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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 30, 2002
AT&T COMCAST CORPORATION
(Exact Name of Registrant
as Specified in Its Charter)
PENNSYLVANIA
(State or Other Jurisdiction of Incorporation)
333-82460 27-0000798
(Commission File Number) (IRS Employer Identification No.)
1500 MARKET STREET 19102-2148
PHILADELPHIA, PA (Zip Code)
(Address of Principal Executive Office)
(215) 665-1700
(Registrant's Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
--------------------
- --------------------------------------------------------------------------------
ITEM 5. OTHER EVENTS.
We are filing this current report on Form 8-K for purposes of incorporating
by reference the attached quarterly report on Form 10-Q of Comcast
Corporation into the registration statement on Form S-4 relating to AT&T
Corp.'s ("AT&T") pending exchange offer in respect of an aggregate of $11.8
billion of AT&T's existing debt securities. We are a co-registrant on the
exchange offer registration statement.
ITEM 7(C). EXHIBITS.
Exhibit
Number Description
- ------ -----------
99.1 Comcast Corporation Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AT&T Comcast Corporation
Date: October 30, 2002 By /s/ Arthur R. Block
----------------------------------
Name: Arthur R. Block
Title: Senior Vice President
EXHIBIT 99.1
------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended:
SEPTEMBER 30, 2002
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ________ to ________.
Commission File Number 1-15471
[GRAPHIC OMITTED - LOGO]
COMCAST CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1709202
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Market Street, Philadelphia, PA 19102-2148
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
__________________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes X No
--- ---
__________________________
As of September 30, 2002, there were 915,871,552 shares of Class A Special
Common Stock, 21,591,115 shares of Class A Common Stock and 9,444,375 shares of
Class B Common Stock outstanding.
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
TABLE OF CONTENTS
Page Number
-----------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 2002
and December 31, 2001 (Unaudited)......................................................2
Condensed Consolidated Statement of Operations for the Three and Nine Months
Ended September 30, 2002 and 2001 (Unaudited)..........................................3
Condensed Consolidated Statement of Cash Flows for the Nine Months
Ended September 30, 2002 and 2001 (Unaudited)..........................................4
Notes to Condensed Consolidated Financial Statements (Unaudited)..................5 - 20
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................21 - 30
ITEM 4. Evaluation of Disclosure Controls and Procedures......................................31
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings................................................................31 - 32
ITEM 6. Exhibits and Reports on Form 8-K......................................................32
SIGNATURE........................................................................................33
CERTIFICATIONS..............................................................................34 - 36
___________________________________
This Quarterly Report on Form 10-Q is for the three months ended September
30, 2002. This Quarterly Report modifies and supersedes documents filed prior to
this Quarterly Report. The SEC allows us to "incorporate by reference"
information that we file with them, which means that we can disclose important
information to you by referring you directly to those documents. Information
incorporated by reference is considered to be part of this Quarterly Report. In
addition, information that we file with the SEC in the future will automatically
update and supersede information contained in this Quarterly Report. In this
Quarterly Report, "Comcast," "we," "us" and "our" refer to Comcast Corporation
and its subsidiaries.
You should carefully review the information contained in this Quarterly
Report and in other reports or documents that we file from time to time with the
SEC. In this Quarterly Report, we state our beliefs of future events and of our
future financial performance. In some cases, you can identify those so-called
"forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
Factors Affecting Future Operations
On December 19, 2001, we entered into an Agreement and Plan of Merger with
AT&T Corp. ("AT&T") pursuant to which we agreed to a transaction which will
result in the combination of Comcast and a holding company of AT&T's broadband
business ("AT&T Broadband"). On July 10, 2002, the shareholders of both Comcast
and AT&T approved the transaction. The transaction, which is subject to
customary closing conditions and regulatory and other approvals, is expected to
close by the end of November 2002. Upon closing of the transaction, we will own
cable systems in new communities in which we do not have established
relationships with the cable subscribers, franchising authority and community
leaders. Further, a substantial number of new employees must be integrated into
our business practices and operations. Our results of operations may be
significantly affected by our ability to efficiently and effectively manage
these changes.
In addition, our businesses may be affected by, among other things:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o industry consolidation and mergers,
o franchise related matters,
o market conditions that may adversely affect the availability of debt
and equity financing for working capital, capital expenditures or
other purposes,
o demand for the programming content we distribute or the willingness of
other video program distributors to carry our content, and
o general economic conditions.
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
PART I. FINANCIAL INFORMATION
- ------- ---------------------
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in millions, except share data)
September 30, December 31,
2002 2001
-------------- --------------
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents.................................................... $569.8 $350.0
Investments.................................................................. 905.9 2,623.2
Accounts receivable, less allowance for doubtful accounts of $174.1 and $153.9 932.8 967.4
Inventories, net............................................................. 482.7 454.5
Deferred income taxes........................................................ 132.9 128.7
Other current assets......................................................... 171.5 153.7
---------- -----------
Total current assets..................................................... 3,195.6 4,677.5
---------- -----------
INVESTMENTS..................................................................... 585.6 1,679.2
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $3,496.5 and $2,725.7 7,035.6 7,011.1
GOODWILL........................................................................ 6,446.3 6,289.4
FRANCHISE RIGHTS................................................................ 16,601.5 16,533.0
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $890.3 and $664.6... 1,414.6 1,686.9
OTHER NONCURRENT ASSETS, net.................................................... 498.1 383.4
---------- -----------
$35,777.3 $38,260.5
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable............................................................. $806.1 $698.2
Accrued expenses and other current liabilities............................... 1,805.8 1,660.4
Deferred income taxes........................................................ 69.7 404.1
Current portion of long-term debt............................................ 113.9 460.2
---------- -----------
Total current liabilities................................................ 2,795.5 3,222.9
---------- -----------
LONG-TERM DEBT, less current portion............................................ 9,927.9 11,741.6
---------- -----------
DEFERRED INCOME TAXES........................................................... 6,665.0 6,375.7
---------- -----------
OTHER NONCURRENT LIABILITIES.................................................... 1,419.9 1,567.1
---------- -----------
MINORITY INTEREST............................................................... 1,027.4 880.2
---------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY
Class A special common stock, $1 par value - authorized,
2,500,000,000 shares; issued, 915,871,552 and 937,256,465; outstanding,
915,871,552 and 913,931,554................................................ 915.9 913.9
Class A common stock, $1 par value - authorized, 200,000,000 shares;
issued, 21,591,115 and 21,829,422.......................................... 21.6 21.8
Class B common stock, $1 par value - authorized, 50,000,000 shares;
issued, 9,444,375.......................................................... 9.4 9.4
Additional capital........................................................... 11,800.8 11,752.0
Retained earnings............................................................ 1,391.6 1,631.5
Accumulated other comprehensive income (loss)................................ (197.7) 144.4
---------- -----------
Total stockholders' equity............................................... 13,941.6 14,473.0
---------- -----------
$35,777.3 $38,260.5
========== ===========
See notes to condensed consolidated financial statements.
2
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(Amounts in millions, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
--------- --------- --------- ---------
REVENUES
Service revenues....................................................... $1,692.9 $1,505.7 $5,086.3 $4,316.4
Net sales from electronic retailing.................................... 1,011.8 895.1 2,999.8 2,655.1
--------- --------- --------- ---------
2,704.7 2,400.8 8,086.1 6,971.5
--------- --------- --------- ---------
COSTS AND EXPENSES
Operating (excluding depreciation)..................................... 722.0 678.4 2,191.4 1,989.8
Cost of goods sold from electronic retailing (excluding depreciation).. 643.1 573.8 1,903.1 1,685.6
Selling, general and administrative.................................... 513.8 448.0 1,491.0 1,268.4
Depreciation........................................................... 338.9 314.7 1,015.5 829.4
Amortization........................................................... 56.4 564.1 155.1 1,610.3
--------- --------- --------- ---------
2,274.2 2,579.0 6,756.1 7,383.5
--------- --------- --------- ---------
OPERATING INCOME (LOSS).................................................... 430.5 (178.2) 1,330.0 (412.0)
OTHER INCOME (EXPENSE)
Interest expense....................................................... (174.2) (190.7) (543.5) (551.5)
Investment income (expense)............................................ (53.3) 328.3 (760.4) 1,045.7
Equity in net losses of affiliates..................................... (11.5) (19.5) (59.9) (26.1)
Other income (expense)................................................. 3.2 (7.0) (10.8) 1,180.9
--------- --------- --------- ---------
(235.8) 111.1 (1,374.6) 1,649.0
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE............................. 194.7 (67.1) (44.6) 1,237.0
INCOME TAX EXPENSE......................................................... (82.5) (13.5) (52.3) (602.1)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE................................................... 112.2 (80.6) (96.9) 634.9
MINORITY INTEREST.......................................................... (36.6) (26.2) (126.0) (89.8)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE................ 75.6 (106.8) (222.9) 545.1
CUMULATIVE EFFECT OF ACCOUNTING CHANGE..................................... 384.5
--------- --------- --------- ---------
NET INCOME (LOSS).......................................................... $75.6 ($106.8) ($222.9) $929.6
========= ========= ========= =========
BASIC EARNINGS (LOSS) PER COMMON SHARE
Income (loss) before cumulative effect of accounting change............ $0.08 ($0.11) ($0.23) $0.58
Cumulative effect of accounting change................................. 0.40
--------- --------- --------- ---------
Net income (loss)................................................... $0.08 ($0.11) ($0.23) $0.98
========= ========= ========= =========
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Income (loss) before cumulative effect of accounting change............ $0.08 ($0.11) ($0.23) $0.56
Cumulative effect of accounting change................................. 0.40
--------- --------- --------- ---------
Net income (loss)................................................... $0.08 ($0.11) ($0.23) $0.96
========= ========= ========= =========
See notes to condensed consolidated financial statements.
3
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in millions)
Nine Months Ended September 30,
2002 2001
--------- ---------
OPERATING ACTIVITIES
Net income (loss)............................................................ ($222.9) $929.6
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation............................................................... 1,015.5 829.4
Amortization............................................................... 155.1 1,610.3
Non-cash interest expense, net............................................. 31.7 33.5
Equity in net losses of affiliates......................................... 59.9 26.1
Losses (gains) on investments and other (income) expense, net.............. 799.5 (2,172.8)
Minority interest.......................................................... 126.0 89.8
Cumulative effect of accounting change..................................... (384.5)
Deferred income taxes...................................................... (59.5) (141.7)
Proceeds from sales of trading security.................................... 367.1
Other...................................................................... (40.4) 1.7
--------- ---------
1,864.9 1,188.5
Changes in working capital, net of effects of acquisitions and divestitures:
Decrease in accounts receivable, net..................................... 33.1 110.3
Increase in inventories, net............................................. (28.2) (65.8)
Increase in other current assets......................................... (33.0) (44.5)
Increase in accounts payable, accrued expenses and other current
liabilities............................................................ 163.4 394.1
--------- ---------
135.3 394.1
Net cash provided by operating activities............................ 2,000.2 1,582.6
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings..................................................... 876.2 5,030.9
Retirements and repayments of debt........................................... (2,009.0) (3,791.1)
Proceeds from settlement of interest rate exchange agreements................ 56.8
Issuances of common stock.................................................... 15.0 23.2
Repurchases of common stock.................................................. (27.1)
Equity contributions from minority partner to a subsidiary................... 10.9 6.4
Deferred financing costs..................................................... (2.3) (22.5)
--------- ---------
Net cash (used in) provided by financing activities.................. (1,052.4) 1,219.8
--------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired........................................... (15.8) (917.5)
Sales (purchases) of short-term investments, net............................. 3.8 (173.3)
Purchases of investments..................................................... (48.1) (238.7)
Increase in notes receivable................................................. (400.0)
Proceeds from sales and settlements of investments........................... 733.5 784.4
Capital expenditures......................................................... (1,145.8) (1,681.2)
Additions to intangible and other noncurrent assets.......................... (255.6) (169.2)
--------- ---------
Net cash used in investing activities................................ (728.0) (2,795.5)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS .......................................... 219.8 6.9
CASH AND CASH EQUIVALENTS, beginning of period.................................. 350.0 651.5
--------- ---------
CASH AND CASH EQUIVALENTS, end of period........................................ $569.8 $658.4
========= =========
See notes to condensed consolidated financial statements.
4
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
Comcast Corporation and its subsidiaries ("Comcast" or the "Company") has
prepared these unaudited condensed consolidated financial statements based
upon Securities and Exchange Commission ("SEC") rules that permit reduced
disclosure for interim periods.
These financial statements include all adjustments that are necessary for a
fair presentation of the Company's results of operations and financial
condition for the interim periods shown including normal recurring accruals
and other items. The results of operations for the interim periods
presented are not necessarily indicative of results for the full year.
For a more complete discussion of the Company's accounting policies and
certain other information, refer to the financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31,
2001.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to those classifications used in 2002 (see Note 2).
2. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, as Amended
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivatives and Hedging
Activities," as amended. SFAS No. 133 establishes accounting and reporting
standards for derivatives and hedging activities. SFAS No. 133 requires
that all derivative instruments be reported on the balance sheet at their
fair values. Upon adoption of SFAS No. 133, the Company recognized as
income a cumulative effect of accounting change, net of related income
taxes, of $384.5 million. The increase in income consisted of a $400.2
million adjustment to record the debt component of indexed debt at a
discount from its value at maturity and $191.3 million principally related
to the reclassification of gains previously recognized as a component of
accumulated other comprehensive income (loss) on the Company's equity
derivative instruments, net of related deferred income taxes of $207.0
million.
SFAS No. 142
The Financial Accounting Standards Board ("FASB") issued SFAS No. 142,
"Goodwill and Other Intangible Assets," in June 2001. SFAS No. 142
addresses how intangible assets that are acquired individually or with a
group of other assets should be accounted for in financial statements upon
and subsequent to their acquisition. The Company adopted SFAS No. 142 on
January 1, 2002, as required by the new statement. Upon adoption, the
Company no longer amortizes goodwill and other indefinite lived intangible
assets, which consist of cable and sports franchise rights. The Company is
required to test its goodwill and intangible assets that are determined to
have an indefinite life for impairment at least annually. The provisions of
SFAS No. 142 require the completion of an initial transitional impairment
assessment, with any impairments identified treated as a cumulative effect
of a change in accounting principle. The Company completed this assessment
and determined that no cumulative effect results from adopting this change
in accounting principle. The provisions of SFAS No. 142 also require the
completion of an annual impairment test, with any impairments recognized in
current earnings. The Company completed the annual impairment test during
the quarter ended June 30, 2002 and determined that no impairment charge is
necessary (see Note 6).
SFAS No. 143
The FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," in June 2001. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS No. 143
is effective for fiscal years beginning after June 15,
5
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
2002. The Company does not expect the adoption of SFAS No. 143 will have a
material impact on its financial condition or results of operations.
SFAS No. 144
The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," in August 2001. SFAS No. 144, which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of, supercedes SFAS No. 121 and is
effective for fiscal years beginning after December 15, 2001. The Company
adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 had
no impact on the Company's financial condition or results of operations.
SFAS No. 145
The FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections," in
April 2002. SFAS No. 145 rescinds, amends or makes various technical
corrections to certain existing authoritative pronouncements. Among other
things, SFAS No. 145 changes the accounting for certain gains and losses
resulting from extinguishments of debt by requiring that a gain or loss
from extinguishments of debt be classified as an extraordinary item only if
it meets the specific criteria of APB Opinion No. 30. SFAS No. 145 also
requires that cash flows from all trading securities, such as the Company's
investment in Sprint PCS, be classified as cash flows from operating
activities in its statement of cash flows.
The Company adopted the provisions of SFAS No. 145 effective April 1, 2002,
as permitted by the new statement. The Company previously classified losses
from debt extinguishments as extraordinary items in its statement of
operations. Upon adoption of SFAS No. 145, the Company reclassified these
losses from extraordinary items to interest expense for all periods
presented in its statement of operations. The change in classification had
no effect on the Company's net income (loss) or financial condition. The
Company previously classified cash flows from purchases, sales and
maturities of its investment in Sprint PCS as cash flows from investing
activities in its statement of cash flows. The change in classification was
to increase the Company's net cash provided by operating activities and to
increase the Company's net cash used in investing activities for the nine
months ended September 30, 2001.
SFAS No. 146
The FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities," in June 2002. SFAS No. 146 changes the standards for
recognition of a liability for a cost associated with an exit or disposal
activity. SFAS No. 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred.
SFAS No. 146 establishes that fair value is the objective for initial
measurement of the liability. SFAS No. 146 nullifies the guidance of
Emerging Issues Task Force ("EITF") 94-3 under which an entity recognized a
liability for an exit cost on the date that the entity committed itself to
an exit plan. The Company will adopt the provisions of SFAS No. 146 for
exit or disposal activities that are initiated after December 31, 2002, as
required by the new statement. The Company does not expect the adoption of
SFAS No. 146 will have a material impact on its financial condition or
results of operations.
EITF 01-9
In November 2001, the EITF of the FASB reached a consensus on EITF 01-9,
"Accounting for Consideration Given to a Customer (Including a Reseller of
the Vendor's Products"). EITF 01-9 requires, among other things, that
consideration paid to customers should be classified as a reduction of
revenue unless certain criteria are met. Certain of the Company's content
subsidiaries have paid or may pay distribution fees to cable television and
satellite broadcast systems for carriage of their programming. The Company
previously classified the amortization of these distribution fees as
expense in its statement of operations. Upon adoption of EITF 01-9 on
January 1, 2002, the Company reclassified certain of these distribution
fees from expense to a revenue reduction for all periods presented in its
statement of operations. The change in classification had no impact on the
Company's reported operating income (loss) or financial condition. This
change does not apply to distribution fees paid by the Company's
consolidated subsidiary, QVC, Inc. ("QVC") as the counterparties to QVC's
distribution agreements do not make revenue payments to QVC. Amortization
expense includes $5.7 million, $5.3 million, $15.3 million
6
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
and $19.4 million during the three months ended September 30, 2002 and 2001
and during the nine months ended September 30, 2002 and 2001, respectively,
related to QVC distribution fees.
EITF 01-14
In November 2001, the FASB staff announced EITF Topic D-103, "Income
Statement Characterization of Reimbursements Received for 'Out-of-Pocket'
Expenses Incurred," which has subsequently been recharacterized as EITF
01-14. EITF 01-14 requires that reimbursements received for out-of-pocket
expenses incurred be characterized as revenue in the statement of
operations.
Under the terms of its franchise agreements, the Company is required to pay
up to 5% of its gross revenues derived from providing cable services to the
local franchising authority. The Company normally passes these fees through
to its cable subscribers. The Company previously classified cable franchise
fees collected from its cable subscribers as a reduction of the related
franchise fee expense included within selling, general and administrative
expenses in its statement of operations.
EITF 01-14, by analogy, applies to franchise fees. Upon adoption of EITF
01-14 on January 1, 2002, the Company reclassified franchise fees collected
from cable subscribers from a reduction of selling, general and
administrative expenses to a component of service revenues for all periods
presented in its statement of operations. The change in classification had
no impact on the Company's reported operating income (loss) or financial
condition.
3. EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the
period on a basic and diluted basis.
The 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 7), stock options, restricted
stock and, in 2001, Series B convertible preferred stock. 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 for the three months ended September 30, 2002 and 2001 and for
the nine months ended September 30, 2002 and 2001, respectively, excludes
approximately 16.9 million, 21.1 million, 18.8 million and 21.1 million
potential common shares related to the Zero Coupon Debentures,
respectively, as the weighted average closing sale price of the Company's
Class A Special Common Stock was not greater than 110% of the accreted
conversion price.
Diluted EPS for the three months ended September 30, 2001 and the nine
months ended September 30, 2002 excludes approximately 54.2 million and
64.1 million potential common shares related to the Company's stock option
and restricted stock plans, respectively, because the assumed issuance of
such potential common shares is antidilutive in periods in which there is a
loss.
Diluted EPS for the three months ended September 30, 2002 and the nine
months ended September 30, 2001 excludes approximately 41.6 million and 4.5
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.
7
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following table reconciles the numerator and denominator of the
computations of diluted earnings (loss) per common share ("Diluted EPS")
for income (loss) before cumulative effect of accounting change for the
interim periods presented.
(Amounts in millions, except per share data)
Three Months Ended Three Months Ended
September 30, 2002 September 30, 2001
--------------------------------- --------------------------------
Per Share Per Share
Income Shares Amount Loss Shares Amount
--------- --------- ------------ --------- --------- -----------
Basic EPS................................ $75.6 952.9 $0.08 ($106.8) 951.5 ($0.11)
Effect of Dilutive Securities
Assumed exercise of stock option
and restricted stock plans.......... 6.3
--------- --------- ---------- --------- --------- ----------
Diluted EPS.............................. $75.6 959.2 $0.08 ($106.8) 951.5 ($0.11)
========= ========= ========== ========= ========= ==========
Nine Months Ended Nine Months Ended
September 30, 2002 September 30, 2001
--------------------------------- --------------------------------
Per Share Per Share
Loss Shares Amount Income Shares Amount
--------- --------- ------------ --------- --------- -----------
Basic EPS................................ ($222.9) 952.2 ($0.23) $545.1 949.3 $0.58
Effect of Dilutive Securities
Assumed conversion of Series B
convertible preferred stock......... 1.4
Assumed exercise of stock option
and restricted stock plans......... 14.0
--------- --------- ---------- --------- --------- ----------
Diluted EPS.............................. ($222.9) 952.2 ($0.23) $545.1 964.7 $0.56
========= ========= ========== ========= ========= ==========
4. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Agreement and Plan of Merger with AT&T Broadband
On December 19, 2001, the Company entered into an Agreement and Plan of
Merger with AT&T Corp. ("AT&T") pursuant to which the Company agreed to a
transaction which will result in the combination of the Company and AT&T
Broadband Corp. ("Broadband"), a holding company of AT&T's broadband
business ("AT&T Broadband") that AT&T will spin off to its shareholders
immediately prior to the combination. On July 10, 2002, shareholders of
both the Company and AT&T approved the transaction. As of September 30,
2002, AT&T Broadband served approximately 13.1 million subscribers.
The consideration to complete the AT&T Broadband transaction will consist
of shares of the combined company's common stock, assumed debt of
Broadband's subsidiaries, intercompany indebtedness Broadband must pay AT&T
upon closing, the Company's transaction costs directly related to the AT&T
Broadband transaction, and, pursuant to an amendment to the original
agreement as discussed below, the assumption of certain AT&T indebtedness.
Under the terms of the AT&T Broadband transaction, each Comcast shareholder
will receive one share of a corresponding class of stock of the combined
company for each share of a class of common stock of Comcast held at the
time of the transaction. The combined company will issue approximately
1.235 billion shares of its voting common stock to AT&T Broadband
shareholders in exchange for all of AT&T's interests in AT&T Broadband, and
approximately 115 million shares of its common stock to Microsoft
Corporation ("Microsoft") in exchange for
8
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
AT&T Broadband shares that Microsoft will receive immediately prior to the
completion of the transaction for settlement of their $5 billion aggregate
principal amount in quarterly income preferred securities.
Excluding AT&T Broadband's exchangeable notes, which are mandatorily
redeemable at AT&T Broadband's option into shares of certain publicly
traded companies held by AT&T Broadband, the Company currently estimates
that the combined company will require approximately $20 billion of
assumed, refinanced and new indebtedness upon completion of the AT&T
Broadband transaction.
Subsequent to the original merger agreement, economic and business factors
led the Company and AT&T to agree to change the form of consideration to be
paid in the AT&T Broadband transaction. On August 12, 2002, AT&T filed a
registration statement with the SEC for a proposed exchange offer relating
to $11.8 billion aggregate principal amount of AT&T's existing debt
securities. The exchange offer, if successful, would result in the
assumption of a portion of AT&T's indebtedness by AT&T Broadband (and a
corresponding decrease in the amount of intercompany indebtedness Broadband
must pay AT&T upon closing). The exchange offer is subject to market
conditions and is expected to close in November 2002.
The Company will account for the transaction as an acquisition under the
purchase method of accounting, with the Company as the acquiring entity.
Consideration of facts and circumstances leading to the identification of
the Company as the acquiring entity is described in Note 5 to the financial
statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001.
Modification of the original merger agreement to provide for the assumption
of a portion of AT&T's debt securities by Broadband and the related
reduction in the intercompany indebtedness represents a substantive change
in the non-equity, or "other," consideration being paid in the AT&T
Broadband transaction, resulting in a new measurement date for determining
the value of the Comcast common stock used to value the combined company
securities to be issued in the AT&T Broadband transaction. Absent the
modification of the original merger agreement, the measurement date would
have been the date the terms of the merger agreement were agreed to and
announced. The new measurement date is established as of the date of the
substantive modification of the original merger agreement and applies
irrespective of whether the exchange offer is completed. The fair value of
the shares to be issued for AT&T Broadband will be based on a price per
share of $18.80 which reflects the weighted average market price of Comcast
common stock during the period beginning two days before and ending two
days after the new measurement date.
In limited circumstances, the number of shares of combined company stock to
be issued to certain AT&T security holders in connection with the AT&T
Broadband transaction is subject to adjustment. If this occurs, the fair
value of all of the shares to be issued would be based on the market price
of Comcast common stock on the closing date of the AT&T Broadband
transaction.
The Company expects that the AT&T Broadband transaction will qualify as
tax-free to both the Company and to AT&T. The transaction is subject to
customary closing conditions and regulatory and other approvals. The
Company expects to close the AT&T Broadband transaction by the end of
November 2002.
AT&T Broadband holds an approximate 27.6% interest in Time Warner
Entertainment Company L.P. ("TWE"). On August 21, 2002, AT&T and the
Company announced that they had entered into an agreement with AOL Time
Warner providing for the restructuring of TWE. The restructuring agreement
is intended to provide for a more orderly and timely disposition of AT&T
Broadband's ownership interest in TWE than would likely be available under
the registration rights provisions of the existing TWE partnership
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,
AT&T Broadband 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
9
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
("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. AT&T
Broadband will also receive $2.1 billion in cash. Upon consummation of the
AT&T Broadband transaction, the combined company will assume all of AT&T
Broadband's interest in TWE. 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
combined company will have registration rights enabling it to dispose of
its shares in Time Warner Cable and in AOL Time Warner.
As part of the process of obtaining approval of the AT&T Broadband
transaction from the Federal Communications Commission ("FCC"), AT&T and
the Company will, at the closing of the AT&T Broadband transaction, place
AT&T's 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.
As a condition of the closing of the TWE restructuring, the combined
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 combined 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 during the first
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.
Unaudited Pro Forma Information
The following unaudited pro forma information has been presented as if the
acquisitions made by the Company in 2001 each occurred on January 1, 2001.
For a discussion of the Company's 2001 acquisitions, refer to the financial
statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001. This information is based on historical
results of operations and has been adjusted for acquisition costs. This
information is not necessarily indicative of what the results would have
been had the Company operated the entities acquired since January 1, 2001.
(Amounts in millions,
except per share data)
Nine Months Ended
September 30, 2001
------------------------
Revenues................................................ $7,222.8
Income before cumulative effect of accounting change.... $487.9
Net income.............................................. $872.4
Diluted EPS............................................. $0.90
Other Income (Expense)
On January 1, 2001, the Company completed its cable systems exchange with
Adelphia Communications Corporation ("Adelphia"). The Company received
cable systems serving approximately 445,000 subscribers from Adelphia and
Adelphia received certain of the Company's cable systems serving
approximately 441,000 subscribers. The Company recorded to other income
(expense) a pre-tax gain of $1.199 billion, representing the difference
between the estimated fair value of $1.799 billion as of the closing date
of the transaction and the Company's cost basis in the systems exchanged
(see Note 9).
10
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
5. INVESTMENTS
September 30, December 31,
2002 2001
--------------- --------------
(Dollars in millions)
Fair value method
AT&T Corp............................................ $498.6 $1,514.9
Sprint Corp. PCS Group............................... 439.7 2,109.5
Other................................................ 71.7 227.2
--------------- ------------
1,010.0 3,851.6
Cost method................................................. 124.2 143.6
Equity method............................................... 357.3 307.2
--------------- ------------
Total investments.................................... 1,491.5 4,302.4
Less, current investments................................... 905.9 2,623.2
--------------- ------------
Non-current investments..................................... $585.6 $1,679.2
=============== ============
Fair Value Method
The Company holds unrestricted equity investments in certain publicly
traded companies which it accounts for as available for sale or trading
securities. The unrealized pre-tax gains on available for sale investments
as of September 30, 2002 and December 31, 2001 of $71.1 million and $280.3
million, respectively, have been reported in the Company's balance sheet
principally as a component of accumulated other comprehensive income
(loss), net of related deferred income taxes of $24.9 million and $95.3
million, respectively.
The cost, fair value and gross unrealized gains and losses related to the
Company's available for sale securities are as follows:
September 30, December 31,
2002 2001
----------- -----------
(Dollars in millions)
Cost............................................................. $470.8 $1,355.0
Gross unrealized gains........................................... 73.9 283.2
Gross unrealized losses.......................................... (2.8) (2.9)
----------- -----------
Fair value....................................................... $541.9 $1,635.3
=========== ===========
Derivatives
The Company uses derivative financial instruments to manage its exposure to
fluctuations in interest rates, securities prices and certain foreign
currencies. The Company also invests in businesses, to some degree, through
the purchase of equity call option or call warrant agreements. The Company
has issued indexed debt instruments and prepaid forward sale agreements
whose value, in part, is derived from the market value of Sprint PCS common
stock.
The unrealized pre-tax losses on cash flow hedges as of September 30, 2002
and December 31, 2001 of $305.4 million and $0.9 million have been reported
in the Company's balance sheet as a component of accumulated other
comprehensive income (loss), net of related deferred income taxes of $106.9
million and $0.3 million, respectively. The unrealized pre-tax losses on
cash flow hedges as of September 30, 2002 consist primarily of the
unrealized pre-tax loss of $297.6 million related to the Company's
interest rate lock agreements ("Rate Locks") which has been
11
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
reported as a component of accumulated other comprehensive income (loss),
net of related deferred income taxes of $104.2 million (see Note 7).
Investment Income (Expense)
Investment income (expense) for the interim periods includes the following
(in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Interest and dividend income................................ $8.6 $25.6 $26.1 $60.6
Gains (losses) on sales and exchanges of investments, net... 0.3 17.2 (100.6) 476.8
Investment impairment losses................................ (5.9) (15.7) (227.2) (954.8)
Reclassification of unrealized gains........................ 237.9 1,330.3
Unrealized (loss) gain on Sprint PCS common stock........... (181.2) 154.5 (1,620.9) 420.1
Mark to market adjustments on derivatives related
to Sprint PCS common stock............................. 138.7 (120.2) 1,309.8 (311.7)
Mark to market adjustments on derivatives and
hedged items........................................... (13.8) 29.0 (147.6) 24.4
--------- --------- --------- ---------
Investment income (expense)............................ ($53.3) $328.3 ($760.4) $1,045.7
========= ========= ========= =========
The investment impairment losses for the nine months ended September 30,
2002 and 2001 relate principally to other than temporary declines in the
Company's investment in AT&T.
During the three months ended September 30, 2001, the Company wrote-off its
investment in Excite@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 the accumulated unrealized gain of $237.9 million on the Company's
investment in Excite@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 a stockholders agreement as a hedge of the
Company's investment in the Excite@Home common stock.
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).
6. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill by business segment (see
Note 11) for the periods presented are as follows (in millions):
Corporate
Cable Commerce and Other Total
------------ ------------ ------------ ------------
Balance, December 31, 2001...................... $4,688.4 $834.8 $766.2 $6,289.4
Purchase price allocation adjustments....... 5.1 151.8 156.9
------------ ------------ ------------ ------------
Balance, September 30, 2002..................... $4,693.5 $834.8 $918.0 $6,446.3
============ ============ ============ ============
12
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
During the nine months ended September 30, 2002, the Company recorded the
final purchase price allocation related to the Company's acquisition, on
October 30, 2001, of Outdoor Life Network, which resulted in an increase in
goodwill and a corresponding decrease in cable and satellite television
distribution rights. In addition, during the nine months ended September
30, 2002, the Company recorded the final purchase price allocation related
to certain of its cable system acquisitions, which resulted in an increase
in goodwill and a corresponding decrease in franchise rights.
As of September 30, 2002, the weighted average amortization period for the
Company's intangible assets subject to amortization is 8.1 years and
estimated related amortization expense for each of the five years ended
December 31 is as follows (in millions):
2002............................ $208.2
2003............................ $202.3
2004............................ $181.8
2005............................ $162.4
2006............................ $138.0
The following pro forma financial information for the three and nine months
ended September 30, 2001 is presented as if SFAS No. 142 was adopted as of
January 1, 2001 (amounts in millions, except per share data):
Three Months Nine Months
Ended Ended
September 30, September 30,
2001 2001
----------------- -----------------
Net Income (Loss)
As reported......................................... ($106.8) $929.6
Amortization of goodwill.......................... 79.4 233.8
Amortization of equity method goodwill............ 1.9 13.0
Amortization of franchise rights.................. 283.9 813.3
-------------- -------------
As adjusted......................................... $258.4 $1,989.7
============== =============
Income before cumulative effect of
accounting change, as adjusted.................... $258.4 $1,605.2
============== =============
Basic EPS
As reported......................................... ($0.11) $0.98
Amortization of goodwill.......................... 0.08 0.25
Amortization of equity method goodwill............ 0.01
Amortization of franchise rights.................. 0.30 0.86
-------------- -------------
As adjusted......................................... $0.27 $2.10
============== =============
Diluted EPS
As reported......................................... ($0.11) $0.96
Amortization of goodwill.......................... 0.08 0.24
Amortization of equity method goodwill............ 0.01
Amortization of franchise rights.................. 0.30 0.85
-------------- -------------
As adjusted......................................... $0.27 $2.06
============== =============
13
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
7. LONG-TERM DEBT
Commercial Paper
The Company's senior bank credit facility consists of a $2.25 billion,
five-year revolving credit facility and a $1.925 billion, 364-day revolving
credit facility (together, the "Comcast Cable Revolver"). The 364-day
revolving credit facility supports the commercial paper program of Comcast
Cable Communications, Inc., a wholly owned subsidiary of the Company.
Amounts outstanding under the commercial paper program are classified as
long-term in the Company's balance sheet as of September 30, 2002 and
December 31, 2001 as the Company has both the ability and the intent to
refinance these obligations, if necessary, on a long-term basis with
amounts available under the Comcast Cable Revolver.
Zero Coupon Convertible Debentures
The Company's Zero Coupon Debentures have a yield to maturity of 1.25%,
computed on a semi-annual bond equivalent basis. The Zero Coupon Debentures
may be converted, subject to certain restrictions, into shares of the
Company's Class A Special Common Stock at the option of the holder at a
conversion rate of 14.2566 shares per $1,000 principal amount at maturity,
representing an initial conversion price of $54.67 per share. The Zero
Coupon Debentures are senior unsecured obligations. The Company may redeem
for cash all or part of the Zero Coupon Debentures on or after December 19,
2005.
Holders may require the Company to repurchase the Zero Coupon Debentures on
December 19, 2002, 2003, 2005, 2010 and 2015. Holders may surrender the
Zero Coupon Debentures for conversion at any time prior to maturity if the
closing price of the Company's Class A Special Common Stock is greater than
110% of the accreted conversion price for at least 20 trading days of the
30 trading days prior to conversion. During the three months ended
September 30, 2002, the Company repurchased from holders an aggregate of
$167.1 million accreted value of Zero Coupon Debentures for cash. The
Company financed the redemption with available cash. As of September 30,
2002, $939.2 million of Zero Coupon Debentures remain outstanding.
Amounts outstanding under the Zero Coupon Debentures are classified as
long-term in the Company's balance sheet as of September 30, 2002 and
December 31, 2001 as the Company has both the ability and the intent to
refinance the Zero Coupon Debentures on a long-term basis with amounts
available under the Comcast Cable Revolver in the event holders of the Zero
Coupon Debentures exercise their rights to require the Company to
repurchase the Zero Coupon Debentures in December 2002.
ZONES
At maturity, holders of the Company's 2.0% Exchangeable Subordinated
Debentures due 2029 (the "ZONES") are entitled to receive in cash an amount
equal to the higher of the principal amount of the ZONES or the market
value of Sprint PCS common stock.
Prior to maturity, each ZONES is exchangeable at the holders' option for an
amount of cash equal to 95% of the market value of Sprint PCS Stock. As of
September 30, 2002, the number of Sprint PCS shares held by the Company
exceeded the number of ZONES outstanding.
As of September 30, 2002 and December 31, 2001, long-term debt includes
$577.2 million and $1.613 billion, respectively, of ZONES. Upon adoption of
SFAS No. 133, the Company split the accounting for the ZONES into
derivative and debt components. The Company records the change in the fair
value of the derivative component of the ZONES (see Note 5) and the
increase in the carrying value of the debt component of the ZONES as
follows (in millions):
14
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
----------- ----------- ---------- -----------
Balance at Beginning of Period:
Debt component............................ $478.9 $456.2 $467.4 $445.2
Derivative component...................... 210.2 1,136.9 1,145.2 961.3
----------- ----------- ---------- -----------
Total .............................. 689.1 1,593.1 1,612.6 1,406.5
Increase in debt component
to interest expense....................... 5.9 5.6 17.4 16.6
Increase (decrease) in derivative component
to investment income/expense.............. (117.8) 98.5 (1,052.8) 274.1
Balance at End of Period:
Debt component............................ 484.8 461.8 484.8 461.8
Derivative component...................... 92.4 1,235.4 92.4 1,235.4
----------- ----------- ---------- -----------
Total .............................. $577.2 $1,697.2 $577.2 $1,697.2
=========== =========== ========== ===========
New Credit Facilities
On May 3, 2002, Broadband and AT&T Comcast Corporation, a company owned 50%
each by AT&T and the Company ("AT&T Comcast"), entered into definitive
credit agreements with a syndicate of lenders for an aggregate of $12.825
billion of financing to complete the AT&T Broadband transaction (see Note
4) and to provide for the combined company's financing needs after the
transaction. Under the terms of the new credit facilities, the obligation
of the lenders to provide the financing upon completion of the AT&T
Broadband transaction is subject to a number of conditions, including a
condition that the combined company holds investment-grade credit ratings
from both Standard & Poor's ("S&P") and Moody's Investor Services
("Moody's") ratings agencies at the time of closing. On September 30, 2002,
the Company announced that AT&T Comcast had received investment-grade
credit ratings from each of S&P and Moody's allowing AT&T Comcast to access
all amounts under the credit facilities upon closing of the AT&T Broadband
transaction.
Interest Rates
Excluding the derivative component of the ZONES whose changes in fair value
are recorded to investment income (expense), the Company's effective
weighted average interest rate on its long-term debt outstanding was 6.58%
and 6.03% as of September 30, 2002 and December 31, 2001, respectively.
Interest Rate Risk Management
During the nine months ended September 30, 2002, the Company settled $950.0
million aggregate notional amount of fixed to variable interest rate
exchange agreements ("Swaps") and received proceeds of $56.8 million. This
amount is being recognized as an adjustment to interest expense over the
term of the related debt. During the nine months ended September 30, 2002,
variable to fixed Swaps with an aggregate notional amount of $106.9 million
expired. As of September 30, 2002, the Company has variable to fixed Swaps
with an aggregate notional amount of $143.4 million with an average pay
rate of 4.8% and an average receive rate of 1.8%. The Swaps mature between
2002 and 2003.
In June and July 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
AT&T Broadband transaction may be adversely affected by interest rate
fluctuations (see Note 4). The Rate Locks mature in the fourth quarter of
2002, the timing of the anticipated issuance or assumption of the fixed
rate debt. To the extent the Rate Locks are effective in offsetting the
variability of the hedged cash flows, changes in the fair value of the Rate
Locks are not included in earnings but are reported as a component of
accumulated other comprehensive
15
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
income (loss) (see Note 5). Upon the issuance or assumption of the debt,
the value of the Rate Locks will be recognized as an adjustment to interest
expense over the same period in which the related interest costs on the
debt are recognized in earnings.
Lines and Letters of Credit
As of September 30, 2002, certain subsidiaries of the Company had unused
lines of credit of $3.722 billion under their respective credit facilities.
As of September 30, 2002, the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totaling $88.1 million to
cover potential fundings under various agreements.
8. STOCKHOLDERS' EQUITY
Retirement of Shares
In March 2002, as a result of the merger of a wholly owned subsidiary into
the Company, approximately 23.3 million shares of the Company's Class A
Special Common Stock held by the subsidiary were retired and returned to
authorized but unissued status.
Comprehensive Income (Loss)
The Company's total comprehensive income (loss) for the interim periods was
as follows (in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
--------- ---------- --------- ----------
Net income (loss).................................... $75.6 ($106.8) ($222.9) $929.6
Unrealized gains (losses) on marketable securities... 24.7 69.0 (339.6) 265.9
Reclassification adjustments for losses (gains)
included in net income (loss)...................... 0.2 (157.4) 203.3 (486.5)
Unrealized losses on the effective portion of
cash flow hedges................................... (197.5) (1.4) (198.0) (3.1)
Foreign currency translation losses.................. (1.4) (2.7) (7.8) (9.4)
--------- ---------- --------- ----------
Comprehensive income (loss).......................... ($98.4) ($199.3) ($565.0) $696.5
========= ========== ========= ==========
9. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The fair values of the assets and liabilities acquired by the Company
through noncash transactions during the nine months ended September 30,
2001 are as follows (in millions):
Current assets.............................. $56.6
Property, plant & equipment................. 686.1
Intangible assets........................... 2,755.8
Current liabilities......................... (37.0)
-----------
Net assets acquired.................... $3,461.5
===========
16
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The Company made cash payments for interest and income taxes during the
interim periods as follows (in millions):
Three Months Nine Months
Ended Ended
September 30, September 30,
2002 2001 2002 2001
-------- -------- -------- --------
Interest................................................... $103.8 $129.8 $451.1 $426.5
Income taxes............................................... $53.4 $10.4 $211.9 $136.8
10. COMMITMENTS AND CONTINGENCIES
Certain 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"). At Home was
a provider of high-speed Internet access and content services, which filed
for bankruptcy protection in September 2001. Filed actions are: (i) class
action lawsuits against the Company, Brian L. Roberts (the Company's
President and a director), AT&T (the former controlling shareholder of At
Home and also a former distributor of the At Home service) and other
corporate and individual defendants in the Superior Court of San Mateo
County, California, alleging breaches of fiduciary duty on the part of the
Company and the other defendants in connection with transactions agreed to
in March 2000 among At Home, the Company, AT&T and Cox Communications, Inc.
("Cox," also an investor in At Home and a former distributor of the At Home
service); (ii) class action lawsuits against the Company, AT&T and others
in the United States District Court for the Southern District of New York,
alleging securities law violations and common law fraud in connection with
disclosures made by At Home in 2001; 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
has ordered the actions consolidated into a single action; an amended
consolidated complaint is required to be served by October 31, 2002.
Since September 2001, certain creditors of At Home have threatened to
commence litigation against AT&T relating to the conduct of AT&T or its
designees on the At Home Board in connection with At Home's declaration of
bankruptcy and At Home's subsequent aborted efforts to dispose of some of
its businesses or assets in the bankruptcy court-supervised auction, as
well as in connection with other aspects of AT&T's relationship with At
Home. No such lawsuits have been filed to date. The plan of liquidation in
the At Home bankruptcy, approved in October 2002, implements a creditor
settlement and provides that all claims of the bankrupt estate of At Home
against AT&T and other shareholders will be transferred to a liquidating
trust funded with at least $12 million, and as much as $17 million, to
finance the litigation of those claims.
Following closing of the AT&T Broadband transaction, the Company will be
contractually liable for 50% of any liabilities of AT&T relating to At
Home, including any resulting from any such pending or threatened
litigation (the "AT&T At Home Potential Liabilities"). AT&T will be liable
for the other 50% of such liabilities.
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 such claims vigorously. In management's
opinion, the final disposition of such claims is not expected to have a
material adverse effect on the Company's or, following the closing of the
AT&T Broadband transaction, the combined company's, consolidated financial
position, but could possibly be material to the 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.
17
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Management has no basis for any expectation that the Company's 50% share of
the AT&T At Home Potential Liabilities would have a material adverse effect
on the combined company's consolidated financial position or results of
operations, although no assurance can be given that any adverse outcome
would not be material.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to such actions is not expected to have
a material adverse effect on the financial position or results of
operations 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 $225 million; however the
Company's current estimate of the amount of future expenditures
(principally in the form of capital expenditures) that will be made by the
affiliate necessary to comply with the performance requirements will not
exceed $75 million.
18
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
11. FINANCIAL DATA BY BUSINESS SEGMENT
The following represents the Company's significant business segments,
"Cable" and "Commerce." The components of net income (loss) below operating
income (loss) are not separately evaluated by the Company's management on a
segment basis (dollars in millions).
Corporate and
Cable Commerce Other (1) Total
----- -------- --------- -----
Three Months Ended September 30, 2002
- -------------------------------------
Revenues (2)......................................... $1,548.0 $1,011.8 $144.9 $2,704.7
Operating income (loss) before depreciation
and amortization (3)............................ 645.2 185.4 (4.8) 825.8
Depreciation and amortization........................ 309.1 27.1 59.1 395.3
Operating income (loss).............................. 336.1 158.3 (63.9) 430.5
Interest expense..................................... 140.1 2.6 31.5 174.2
Capital expenditures................................. 322.0 28.1 6.8 356.9
Three Months Ended September 30, 2001
- -------------------------------------
Revenues (2)......................................... $1,378.5 $895.1 $127.2 $2,400.8
Operating income (loss) before depreciation
and amortization (3)............................ 574.7 153.7 (27.8) 700.6
Depreciation and amortization........................ 770.1 35.2 73.5 878.8
Operating income (loss).............................. (195.4) 118.5 (101.3) (178.2)
Interest expense..................................... 143.9 6.7 40.1 190.7
Capital expenditures................................. 450.0 39.4 48.1 537.5
Nine Months Ended September 30, 2002
- ------------------------------------
Revenues (2)......................................... $4,558.2 $2,999.8 $528.1 $8,086.1
Operating income before depreciation and
amortization (3)................................ 1,895.9 572.2 32.5 2,500.6
Depreciation and amortization........................ 899.8 82.6 188.2 1,170.6
Operating income (loss).............................. 996.1 489.6 (155.7) 1,330.0
Interest expense..................................... 427.4 9.0 107.1 543.5
Capital expenditures................................. 1,010.7 110.5 24.6 1,145.8
Nine Months Ended September 30, 2001
- ------------------------------------
Revenues (2)......................................... $3,898.8 $2,655.1 $417.6 $6,971.5
Operating income (loss) before depreciation
and amortization (3)............................ 1,610.4 486.2 (68.9) 2,027.7
Depreciation and amortization........................ 2,194.9 106.6 138.2 2,439.7
Operating income (loss).............................. (584.5) 379.6 (207.1) (412.0)
Interest expense..................................... 405.6 21.8 124.1 551.5
Capital expenditures................................. 1,400.9 107.4 172.9 1,681.2
As of September 30, 2002
- ------------------------
Assets............................................... $28,768.4 $2,891.7 $4,117.2 $35,777.3
Long-term debt, less current portion................. 7,811.0 1.4 2,115.5 9,927.9
As of December 31, 2001
- -----------------------
Assets............................................... $29,084.6 $2,809.2 $6,366.7 $38,260.5
Long-term debt, less current portion................. 8,363.2 62.7 3,315.7 11,741.6
_______________
19
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
(1) Other includes segments not meeting certain quantitative guidelines for
reporting including the Company's content and business communications
operations as well as elimination entries related to the segments
presented. Corporate and other assets consist primarily of the
Company's investments, and cable and satellite television distribution
rights and goodwill of the Company's content operations (see Notes 5
and 6).
(2) Revenues include $162.6 million, $114.0 million, $459.2 million and
$348.4 million during the three months ended September 30, 2002 and
2001 and during the nine months ended September 30, 2002 and 2001,
respectively, of non-US revenues, principally related to the Company's
commerce segment. No single customer accounted for a significant amount
of the Company's revenues in any period.
(3) Operating income (loss) before depreciation and amortization is
commonly referred to in the Company's businesses as "operating cash
flow (deficit)." Operating cash flow is a measure of a company's
ability to generate cash to service its obligations, including debt
service obligations, and to finance capital and other expenditures. In
part due to the capital intensive nature of the Company's businesses
and the resulting significant level of non-cash depreciation and
amortization expense, operating cash flow is frequently used as one of
the bases for comparing businesses in the Company's industries,
although the Company's measure of operating cash flow may not be
comparable to similarly titled measures of other companies. Operating
cash flow is the primary basis used by the Company's management to
measure the operating performance of its businesses. Operating cash
flow does not purport to represent net income or net cash provided by
operating activities, as those terms are defined under generally
accepted accounting principles, and should not be considered as an
alternative to such measurements as an indicator of the Company's
performance.
20
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We have grown significantly in recent years through both strategic
acquisitions and growth in our existing businesses. We have historically met our
cash needs for operations through our cash flows from operating activities. We
have generally financed our cash requirements for acquisitions and capital
expenditures through borrowings of long-term debt, sales of investments and from
existing cash, cash equivalents and short-term investments.
Except where specifically indicated, the following management's discussion
and analysis of financial condition and results of operations does not include
the anticipated effects of the AT&T Broadband transaction.
General Developments of Business
Refer to Note 4 to our financial statements included in Item 1 and Note 5
to our financial statements included in our Annual Report on Form 10-K for the
year ended December 31, 2001 for a discussion of our acquisitions and other
significant events.
Liquidity and Capital Resources
The cable communications and the electronic retailing industries are
experiencing increasing competition and rapid technological changes. Our future
results of operations will be affected by our ability to react to changes in the
competitive environment and by our ability to implement new technologies. We
believe that competition and technological changes will not significantly affect
our ability to obtain financing.
We believe that we will be able to meet our current and long-term liquidity
and capital requirements, including fixed charges, through our cash flows from
operating activities, existing cash, cash equivalents and investments, and
through available borrowings under our existing credit facilities.
We have both the ability and intent to redeem the $939.2 million
outstanding Zero Coupon Debentures with amounts available under subsidiary
credit facilities if holders exercise their rights to require us to repurchase
the Zero Coupon Debentures in December 2002. As of September 30, 2002, certain
of our subsidiaries had unused lines of credit of $3.722 billion under their
respective credit facilities.
Refer to Note 7 to our financial statements included in Item 1 for a
discussion of our Zero Coupon Debentures. Refer to Note 10 to our financial
statements included in Item 1 for a discussion of our commitments and
contingencies.
AT&T Broadband Transaction
Excluding AT&T Broadband's exchangeable notes, which are mandatorily
redeemable at AT&T Broadband's option into shares of certain publicly traded
companies held by AT&T Broadband, we currently estimate that the combined
company will require approximately $20 billion of assumed, refinanced and new
indebtedness upon completion of the AT&T Broadband transaction. Of this $20
billion of indebtedness, approximately $7 billion to $8 billion will be assumed
indebtedness of AT&T Broadband's subsidiaries, $9 billion to $10 billion will
retire amounts we expect AT&T Broadband Corp. ("Broadband") will owe AT&T Corp.
("AT&T") at, and will be required to pay, upon closing of the AT&T Broadband
transaction (subject to offset for amounts of AT&T indebtedness assumed at
closing as described in the following paragraph), and $2 billion to $4 billion
will be needed to refinance AT&T Broadband debt that will become due on or
shortly after the closing of the AT&T Broadband transaction and to provide
appropriate cash reserves to fund AT&T Broadband's operations and capital
expenditures. We cannot provide assurances that the actual amount of this
indebtedness will not exceed $20 billion.
Subsequent to the original merger agreement, economic and business factors
led us and AT&T to agree to change the form of consideration to be paid in the
AT&T Broadband transaction. On August 12, 2002, AT&T Comcast Corporation ("AT&T
Comcast"), along with AT&T, Broadband, two of AT&T's cable subsidiaries and our
wholly owned cable subsidiary, Comcast Cable Communications, Inc. ("Comcast
Cable") filed a registration statement with the Securities and Exchange
Commission for a proposed exchange offer relating to $11.8 billion aggregate
principal amount of AT&T's existing debt securities. The exchange offer, if
successful, would result in the assumption of a portion of AT&T's indebtedness
by AT&T Broadband (and a corresponding decrease in the amount of intercompany
indebtedness Broadband must pay AT&T upon closing). The exchange offer is
subject to market conditions and is expected to close in November 2002.
21
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
On May 3, 2002, Broadband and AT&T Comcast entered into definitive credit
agreements with a syndicate of lenders for an aggregate of $12.825 billion of
financing to complete the AT&T Broadband transaction and to provide for the
combined company's financing needs after the transaction. Under the terms of the
new credit facilities, the obligation of the lenders to provide the financing
upon completion of the AT&T Broadband transaction is subject to a number of
conditions, including a condition that the combined company holds investment-
grade credit ratings from both Standard & Poor's ("S&P") and Moody's Investor
Services ("Moody's") ratings agencies at the time of closing. On September 30,
2002, we announced that AT&T Comcast had received investment-grade credit
ratings from each of S&P and Moody's allowing AT&T Comcast to access all amounts
under the credit facilities upon closing of the AT&T Broadband transaction. We
therefore expect that we will be able to obtain the necessary financing to
complete the AT&T Broadband transaction.
We may also use other immediately available sources of financing to fund
these requirements, including:
o our existing cash, cash equivalents and short- term investments,
o amounts available under our subsidiaries' lines of credit, which
totaled $3.722 billion as of September 30, 2002, and
o proceeds from the sales of our and AT&T Broadband's investments.
In addition, as more fully described in Note 4 to our financial statements
included in Item 1 (see "Agreement and Plan of Merger with AT&T Broadband"),
upon closing of the Time Warner Entertainment L.P. ("TWE") restructuring
agreement, AT&T Broadband will receive $1.5 billion in common stock of AOL Time
Warner, an approximate 21% equity interest in Time Warner Cable and $2.1 billion
in cash.
Subsequent to closing of the AT&T Broadband transaction, we will have a
substantially higher amount of debt, interest expense and capital expenditures
at the combined company. If the credit rating agencies determine that the
combined company is less creditworthy, on a combined basis, than that of Comcast
on an historical basis, it is possible that our cost of and access to capital
could be negatively affected.
Cash, Cash Equivalents and Short-term Investments
We have traditionally maintained significant levels of cash, cash
equivalents and short-term investments to meet our short-term liquidity
requirements. Our cash equivalents and short-term investments are recorded at
fair value. Cash, cash equivalents and short-term investments as of September
30, 2002 were $1.476 billion, substantially all of which is unrestricted.
Investments
A significant portion of our investments are in publicly traded companies
and are reflected at fair value which fluctuates with market changes.
We do not have any significant contractual funding commitments with respect
to any of our investments. Our ownership interests in these investments may,
however, be diluted if we do not fund our investees' non-binding capital calls.
We continually evaluate our existing investments, as well as new investment
opportunities.
Refer to Note 5 to our financial statements included in Item 1 for a
discussion of our investments.
Financing
As of September 30, 2002 and December 31, 2001, our long-term debt,
including current portion, was $10.042 billion and $12.202 billion,
respectively.
The $2.160 billion decrease from December 31, 2001 to September 30, 2002
results principally from the $1.035 billion aggregate reduction to the carrying
value of our ZONES during 2002, and the effects of our net repayments during
2002.
Excluding the effects of interest rate risk management instruments, 8.7%
and 13.4% of our long- term debt as of September 30, 2002 and December 31, 2001,
respectively, was at variable rates.
We have and may in the future, depending on certain factors including
market conditions, make optional repayments on our debt obligations, which may
include open market repurchases of our outstanding public notes and debentures.
Refer to Note 7 to our financial statements included in Item 1 for a
discussion of our long-term debt.
Equity Price Risk
We have entered into cashless collar agreements (the "Equity Collars") and
prepaid forward sales agreements
22
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
("Prepaid Forward Sales") which we account for at fair value. The Equity Collars
and Prepaid Forward Sales limit our exposure to and benefits from price
fluctuations in Sprint PCS common stock.
During the 2002 and 2001 interim periods, the change in the fair value of
our investment in Sprint PCS common stock, classified as a trading security,
were substantially offset by the changes in the fair values of the Equity
Collars, the derivative components of the ZONES, and the Prepaid Forward Sales.
See "Results of Operations - Investment Income (Expense)" below.
Interest Rate Risk
During the nine months ended September 30, 2002, we settled $950.0 million
aggregate notional amount of our fixed to variable interest rate exchange
agreements ("Swaps") and received proceeds of $56.8 million. This amount is
being recognized as an adjustment to interest expense over the term of the
related debt. During the nine months ended September 30, 2002, variable to fixed
Swaps with an aggregate notional amount of $106.9 million expired. As of
September 30, 2002, we have $143.4 million aggregate notional amount of variable
to fixed Swaps with an average pay rate of 4.8% and an average receive rate of
1.8%. The Swaps mature between 2002 and 2003.
In June and July 2002, we entered into interest rate lock agreements ("Rate
Locks") to hedge the risk that the cash flows related to the interest payments
on an anticipated issuance or assumption of certain fixed rate debt in
connection with the AT&T Broadband transaction may be adversely affected by
interest rate fluctuations. The Rate Locks mature in the fourth quarter of 2002,
the timing of the anticipated issuance or assumption of the fixed rate debt.
Accumulated Other Comprehensive Income (Loss)
The change in accumulated other comprehensive income (loss) from December
31, 2001 to September 30, 2002 is principally attributable to the unrealized
loss 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 the nine months ended September 30, 2002. Refer to Note 5 to our
financial statements included in Item 1.
_________________________
Statement of Cash Flows
Cash and cash equivalents increased $219.8 million as of September 30, 2002
from December 31, 2001. The increase in cash and cash equivalents resulted from
cash flows from operating, financing and investing activities which are
explained below.
Net cash provided by operating activities amounted to $2.0 billion for the
nine months ended September 30, 2002, due principally to our operating income
before depreciation and amortization (see "Results of Operations"), and by
changes in working capital as a result of the timing of receipts and
disbursements and the effects of net interest and current income tax expense.
Net cash used in financing activities consists primarily of borrowings and
repayments of debt, proceeds from settlement of Swaps, and proceeds from the
issuances of our common stock. Net cash used in financing activities was $1.052
billion for the nine months ended September 30, 2002. During the nine months
ended September 30, 2002, we borrowed $876.2 million, consisting of:
o $443.1 million under Comcast Cable's commercial paper program, and
o $433.1 million under revolving credit facilities.
During the nine months ended September 30, 2002, we repaid $2.009 billion
of our long-term debt, consisting of:
o $441.3 million under Comcast Cable's commercial paper program,
o $200.0 million of our 9.625% Senior Notes due 2002,
o $1.201 billion on certain of our revolving credit facilities, and
o $167.1 million of our Zero Coupon Debentures.
In addition, during the nine months ended September 30, 2002, we received
proceeds of $56.8 million from settlement of certain of our Swaps and proceeds
of $15.0 million from issuances of our common stock.
Net cash used in investing activities includes the effects of acquisitions,
net of cash acquired, purchases of investments, capital expenditures, and
additions to
23
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
intangible and other noncurrent assets, offset by proceeds from sales of
investments. Net cash used in investing activities was $728.0 million for the
nine months ended September 30, 2002, consisting primarily of capital
expenditures of $1.146 billion and additions to intangible and other noncurrent
assets of $255.6 million, including $55.5 million related to the satellite and
cable television affiliation agreements of QVC and our content subsidiaries.
Such amounts were offset, in part, by proceeds from sales of investments of
$733.5 million.
_______________________
Results of Operations
The effects of our recent acquisitions were to increase our revenues and
expenses, resulting in increases in our operating income before depreciation and
amortization.
We adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets," on January 1, 2002, as required by the
new statement. Refer to Notes 2 and 6 to our financial statements included in
Item 1 for a discussion of the impact the adoption of the new statement had on
our consolidated financial condition and results of operations.
24
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
Our summarized financial information for the interim periods is as follows
(dollars in millions, "NM" denotes percentage is not meaningful):
Three Months Ended
September 30, Increase / (Decrease)
2002 2001 $ %
--------- --------- ---------- ---------
Revenues..................................................... $2,704.7 $2,400.8 $303.9 12.7%
Cost of goods sold from electronic retailing................. 643.1 573.8 69.3 12.1
Operating, selling, general and administrative expenses...... 1,235.8 1,126.4 109.4 9.7
Depreciation................................................. 338.9 314.7 24.2 7.7
Amortization................................................. 56.4 564.1 (507.7) (90.0)
--------- --------- ---------- ---------
Operating income (loss)...................................... 430.5 (178.2) 608.7 NM
--------- --------- ---------- ---------
Interest expense............................................. (174.2) (190.7) (16.5) (8.7)
Investment income (expense).................................. (53.3) 328.3 (381.6) NM
Equity in net losses of affiliates........................... (11.5) (19.5) (8.0) (41.0)
Other income (expense)....................................... 3.2 (7.0) 10.2 NM
Income tax expense........................................... (82.5) (13.5) 69.0 511.1
Minority interest............................................ (36.6) (26.2) 10.4 39.7
--------- --------- ---------- ---------
Income (loss) before cumulative effect of accounting change.. $75.6 ($106.8) $182.4 NM
========= ========= ========== =========
Operating income before depreciation and amortization (1).... $825.8 $700.6 $125.2 17.9%
========= ========= ========== =========
Nine Months Ended
September 30, Increase / (Decrease)
2002 2001 $ %
--------- --------- --------- ---------
Revenues..................................................... $8,086.1 $6,971.5 $1,114.6 16.0%
Cost of goods sold from electronic retailing................. 1,903.1 1,685.6 217.5 12.9
Operating, selling, general and administrative expenses...... 3,682.4 3,258.2 424.2 13.0
Depreciation................................................. 1,015.5 829.4 186.1 22.4
Amortization................................................. 155.1 1,610.3 (1,455.2) (90.4)
--------- --------- --------- ---------
Operating income (loss)...................................... 1,330.0 (412.0) 1,742.0 NM
--------- --------- --------- ---------
Interest expense............................................. (543.5) (551.5) (8.0) (1.5)
Investment income (expense).................................. (760.4) 1,045.7 (1,806.1) NM
Equity in net losses of affiliates........................... (59.9) (26.1) 33.8 129.5
Other income (expense)....................................... (10.8) 1,180.9 (1,191.7) NM
Income tax expense........................................... (52.3) (602.1) (549.8) (91.3)
Minority interest............................................ (126.0) (89.8) 36.2 40.3
--------- --------- --------- ---------
Income (loss) before cumulative effect of accounting
change...................................................... ($222.9) $545.1 ($768.0) NM
========= ========= ========== =========
Operating income before depreciation and amortization (1).... $2,500.6 $2,027.7 $472.9 23.3%
========= ========= ========== =========
____________
(1) Operating income before depreciation and amortization is commonly referred
to in our businesses as "operating cash flow." Operating cash flow is a
measure of a company's ability to generate cash to service its obligations,
including debt service obligations, and to finance capital and other
expenditures. In part due to the capital intensive nature of our businesses
and the resulting significant level of non-cash depreciation expense and
amortization expense, operating cash flow is frequently used as one of the
bases for comparing businesses in our industries, although our measure of
operating cash flow may not be comparable to similarly titled measures of
other companies. Operating cash flow is the primary basis used by our
management to measure the operating performance of our businesses.
Operating cash flow does not purport to represent net income or net cash
provided by operating activities, as those terms are defined under
generally accepted accounting principles, and should not be considered as
an alternative to such measurements as an indicator of our performance. See
"Statement of Cash Flows" above for a discussion of net cash provided by
operating activities.
25
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
Consolidated Operating Results
Revenues
The increases in consolidated revenues for the interim periods from 2001 to
2002 are primarily attributable to increases in service revenues in our Cable
segment and to increases in net sales in our Commerce segment (see "Operating
Results by Business Segment" below). The remaining increases are primarily the
result of increases in revenues from our content operations, principally due to
the effects of our acquisitions and growth in our historical operations.
On January 1, 2002, we adopted Emerging Issues Task Force ("EITF") 01-9,
"Accounting for Consideration Given to a Customer (Including a Reseller of the
Vendor's Products)" and EITF 01-14, "Income Statement Characterization of
Reimbursements Received for 'Out-of-Pocket' Expenses Incurred."
EITF 01-9 requires, among other things, that consideration paid to
customers should be classified as a reduction of revenue unless certain criteria
are met. Certain of our content subsidiaries have paid or may pay distribution
fees to cable television and satellite broadcast systems for carriage of their
programming. Upon adoption of EITF 01-9, we reclassified certain of these
distribution fees from expense to a revenue reduction for all periods presented
in our statement of operations. This change does not apply to distribution fees
paid by our consolidated subsidiary, QVC, Inc. ("QVC") as the counterparties to
QVC's distribution agreements do not make revenue payments to QVC.
EITF 01-14 requires that reimbursements received for out-of-pocket expenses
incurred be characterized as revenue in the statement of operations. Under the
terms of our franchise agreements, we are required to pay up to 5% of our gross
revenues derived from providing cable services to the local franchising
authority. We normally pass these fees through to our cable subscribers. Upon
adoption of EITF 01-14, we reclassified franchise fees collected from cable
subscribers from a reduction of selling, general and administrative expenses to
a component of service revenues for all periods presented in our statement of
operations.
The changes in classification had no impact on our reported operating
income (loss) or financial condition. Refer to Note 2 to our financial
statements included in Item 1 for a discussion of the adoption of EITF 01-9 and
EITF 01-14.
Cost of goods sold from electronic retailing
Refer to the "Commerce" section of "Operating Results by Business Segment"
below for a discussion of the increase in cost of goods sold from electronic
retailing.
Operating, selling, general and administrative expenses
The increases in consolidated operating, selling, general and
administrative expenses for the interim periods from 2001 to 2002 are primarily
attributable to increases in expenses in our Cable segment and, to a lesser
extent, to increases in expenses in our Commerce segment (see "Operating Results
by Business Segment" below). The remaining changes are primarily the result of
increased expenses in our content operations, principally due to the effects of
our acquisitions and growth in our historical operations, and to decreased
expenses in our international operations principally due to the deconsolidation
of certain of our investees.
Depreciation
The increases in depreciation expense for the interim periods from 2001 to
2002 are primarily attributable to our Cable segment and are primarily due to
the effects of our recent acquisitions and our capital expenditures.
Amortization
Of the $507.7 million and $1.455 billion decreases in amortization expense
for the interim periods from 2001 and 2002, $516.1 million and $1.485 billion
are attributable to the adoption of SFAS No. 142 on January 1, 2002. The
remaining changes are primarily the result of increases in amortization expense
in our content operations, principally due to the effects of our acquisitions.
Refer to Note 6 to our financial statements included in Item 1 for the pro forma
impact of adoption of SFAS No. 142 on amortization expense.
Operating Results by Business Segment
The following represent the operating results of our significant business
segments, "Cable" and "Commerce." The remaining components of our operations are
not
26
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
independently significant to our consolidated financial condition or results of
operations. Refer to Note 11 to our financial statements included in Item 1 for
a summary of our financial data by business segment (dollars in millions).
Cable Three Months Ended
September 30, Increase / (Decrease)
2002 2001 $ %
--------- --------- --------- --------
Video....................................................... $1,180.5 $1,110.2 $70.3 6.3%
High-speed Internet......................................... 155.5 83.4 72.1 86.5
Advertising sales........................................... 93.2 83.3 9.9 11.9
Other....................................................... 69.4 50.4 19.0 37.7
Franchise fees.............................................. 49.4 51.2 (1.8) (3.5)
--------- --------- --------- --------
Revenues................................................ 1,548.0 1,378.5 169.5 12.3
Operating, selling, general and administrative expenses...... 902.8 803.8 99.0 12.3
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $645.2 $574.7 $70.5 12.2%
========= ========= ========= ========
Nine Months Ended
September 30, Increase
2002 2001 $ %
--------- --------- --------- --------
Video....................................................... $3,516.7 $3,154.5 $362.2 11.5%
High-speed Internet......................................... 414.7 202.7 212.0 104.6
Advertising sales........................................... 274.2 235.2 39.0 16.6
Other....................................................... 201.7 163.8 37.9 23.1
Franchise fees.............................................. 150.9 142.6 8.3 5.8
--------- --------- --------- --------
Revenues................................................ 4,558.2 3,898.8 659.4 16.9
Operating, selling, general and administrative expenses...... 2,662.3 2,288.4 373.9 16.3
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $1,895.9 $1,610.4 $285.5 17.7%
========= ========= ========= ========
_______________
(a) See footnote (1) on page 25.
Video revenue consists of our basic, expanded basic, premium, pay-per-view,
equipment and digital subscriptions. Of the $70.3 million and $362.2 million
increases in video revenues for the interim periods from 2001 to 2002, zero and
$138.7 million are attributable to the effects of our acquisitions of cable
systems and $70.3 million and $223.5 million relate to increased rates and
subscriber growth in our historical operations, driven principally by growth in
digital boxes. During the three and nine months ended September 30, 2002, we
added approximately 205,400 and 607,000 digital boxes.
The increases in high-speed Internet revenue for the interim periods from
2001 to 2002 are primarily due to the addition of approximately 169,800 and
390,600 high-speed Internet subscribers during the three and nine months ended
September 30, 2002, and to the effects of rate increases.
The increases in advertising sales revenue for the interim periods from
2001 to 2002 are primarily attributable to the effects of a stronger advertising
market and the continued leveraging of our market-wide fiber interconnects.
Other revenue includes installation revenues, guide revenues, commissions
from electronic retailing, revenues of our regional sports programming networks
and revenue from other product offerings. The increases for the interim periods
from 2001 to 2002 are primarily attributable to the effects of our acquisitions,
to increases in commissions from electronic retailing and to growth in our
regional sports programming networks.
The decrease in franchise fees collected from our cable subscribers for the
three month period from 2001 to 2002 is primarily attributable to the effects of
franchise fees related to high-speed Internet revenue during the three months
ended September 30, 2001. We no longer collect franchise fees for high-speed
Internet service. The
27
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
increase for the nine month period from 2001 to 2002 is attributable to the
increases in our revenues upon which the fees apply.
The increases in operating, selling, general and administrative expense for
the interim periods from 2001 to 2002 are primarily due to the effects of
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. The increase for the nine month
period from 2001 to 2002 is also attributable to the effects of our acquisitions
of cable systems.
Our cost of programming increases as a result of changes in rates,
subscriber growth, additional channel offerings and our acquisitions. We
anticipate the cost of cable programming will increase in the future as cable
programming rates increase and additional sources of cable programming become
available.
Commerce (QVC, Inc. and Subsidiaries) Three Months Ended
September 30, Increase
2002 2001 $ %
--------- --------- --------- --------
Net sales from electronic retailing.......................... $1,011.8 $895.1 $116.7 13.0%
Cost of goods sold from electronic retailing................. 643.1 573.8 69.3 12.1
Operating, selling, general and administrative
expenses................................................ 183.3 167.6 15.7 9.4
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $185.4 $153.7 $31.7 20.6%
========= ========= ========= ========
Gross margin................................................. 36.4% 35.9%
========= =========
Nine Months Ended
September 30, Increase
2002 2001 $ %
--------- --------- --------- --------
Net sales from electronic retailing.......................... $2,999.8 $2,655.1 $344.7 13.0%
Cost of goods sold from electronic retailing................. 1,903.1 1,685.6 217.5 12.9
Operating, selling, general and administrative
expenses................................................ 524.5 483.3 41.2 8.5
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... 572.2 $486.2 $86.0 17.7%
========= ========= ========= ========
Gross margin................................................. 36.6% 36.5%
========= =========
_______________
(a) See footnote (1) on page 25.
Of the $116.7 million and $344.7 million increases in net sales from
electronic retailing for the interim periods from 2001 to 2002, $68.5 million
and $235.1 million are attributable to increases in net sales in the United
States. This growth is principally the result of increases over the prior year
interim period in the average number of homes receiving QVC services and in net
sales per home as follows:
Three Months Nine Months
Ended Ended
September 30, 2002 September 30, 2002
--------------------- --------------------
Increase in average number of homes.......................... 3.6% 3.6%
Increase in net sales per home............................... 4.9% 6.4%
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
28
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
and continued growth in repeat sales to existing customers.
The remaining increases of $48.2 million and $109.6 million in net sales
from electronic retailing for the interim periods from 2001 to 2002 are
primarily attributable to increases in net sales in Germany, Japan, and the
United Kingdom, and to the effects of fluctuations in foreign currency exchange
rates during the periods.
The increases in cost of goods sold are primarily related to the growth in
net sales. The increases in gross margin are primarily due to the effects of
shifts in sales mix.
The increases in operating, selling, general and administrative expenses
are primarily attributable to higher variable costs and personnel costs
associated with the increases in sales volume.
Consolidated Analysis
Interest Expense
The decreases in interest expense for the interim periods from 2001 to 2002
are primarily due to the effects of our net debt repayments during the nine
months ended September 30, 2002.
We anticipate that, for the foreseeable future, interest expense will be a
significant cost to us. We believe we will continue to be able to meet our
obligations through our ability both to generate operating income before
depreciation and amortization and to obtain external financing.
_______________________
Investment Income (Expense)
Investment income (expense) for the interim periods includes the following
(in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
--------- ---------- --------- ---------
Interest and dividend income................................. $8.6 $25.6 $26.1 $60.6
Gains (losses) on sales and exchanges of investments, net.... 0.3 17.2 (100.6) 476.8
Investment impairment losses................................. (5.9) (15.7) (227.2) (954.8)
Reclassification of unrealized gains......................... 237.9 1,330.3
Unrealized (loss) gain on Sprint PCS common stock............ (181.2) 154.5 (1,620.9) 420.1
Mark to market adjustments on derivatives
related to Sprint PCS common stock...................... 138.7 (120.2) 1,309.8 (311.7)
Mark to market adjustments on derivatives and
hedged items............................................ (13.8) 29.0 (147.6) 24.4
--------- ---------- --------- ---------
Investment income (expense)............................. ($53.3) $328.3 ($760.4) $1,045.7
========= ========== ========= =========
29
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
The investment impairment losses for the nine months ended September 30,
2002 and 2001 relate principally to other than temporary declines in our
investment in AT&T.
During the three months ended September 30, 2001, we wrote-off our
investment in Excite@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 the accumulated
unrealized gain of $237.9 million on our investment in Excite@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 Excite@Home common stock.
In connection with the reclassification of our investment in Sprint PCS
from an available for sale security to a trading security, we recorded to
investment income (expense) the accumulated unrealized gain of $1.092 billion on
our investment in Sprint PCS which was previously recorded as a component of
accumulated other comprehensive income (loss).
Equity in Net Losses of Affiliates
The decrease in equity in net losses of affiliates for the three month
period from 2001 to 2002 is primarily attributable to the effects of changes in
the net income or loss of our equity method investees and to the effects of the
decrease in the amortization of equity method goodwill as a result of the
adoption of SFAS No. 142 on January 1, 2002. The increase for the nine month
period from 2001 to 2002 is primarily attributable to the effects of the
operations of our international investees and to the effects of the
consolidation of The Golf Channel in June 2001, offset, in part, by decreases in
the amortization of equity method goodwill.
Other Income (Expense)
On January 1, 2001, we completed our cable systems exchange with Adelphia
Communications Corporation ("Adelphia"). We received cable systems serving
approximately 445,000 subscribers from Adelphia and Adelphia received certain of
our cable systems serving approximately 441,000 subscribers. We recorded to
other income (expense) a pre-tax gain of $1.199 billion, representing the
difference between the estimated fair value of $1.799 billion as of the closing
date of the transaction and our cost basis in the systems exchanged.
Income Tax Expense
The changes in income tax expense for the interim periods from 2001 to 2002
are primarily the result of the effects of changes in our income before taxes,
minority interest and cumulative effect of accounting change.
Minority Interest
The increases in minority interest for the interim periods from 2001 to
2002 are attributable to the effects of changes in the net income or loss of our
less than wholly owned consolidated subsidiaries.
Cumulative Effect of Accounting Change
In connection with the adoption of SFAS No. 142, we completed an initial
transitional impairment assessment of goodwill and other indefinite lived
intangible assets, which consist of our cable and sports franchise rights, and
we determined that no cumulative effect results from adopting this change in
accounting principle.
In connection with the adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, we recognized as income a
cumulative effect of accounting change, net of related income taxes, of $384.5
million during the nine months ended September 30, 2001. The income consisted of
a $400.2 million adjustment to record the debt component of our ZONES at a
discount from its value at maturity and $191.3 million principally related to
the reclassification of gains previously recognized as a component of
accumulated other comprehensive income (loss) on our equity derivative
instruments, net of related deferred income taxes of $207.0 million.
We believe that our operations are not materially affected by inflation.
30
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
ITEM 4. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
(a) Evaluation of 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 quarterly 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.
PART II. OTHER INFORMATION
- -------- -----------------
ITEM 1. LEGAL PROCEEDINGS
Certain 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"). At Home was
a provider of high-speed Internet access and content services, which filed
for bankruptcy protection in September 2001. Filed actions are: (i) class
action lawsuits against the Company, Brian L. Roberts (the Company's
President and a director), AT&T (the former controlling shareholder of At
Home and also a former distributor of the At Home service) and other
corporate and individual defendants in the Superior Court of San Mateo
County, California, alleging breaches of fiduciary duty on the part of the
Company and the other defendants in connection with transactions agreed to
in March 2000 among At Home, the Company, AT&T and Cox Communications, Inc.
("Cox," also an investor in At Home and a former distributor of the At Home
service); (ii) class action lawsuits against the Company, AT&T and others
in the United States District Court for the Southern District of New York,
alleging securities law violations and common law fraud in connection with
disclosures made by At Home in 2001; 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
has ordered the actions consolidated into a single action; an amended
consolidated complaint is required to be served by October 31, 2002.
Since September 2001, certain creditors of At Home have threatened to
commence litigation against AT&T relating to the conduct of AT&T or its
designees on the At Home Board in connection with At Home's declaration of
bankruptcy and At Home's subsequent aborted efforts to dispose of some of
its businesses or assets in the bankruptcy court-supervised auction, as
well as in connection with other aspects of AT&T's relationship with At
Home. No such lawsuits have been filed to date. The plan of liquidation in
the At Home bankruptcy, approved in October 2002, implements a creditor
settlement and provides that all claims of the bankrupt estate of At Home
against AT&T and other shareholders will be transferred to a liquidating
trust funded with at least $12 million, and as much as $17 million, to
finance the litigation of those claims.
Following closing of the AT&T Broadband transaction, the Company will be
contractually liable for 50% of any liabilities of AT&T relating to At
Home, including any resulting from any such pending or threatened
litigation (the "AT&T At Home Potential Liabilities"). AT&T will be liable
for the other 50% of such liabilities.
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 such claims vigorously. In management's
31
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
opinion, the final disposition of such claims is not expected to have a
material adverse effect on the Company's or, following the closing of the
AT&T Broadband transaction, the combined company's, consolidated financial
position, but could possibly be material to the 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.
Management has no basis for any expectation that the Company's 50% share of
the AT&T At Home Potential Liabilities would have a material adverse effect
on the combined company's consolidated financial position or results of
operations, although no assurance can be given that any adverse outcome
would not be material.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to such actions is not expected to have
a material adverse effect on the financial position or results of
operations of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
None.
(b) Reports on Form 8-K:
(i) We filed a Current Report on Form 8-K under Items 5 and 7(c) on
July 10, 2002 announcing shareholder approval of the AT&T
Broadband transaction.
(ii) We filed a Current Report on Form 8-K under Items 7(c) and 9 on
August 1, 2002 submitting to the Securities and Exchange
Commission the Statements Under Oath of the Principal Executive
Officer and the Principal Financial Officers of Comcast Regarding
Facts and Circumstances Relating to Exchange Act Filings.
(iii)We filed a Current Report on Form 8-K under Items 5 and 7(b) on
September 26, 2002 announcing a change in the measurement date
for the AT&T Broadband transaction.
(iv) We filed a Current Report on Form 8-K under Items 5 and 7(b) on
October 4, 2002 announcing the new measurement date for the AT&T
Broadband transaction is established as of the date of the
substantive modification of the merger agreement related to the
change in the "other" consideration being paid.
32
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMCAST CORPORATION
---------------------------------------
/S/ LAWRENCE J. SALVA
---------------------------------------
Lawrence J. Salva
Senior Vice President
(Principal Accounting Officer)
Date: October 30, 2002
33
CERTIFICATIONS
I, Brian L. Roberts, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Comcast Corporation;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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 we 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 the registrant's board of directors (or persons performing the
equivalent function):
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
quarterly report whether or not 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: October 30, 2002
/s/ BRIAN L. ROBERTS
- --------------------------------------------
Name: Brian L. Roberts
Chief Executive Officer
34
I, Lawrence S. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Comcast Corporation;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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 we 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 the registrant's board of directors (or persons performing the
equivalent function):
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
quarterly report whether or not 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: October 30, 2002
/s/ LAWRENCE S. SMITH
- -------------------------------------------
Name: Lawrence S. Smith
Co-Chief Financial Officer
35
I, John R. Alchin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Comcast Corporation;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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 we 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 the registrant's board of directors (or persons performing the
equivalent function):
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
quarterly report whether or not 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: October 30, 2002
/s/ JOHN R. ALCHIN
- --------------------------------------------
Name: John R. Alchin
Co-Chief Financial Officer
36