast
Cable Communications, Inc. filed on June 3, 1997).
4.16 Form of Indenture among Comcast Corporation (f/k/a AT&T
Comcast Corporation), Comcast Cable Communications, Inc.,
Comcast Cable Communications Holdings, Inc. (f/k/a AT&T
Broadband Corp.), Comcast Cable Holdings, LLC (f/k/a AT&T
Broadband, LLC), Comcast MO Group, Inc. (f/k/a MediaOne
Group, Inc.), and The Bank of New York, as Trustee relating
to Comcast Cable Communications Holdings, Inc.'s 8.375%
Notes due March 15, 2013 and 9.455% Notes Due November 15,
2022 (incorporated by reference to Exhibit 4.18 to our
amended registration statement on Form S-4/A filed on
September 26, 2002).
4.17 Form of Comcast Cable Communications Holdings, Inc.'s 8.375%
Notes Due March 15, 2013 (incorporated by reference to
Exhibit 4.19 to our amended registration statement on Form
S-4/A filed on September 26, 2002).
- 90 -
4.18 Form of Comcast Cable Communications Holdings, Inc.'s 9.455%
Notes Due November 15, 2022 (incorporated by reference to
Exhibit 4.20 to our amended registration statement on Form
S-4/A filed on September 26, 2002).
4.19 Form of Indenture among Comcast Corporation (f/k/a AT&T
Comcast Corporation), Comcast Cable Communications, Inc.,
Comcast Cable Communications Holdings, Inc. (f/k/a AT&T
Broadband Corp.), Comcast Cable Holdings, LLC (f/k/a AT&T
Broadband, LLC), Comcast MO Group, Inc. (f/k/a MediaOne
Group, Inc.), and The Bank of New York, as Trustee relating
to Comcast Corporation's 5.85% Notes due 2010 and 6.50%
Notes Due 2015 (incorporated by reference to Exhibit 4.5 to
our registration statement on Form S-3 filed on December 16,
2002).
4.20 Form of Comcast Corporation's (f/k/a AT&T Comcast
Corporation) 5.85% Notes due 2010 (incorporated by reference
to Exhibit 4.1 to our Current Report on Form 8-K filed on
January 10, 2003).
4.21 Form of Comcast Corporation's (f/k/a AT&T Comcast
Corporation) 6.50% Notes due 2015 (incorporated by reference
to Exhibit 4.2 to our Current Report on Form 8-K filed on
January 10, 2003).
4.22 Form of Subordinated Indenture between Comcast Holdings
Corporation (f/k/a Comcast Corporation) and Bankers Trust
Company, as Trustee, relating to Comcast Holdings
Corporation's 2.0% Exchangeable Subordinated Debentures Due
2029 and 2.0% Exchangeable Subordinated Debentures Due
November 2029 (incorporated by reference to Exhibit 4.2 to
Comcast Holdings Corporation's registration statement on
Form S-3 filed on June 23, 1999).
4.23 Form of Comcast Holdings Corporation's (f/k/a Comcast
Corporation) 2.0% Exchangeable Subordinated Debentures Due
2029 (ZONES I) (incorporated by reference to Exhibit 4 to
Comcast Holdings Corporation's Current Report on Form 8-K
filed on October 14, 1999).
4.24 Form of Comcast Holdings Corporation's (f/k/a Comcast
Corporation) 2.0% Exchangeable Subordinated Debentures Due
November 2029 (ZONES II) (incorporated by reference to
Exhibit 4 to Comcast Holdings Corporation's Current Report
on Form 8-K filed on November 3, 1999).
9.1 Agreement and Declaration of Trust of TWE Holdings I Trust
by and among MOC Holdco I, Inc., Edith E. Holiday and The
Capital Trust Company of Delaware (incorporated by reference
to Exhibit 99.2 to our Current Report on Form 8-K12g3 filed
on November 18, 2002).
9.2 Form of Agreement and Declaration of Trust of TWE Holdings
II Trust by and among MOC Holdco II, Inc., Edith E. Holiday
and The Capital Trust Company of Delaware (incorporated by
reference to Exhibit 99.3 to our Current Report on Form
8-K12g3 filed on November 18, 2002).
9.3 Agreement and Declaration of Trust of TWE Holdings III Trust
by and among Media One TWE Holdings, Inc., Edith E. Holiday
and The Capital Trust Company of Delaware (incorporated by
reference to Exhibit 99.4 to our Current Report on Form
8-K12g3 filed on November 18, 2002).
10.1* Comcast Corporation 1987 Stock Option Plan, as amended and
restated, effective November 18, 2002.
10.2* Comcast Corporation 2002 Stock Option Plan, as amended and
restated, effective February 26, 2003.
10.3* Comcast Corporation 2003 Stock Option Plan, as adopted
February 26, 2003.
10.4* Comcast Corporation 2002 Deferred Compensation Plan, as
amended and restated, effective February 26, 2003.
10.5* Comcast Corporation 2002 Deferred Stock Option Plan, as
amended and restated, effective February 26, 2003.
10.6* Comcast Corporation 2002 Restricted Stock Plan, as amended
and restated, effective February 26, 2003.
10.7* 1992 Executive Split Dollar Insurance Plan (incorporated by
reference to Exhibit 10(12) to the Comcast Holdings
Corporation (f/k/a Comcast Corporation) Annual Report on
Form 10-K for the year ended December 31, 1992).
10.8* Comcast Corporation 2002 Cash Bonus Plan (formerly, the 1996
Cash Bonus Plan), as amended and restated, effective
November 18, 2002.
10.9* Comcast Corporation 2002 Executive Cash Bonus Plan (formerly
the 1996 Executive Cash Bonus Plan), as amended through
February 26, 2003.
10.10* Comcast Corporation 2002 Supplemental Cash Bonus Plan, as
adopted November 18, 2002.
10.11* Comcast Corporation 2002 Non-Employee Director Compensation
Plan, as amended and restated, effective February 26, 2003.
10.12* Compensation and Deferred Compensation Agreement and Stock
Appreciation Bonus Plan between Comcast Holdings Corporation
(f/k/a Comcast Corporation) and Ralph J. Roberts, as
amended and restated March 16, 1994 (incorporated by
reference to Exhibit 10(13) to the Comcast Holdings
Corporation (f/k/a Comcast Corporation) Annual Report on
Form 10-K for the year ended December 31, 1993).
10.13* Compensation and Deferred Compensation Agreement between
Comcast Holdings Corporation (f/k/a Comcast Corporation) and
Ralph J. Roberts, as amended and restated August 31,1998
- 91 -
(incorporated by reference to Exhibit 10.1 to the Comcast
Holdings Corporation (f/k/a Comcast Corporation) quarterly
report on Form 10-Q for the quarter ended September 30,
1998).
10.14* Amendment Agreement to Compensation and Deferred
Compensation Agreement between Comcast Holdings Corporation
(f/k/a Comcast Corporation) and Ralph J. Roberts, dated as
of August 19, 1999 (incorporated by reference to Exhibit
10.2 to the Comcast Holdings Corporation (f/k/a Comcast
Corporation) quarterly report on Form 10-Q for the quarter
ended March 31, 2000).
10.15* Amendment to Compensation and Deferred Compensation
Agreement between Comcast Holdings Corporation (f/k/a
Comcast Corporation) and Ralph J. Roberts, dated as of June
5, 2001 (incorporated by reference to Exhibit 10.8 to the
Comcast Holdings Corporation (f/k/a Comcast Corporation)
Annual Report on Form 10-K for the year ended December 31,
2001).
10.16* Amendment to Compensation and Deferred Compensation
Agreement between Comcast Holdings Corporation (f/k/a
Comcast Corporation) and Ralph J. Roberts, dated as of
January 24, 2002.
10.17* Amendment to Compensation and Deferred Compensation
Agreement between Comcast Holdings Corporation (f/k/a
Comcast Corporation) and Ralph J. Roberts, dated as of
November 18, 2002.
10.18* Employment Agreement between Comcast Corporation (f/k/a AT&T
Comcast Corporation) and C. Michael Armstrong, dated as of
November 18, 2002.
10.19* Compensation Agreement between Comcast Holdings Corporation
(f/k/a Comcast Corporation) and Brian L. Roberts, dated as
of June 16, 1998 (incorporated by reference to Exhibit 10.1
to the Comcast Holdings Corporation (f/k/a Comcast
Corporation) quarterly report on Form 10-Q for the quarter
ended March 31, 2000).
10.20* Amendment to Compensation Agreement between Comcast Holdings
Corporation (f/k/a Comcast Corporation) and Brian L.
Roberts, dated as of November 18, 2002.
10.21* Certificate of Interest of Julian Brodsky under the Comcast
Holdings Corporation (f/k/a Comcast Corporation) Unfunded
Plan of Deferred Compensation.
10.22* Employment Agreement between Comcast Holdings Corporation
(f/k/a Comcast Corporation) and Julian A. Brodsky, dated as
of May 1, 2002.
10.23* Amendment to Employment Agreement between Comcast Holdings
Corporation (f/k/a Comcast Corporation) and Julian A.
Brodsky, dated as of November 18, 2002.
10.24* Executive Employment Agreement between Comcast Holdings
Corporation (f/k/a Comcast Corporation) and Stephen B.
Burke, dated as of May 31, 2000.
10.25* First Amendment to Executive Employment Agreement between
Comcast Holdings Corporation (f/k/a Comcast Corporation) and
Stephen B. Burke, dated as of July 30, 2001.
10.26* Executive Employment Agreement between Comcast Holdings
Corporation (f/k/a Comcast Corporation) and Lawrence S.
Smith, dated as of May 31, 2000.
10.27* Executive Employment Agreement between Comcast Holdings
Corporation (f/k/a Comcast Corporation) and John R. Alchin,
dated as of May 31, 2000.
10.28* Comcast Corporation Supplemental Executive Retirement Plan,
as amended and restated, effective June 5, 2001
(incorporated by reference to Exhibit 10.10 to the Comcast
Holdings Corporation (f/k/a Comcast Corporation) Annual
Report on Form 10-K for the year ended December 31, 2001).
10.29* Comcast Holdings Corporation (f/k/a Comcast Corporation)
2002 Employee Stock Purchase Plan, as amended and restated,
effective November 18, 2002.
10.30* Comcast Cable Communications Holdings, Inc. Deferred
Compensation Plan (f/k/a the AT&T Broadband Deferred
Compensation Plan), as amended and restated, effective
November 18, 2002 (incorporated by reference to Exhibit 4.4
to our registration statement on Form S-8 filed on November
19, 2002).
10.31* Comcast Cable Communications Holdings, Inc. Adjustment Plan
(f/k/a the AT&T Broadband Corp. Adjustment Plan).
10.32 Amended and Restated Stockholders Agreement, dated as of
February 9, 1995, among the Company, Comcast QVC, Inc., QVC
Programming Holdings, Inc., Liberty Media Corporation, QVC
Investment, Inc. and Liberty QVC, Inc. (incorporated by
reference to Exhibit 10.5 to the Comcast Holdings
Corporation (f/k/a Comcast Corporation) Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995).
21 List of Subsidiaries.
23.1 Consent of Deloitte & Touche LLP.
__________
Pursuant to Item 601(4)(iii)(A) of Regulation S-K, the registrant agrees to
furnish upon request to the Securities and Exchange Commission other instruments
defining the rights of holders of long-term debt.
* Constitutes a management contract or compensatory plan or arrangement.
- 92 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in Philadelphia,
Pennsylvania on March 20, 2003.
Comcast Corporation
By: /s/ Brian L. Roberts
-----------------------------------
Brian L. Roberts
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Ralph J. Roberts Chairman of the Executive and Finance Committee March 20, 2003
- --------------------------------------- of the Board of Directors; Director
Ralph J. Roberts
/s/ C. Michael Armstrong Chairman of the Board of Directors; Director March 20, 2003
- ---------------------------------------
C. Michael Armstrong
/s/ Brian L. Roberts President and Chief Executive Officer; Director March 20, 2003
- --------------------------------------- (Principal Executive Officer)
Brian L. Roberts
/s/ Julian A. Brodsky Vice Chairman; Director March 20, 2003
- ---------------------------------------
Julian A. Brodsky
/s/ Lawrence S. Smith Executive Vice President March 20, 2003
- --------------------------------------- (Co-Principal Financial Officer)
Lawrence S. Smith
/s/ John R. Alchin Executive Vice President and Treasurer March 20, 2003
- --------------------------------------- (Co-Principal Financial Officer)
John R. Alchin
/s/ Lawrence J. Salva Senior Vice President and Controller March 20, 2003
- --------------------------------------- (Principal Accounting Officer)
Lawrence J. Salva
/s/ S. Decker Anstrom Director March 20, 2003
- ---------------------------------------
S. Decker Anstrom
/s/ Kenneth J. Bacon Director March 20, 2003
- ---------------------------------------
Kenneth J. Bacon
/s/ Sheldon M. Bonovitz Director March 20, 2003
- ---------------------------------------
Sheldon M. Bonovitz
/s/ Joseph L. Castle, II Director March 20, 2003
- ---------------------------------------
Joseph L. Castle, II
/s/ J. Michael Cook Director March 20, 2003
- ---------------------------------------
J. Michael Cook
/s/ Dr. Judith Rodin Director March 20, 2003
- ---------------------------------------
Dr. Judith Rodin
/s/ Louis A. Simpson Director March 20, 2003
- ---------------------------------------
Louis A. Simpson
/s/ Michael I. Sovern Director March 20, 2003
- ---------------------------------------
Michael I. Sovern
- 93 -
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Comcast Corporation
Philadelphia, Pennsylvania
Our audits of the financial statements referred to in our report dated March 17,
2003 (which report expresses an unqualified opinion and includes an explanatory
paragraph related to the adoption of Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended, effective January 1, 2001, and Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangibles," effective January 1, 2002)
appearing in this Annual Report on Form 10-K of Comcast Corporation (formerly
known as AT&T Comcast Corporation) (the "Company") for the year ended December
31, 2002 also included the financial statement schedule of the Company, listed
in Item 15(b)(i). This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 17, 2003
- 94 -
COMCAST CORPORATION AND SUBSIDIARIES
------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------
(In millions)
-------------
Additions
Balance at Charged to Deductions Balance
Beginning Costs and from at End
of Year Expenses(A) Reserves(B) of Year
----------- ------------ -------------- ------------
Allowance for Doubtful Accounts
- ------------------------------------------
2002 $154 $202 $123 $233
2001 142 86 74 154
2000 137 66 61 142
Allowance for Excess and Obsolete
Electronic Retailing Inventories
- ------------------------------------------
2002 $114 $57 $56 $115
2001 105 55 46 114
2000 89 46 30 105
<FN>
(A) Includes $71 million not charged to costs and expenses but resulting from
the Broadband acquisition in 2002.
(B) Uncollectible accounts and excess and obsolete inventory written off.
</FN>
- 95 -
CERTIFICATIONS
I, Brian L. Roberts, certify that:
1. I have reviewed this annual report on Form 10-K of Comcast Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 20, 2003
/s/ BRIAN L. ROBERTS
- --------------------------------------------
Name: Brian L. Roberts
Chief Executive Officer
- 96 -
CERTIFICATIONS
I, Lawrence S. Smith, certify that:
1. I have reviewed this annual report on Form 10-K of Comcast Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 20, 2003
/s/ LAWRENCE S. SMITH
- --------------------------------------------
Name: Lawrence S. Smith
Co-Chief Financial Officer
- 97 -
CERTIFICATIONS
I, John R. Alchin, certify that:
1. I have reviewed this annual report on Form 10-K of Comcast Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 20, 2003
/s/JOHN R. ALCHIN
- --------------------------------------------
Name: John R. Alchin
Co-Chief Financial Officer
- 98 -