AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 2003
REGISTRATION NO. 333-102883
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COMCAST CORPORATION
(FORMERLY AT&T COMCAST CORPORATION)
(Exact name of Registrant as specified in its charter)
SEE TABLE OF ADDITIONAL REGISTRANTS
(next page)
PENNSYLVANIA 27-0000798
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19102-2148
(215) 665-1700
(Address, including zip code, and telephone number including area code, of
Registrant's principal executive offices)
ARTHUR R. BLOCK, ESQ.
SENIOR VICE PRESIDENT
COMCAST CORPORATION
PHILADELPHIA, PENNSYLVANIA 19102-2148
(215) 665-1700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
BRUCE K. DALLAS
DAVIS POLK & WARDWELL
1600 EL CAMINO REAL
MENLO PARK, CALIFORNIA 94025
(650) 752-2000
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ] ____________
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(2) REGISTRATION FEE(2)
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Guarantees of debt securities issued by Comcast MO of
Delaware, Inc.(1)......................................... $1,872,128,250 N/A
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(1) This registration statement relates to Comcast Corporation ("Comcast"), and
Comcast Cable Communications, Inc., Comcast Cable Communications Holdings,
Inc., Comcast Cable Holdings, LLC and Comcast MO Group, Inc.'s
(collectively, the "Cable Guarantors") offer to fully and unconditionally
guarantee certain outstanding debt securities of Comcast's indirect
subsidiary Comcast MO of Delaware, Inc. (formerly known as MediaOne of
Delaware, Inc.) ("Continental") in return for the consent of the holders of
the debt securities to an amendment of the indenture under which the debt
securities were issued to conform the covenants to those in Comcast's
publicly traded debt securities and allow, among other things, Continental
to guarantee the outstanding debt securities of the Cable Guarantors.
(2) Previously paid. The registration fee in the amount of $172,236 was
calculated based upon Rule 457(f) based on the average of the bid and ask
prices in the over-the-counter market on January 24, 2003 for $1,700,000 in
aggregate outstanding principal amount of the Continental debt securities
which would be amended and receive the guarantees registered hereby, and was
estimated solely for the purposes of payment of the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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ADDITIONAL REGISTRANTS
COMCAST CABLE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2175755
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19102-2148
(215) 665-1700
(Address, including zip code, and telephone number including area code, of
Registrant's principal executive offices)
ARTHUR R. BLOCK, ESQ.
SENIOR VICE PRESIDENT
COMCAST CORPORATION
PHILADELPHIA, PENNSYLVANIA 19102-2148
(215) 665-1700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COMCAST CABLE COMMUNICATIONS HOLDINGS, INC.
(FORMERLY AT&T BROADBAND CORP.)
(Exact name of registrant as specified in its charter)
DELAWARE 04-3592397
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19102-2148
(215) 665-1700
(Address, including zip code, and telephone number including area code, of
Registrant's principal executive offices)
ARTHUR R. BLOCK, ESQ.
SENIOR VICE PRESIDENT
COMCAST CORPORATION
PHILADELPHIA, PENNSYLVANIA 19102-2148
(215) 665-1700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COMCAST CABLE HOLDINGS, LLC
(FORMERLY AT&T BROADBAND, LLC)
(Exact name of Registrant as specified in its charter)
DELAWARE 84-1260157
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19102-2148
(215) 665-1700
(Address, including zip code, and telephone number including area code, of
registrant's principal executive offices)
ARTHUR R. BLOCK, ESQ.
SENIOR VICE PRESIDENT
COMCAST CORPORATION
PHILADELPHIA, PENNSYLVANIA 19102-2148
(215) 665-1700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COMCAST MO GROUP, INC.
(FORMERLY MEDIAONE GROUP, INC.)
(Exact name of registrant as specified in its charter)
DELAWARE 84-0926774
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19102-2148
(215) 665-1700
(Address, including zip code, and telephone number including area code, of
Registrant's principal executive offices)
ARTHUR R. BLOCK, ESQ.
SENIOR VICE PRESIDENT
COMCAST CORPORATION
PHILADELPHIA, PENNSYLVANIA 19102-2148
(215) 665-1700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS SUBJECT TO COMPLETION ISSUED FEBRUARY 7, 2003
COMCAST CORPORATION
1500 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19102-2148
(215) 665-1700
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CONSENT SOLICITATION AND OFFER TO GUARANTEE
8 7/8% SENIOR DEBENTURES DUE SEPTEMBER 15, 2005 (CUSIP NO. 211177AJ9)
8.30% SENIOR NOTES DUE MAY 15, 2006 (CUSIP NO. 211177AM2)
9% SENIOR DEBENTURES DUE SEPTEMBER 1, 2008 (CUSIP NO. 211177AG5)
9.5% SENIOR DEBENTURES DUE AUGUST 1, 2013 (CUSIP NO. 211177AK6)
OF
COMCAST MO OF DELAWARE, INC.
(FORMERLY KNOWN AS MEDIAONE OF DELAWARE, INC.)
We and a number of our wholly-owned cable subsidiaries named in this
prospectus are offering to fully and unconditionally guarantee the above notes
of our indirect subsidiary Comcast MO of Delaware, Inc. (formerly known as
MediaOne of Delaware, Inc.), referred to in this prospectus as "Continental," in
return for your consent to an amendment to the terms of your notes described in
this prospectus which would change the covenants and events of default as
described in this prospectus in order to be consistent with those contained in
our public debt securities and allow, among other things, Continental to
cross-guarantee ours and the wholly-owned cable subsidiaries' outstanding debt
securities. If we receive the requisite consents, then upon the issuance of the
guarantees your notes will be pari passu with all of our and the wholly-owned
cable subsidiaries' senior unsecured indebtedness, which totals approximately
$25.3 billion at February 7, 2003.
The guarantees will be provided only if consents to the amendment have been
validly submitted and not withdrawn by the holders of record as of the end of
business on February 10, 2003 of more than 50% of the principal amount of each
series of notes by the expiration date. The amendment will amend any series of
notes so long as more than 50% by principal amount of that series consents, so
the terms of your notes may be affected by the amendment even if you do not
consent to the amendment.
THE CONSENT SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
MARCH 11, 2003 UNLESS EXTENDED IN OUR DISCRETION. YOU MAY WITHDRAW ANY CONSENTS
TENDERED UNTIL THE EXPIRATION OF THE CONSENT SOLICITATION. THE CONSENT
SOLICITATION AND OFFER OF THE GUARANTEES IS DESCRIBED IN DETAIL IN THIS
PROSPECTUS AND WE URGE YOU TO READ IT CAREFULLY, INCLUDING THE RISK FACTORS
STARTING ON PAGE 7. OUR BOARD OF DIRECTORS IS NOT, NOR IS THE BOARD OF DIRECTORS
OF CONTINENTAL OR ANY OTHER PERSON, MAKING ANY RECOMMENDATION AS TO WHETHER YOU
SHOULD TENDER YOUR CONSENT TO THE AMENDMENT.
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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
, 2003
[Illustration:
The diagram is a simplified diagram of the corporate structure of Comcast
Corporation and a list of the wholly owned cable subsidiaries that will
guarantee the debt securities listed on the front of the prospectus, referred to
in the prospectus as the "Continental Notes" of Comcast MO of Delaware, Inc.,
formerly known as MediaOne of Delaware, Inc., and referred to in this prospectus
as "Continental," if the holders of a majority in principal amount of each
series of the Continental Notes agree to the amendment to the debt securities
described in the prospectus.
The diagram shows the wholly owned Comcast cable subsidiaries that would
guarantee the debt in addition to Comcast, referred to in the prospectus as the
"Cable Guarantors," if the debt securities consent to the amendment:
- Comcast Cable Communications, Inc., the principal Comcast cable
subsidiary prior to Comcast's acquisition of the AT&T Corp. broadband
business, which would be a cable guarantor.
- Comcast Cable Communications Holdings, Inc., the company holding the
broadband business acquired from AT&T and which will be a cable
guarantor, referred to as "Comcast Cable Communications Holdings."
- Comcast Cable Holdings, LLC, formerly known as AT&T Broadband, LLC,
which would be a cable guarantor.
- Comcast MO Group, Inc., formerly known as MediaOne Group, Inc., which
would be a cable guarantor and which is the indirect parent of
Continental, referred to as "Comcast MO Group."
- A subsidiary of Comcast MO Group named Comcast of Georgia, Inc., which
is the parent of Continental and which would not be one of the cable
guarantors.
- Continental, the issuer of the Continental Notes which would be
guaranteed by Comcast and the cable guarantors if Continental
guarantees the Continental Notes.
- Comcast ABB Overseas Holdings, Inc., which will not be one of the cable
guarantors.
The diagram also shows that Comcast Holdings Corporation a subsidiary of Comcast
and the parent of Comcast Cable Communications, Inc., will not be a cable
guarantor, and that Comcast has other non-cable subsidiaries, and that the cable
guarantors have various operating subsidiaries which will not guarantee the
Continental Notes.
End of illustration.]
TABLE OF CONTENTS
PAGE
----
Summary..................................................... 1
Risk Factors................................................ 7
Special Note Regarding Forward-Looking Statements........... 15
Ratios of Earnings to Fixed Charges......................... 16
Unaudited Pro Forma Financial Statements of Comcast
Corporation............................................... 18
Selected Financial Data of Comcast Holdings................. 29
Selected Financial Data of AT&T Broadband Group............. 31
Selected Financial Data of Comcast MO of Delaware, Inc...... 32
Description of the Consent Solicitation and the Offer to
Guarantee................................................. 33
Description of the Cable Guarantees and New Covenants....... 40
Description of the Continental Notes........................ 46
Description of AT&T Broadband Acquisition................... 65
Legal Matters............................................... 73
Experts..................................................... 73
Available Information....................................... 74
Incorporation of Certain Documents by Reference............. 74
You should rely only on information contained in this prospectus. No one is
authorized to provide you with information that is different from that contained
in this prospectus. We do not intend the contents of any websites referred to in
this prospectus to be part of this prospectus.
We are offering the guarantees and soliciting consents with respect to the
notes described in this prospectus only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only as
of its date regardless of the time of delivery of this prospectus or any grant
of the guarantees.
In this prospectus, we refer to
- Comcast Corporation (formerly known as AT&T Comcast Corporation) as
"Comcast" or "we," "us," "our" or comparable terms;
- Comcast MO of Delaware, Inc. (formerly known as MediaOne of Delaware,
Inc.) as "Continental";
- Comcast Holdings Corporation (formerly known as Comcast Corporation) as
"Comcast Holdings";
- Comcast Cable Communications, Inc. as "Comcast Cable";
- Comcast Cable Communications Holdings, Inc. (formerly known as AT&T
Broadband Corp.) as "Comcast Cable Communications Holdings";
- Comcast Cable Holdings, LLC (formerly known as AT&T Broadband, LLC) as
"Comcast Cable Holdings";
- Comcast MO Group, Inc. (formerly known as MediaOne Group, Inc.) as
"Comcast MO Group"; and
- Comcast Cable, Comcast Cable Communications Holdings, Comcast Cable
Holdings and Comcast MO Group collectively as the "Cable Guarantors."
i
SUMMARY
THE CONSENT SOLICITATION AND OFFER TO GUARANTEE
We and a number of our wholly-owned cable subsidiaries named in this
prospectus, referred to in this prospectus as the "cable guarantors," are
offering to fully and unconditionally guarantee the notes of our indirect
subsidiary Comcast MO of Delaware, Inc. (formerly known as MediaOne of Delaware,
Inc.), referred to in this prospectus as "Continental," in return for your
consent to an amendment to the terms of your notes which would change the
covenants and events of default as described in this prospectus to be consistent
with those contained in our public debt securities and allow, among other
things, Continental to cross-guarantee ours and the cable guarantors'
outstanding debt securities. Upon the issuance of the guarantees your notes
would be pari passu with all of our and the cable guarantors' senior and
unsecured indebtedness, which totals approximately $25.3 billion at February 7,
2003.
The guarantees will be provided only if consents to the amendment have been
validly submitted and not withdrawn by the holders of record as of the end of
business on February 10, 2003 of more than 50% of the principal amount of each
series of notes by the expiration date. The amendment will amend any series of
notes so long as more than 50% by principal amount of that series consents and
the guarantees are provided, so the terms of your notes may be affected by the
amendment even if you do not consent to the amendment. See "Description of the
Consent Solicitation and Offer to Guarantee" for a more complete description of
the consent solicitation and the amendment for which consent is being sought.
THE CONSENT SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
MARCH 11, 2003 UNLESS EXTENDED IN OUR DISCRETION. WE WILL ANNOUNCE ANY EXTENSION
OF THE CONSENT SOLICITATION BY MEANS OF A PRESS RELEASE NO LATER THAN 9:00 A.M.,
NEW YORK CITY TIME, THE NEXT BUSINESS DAY AFTER EXPIRATION OF THE CONSENT
SOLICITATION.
IN ORDER TO SUBMIT YOUR CONSENT, YOU MUST FILL OUT THE FORM OF CONSENT
ACCOMPANYING THIS PROSPECTUS AND FAX OR MAIL A COPY TO THE CONSENT AGENT SO THAT
IT IS RECEIVED AS SET FORTH BELOW PRIOR TO THE EXPIRATION OF THE CONSENT
SOLICITATION:
THE BANK OF NEW YORK
CORPORATE TRUST REORGANIZATION UNIT
101 BARCLAY STREET, 7E
NEW YORK, NEW YORK 10286
ATTN: WILLIAM BUCKLEY
TOLL FREE: (800) 254-2826
TELEPHONE: (212) 815-5788
FACSIMILE: (212) 298-1915
YOU MAY WITHDRAW ANY CONSENTS TENDERED UNTIL THE EXPIRATION OF THE CONSENT
SOLICITATION.
We reserve the right to determine whether to accept any of the consents we
determine have not been validly tendered, and to amend, extend or otherwise
interpret or modify the terms of this consent solicitation. We will comply with
applicable laws that require us to extend the period during which consents may
be tendered or withdrawn as a result of changes in the terms of or information
relating to the consent solicitation. OUR BOARD OF DIRECTORS IS NOT, NOR IS THE
BOARD OF DIRECTORS OF COMCAST, CONTINENTAL OR ANY OTHER PERSON, MAKING ANY
RECOMMENDATION AS TO WHETHER YOU SHOULD TENDER YOUR CONSENT TO THE AMENDMENT.
1
COMCAST CORPORATION
We were formed through the acquisition on November 18, 2002 by Comcast
Holdings Corporation (formerly known as Comcast Corporation) of the broadband
business of AT&T Corp. We believe that combining the strengths of these
businesses will create the world's premier broadband company.
We are principally involved in three lines of business through our
wholly-owned subsidiaries:
- Cable -- through the development, management and operation of broadband
communications networks and regional sports programming networks,
- Commerce -- through QVC, our electronic retailing subsidiary; and
- Content -- through our consolidated subsidiaries, Comcast-Spectacor, E!
Entertainment Television, The Golf Channel, Outdoor Life Network and G4
Media, and through our other programming investments.
The transactions which created Comcast were consummated on November 18,
2002 in several steps. First, AT&T transferred to Comcast Cable Communications
Holdings substantially all the assets, liabilities and businesses represented by
AT&T Broadband Group, which was the integrated broadband business of AT&T.
Second, AT&T spun off Comcast Cable Communications Holdings to its shareholders.
Third, Comcast Holdings and Comcast Cable Communications Holdings each merged
with a different, wholly-owned subsidiary of ours, and Comcast Holdings and AT&T
shareholders received our shares.
For a description of our business, financial condition, results of
operations and other important information regarding us, see our and Comcast
Holdings' filings with the SEC incorporated by reference in this prospectus. For
a description of certain continuing obligations and risks related to the AT&T
Broadband acquisition, see "Description of AT&T Broadband Acquisition," and
"Risk Factors -- Risks Relating to the AT&T Broadband Acquisition," as well as
our and Comcast Holdings' filings with the SEC incorporated by reference in this
prospectus. For instructions on how to find copies of these and our other
filings incorporated by reference in this prospectus, see "Available
Information."
We are a Pennsylvania corporation incorporated in 2001. Our principal
executive office is located at 1500 Market Street, Philadelphia, Pennsylvania
19102-2148. Our telephone number is (215) 665-1700. The address of our web site
is www.comcast.com.
CONTINENTAL AND THE CONTINENTAL NOTES
Continental represents the former Continental Cablevision, Inc. cable
business. Continental is an indirect wholly owned subsidiary of Comcast MO
Group, Inc., one of the cable guarantors, which we refer to in this prospectus
as "Comcast MO Group." Continental provides cable television, high-speed cable
Internet services and communications services over its broadband networks
nationwide. At or for the nine month period ended September 30, 2002,
Continental and its subsidiaries:
- owned and operated cable systems aggregating approximately 4.2 million
analog video subscribers;
- had approximately $2.3 billion in combined revenue;
- had approximately $19.5 billion in net loss; and
- had debt of approximately $1.9 billion.
Continental is a Delaware corporation incorporated in 1996. Its principal
executive office, telephone number and web site address are the same as ours.
2
THE CONTINENTAL NOTES
The consent solicitation relates to Continental's outstanding
$1,700,000,000 in aggregate principal amount of debt securities comprised of its
- $275 million in principal amount of 8 7/8% Senior Debentures Due
September 15, 2005 (CUSIP No. 211177AJ9), maturing on September 15, 2005,
with interest payable semiannually on each March 15 and September 15 to
holders of record on the preceding March 1 and September 1;
- $600 million in principal amount of 8.30% Senior Notes Due May 15, 2006
(CUSIP No. 211177AM2) maturing on May 15, 2006, with interest payable
semiannually on each May 15 and November 15 to holders of record on the
preceding May 1 and November 1;
- $300 million in principal amount of 9% Senior Debentures Due September 1,
2008 (CUSIP No. 211177AG5), maturing on September 1, 2008, with interest
payable semiannually on each March 1 and September 1 to holders of record
on the preceding February 15 and August 15; and
- $525 million in principal amount of 9.5% Senior Debentures Due August 1,
2013 (CUSIP No. 211177AK6), maturing on August 1, 2013, with interest
payable semiannually on each February 1 and August 1 to holders of record
on the preceding January 15 and July 15; and
We refer in this prospectus to the above debt securities as the
"Continental Notes." The Continental Notes
- rank equally with all of Continental's other unsecured and
unsubordinated debt;
- are obligations only of Continental; and
- are not subject to prepayment at the option of Continental prior to
their maturity, other than the 9.5% Senior Debentures Due August 1,
2013, which may be prepaid at the option of Continental after August
1, 2005.
The Continental Notes contain covenants restricting the actions that
Continental may take. See "Description of the Continental Notes" for a
description of the terms of the Continental Notes, including the restrictive
covenants and the events of default currently applicable to each series of the
Continental Notes which would be changed by the amendment, and "The Amendment"
below for a summary and "Description of the Consent Solicitation -- The
Amendment" for a full description of the proposed changes to the Continental
Notes.
THE CROSS GUARANTEES
To simplify our capital structure and to insure that our traded debt
securities and those of Comcast Cable, Comcast Cable Communications Holdings,
Comcast Cable Holdings and Comcast MO Group will be treated equally, upon
completion of the AT&T Broadband acquisition, we and Comcast Cable, Comcast
Cable Communications Holdings, Comcast Cable Holdings and Comcast MO Group,
which we refer to collectively in this prospectus as the "cable guarantors,"
each fully and unconditionally guaranteed each other's publicly traded debt
securities. We refer to these existing guarantees in this prospectus as the
"cross guarantees." Comcast Holdings did not become a guarantor, and its debt
securities were not guaranteed by the cross guarantees, because we believe that
future investors will be interested in "pure play" debt securities of our cable
communications operations and not Comcast Holdings' commerce and content assets,
such as QVC, E! Entertainment and Comcast Spectacor.
Continental was one of AT&T's cable subsidiaries and was transferred to
Comcast Cable Communications Holdings in the AT&T Broadband acquisition.
Continental did not become a guarantor, and its debt securities were not
guaranteed, because Continental's indentures contain covenants that effectively
prohibit Continental from guaranteeing its affiliates' debt obligations.
3
THE CABLE GUARANTEES
The guarantees offered by this prospectus would be full and unconditional
guarantees of the obligations, including the payment of principal, premium, if
any, and interest, on the Continental Notes by each of us, Comcast Cable,
Comcast Cable Communications Holdings, Comcast Cable Holdings and Comcast MO
Group. We refer to the guarantees offered by this prospectus as the "cable
guarantees."
The cable guarantees do not contain any restrictions on the ability of any
cable guarantor to
- pay dividends or distributions on, or redeem, purchase, acquire, or make
a liquidation payment with respect to, any of that cable guarantor's
capital stock;
- make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of that cable guarantor; or
- consolidate with or merge into or sell all or substantially all its
assets. Upon the sale or disposition of any cable guarantor (whether by
merger, consolidation, the sale of its capital stock or the sale of all
or substantially all of its assets) to any person, that cable guarantor
will be deemed released from all its obligations under its cable
guarantee.
See "Description of the Cable Guarantees and New Covenants."
THE CONTINENTAL CROSS GUARANTEES
If the amendment is approved, the Continental Notes would benefit from the
cable guarantees and Continental will also fully and unconditionally guarantee
the obligations, including the payment of principal, if any, and interest, on
the publicly traded debt securities of ourselves and the cable guarantors, which
we refer to in this prospectus as the "Continental cross-guarantees." The
Continental cross guarantees would be on the same terms as the cable guarantees.
We and the other cable guarantors will grant the cable guarantees with respect
to the Continental Notes promptly after the effective date of the amendment.
To accomplish the cross-guarantees, we may elect to defease Continental's
$100 million in aggregate principal amount of 8.625% Senior Notes Due August 15,
2003 (CUSIP No. 211177AF7). See "Description of the Continental
Notes -- Defeasance."
THE AMENDMENT
The amendment would amend the indentures governing the Continental Notes to
conform the covenants and events of default in the indentures for the
Continental Notes in order to conform them with those contained in our public
debt securities. The changes to the covenants and events of default applicable
to the Continental Notes will only take effect when the Continental Notes
receive the cable guarantees. We refer in this prospectus to the covenants and
events of default as amended which would apply to the Continental Notes if the
amendment is approved when the cable guarantees are granted as the "new
covenants."
The new covenants would restrict or condition ours, the cable guarantors
and Continental's ability to
- grant liens to secure other indebtedness;
- enter into sale-leaseback transactions; and
- consolidate or merge Continental, or sell, convey, transfer, lease, or
otherwise dispose of all or substantially all of its property and assets.
The amendment would also add as events of default under each indenture
- default by any of us or any other cable guarantor in the observance or
performance of any covenant under that indenture or notes outstanding
under that indenture for more than 60 days after written notice thereof
shall have been given to us or such other cable guarantor by the trustee,
or to us or such other cable guarantor and the trustee by the holders of
at least 25% in aggregate principal amount of the notes then outstanding
under that indenture;
4
- any cable guarantee is not (or is claimed by any cable guarantor not to
be) in full force and effect; and
- certain events involving bankruptcy, insolvency or reorganization of us
or any other cable guarantor.
A default under any of our or the cable guarantors' other indebtedness will
not be a default under the indentures.
In addition, the amendment would remove a default under, or the
acceleration of the maturity of, other indebtedness of Continental as an event
of default under the indentures.
The amendment would remove covenants in the indentures which restrict or
condition Continental's ability to
- make specified restricted payments;
- incur additional indebtedness;
- invest in entities other than specified subsidiaries;
- enter into transactions with Continental stockholders and affiliates;
- grant liens to secure other indebtedness;
- effect certain cash repurchases of convertible preferred stock that is no
longer outstanding, or incur indebtedness in connection with certain
equity repurchases, without prepayment of the Continental Notes; or
- consolidate or merge Continental, or sell, convey, transfer, lease, or
otherwise dispose of all or substantially all of its property and assets.
The amendment would also require us to provide the trustee with copies of
our annual reports and the information, documents and other reports we file
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 instead
of providing financial statements for Continental, and provide that all the
Continental Notes not held as physical certificates as of the date of the
amendment generally can only be held in book-entry form through a depositary
except in limited circumstances.
See "Description of the Continental Notes" for more complete descriptions
of the covenants and events of default that currently apply to the Continental
Notes and "Description of the Cable Guarantees and New Covenants" for a more
complete description of the effect of the amendment.
The amendment would allow for the granting of the Continental
cross-guarantees in return for the cable guarantees, notwithstanding any
covenants in the Continental Notes which would otherwise prohibit or condition
the granting of the Continental cross-guarantees.
U.S. FEDERAL INCOME TAX MATTERS
The amendments to the indentures governing the Continental Notes, together
with the provision of the cable guarantees and the grant by Continental of the
Continental cross-guarantees, will not be a taxable event for holders of the
Continental Notes. See "Material U.S. Federal Income Tax Consequences."
THE CABLE GUARANTORS
COMCAST CABLE COMMUNICATIONS, INC.
Comcast Cable is a Delaware corporation incorporated in 1981 and our
indirect wholly-owned subsidiary. Comcast Cable has deployed digital cable
applications and high-speed Internet access service to the vast majority of its
cable communications systems to expand the products available on its broadband
communications networks.
5
COMCAST CABLE COMMUNICATIONS HOLDINGS, INC.
Comcast Cable Communications Holdings is a Delaware corporation (formerly
known as AT&T Broadband Corp.) incorporated in 2001 and our wholly-owned
subsidiary. As part of the AT&T Broadband acquisition, AT&T transferred to
Comcast Cable Communications Holdings substantially all of the assets,
liabilities and businesses represented by AT&T Broadband Group, the integrated
broadband business of AT&T.
COMCAST CABLE HOLDINGS, LLC
Comcast Cable Holdings is a Delaware limited liability company (formerly
known as AT&T Broadband, LLC) formed in 1994. Comcast Cable Holdings is a
wholly-owned subsidiary of Comcast Cable Communications Holdings.
COMCAST MO GROUP, INC.
Comcast MO Group is a Delaware corporation (formerly known as MediaOne
Group, Inc.) incorporated in 1999. Comcast MO Group is a wholly-owned subsidiary
of Comcast Cable Communications Holdings.
Each cable guarantor's principal place of business is 1500 Market Street,
Philadelphia, Pennsylvania 19102-2148.
THE INFORMATION AGENT
We have engaged D.F. King & Co., Inc. as the information agent for the
consent solicitation and offer to guarantee. Questions regarding the consent
solicitation, and requests for additional copies of this prospectus or the
letter of consent or assistance in granting consent with respect to Continental
Notes should be directed to the information agent below.
D.F. King & Co., Inc.
48 Wall Street, 22nd Floor
New York, New York 10005
Banks and Brokers Call Collect:
(212) 269-5550
All Others Call Toll Free:
(866) 868-2409
THE CONSENT AGENT
We have engaged The Bank of New York as the Consent Agent for purposes of
processing tenders and withdrawals of consents in the consent solicitation. The
address and telephone number of the Consent Agent are as follows:
The Bank of New York
Corporate Trust Reorganization Unit
101 Barclay Street, 7E
New York, New York 10286
Attn: William Buckley
Toll Free: (800) 254-2826
Telephone: 212-815-5788
Facsimile: (212) 298-1915
6
RISK FACTORS
RISKS RELATING TO THE CONSENT SOLICITATION AND OFFER TO GUARANTEE
THE NEW COVENANTS WHICH WILL APPLY TO THE CONTINENTAL NOTES ONCE THE
AMENDMENT OF THE COVENANTS IS EFFECTIVE IMPOSE FEWER RESTRICTIONS ON ITS CONDUCT
THAN THE COVENANTS CURRENTLY IN THE CONTINENTAL NOTES.
The new covenants would generally impose fewer restrictions on
Continental's conduct than the covenants currently in the Continental Notes. The
amendment of the covenants may allow Continental to take actions which would
otherwise have been restricted or conditioned, including the incurrence of
indebtedness or transactions with affiliates, and with which you may not agree.
See "Description of the Cable Guarantees and New Covenants" and "Description of
the Continental Notes" for more information about the differences between what
actions are currently restricted by the covenants currently applicable to the
Continental Notes and what actions would be restricted by the covenants as
amended.
RISKS RELATING TO THE AT&T BROADBAND ACQUISITION
WE MAY FAIL TO REALIZE THE ANTICIPATED BENEFITS OF THE AT&T BROADBAND
ACQUISITION.
The AT&T Broadband acquisition combined two companies that have previously
operated separately. We expect to realize cost savings and other financial and
operating benefits as a result of the AT&T Broadband acquisition. However, we
cannot predict with certainty when these cost savings and benefits will occur,
or the extent to which they actually will be achieved. There are a large number
of systems that must be integrated, including management information,
purchasing, accounting and finance, sales, billing, payroll and benefits, and
regulatory compliance. The integration of Comcast Cable and Comcast Cable
Communications Holdings will also require substantial attention from management.
The diversion of management attention and any difficulties associated with
integrating Comcast Cable and Comcast Cable Communications Holdings could have a
material adverse effect on our operating results.
WE WILL HAVE TO ABIDE BY RESTRICTIONS TO PRESERVE THE TAX TREATMENT OF THE
AT&T BROADBAND ACQUISITION.
Because of the limitations imposed by Section 355(e) of the Internal
Revenue Code of 1986, as amended, referred to as the "Code" in this prospectus,
and by contractual agreements with AT&T, our ability and the ability of Comcast
Cable Communications Holdings to engage in specified acquisitions, redeem stock
or issue equity securities will be limited until December 18, 2004. See
"Description of AT&T Broadband Acquisition -- Separation and Distribution
Agreement -- Post-Spin-Off Transactions." These restrictions may limit our
ability to issue equity securities to satisfy our financing needs or to acquire
businesses or assets.
ATYPICAL GOVERNANCE ARRANGEMENTS MAY MAKE IT MORE DIFFICULT FOR OUR
SHAREHOLDERS TO ACT.
In connection with the AT&T Broadband acquisition, we implemented a number
of governance arrangements that are atypical for a large, publicly held
corporation. A number of these arrangements relate to the election of our Board.
The term of our Board will not expire until our 2004 annual meeting of
shareholders. Since our shareholders will not have the right to call special
meetings of shareholders or act by written consent and our directors may be
removed only for cause, our shareholders will not be able to replace our initial
Board members prior to that meeting. After our 2004 annual meeting of
shareholders, our directors will be elected annually. Even then, however, it
will be difficult for one of our shareholders, other than BRCC Holdings LLC, to
elect a slate of directors of its own choosing to our Board. Brian L. Roberts,
our President and Chief Executive Officer, through his control of BRCC Holdings
LLC, holds a 33 1/3% nondilutable voting interest in our stock. In addition, we
adopted a shareholder rights plan upon completion of the AT&T Broadband
acquisition that prevents any holder of our stock, other than any holder of our
Class B common stock or any of such holder's affiliates, from acquiring our
stock representing more than 10% of the voting power with respect to us without
the approval of our Board.
In addition to the governance arrangements relating to our Board, a number
of governance arrangements will make it difficult to replace our senior
management. Upon completion of the AT&T Broadband acquisition, C. Michael
Armstrong, Chairman of the Board and CEO of AT&T, became our Chairman of the
7
Board and Brian L. Roberts, President of Comcast Holdings, became our CEO and
President. After the 2005 annual meeting of our shareholders, Brian L. Roberts
will also be our Chairman of the Board. Prior to the sixth anniversary of our
2004 annual meeting of shareholders, unless Brian L. Roberts ceases to be our
Chairman of the Board or CEO prior to such time, our Chairman of the Board and
CEO will be able to be removed only with the approval of at least 75% of our
entire Board. This supermajority removal requirement makes it unlikely that C.
Michael Armstrong or Brian L. Roberts will be removed from their management
positions.
OUR PRINCIPAL SHAREHOLDER HAS CONSIDERABLE INFLUENCE OVER OUR OPERATIONS.
Brian L. Roberts has significant control over our operations through his
control of BRCC Holdings LLC, which as a result of its ownership of outstanding
shares of our Class B common stock holds a nondilutable 33 1/3% of the combined
voting power of our stock and also has separate approval rights over certain
material transactions involving us. In addition, Brian L. Roberts is our CEO and
President and will, together with our Chairman of the Board, comprise the Office
of the Chairman, our principal executive deliberative body.
THE PERFORMANCE OF AT&T BROADBAND GROUP PRIOR TO THE AT&T BROADBAND
SPIN-OFF MAY NOT BE REPRESENTATIVE OF THE RESULTS OF COMCAST CABLE
COMMUNICATIONS HOLDINGS WITHOUT THE OTHER AT&T BUSINESSES AND THEREFORE IS NOT A
RELIABLE INDICATOR OF ITS FUTURE RESULTS.
AT&T Broadband Group was a fully integrated business unit of AT&T, and as a
result the financial information of AT&T Broadband Group incorporated by
reference in this prospectus was derived from the consolidated financial
statements and accounting records of AT&T and reflects certain assumptions and
allocations. The financial position, results of operations and cash flows of
Comcast Cable Communications Holdings without the other AT&T businesses could
differ from those that would have resulted had its business operated with the
other AT&T businesses.
RISKS RELATING TO OUR BUSINESS
OUR ACTUAL FINANCIAL POSITION AND RESULTS OF OPERATIONS MAY DIFFER
SIGNIFICANTLY AND ADVERSELY FROM THE PRO FORMA AMOUNTS INCLUDED IN THIS
PROSPECTUS.
Our actual financial position and results of operations may differ, perhaps
significantly and adversely, from the pro forma information included in this
prospectus due to a variety of factors, including access to additional
information, changes in value not currently identified and changes in operating
results between the date of the pro forma financial data and the date on which
the AT&T Broadband acquisition was completed.
In addition, in many cases each of Comcast Holdings and AT&T Broadband
Group had long-term agreements, in some cases with the same counterparties, for
the same services and products, such as programming, billing services and
interactive programming guides. It is not clear, in the case of certain services
and products, whether after completion of the AT&T Broadband acquisition each of
the existing agreements continues to apply only to the operations to which they
have historically applied or whether instead one of the two contracts will apply
to the operations of both companies and the other contract will be terminated.
Since these contracts often differ significantly in their terms, resolution of
these contractual issues could cause our actual financial position and results
of operations to differ significantly and adversely from those reflected in the
pro forma financial information included in this prospectus.
PROGRAMMING COSTS ARE INCREASING AND WE MAY NOT HAVE THE ABILITY TO PASS
THESE INCREASES ON TO OUR CUSTOMERS, WHICH WOULD MATERIALLY ADVERSELY AFFECT OUR
CASH FLOW AND OPERATING MARGINS.
Programming costs are expected to be our largest single expense item in the
foreseeable future. In recent years, the cable and satellite video industries
have experienced a rapid increase in the cost of programming, particularly
sports programming. This increase is expected to continue, and we may not be
able to pass programming cost increases on to our customers. The inability to
pass these programming cost increases on to our customers would have a material
adverse impact on our cash flow and operating margins. In addition, as we
upgrade the channel capacity of our systems and add programming to our basic,
expanded basic and digital programming tiers, we may face increased programming
costs, which, in conjunction with the additional
8
market constraints on our ability to pass programming costs on to our customers,
may reduce operating margins.
We also expect to be subject to increasing financial and other demands by
broadcasters to obtain the required consent for the transmission of broadcast
programming to our subscribers. We cannot predict the financial impact of these
negotiations or the effect on our subscribers should we be required to stop
offering this programming.
WE FACE A WIDE RANGE OF COMPETITION IN AREAS SERVED BY OUR CABLE SYSTEMS,
WHICH COULD ADVERSELY AFFECT OUR FUTURE RESULTS OF OPERATIONS.
Our cable communications systems compete with a number of different sources
which provide news, information and entertainment programming to consumers. We
compete directly with program distributors and other companies that use
satellites, build competing cable systems in the same communities we serve or
otherwise provide programming and other communications services to our
subscribers and potential subscribers. In addition, federal law now allows local
telephone companies to provide directly to subscribers a wide variety of
services that are competitive with cable communications services. Some local
telephone companies provide, or have announced plans to provide, video services
within and outside their telephone service areas through a variety of methods,
including broadband cable networks. Additionally, we will be subject to
competition from telecommunications providers and Internet service providers,
known as ISPs, in connection with offerings of new and advanced services,
including telecommunications and Internet services. This competition may
materially adversely affect our business and operations in the future. In
addition, any increase in vacancy rates in multi-dwelling units has historically
adversely impacted subscriber levels and is expected to do so in the future.
Subscriber levels also have historically demonstrated seasonal fluctuations,
particularly in markets that include major universities.
WE HAVE SUBSTANTIAL CAPITAL REQUIREMENTS WHICH MAY REQUIRE US TO OBTAIN
ADDITIONAL FINANCING THAT MAY BE DIFFICULT TO OBTAIN.
We expect that for some period of time our capital expenditures will
exceed, perhaps significantly, our net cash provided by operating activities.
This may require us to obtain additional financing. We may not be able to obtain
or to obtain on favorable terms the capital necessary to fund the substantial
capital expenditures described below that are required by our strategy and
business plan. A failure to obtain necessary capital or to obtain necessary
capital on favorable terms could have a material adverse effect on us and result
in the delay, change or abandonment of our development or expansion plans.
Historically, AT&T Broadband Group's capital expenditures significantly
exceeded its net cash provided by operations. For the year ended December 31,
2001 and the nine months ended September 30, 2002, AT&T Broadband Group's
capital expenditures exceeded its net cash provided by operations by $3.5
billion and $1.5 billion, respectively. In addition, for the year ended December
31, 2001, Comcast Holdings' capital expenditures exceeded its net cash provided
by operating activities by $952 million.
We anticipate that we will upgrade a significant portion of our broadband
systems over the coming years and make other capital investments, including with
respect to our advanced services. In 2003, we anticipate that the combined
Comcast Cable Communications Holdings and Comcast Cable cable systems will incur
capital expenditures of approximately $4.2 billion to $4.5 billion. We are
expected to incur substantial capital expenditures in the years subsequent to
2003. However, the actual amount of the funds required for capital expenditures
cannot be determined with precision at this time. Capital is expected to be used
to upgrade and rebuild network systems to expand bandwidth capacity and add
two-way capability so that it may offer advanced services. In addition, capital
expenditures are expected to be used to acquire equipment, such as set-top
boxes, cable modems and telephone equipment, and to pay for installation costs
for additional video and advanced services customers. There can be no assurance
that these amounts will be sufficient to accomplish the planned system upgrades,
equipment acquisitions and expansion.
9
SOME OF OUR SUBSIDIARIES MAY BE SUBJECT TO LONG-TERM EXCLUSIVE AGREEMENTS
THAT MAY LIMIT THEIR FUTURE OPERATING FLEXIBILITY AND MATERIALLY ADVERSELY
AFFECT OUR FINANCIAL RESULTS.
Some of the entities formerly attributed to AT&T Broadband Group which are
now our subsidiaries may be subject to long-term agreements relating to
significant aspects of their operations, including long-term agreements for
video programming, audio programming, electronic program guides, billing and
other services. For example, Comcast Cable Holdings (formerly known as AT&T
Broadband, LLC), and AT&T Broadband Group's subsidiary, Satellite Services,
Inc., had entered into to an affiliation term sheet with Starz Encore Group LLC,
an affiliate of Liberty Media, which extended to 2022 and provided for fixed
price payments, subject to adjustment for various factors including inflation,
and purported to require Comcast Cable Communications Holdings to pay two-thirds
of Starz Encore Group's programming costs above levels designated in the term
sheet. Satellite Services, Inc. also had entered into a ten-year agreement with
TV Guide in January 1999 for interactive program guide services, which
designated TV Guide Interactive as the interactive programming guide for Comcast
Cable Communications Holdings' systems. Furthermore, a subsidiary of Comcast
Cable Communications Holdings had entered into an agreement that extended until
December 31, 2013 under which it purchased certain billing services from CSG
Systems, Inc. The price, terms and conditions of the Starz Encore term sheet,
the TV Guide agreement and the CSG agreement may not reflect current market
terms and if one or more of these arrangements were to continue to apply to
Comcast Cable Communications Holdings after completion of the AT&T Broadband
acquisition, they may materially adversely impact our financial performance.
By letter dated May 29, 2001, AT&T Broadband Group disputed the
enforceability of the excess programming pass-through provisions of the Starz
Encore term sheet and questioned the validity of the term sheet as a whole. In
July 2001, Starz Encore Group filed a lawsuit in Colorado state court seeking
payment of alleged 2001 excess programming costs and a declaration that the term
sheet is a binding and enforceable contract. Since the lawsuit was filed, there
has been no significant activity in the case, except that AT&T Broadband Group
and Starz Encore Group agreed in 2001 to settle Starz Encore Group's claim for
the alleged 2001 excess programming costs. In December 2002, Starz Encore Group
filed a motion for leave to amend its complaint (discussed below), and in
January 2003, the parties participated in a court-ordered mediation session that
failed to resolve the action. Activity in the lawsuit is expected to resume
beginning January 31, 2003.
On November 18, 2002, Comcast and Comcast Holdings filed suit against Starz
Encore Group in the United States District Court for the Eastern District of
Pennsylvania. Comcast and Comcast Holdings seek a declaratory judgment that,
pursuant to their rights under a March 17, 1999 contract with a predecessor of
Starz Encore Group, upon the completion of the AT&T Broadband acquisition that
contract now provides the terms under which Starz Encore Group programming is
acquired and transmitted by the Comcast Cable Communications Holdings' systems.
In January 2003, Starz Encore Group filed a motion seeking dismissal of the
Pennsylvania lawsuit in favor of the lawsuit already filed by Starz Encore Group
against AT&T Broadband Group in Colorado. Comcast and Comcast Holdings intend to
oppose the motion.
In December 2002, Starz Encore Group filed a motion for leave to amend its
complaint in its lawsuit against AT&T Broadband Group. The amended complaint
seeks to assert new claims against AT&T Broadband Group and, in addition, would
add Comcast and Comcast Holdings as defendants. The new claims in the amended
complaint relate to the lawsuit filed by Comcast and Comcast Holdings against
Starz Encore Group in Pennsylvania and the positions taken by AT&T Broadband
Group, Comcast and Comcast Holdings with respect to the terms under which Starz
Encore Group programming is acquired and transmitted by the Comcast Cable
Communications Holdings' systems.
On March 13, 2002, AT&T Broadband Group informed CSG Systems, Inc. that
AT&T Broadband Group was considering the initiation of an arbitration against
CSG relating to a Master Subscriber Management System Agreement that the two
companies entered into in 1997. Pursuant to the Master Agreement, CSG provides
billing support to AT&T Broadband Group. On May 10, 2002, AT&T Broadband Group
filed a demand for arbitration against CSG before the American Arbitration
Association. On May 31,
10
2002, CSG answered AT&T Broadband Group's arbitration demand and asserted
various counterclaims. On June 21, 2002, CSG filed a lawsuit against Comcast
Holdings in federal court located in Denver, Colorado asserting claims related
to the Master Agreement and the pending arbitration. On November 4, 2002, CSG
withdrew its complaint against Comcast Holdings without prejudice. On November
15, 2002, Comcast, Comcast Holdings, and Comcast Cable initiated a lawsuit
against CSG in federal court located in Philadelphia, Pennsylvania. Comcast,
Comcast Holdings and Comcast Cable assert that systems owned by Comcast Holdings
are not required to use CSG as a billing service or customer care provider
pursuant to the Master Agreement, and that systems owned by Comcast Cable
Communications Holdings may be added to a billing service agreement between
Comcast Cable and CSG. CSG has moved to dismiss or stay the complaint. In the
event that either the arbitration or this litigation or the settlement thereof
results in the termination of the Master Agreement, Comcast Cable Communications
Holdings may incur significant costs in connection with its replacement of these
customer care and billing services and may experience temporary disruptions to
its operations.
WE ARE SUBJECT TO REGULATION BY FEDERAL, STATE AND LOCAL GOVERNMENTS WHICH
MAY IMPOSE COSTS AND RESTRICTIONS.
The federal, state and local governments extensively regulate the cable
communications industry. We expect that court actions and regulatory proceedings
will refine the rights and obligations of various parties, including the
government, under the Communications Act of 1934, as amended. The results of
these judicial and administrative proceedings may materially affect our business
operations. Local authorities grant us franchises that permit us to operate our
cable systems. We will have to renew or renegotiate these franchises from time
to time. Local franchising authorities often demand concessions or other
commitments as a condition to renewal or transfer, which concessions or other
commitments could be costly to obtain.
WE WILL BE SUBJECT TO ADDITIONAL REGULATORY BURDENS IN CONNECTION WITH THE
PROVISION OF TELECOMMUNICATIONS SERVICES, WHICH COULD CAUSE US TO INCUR
ADDITIONAL COSTS.
We will be subject to risks associated with the regulation of our
telecommunications services by the Federal Communications Commission, or FCC,
and state public utilities commissions, or PUCs. Telecommunications companies,
including companies that have the ability to offer telephone services over the
Internet, generally are subject to significant regulation. This regulation could
materially adversely affect our business operations.
WE MAY FACE INCREASED COMPETITION BECAUSE OF TECHNOLOGICAL ADVANCES AND NEW
REGULATORY REQUIREMENTS, WHICH COULD ADVERSELY AFFECT OUR FUTURE RESULTS OF
OPERATIONS.
Numerous companies, including telephone companies, have introduced Digital
Subscriber Line technology, known as DSL, which provides Internet access to
subscribers at data transmission speeds greater than that of modems over
conventional telephone lines. We expect other advances in communications
technology, as well as changes in the marketplace, to occur in the future. Other
new technologies and services may develop and may compete with services that
cable communications systems offer. The success of these ongoing and future
developments could have a negative impact on our business operations.
In addition, over the past several years, a number of companies, including
telephone companies and ISPs, have asked local, state, and federal governmental
authorities to mandate that cable companies provide capacity on their broadband
infrastructure so that these and others may deliver high speed cable Internet
directly to customers over these cable facilities. Some cable operators have
initiated litigation challenging municipal efforts to unilaterally impose
so-called "open access" requirements. The few court decisions dealing with this
issue have been inconsistent. In connection with their review of the AOL-Time
Warner merger, the FCC and the Federal Trade Commission imposed "open access,"
technical performance, and other requirements related to the merged company's
Internet and Instant Messaging platforms. No similar requirements resulted from
the Justice Department and FCC's review of the AT&T Broadband acquisition.
Although the FCC has issued a declaratory ruling that cable modem service, as it
is currently offered, is properly classified as an interstate information
service that is not subject to common carrier regulation, the FCC is still
considering whether to impose "open access" requirements on these services,
whether certain
11
other regulatory requirements do or should apply to cable modem service, and
whether and to what extent this service may be subject to local franchise
authorities' regulatory requirements or fees. Some local franchise authorities
have initiated litigation to collect fees they claim are owed on the basis of
cable modem service revenues, and at least one franchise authority has sought to
regulate the characteristics and quality of this service. The FCC has also
initiated a proceeding to consider requests that it impose nondiscrimination
obligations on cable operators to facilitate third-parties' provision of
interactive television services.
A number of cable operators have reached agreements to provide unaffiliated
ISPs access to their cable systems in the absence of regulatory requirements.
Comcast Holdings reached an "access" agreement with United Online and Comcast
Cable Communications Holdings reached an "access" agreement with each of
Earthlink, Internet Central, Connected Data Systems, Galaxy Internet Services
and Connect Plus International. In connection with Comcast Holdings' and AT&T's
agreement with AOL Time Warner providing for the restructuring of Time Warner
Entertainment Company L.P., or TWE, Comcast Holdings and Comcast Cable
Communications will enter into a three-year non-exclusive access agreement with
AOL Time Warner. Under the terms of the exchange agreement that Comcast Holdings
and AT&T have executed with Microsoft, now that the AT&T Broadband acquisition
has been consummated, we will be required, with respect to each such agreement
with another ISP, to offer Microsoft an access agreement on terms no less
favorable than those provided to the other ISP with respect to the specific
cable systems covered under the agreement with the other ISP. Notwithstanding
the foregoing, there can be no assurance that regulatory authorities will not
impose "open access" or similar requirements on us as part of an industry-wide
requirement. Such requirements could have a negative impact on our business
operations.
WE, THROUGH COMCAST CABLE COMMUNICATIONS HOLDINGS, HAVE SUBSTANTIAL
ECONOMIC INTERESTS IN JOINT VENTURES IN WHICH WE HAVE LIMITED MANAGEMENT RIGHTS.
Comcast Cable Communications Holdings is a partner in several large joint
ventures, such as TWE, Texas Cable Partners and Kansas City Cable Partners, in
which it has a substantial economic interest but does not have substantial
control with regard to management policies or the selection of management. These
joint ventures may be managed in a manner contrary to our best interests, and
the value of our investment in these joint ventures, through Comcast Cable
Communications Holdings, may be affected by management policies that are
determined without our input or over our objections. Comcast Cable
Communications Holdings has cable partnerships with each of AOL Time Warner,
Insight Communications, Adelphia Communications, Midcontinent and US Cable.
Materially adverse financial or other developments with respect to a partner
could adversely impact the applicable partnership.
On June 25, 2002, three cable partnerships between subsidiaries of AT&T and
subsidiaries of Adelphia Communications Corporation commenced bankruptcy
proceedings by the filing of Chapter 11 petitions in the Bankruptcy Court for
the Southern District of New York at about the same time that other Adelphia
entities filed for bankruptcy. These partnerships are: Century-TCI California
Communications, L.P. (in which Comcast Cable Communications Holdings holds a 25%
interest through a wholly-owned subsidiary and which as of December 31, 2001 had
an aggregate of approximately 775,000 subscribers in the greater Los Angeles,
California area), Parnassos Communications, L.P. (in which Comcast Cable
Communications Holdings holds a 33.33% interest through a wholly-owned
subsidiary) and Western NY Cablevision, L.P. (in which Comcast Cable
Communications Holdings holds a 33.33% interest through a wholly-owned
subsidiary and which as of December 31, 2001 had, together with Parnassos
Communications, L.P., an aggregate of approximately 470,000 subscribers in
Buffalo, New York and the surrounding areas). We cannot predict what the outcome
of these proceedings will be on any of the partnerships and the proceedings may
have a material adverse impact on the partnerships. AT&T Broadband Group
recorded an impairment charge through net losses related to equity investments
of $143 million, net of taxes of $90 million, in connection with the bankruptcy
proceedings of the Adelphia partnerships.
WE, THROUGH COMCAST HOLDINGS AND COMCAST CABLE COMMUNICATIONS HOLDINGS,
FACE RISKS ARISING FROM THEIR AND AT&T'S RELATIONSHIP WITH AT HOME CORPORATION.
Through a subsidiary, AT&T owns approximately 23% of the outstanding common
stock and 74% of the voting power of the outstanding common stock of At Home
Corporation, which filed for bankruptcy protection
12
on September 28, 2001. Until October 1, 2001, AT&T appointed a majority of At
Home's directors and it now appoints none. Since September 28, 2001, some
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 a bankruptcy
court-supervised auction, as well as in connection with other aspects of AT&T's
relationship with At Home. On May 1, 2002, At Home filed a proposed plan of
liquidation pursuant to Chapter 11 of the U.S. Bankruptcy Code, which, as
modified on June 18, 2002, among other things, provides that all claims and
causes of action of the bankrupt estate of At Home against AT&T and other
shareholders will be transferred to a liquidating trust owned ratably by the
bondholders of At Home and funded with at least $12 million, and as much as $17
million, to finance the litigation of those claims. The plan was approved by the
bankruptcy court on August 15, 2002 and became effective on or about October 1,
2002. On November 7, 2002, a complaint was filed by the bondholders' liquidating
trust against AT&T and certain of its senior officers in California state court
alleging various breaches of fiduciary duties, misappropriation of trade secrets
and other causes of action in connection with the transactions in March 2000
described below, and prior and subsequent alleged conduct on the part of the
defendants. On January 10, 2003, the defendants moved to stay or dismiss the
complaint on the ground that California is an inconvenient venue and that the
action should have been brought in the Southern District of New York, where the
prior filed shareholder suit described below is pending. Any liabilities
resulting from this lawsuit would be shared equally between AT&T and Comcast
Cable Communications Holdings.
On November 15, 2002, the bondholders' liquidating trust filed a separate
action against AT&T in the District Court for the Northern District of
California, alleging that AT&T infringes an At Home patent by using its
broadband distribution and high-speed Internet backbone networks and equipment.
On January 8, 2003, AT&T moved to transfer this action to the Southern District
of New York as being a more convenient venue. Due to the vague allegations in
the complaint, it is not clear whether any liability resulting from this lawsuit
would be shared between AT&T and Comcast Cable Communications Holdings and, if
so, in what proportions.
In addition, purported class action lawsuits have been filed in California
state court on behalf of At Home shareholders against AT&T, At Home, Comcast
Holdings and former directors of At Home. The lawsuits claim that the defendants
breached fiduciary obligations of care, candor and loyalty in connection with a
transaction announced in March 2000 in which, among other things, AT&T, Cox
Communications Inc. and Comcast Holdings agreed to extend existing distribution
agreements, the At Home Board was reorganized, and AT&T agreed to give Cox and
Comcast Holdings rights to sell their At Home shares to AT&T. These actions have
been consolidated by the court. At the request of At Home's bondholders, on
September 10, 2002, the bankruptcy court ruled that the claims asserted in these
actions belong to At Home's bankruptcy estate, not its shareholders, that the
actions must be dismissed, and that the claims in the actions are to be
prosecuted by the At Home bondholders' liquidating trust under the confirmed
Chapter 11 plan. The plaintiffs have appealed this order, and the appeal is
pending. The liability for these lawsuits would be shared equally between AT&T
and Comcast Cable Communications Holdings.
On September 23, 2002, the Official Committee of Unsecured Bondholders of
At Home filed suit in the United States District Court for the District of
Delaware against Comcast Holdings, Cox, Brian L. Roberts in his capacity as a
director of At Home, and other corporate and individual defendants. The
complaint seeks alleged "short-swing" profits under Section 16(b) of the
Securities Exchange Act of 1934 in connection with At Home put options Comcast
Holdings and Cox entered into with AT&T. The complaint alleges a total of at
least $600 million in damages in the aggregate from Comcast Holdings and Cox in
connection with this claim. The complaint also seeks damages in an unspecified
amount for alleged breaches of fiduciary duty by the defendants in connection
with transactions entered into among AT&T, At Home, Comcast Holdings and Cox. On
November 12, 2002, the defendants moved to dismiss the complaint or,
alternatively, to transfer the action to the Southern District of New York, on
the grounds that Delaware is an improper and inconvenient venue. We believe this
suit is without merit and intend to vigorously defend ourselves in the action.
In March 2002, three purported class actions were filed in the United
States District Court for the Southern District of New York against, among
others, AT&T and certain of its senior officers alleging
13
violations of the federal securities laws in connection with disclosures made by
At Home in the period from March 28, 2000 through August 28, 2001. These actions
have been consolidated. On November 8, 2002, a consolidated class action
complaint was filed in this action. The consolidated class action complaint also
names as defendants Comcast Cable Communications, Inc. and Brian L. Roberts, in
his capacity as a director of At Home. In addition to any direct liability from
the claims against Comcast Cable Communications, Inc., any liabilities resulting
from the claims against AT&T in this lawsuit would be shared equally between
AT&T and Comcast Cable Communications Holdings.
OUR INDENTURES DO NOT RESTRICT OUR ABILITY TO INCUR ADDITIONAL
INDEBTEDNESS, WHICH COULD MAKE OUR DEBT SECURITIES MORE RISKY IN THE FUTURE.
As of September 30, 2002, our consolidated indebtedness on a pro forma
basis to reflect the closing of the AT&T Broadband acquisition, and our and
Comcast Cable Communications Holdings' borrowings under the New Credit Facility
on the closing date, and the issuance and sale in January 2003 of approximately
$600 million of aggregate principal amount of our 5.85% Notes Due 2010 and $900
million aggregate principal amount of our 6.50% Notes Due 2015 to repay
short-term indebtedness incurred in connection with the closing of the AT&T
Broadband acquisition, was approximately $32.5 billion, of which $30.3 billion
was issued by our subsidiaries. As of September 30, 2002, our pro forma
consolidated stockholders' equity was approximately $38.5 billion. The
indentures that govern the terms of our debt do not restrict our ability or our
subsidiaries' ability to incur additional indebtedness. The degree to which we
incur additional debt could have important consequences to holders of the
securities, including:
- limiting our ability to obtain any necessary financing in the future for
working capital, capital expenditures, debt service requirements or other
purposes;
- requiring us to dedicate a substantial portion of our cash flows from
operations to the payment of indebtedness and not for other purposes,
such as working capital and capital expenditures;
- limiting our flexibility to plan for, or react to, changes in our
businesses;
- making us more indebted than some of our competitors, which may place us
at a competitive disadvantage; and
- making us more vulnerable to a downturn in our businesses.
14
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Our businesses may be affected by, among other things:
- changes in laws and regulations;
- changes in the competitive environment;
- changes in technology;
- industry consolidation and mergers;
- franchise-related matters;
- market conditions that may adversely affect the availability of debt and
equity financing for working capital, capital expenditures or other
purposes;
- demand for the programming content we distribute or the willingness of
other video program providers to carry our content; and
- general economic conditions.
In this prospectus and in the documents we incorporate by reference, we
state our expectations of future events and 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 under "Risk Factors" above. Those
factors may cause our actual results to differ materially from any of our
forward-looking statements.
15
RATIOS OF EARNINGS TO FIXED CHARGES
FOR THE NINE FOR THE YEARS ENDED DECEMBER 31,
MONTHS ENDED -------------------------------------
SEPTEMBER 30, 2002 2001 2000 1999 1998 1997
------------------ ----- ----- ----- ----- -----
Comcast(a)............................. 1.03x 2.20x 5.93x 3.30x 5.37x 1.21x
Comcast Cable(b)....................... 2.35x (c) 1.76x (c) (c) (c)
Comcast Cable Communications
Holdings(d).......................... (e) (e) (e) (e) -- --
Comcast Cable Holdings(f).............. (g) (g) (g) (g) -- --
Comcast MO Group(f).................... 2.53x 4.96x (h) -- -- --
Continental(i)......................... (j) (j) (j) -- -- --
- ---------------
(a) We became the parent of Comcast Holdings and Comcast Cable Communications
Holdings on November 18, 2002 in connection with the consummation of the
merger of Comcast Holdings and Comcast Cable Communications Holdings with
our subsidiaries. Because Comcast Holdings is our predecessor, our
historical ratios are the same as Comcast Holdings' historical ratios. For
purposes of our ratio of earnings to fixed charges, earnings consist of
income (loss) from continuing operations before income taxes, cumulative
effect of accounting changes, minority interest, equity in net (income)
losses of affiliates and fixed charges. Fixed charges consist of interest
expense and capitalized interest.
(b) For purposes of Comcast Cable's ratio of earnings to fixed charges, earnings
consist of income (loss) from continuing operations before income taxes,
cumulative effect of accounting changes, minority interest, equity in net
(income) losses of affiliates and fixed charges. Fixed charges consist of
interest expense and interest expense on notes payable to affiliates. As
described in Note 2 to Comcast Cable's unaudited condensed consolidated
financial statements for the quarter ended September 30, 2002, which are
incorporated herein by reference, Comcast Cable adopted the provisions of
SFAS No. 145 on April 1, 2002. In connection with the adoption of SFAS No.
145, amounts previously reported net of taxes as extraordinary items have
been reclassified to interest expense and income taxes. The table above
gives effect to reclassifications of interest expense of $10.9 million, $9.5
million, $0.2 million and $25.7 million for the years ended December 31,
2000, 1999, 1998 and 1997, respectively.
In addition, as described in Note 2 to Comcast Cable's unaudited condensed
consolidated financial statements for the quarter ended September 30, 2002,
which are incorporated herein by reference, Comcast Cable adopted EITF 01-14
effective January 1, 2002. Upon adoption, Comcast Cable reclassified
franchise fees collected from cable subscribers from a reduction of selling,
general and administrative expenses to a component of service revenues in
its consolidated statement of operations. The impact of adopting EITF 01-14
was to increase service revenues and selling, general and administrative
expenses by $189.4 million, $149.9 million, $103.4 million, $94.7 million
and $72.8 million for the years ended December 31, 2001, 2000, 1999, 1998
and 1997, respectively. This reclassification had no impact on Comcast
Cable's reported operating income (loss) or financial condition, or on its
ratios of earnings to fixed charges.
(c) For the years ended December 31, 2001, 1999, 1998 and 1997, Comcast Cable's
earnings, as defined above, were inadequate to cover fixed charges by $390.0
million, $408.7 million, $149.8 million and $202.4 million, respectively.
(d) From its date of inception on December 14, 2001 through September 30, 2002,
Comcast Cable Communications Holdings had no operations. On November 18,
2002, AT&T contributed its broadband communications business, referred to as
the AT&T Broadband Group in this prospectus, to Comcast Cable Communications
Holdings. Because AT&T Broadband Group is the predecessor of Comcast Cable
Communications Holdings, Comcast Cable Communications Holdings' historical
ratios are the same as AT&T Broadband Group's historical ratios. For the
purpose of calculating the ratio of earnings to fixed charges, earnings is
calculated by adding fixed charges excluding capitalized interest to income
from continuing operations before income taxes, and by adding distributions
of less-than-fifty-percent-owned affiliates. By fixed charges we mean total
interest, including capitalized interest, dividend
16
requirements on preferred stock and interest on trust preferred securities
and a portion of rentals, which we believe is representative of the interest
factor of our rental expense, as applicable.
(e) Comcast Cable Communications Holdings' loss for the nine months ended
September 30, 2002, the years ended December 31, 2001 and 2000, and the ten
month period ended December 31, 1999 was inadequate to cover fixed charges,
dividend requirements on subsidiary preferred stock and interest on trust
preferred securities in the amount of $19.2 billion, $9.2 billion, $10.4
billion and $2.0 billion, respectively.
(f) For the purpose of Comcast Cable Holdings' and Comcast MO Group's ratio of
earnings to fixed charges, earnings is calculated by adding fixed charges
excluding capitalized interest to income from continuing operations before
income taxes, and by adding distributions of less-than-fifty-percent-owned
affiliates. Fixed charges consist of total interest, including capitalized
interest, dividend requirements on preferred stock and interest on trust
preferred securities and a portion of rentals, which Comcast Cable Holdings
and Comcast MO Group believe is representative of the interest factor of
their rental expense, as applicable.
(g) Comcast Cable Holdings' loss for the nine months ended September 30, 2002,
the years ended December 31, 2001 and 2000, and the ten month period ended
December 31, 1999 was inadequate to cover fixed charges in the amount of
$1.1 billion, $1.5 billion, $1.9 billion and $1.3 billion, respectively.
(h) Comcast MO Group's loss for the period ended December 31, 2000 was
inadequate to cover fixed charges in the amount of $0.4 billion.
(i) For purposes of calculating Continental's ratio of earnings to fixed
charges, earnings consist of income (loss) from continuing operations before
income tax and cumulative effect of accounting change and fixed charges.
Fixed charges consist of interest expense and capitalized interest.
(j) For the nine months ended September 30, 2002, the year ended December 31,
2001 and the period ended December 31, 2000, Continental's earnings, as
defined above, were inadequate to cover fixed charges by $4.1 billion, $1.0
billion and $0.4 billion, respectively.
17
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS OF COMCAST CORPORATION
The following Unaudited Pro Forma Combined Condensed Balance Sheet of
Comcast as of September 30, 2002 and the Unaudited Pro Forma Combined Condensed
Statements of Operations of Comcast for the nine months ended September 30, 2002
and the year ended December 31, 2001 give effect to the AT&T Broadband
acquisition. The pro forma financial statements account for the AT&T Broadband
acquisition under the purchase method of accounting.
The Unaudited Pro Forma Combined Condensed Balance Sheet assumes the AT&T
Broadband acquisition occurred on September 30, 2002. The Unaudited Pro Forma
Combined Condensed Statements of Operations assume the AT&T Broadband
acquisition occurred on January 1, 2001. The unaudited pro forma financial data
is based on the historical consolidated financial statements of Comcast Holdings
and the historical combined financial statements of AT&T Broadband Group under
the assumptions and adjustments set forth in the accompanying explanatory notes.
The AT&T Broadband acquisition was consummated on November 18, 2002 in
several steps. First, AT&T transferred to AT&T Broadband Corp. ("Broadband")
substantially all the assets, liabilities and businesses represented by AT&T
Broadband Group, which was the integrated broadband business of AT&T. Second,
AT&T spun off Broadband to its shareholders. Third, Comcast Holdings and
Broadband each merged with a different, wholly-owned subsidiary of Comcast, and
Comcast Holdings and AT&T shareholders received Comcast shares.
The AT&T Broadband acquisition has been accounted for as an acquisition by
Comcast Holdings of AT&T Broadband Group. See Note 5 to the consolidated
financial statements of Comcast Holdings for the year ended December 31, 2001
incorporated by reference in this prospectus. As Comcast Holdings is considered
the accounting acquiror, the historical basis of Comcast Holdings' assets and
liabilities were not affected by the AT&T Broadband acquisition. For purposes of
developing the Unaudited Pro Forma Combined Condensed Balance Sheet as of
September 30, 2002, AT&T Broadband Group's assets, including identifiable
intangible assets, and liabilities have been recorded at their estimated fair
values and the excess purchase price has been assigned to goodwill. No
adjustment has been made to AT&T Broadband Group's franchise rights. The fair
values assigned in these pro forma financial statements are preliminary and
represent management's best estimate of current fair value which are subject to
revision. Management currently knows of no events or circumstances other than
those disclosed in these pro forma notes that would require a material change to
the preliminary purchase price allocation. However, a final determination of
required purchase accounting adjustments will be made upon the completion of a
study to be undertaken by Comcast in conjunction with independent appraisers to
determine the fair value of certain of AT&T Broadband Group's assets, including
identifiable intangible assets, and liabilities. The actual financial position
and results of operations will differ, perhaps significantly, from the pro forma
amounts reflected herein due to a variety of factors, including access to
additional information, changes in value not currently identified and changes in
operating results between the dates of the pro forma financial data and the date
of the AT&T Broadband acquisition. See Note (b) to Unaudited Pro Forma Combined
Condensed Balance Sheet.
Upon closing of the AT&T Broadband acquisition, Comcast Holdings'
shareholders received shares of Comcast Class A common stock, Comcast Class B
common stock and Comcast Class A Special common stock in exchange for shares of
Comcast Holdings Class A common stock, Comcast Holdings Class B common stock and
Comcast Holdings Class A Special common stock, respectively, based on an
exchange ratio of 1 to 1. Comcast issued stock options to purchase shares of
Comcast Class A Special common stock in exchange for all outstanding stock
options of Comcast Holdings, based on an exchange ratio of 1 to 1.
The consideration to complete the AT&T Broadband acquisition consisted of
shares of Comcast common stock, assumed debt of AT&T Broadband Group, the
intercompany indebtedness Broadband paid AT&T upon closing and Comcast Holdings'
transaction costs. If the closing date of the AT&T Broadband acquisition were as
of September 30, 2002, and giving effect to the exchange offer described below,
the estimated aggregate consideration to complete the AT&T Broadband acquisition
would have been $48,067 million, consisting of $25,551 million of Comcast common
stock based upon a per share price of $18.80, $22,091
18
million of assumed debt at estimated fair value, and $425 million of Comcast
Holdings' transaction costs directly related to the AT&T Broadband acquisition.
The consideration in the form of Comcast common stock included the fair
value of the issuance of approximately 1,233 million shares of Comcast Class A
common stock to AT&T shareholders in exchange for all of AT&T's interests in the
AT&T Broadband Group, the fair value of the issuance of 115 million shares of
Comcast common stock to Microsoft Corporation ("Microsoft") in exchange for
Broadband shares that Microsoft received immediately prior to the completion of
the AT&T Broadband acquisition for settlement of its $5 billion aggregate
principal amount in quarterly income preferred securities (QUIPS), and the fair
value of Comcast stock options and stock appreciation rights issued in exchange
for Broadband stock options and stock appreciation rights.
Subsequent to the original merger agreement, economic and business factors
led AT&T and Comcast Holdings to agree to change the form of consideration to be
paid in the AT&T Broadband acquisition. On August 12, 2002, AT&T, among others,
filed a registration statement with the Securities and Exchange Commission
("SEC") for a proposed exchange offer relating to approximately $11.8 billion
aggregate principal amount of AT&T's existing debt securities. 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 represented a substantive change in the non-equity, or
"other" consideration being paid in the AT&T Broadband acquisition resulting in
a new measurement date for determining the value of the Comcast Holdings common
stock used to value the Comcast securities issued in the AT&T Broadband
acquisition. The new measurement date was established as of the date of the
substantive modification of the original merger agreement.
The consideration in the form of assumed debt included the short-term debt
due to AT&T, which was paid at closing, of $7,823 million, as well as $14,268
million of long-term debt, including current portion, of AT&T Broadband Group.
As a result of the successful completion of the exchange offer on November 14,
2002, upon completion of the AT&T Broadband acquisition $3,505 million of AT&T's
debt securities ceased being AT&T obligations and became Broadband obligations
(New Broadband Notes) guaranteed by Comcast and a number of its cable
subsidiaries. The AT&T debt securities that became Broadband obligations reduced
the intercompany indebtedness Broadband was required to pay AT&T by the
aggregate principal amount of New Broadband Notes issued.
The unaudited pro forma financial statements reflect that a substantive
modification of the original merger agreement occurred resulting in a new
measurement date for accounting purposes. The unaudited pro forma financial
statements reflect a measurement date of August 12, 2002, the date the filing of
the registration statement with the SEC related to the exchange offer was
announced. Accordingly, the fair value of the shares issued for the AT&T
Broadband Group was based on a price per share of $18.80 which reflects the
weighted average market price of Comcast Holdings common stock during the period
beginning two days before and ending two days after the new measurement date.
Subsequent to the adoption of SFAS 142 on January 1, 2002, goodwill and
franchise rights are no longer amortized. An increase or decrease in goodwill
and/or franchise rights as a result of a change in the allocation of fair value
through the appraisal process would not affect Comcast's future results of
operations other than in periods in which Comcast may recognize an impairment
charge. A change in the recorded value of these intangible assets could increase
or decrease the likelihood that Comcast will recognize an impairment charge
related to these intangible assets at some time in the future.
Comcast intends to review the synergies of the combined business, which may
result in a plan to realign or reorganize certain of AT&T Broadband Group's
existing operations. The costs of implementing such a plan, if it were to occur,
have not been reflected in the accompanying pro forma financial statements. The
impact of a potential realignment, assuming such a plan were in place at the
consummation date of the AT&T Broadband acquisition, could increase or decrease
the amount of goodwill and intangible assets recognized by Comcast in accordance
with Emerging Issues Task Force No. 95-3, "Recognition of Liabilities in
Connection with a Purchase Business Combination." The Unaudited Pro Forma
Combined Condensed Statements of Operations
19
exclude any benefits that may result from synergies that may be derived, or the
elimination of duplicative efforts.
Among the provisions of Statement of Financial Accounting Standards No.
141, "Business Combinations," new criteria have been established for determining
whether intangible assets should be recognized separately from goodwill.
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," provides, among other guidelines, that goodwill and
intangible assets with indefinite lives will not be amortized, but rather will
be tested for impairment on at least an annual basis. Management believes that
cable franchise rights have indefinite lives based upon an analysis utilizing
the criteria in paragraph 11 of SFAS No. 142. The pro forma adjustments to the
Unaudited Pro Forma Combined Condensed Statement of Operations for the year
ended December 31, 2001 reflect the elimination of AT&T Broadband Group's
amortization expense related to goodwill and cable franchise rights since this
acquisition was accounted for under the provisions of SFAS No. 142.
Comcast Holdings incurred goodwill and cable and sports franchise rights
amortization expense of approximately $2,002 million for the year ended December
31, 2001. The historical consolidated financial statements of Comcast Holdings
included in the Unaudited Pro Forma Combined Condensed Statement of Operations
for the year ended December 31, 2001 include the amortization expense related to
Comcast Holdings' goodwill and cable and sports franchise rights, which has not
been eliminated in the pro forma adjustments. Effective January 1, 2002, Comcast
Holdings, in accordance with the provisions of SFAS No. 142, no longer amortizes
goodwill and cable and sports franchise rights.
Management believes that the assumptions used provide a reasonable basis on
which to present the unaudited pro forma financial data. Both Comcast Holdings
and AT&T Broadband Group have completed other acquisitions and dispositions that
are not significant, individually or in the aggregate, and, accordingly, have
not been included in the accompanying unaudited pro forma financial data. The
unaudited pro forma financial data may not be indicative of the financial
position or results that would have occurred if the AT&T Broadband acquisition
had been in effect on the dates indicated or which may be obtained in the
future.
The unaudited pro forma financial data should be read in conjunction with
the historical consolidated financial statements and accompanying notes thereto
for Comcast Holdings, and the historical combined financial statements and
accompanying notes thereto for AT&T Broadband Group incorporated by reference in
this prospectus.
20
COMCAST CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 2002
HISTORICAL HISTORICAL
COMCAST AT&T PRO FORMA PRO FORMA
HOLDINGS(A) BROADBAND(A) ADJUSTMENTS COMCAST
----------- ------------ ----------- ----------
(AMOUNTS IN MILLIONS)
ASSETS
Current Assets
Cash and cash equivalents.............. $ 569.8 $ $ $ 569.8
Investments............................ 905.9 459.0 1,364.9
Accounts receivable, net............... 932.8 624.0 1,556.8
Inventories, net....................... 482.7 482.7
Deferred income taxes.................. 132.9 132.9
Other current assets................... 171.5 999.0 1,170.5
--------- --------- ----------
Total current assets................ 3,195.6 2,082.0 5,277.6
--------- --------- ---------- ----------
INVESTMENTS.............................. 585.6 17,321.0 (986.5)(d) 16,920.1
--------- --------- ---------- ----------
PROPERTY AND EQUIPMENT, NET.............. 7,035.6 15,263.0 22,298.6
--------- --------- ---------- ----------
GOODWILL................................. 6,446.3 15,162.0 (7,699.7)(b1) 13,908.6
FRANCHISE RIGHTS......................... 16,601.5 29,084.0 45,685.5
OTHER INTANGIBLE ASSETS, NET............. 1,414.6 1,416.0 2,830.6
70.0(b2)
OTHER NON-CURRENT ASSETS, NET............ 498.1 2,093.0 (94.5)(e) 2,566.6
--------- --------- ---------- ----------
$35,777.3 $82,421.0 $ (8,710.7) $109,487.6
========= ========= ========== ==========
See Notes to Unaudited Pro Forma Combined Condensed Balance Sheet
21
COMCAST CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET -- (CONTINUED)
AS OF SEPTEMBER 30, 2002
HISTORICAL HISTORICAL
COMCAST AT&T PRO FORMA PRO FORMA
HOLDINGS(A) BROADBAND(A) ADJUSTMENTS COMCAST
----------- ------------ ----------- ----------
(AMOUNTS IN MILLIONS)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable....................... $ 806.1 $ 775.0 $ $ 1,581.1
Accrued expenses and other current
liabilities......................... 1,805.8 1,920.0 1,434.0(b3) 5,159.8
Deferred income taxes.................. 69.7 487.0 556.7
Short-term debt........................ 7,823.0 (3,823.0)(c) 4,000.0
Current portion of long-term debt...... 113.9 2,329.0 2,442.9
--------- --------- ---------- ----------
Total current liabilities........... 2,795.5 13,334.0 (2,389.0) 13,740.5
--------- --------- ---------- ----------
425.0(b4)
(761.8)(b5)
3,823.0(c)
LONG-TERM DEBT, LESS CURRENT PORTION..... 9,927.9 12,701.0 (94.5)(e) 26,020.6
--------- --------- ---------- ----------
DEFERRED INCOME TAXES.................... 6,665.0 20,219.0 43.2(b6) 26,927.2
--------- --------- ---------- ----------
(179.0)(b7)
OTHER NON-CURRENT LIABILITIES............ 1,419.9 811.0 (0.1)(b8) 2,051.8
MINORITY INTEREST........................ 1,027.4 1,214.0 2,241.4
Company-Obligated Convertible Quarterly
Income Preferred Securities of
Subsidiary Trust Holding Solely
Subordinated Debt Securities of AT&T... 4,728.0 (4,728.0)(b9)
--------- --------- ---------- ----------
STOCKHOLDERS' EQUITY
1,348.0(b10)
Common stock........................... 946.9 (47.3)(d) 2,247.6
(939.2)(d)
Additional capital..................... 11,800.8 24,203.0(b10) 35,064.6
Retained earnings...................... 1,391.6 1,391.6
Accumulated other comprehensive loss... (197.7) (197.7)
Combined attributed net assets......... 29,414.0 (29,414.0)(b11)
--------- --------- ---------- ----------
Total stockholders' equity.......... 13,941.6 29,414.0 (4,849.5) 38,506.1
--------- --------- ---------- ----------
$35,777.3 $82,421.0 $ (8,710.7) $109,487.6
========= ========= ========== ==========
See Notes to Unaudited Pro Forma Combined Condensed Balance Sheet
22
COMCAST CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
(a) These columns reflect the historical balance sheets of the respective
companies. Certain reclassifications have been made to the combined
historical financial statements of AT&T Broadband Group to conform to the
presentation expected to be used by Comcast.
(b) This entry reflects the preliminary allocation of the purchase price to
identifiable net assets acquired and the excess purchase price to goodwill.
COMMON ADDITIONAL
STOCK CAPITAL TOTAL
-------- ---------- ----------
CALCULATION OF CONSIDERATION
Issuance of common stock to AT&T shareholders
(1,233.0 million shares X $18.80)................... $1.233.0 $21,947.4 $ 23,180.4
Issuance of common stock to Microsoft Corporation
(115.0 million shares X $18.80)..................... 115.0 2,047.0 2,162.0
Fair value of Comcast stock options resulting from
the conversion of AT&T Broadband Group stock options
in the merger based on Black-Scholes option pricing
model............................................... 208.6 208.6
-------- --------- ----------
(b10) Comcast common stock equity consideration............ 1,348.0 24,203.0 25,551.0
(b4) Transaction costs (assumed to be funded with
long-term debt)...................................... 425.0
----------
Total.......................................... $ 25,976.0
==========
PRELIMINARY ESTIMATE OF FAIR VALUE OF IDENTIFIABLE NET
ASSETS ACQUIRED
(b11) Book value of AT&T Broadband Group................... $ 29,414.0
Elimination of AT&T Broadband Group goodwill........ (15,162.0)
(b2) Long-term portion of deferred financing fees......... 70.0
(b3) Preliminary estimate of current tax liability arising
from the transaction................................. (1,434.0)
(b5) Preliminary estimate of adjustment to fair value of
AT&T Broadband Group assumed long-term debt.......... 761.8
(b6) Preliminary estimate of adjustment to deferred tax
liability on adjustments at combined federal and
state statutory rate................................. (43.2)
(b7) Certain liabilities retained by AT&T related to
Excite@Home.......................................... 179.0
(b8) Preliminary estimate of adjustment to fair value of
other non-current liabilities........................ 0.1
(b9) Redemption of Microsoft Corporation QUIPS............ 4,728.0
----------
Preliminary estimate of adjustments to fair value of
identifiable net assets acquired.......................... 18,513.7
----------
Acquisition goodwill........................................ $ 7,462.3
==========
23
COMCAST CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET -- (CONCLUDED)
COMMON ADDITIONAL
STOCK CAPITAL TOTAL
-------- ---------- ----------
CALCULATION OF GOODWILL ACQUISITION ADJUSTMENT
Acquisition goodwill................................ $ 7,462.3
Gross value of AT&T Broadband Group goodwill........ (15,162.0)
----------
(b1) Goodwill acquisition adjustment...................... $ (7,699.7)
==========
(i) Shares of common stock issued in the AT&T
Broadband acquisition.......................... 1,235.0
Share equivalent of intrinsic value of AT&T
Broadband Group stock options and stock
appreciation rights........................... (2.0)
--------
Common stock issued to AT&T shareholders...... 1,233.0
========
Certain programming and other contracts of AT&T Broadband Group and Comcast
Holdings may, by their terms, be assumed, altered or terminated as a result of
the completion of the AT&T Broadband acquisition. However, prior to the
completion of a review of all of AT&T Broadband Group's programming and other
contracts, management does not expect to be able to estimate the impact of
duplicate, favorable or unfavorable contracts that may result from the ultimate
allocation of purchase price. See note (l) to the Unaudited Pro Forma Combined
Condensed Statements of Operations for a sensitivity analysis of purchase price
allocation.
(c) Represents the refinancing of existing short-term debt due to AT&T
($7,823.0) with new debt of Comcast. The refinancing is assumed to be funded
with $4,000.0 of short-term debt and with $3,823.0 of long-term debt. These
amounts give effect to the exchange offer described above.
(d) Represents the reclassification of AT&T Broadband Group's investment in
Comcast Holdings as follows:
Elimination of Comcast Holdings stock held by AT&T Broadband
Group..................................................... $(986.5)
Reclassification of Comcast Holdings stock held by AT&T
Broadband Group to equity (par value common stock $47.3
and additional capital $939.2)............................ 986.5
-------
$
=======
(e) Represents the elimination of AT&T Broadband Group bonds owned by Comcast
Holdings at September 30, 2002.
24
COMCAST CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
HISTORICAL HISTORICAL
COMCAST AT&T INTERCOMPANY PRO FORMA PRO FORMA
HOLDINGS(A) BROADBAND(A) ADJUSTMENTS ADJUSTMENTS(D) COMCAST(L)
----------- ------------ ------------ -------------- ----------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
REVENUES
Service revenues........................... $5,919.1 $10,132.0 $(108.9)(b) $ $15,942.2
Net sales from electronic retailing........ 3,917.3 3,917.3
-------- --------- ------- --------- ---------
9,836.4 10,132.0 (108.9) 19,859.5
-------- --------- ------- --------- ---------
COSTS AND EXPENSES
Operating (excluding depreciation)......... 2,906.5 5,459.0 (62.8)(b) 8,302.7
Cost of goods sold from electronic
retailing (excluding depreciation)....... 2,514.0 2,514.0
Selling, general and administrative(m)..... 1,745.7 2,582.0 (22.6)(b) 4,305.1
Depreciation............................... 1,141.8 2,626.0 3,767.8
Amortization............................... 2,274.6 2,154.0 (1,882.9)(e) 2,545.7
Asset impairment, restructuring and other
charges.................................. 1,494.0 1,494.0
-------- --------- ------- --------- ---------
10,582.6 14,315.0 (85.4) (1,882.9) 22,929.3
-------- --------- ------- --------- ---------
OPERATING LOSS............................... (746.2) (4,183.0) (23.5) 1,882.9 (3,069.8)
OTHER INCOME (EXPENSE)
87.5(f)
Interest expense........................... (734.1) (1,735.0) (1.8)(g) (2,383.4)
Investment income (expense)................ 1,061.7 (1,947.0) (18.7)(b) (904.0)
(106.0)(h)
Equity in net income (losses) of
affiliates............................... (28.5) 148.0(e) 13.5
Other income (expense)..................... 1,301.0 (927.0) 374.0
-------- --------- ------- --------- ---------
1,600.1 (4,609.0) (18.7) 127.7 (2,899.9)
-------- --------- ------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY
INTEREST AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE.......................... 853.9 (8,792.0) (42.2) 2,010.6 (5,969.7)
(561.3)(i)
INCOME TAX (EXPENSE) BENEFIT................. (469.4) 3,857.0 (750.3)(c) 37.0(h) 2,113.0
-------- --------- ------- --------- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE..... 384.5 (4,935.0) (792.5) 1,486.3 (3,856.7)
Net loss from equity investments............. (69.0) 69.0(h)
MINORITY INTEREST INCOME (EXPENSE)........... (160.4) 833.0 (24.0)(b) 160.0(j) 808.6
-------- --------- ------- --------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE.......................... $ 224.1 $(4,171.0) $(816.5) $ 1,715.3 $(3,048.1)
======== ========= ======= ========= =========
Earnings (loss) per share from continuing
operations -- basic........................ $ 0.24 $ (1.35)
Earnings (loss) per share from continuing
operations -- assuming dilution............ $ 0.23 $ (1.35)
Weighted average number of common shares
outstanding -- basic....................... 949.7 1,300.7(k) 2,250.4
Weighted average number of common shares
outstanding -- assuming dilution........... 964.5 1,285.9(k) 2,250.4
See Notes to Unaudited Pro Forma Combined Condensed Statement of Operations
25
COMCAST CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
HISTORICAL HISTORICAL
COMCAST AT&T INTERCOMPANY PRO FORMA PRO FORMA
HOLDINGS(A) BROADBAND(A) ADJUSTMENTS ADJUSTMENTS(D) COMCAST(L)
----------- ------------ ------------ -------------- ----------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenues
Service revenues........................... $5,086.3 $ 7,512.0 $(42.0)(b) $ $ 12,556.3
Net sales from electronic retailing........ 2,999.8 2,999.8
-------- ---------- ------ --------- ----------
8,086.1 7,512.0 (42.0) 15,556.1
-------- ---------- ------ --------- ----------
Costs and expenses Operating (excluding
depreciation).............................. 2,191.4 3,889.0 (27.0)(b) 6,053.4
Cost of goods sold from electronic
retailing (excluding depreciation)....... 1,903.1 1,903.1
Selling, general and administrative........ 1,491.0 2,037.0 (15.0)(b) 3,513.0
Depreciation............................... 1,015.5 2,043.0 3,058.5
Amortization............................... 155.1 161.0 316.1
Goodwill and franchise impairment
charges.................................. 16,525.0 16,525.0
Asset impairment, restructuring and other
charges.................................. 56.0 56.0
-------- ---------- ------ --------- ----------
6,756.1 24,711.0 (42.0) 31,425.1
-------- ---------- ------ --------- ----------
Operating income (loss)...................... 1,330.0 (17,199.0) (15,869.0)
Other income (expense)
(101.8)(f)
Interest expense............................. (543.5) (1,111.0) (24.2)(g) (1,780.5)
Investment expense........................... (760.4) (1,172.0) (1,932.4)
Equity in net losses of affiliates........... (59.9) (1,001.0)(h) (1,060.9)
Other income (expense)....................... (10.8) 523.0 512.2
-------- ---------- ------ --------- ----------
(1,374.6) (1,760.0) (1,127.0) (4,261.6)
-------- ---------- ------ --------- ----------
Loss before income taxes, minority interest,
extraordinary items and cumulative effect
of accounting change....................... (44.6) (18,959.0) (1,127.0) (20,130.6)
48.9(i)
Income tax benefit (expense)................. (52.3) 5,536.0 386.0(h) 5,918.6
-------- ---------- ------ --------- ----------
Loss before minority interest, extraordinary
items and cumulative effect of accounting
change..................................... (96.9) (13,423.0) (692.1) (14,212.0)
Net loss related to equity investments....... (615.0) 615.0(h)
Minority interest expense.................... (126.0) (206.0) 120.0(j) (212.0)
-------- ---------- ------ --------- ----------
Loss before extraordinary items and
cumulative effect of accounting change..... $ (222.9) $(14,244.0) $ $ 42.9 $(14,424.0)
======== ========== ====== ========= ==========
Loss per share from continuing
operations -- basic........................ $ (0.23) $ (6.40)
Loss per share from continuing operations --
assuming dilution.......................... $ (0.23) $ (6.40)
Weighted average number of common shares
outstanding -- basic....................... 952.2 1,300.7(k) 2,252.9
Weighted average number of common shares
outstanding -- assuming dilution........... 952.2 1,300.7(k) 2,252.9
See Notes to Unaudited Pro Forma Combined Condensed Statement of Operations
26
COMCAST CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(a) These columns reflect the historical statements of operations of the
respective companies.
(b) Adjustment reflects the elimination of historical intercompany transactions
between Comcast Holdings and AT&T Broadband Group as follows: amounts
charged by Comcast Holdings to AT&T Broadband Group for programming, the
gains and losses resulting from the sales of certain cable systems by AT&T
Broadband Group to Comcast Holdings and Excite@Home transactions.
(c) Represents the elimination of the aggregate historical income tax effects
recorded by Comcast Holdings and AT&T Broadband Group on Note (b)
adjustments above.
(d) AT&T Broadband Group has certain intercompany agreements with AT&T Corp.
which were terminated as of the date of the AT&T Broadband acquisition. The
costs of replacing these services is uncertain. However, the impact of the
termination of these arrangements is not expected to be material.
(e) Represents the elimination of AT&T Broadband Group's historical goodwill and
cable franchise rights amortization expense for consolidated subsidiaries
and equity method investments. Under the accounting rules set forth in SFAS
No. 142 issued by the Financial Accounting Standards Board in June 2001,
goodwill and intangibles with indefinite lives are not amortized against
earnings other than in connection with an impairment.
(f) Represents the net effect on interest expense resulting from the financings
described in Note (c) to the Unaudited Pro Forma Combined Condensed Balance
Sheet. Pro forma interest expense was calculated based on the historical
interest rates for the historical debt outstanding and assumed interest
rates for the new credit facilities. The pro forma financial information
assumes the financings occurred on January 1, 2001. Amortization of deferred
financing costs was calculated based on the amounts and terms of the new
facilities. Short-term rates are assumed to be 3% and long term rates are
assumed to be 7%. Assuming interest rates changed by 0.125%, the related
interest expense and pre-tax impact on earnings would be $9.8 million for
the year ended December 31, 2001 and $7.4 million for the nine months ended
September 30, 2002.
(g) Represents the net effect in interest expense as a result of the adjustment
of AT&T Broadband Group's long-term debt to its fair value as described in
Note (b5) to the Unaudited Pro Forma Combined Condensed Balance Sheet. The
difference between the fair value and the face amount of each borrowing is
amortized to interest expense over the remaining term of the borrowing.
(h) Represents the reclassification of losses in equity investments for the year
ended December 31, 2001 and losses related to equity method investments for
the nine months ended September 30, 2002 to conform with the presentation
currently used by Comcast Holdings.
(i) Represents the aggregate pro forma income tax effect of Notes (e) through
(g) above at the combined federal and state statutory rate.
(j) Represents the elimination of historical impact of the QUIPS exchanged for
AT&T Broadband Group common stock.
(k) For basic earnings (loss) per share, this adjustment represents the issuance
of Comcast shares to AT&T shareholders and Microsoft offset by shares of
Comcast Holdings owned by AT&T Broadband Group which are classified as
treasury shares (see Note (d) to the Unaudited Pro Forma Combined Condensed
Balance Sheet). In addition, earnings per share assuming dilution has been
adjusted to include the dilutive effects of Comcast stock options issued in
exchange for the AT&T Broadband Group stock options as well as adjustment
for the year-ended December 31, 2001 to Comcast's historical average
dilutive shares outstanding since such shares would be anti-dilutive on a
pro forma basis.
27
COMCAST CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(l) The pro forma combined condensed financial statements reflect a preliminary
allocation to tangible assets, liabilities, goodwill and other intangible
assets. The final purchase price allocation may result in different
allocations for tangible and intangible assets than that presented in these
pro forma combined condensed financial statements. The following table shows
the absolute dollar effect on pro forma net income (loss) applicable to
common shares and net income (loss) per share assuming dilution for every
$500 of purchase price allocated to amortizable assets or certain
liabilities over assumed weighted-average useful lives. An increase in the
purchase amount allocated to amortizable assets or a decrease in the amount
allocated to certain liabilities will result in a decrease to net income. A
decrease in the amount allocated to amortizable assets or an increase in the
amount allocated to certain liabilities will result in an increase to net
income.
NINE MONTH
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
WEIGHTED AVERAGE LIFE 2001 2002
- --------------------- ------------ -------------
Five years
Net Income................................................ $61.5 $46.1
Per Share................................................. $0.03 $0.02
Ten years
Net Income................................................ $30.8 $23.1
Per Share................................................. $0.01 $0.01
Twenty years
Net Income................................................ $15.4 $11.5
Per Share................................................. $0.01 $0.01
28
SELECTED FINANCIAL DATA OF COMCAST HOLDINGS
The consolidated selected financial data of Comcast Holdings below for the
nine months ended September 30, 2002 and 2001 were derived from the unaudited
condensed consolidated financial statements of Comcast Holdings, and the
consolidated selected financial data of Comcast Holdings for the years ended
December 31, 2001, 2000, 1999, 1998 and 1997 were derived from the audited
consolidated financial statements of Comcast Holdings.
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS
DATA:
Revenues.................. $ 8,086.1 $ 6,971.5 $ 9,836.4 $ 8,357.0 $ 6,632.0 $ 5,512.9 $ 4,773.0
Operating income (loss)... 1,330.0 (412.0) (746.2) (161.0) 664.0 557.1 466.6
Income loss) from
continuing operations
before cumulative effect
of accounting change.... (222.9) 545.1 224.1 2,021.5 729.9 1,003.5 (213.1)
Discontinued
operations(1)........... 335.8 (31.4) (25.6)
Cumulative effect of
accounting change....... 384.5 384.5
Net income (loss)......... (222.9) 929.6 608.6 2,021.5 1,065.7 972.1 (238.7)
BASIC EARNINGS (LOSS) FOR
COMMON STOCKHOLDERS PER
COMMON SHARE(2)
Income (loss) from
continuing operations
before cumulative
effect of accounting
change................ $ (0.23) $ 0.58 $ 0.24 $ 2.24 $ 0.93 $ 1.33 $ (.33)
Discontinued
operations(1)......... 0.45 (.04) (.04)
Cumulative effect of
accounting change..... 0.40 0.40
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)....... $ (0.23) $ 0.98 $ 0.64 $ 2.24 $ 1.38 $ 1.29 $ (.37)
========= ========= ========= ========= ========= ========= =========
DILUTED EARNINGS (LOSS)
FOR COMMON STOCKHOLDERS
PER COMMON SHARE(2)
Income (loss) from
continuing operations
before cumulative
effect of accounting
change................ $ (0.23) $ 0.56 $ 0.23 $ 2.13 $ 0.89 $ 1.24 $ (.33)
Discontinued
operations(1)......... 0.41 (.03) (.04)
Cumulative effect of
accounting change..... 0.40 0.40
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)....... $ (0.23) $ 0.96 $ 0.63 $ 2.13 $ 1.30 $ 1.21 $ (.37)
========= ========= ========= ========= ========= ========= =========
Cash dividends declared
per common share(2)..... $ .0467 $ .0467
BALANCE SHEET DATA (AT
PERIOD END):
Total assets.............. $35,777.3 $38,921.8 $38,260.5 $35,874.0 $28,823.4 $14,710.5 $11,234.3
Working capital........... 400.1 (184.1) 1,454.6 1,694.5 4,786.1 2,505.0 13.6
Long-term debt............ 9,927.9 11,494.8 11,741.6 10,517.4 8,707.2 5,464.2 5,334.1
Stockholders' equity...... 13,941.6 14,838.8 14,473.0 14,086.4 10,341.3 3,815.3 1,646.5
29
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
SUPPLEMENTARY FINANCIAL
DATA:
Operating income before
depreciation and
amortization(3)......... $ 2,500.6 $ 2,027.7 $ 2,670.2 $ 2,458.3 $ 1,879.6 $ 1,496.3 $ 1,293.1
Net cash provided by (used
in)(4)
Operating activities.... 2,000.2 1,582.6 1,596.6 1,219.3 1,249.4 1,067.7 844.6
Financing activities.... (1,052.4) 1,219.8 1,476.3 (271.4) 1,341.4 809.2 283.9
Investing activities.... (728.0) (2,795.5) (3,374.4) (1,218.6) (2,539.3) (1,415.3) (1,045.8)
- ---------------
(1) In July 1999, Comcast Holdings sold Comcast Cellular Corporation to SBC
Communications, Inc. Comcast Cellular is presented as a discontinued
operation for all periods presented.
(2) Adjusted for Comcast Holdings' two-for-one stock split in the form of a 100%
stock dividend in May 1999.
(3) Operating income before depreciation and amortization is commonly referred
to in Comcast Holdings' business 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 Comcast
Holdings' 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 Comcast Holdings'
industries, although Comcast Holdings' 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 Comcast Holdings' management to
measure the operating performance of Comcast Holdings' businesses. Operating
cash flow does not purport to represent net income or net cash provided by
operating activities, as those terms are defined under generally accepted
accounting principles, and should not be considered as an alternative to
those measurements as an indicator of Comcast Holdings' performance.
(4) Represents net cash provided by (used in) operating activities, financing
activities and investing activities as presented in Comcast Holdings'
consolidated statement of cash flows.
30
SELECTED FINANCIAL DATA OF AT&T BROADBAND GROUP
Presented in the table below is selected financial data of AT&T Broadband
Group. AT&T Broadband Group was an integrated business of AT&T and not a
stand-alone entity. AT&T assigned and transferred the assets, liabilities and
businesses of AT&T Broadband Group to Comcast Cable Communications Holdings,
Inc. in connection with the AT&T Broadband acquisition. AT&T Broadband Group
consisted primarily of the assets, liabilities and business of AT&T Broadband,
LLC (formerly known as Tele-Communications, Inc. and now known as Comcast Cable
Holdings, LLC), acquired by AT&T on March 9, 1999, and MediaOne Group, Inc. (now
known as Comcast MO Group, Inc.), acquired by AT&T on June 15, 2000.
The combined income statement data of AT&T Broadband Group for the years
ended December 31, 2001 and 2000 and the ten months ended December 31, 1999 and
the combined balance sheet data of AT&T Broadband Group at December 31, 2001 and
2000 were derived from the audited combined financial statements of AT&T
Broadband Group. The remaining data was derived from unaudited combined
financial statements of AT&T Broadband Group.
The financial data presented below is not necessarily comparable from
period to period as a result of several transactions, including the acquisition
and dispositions of cable systems, primarily the Tele-Communications Inc. and
MediaOne Group acquisitions. For this and other reasons, you should read the
selected historical financial data provided below in conjunction with the
combined financial statements and accompanying notes of AT&T Broadband Group
incorporated by reference in this prospectus.
AT OR FOR THE
AT OR FOR THE AT OR FOR THE TEN MONTHS
NINE MONTHS ENDED YEARS ENDED ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
------------------- ------------------- -------------
2002 2001 2001 2000(1) 1999(2)
-------- -------- -------- -------- -------------
(DOLLARS IN MILLIONS)
INCOME STATEMENT DATA:
Revenue....................... $ 7,512 $ 7,756 $ 10,132 $ 8,445 $ 5,080
Operating loss................ (17,199) (3,567) (4,183) (8,656) (1,177)
Loss before extraordinary gain
and cumulative effect of
accounting changes.......... (14,244) (2,988) (4,171) (5,370) (2,200)
BALANCE SHEET DATA:
Total assets.................. $ 82,421 $104,261 $103,187 $117,534 $58,228
Total debt.................... 22,853 23,274 23,285 28,420 14,900
Minority interest............. 1,214 3,319 3,302 4,421 2,327
Company-Obligated Convertible
Quarterly Preferred
Securities.................. 4,728 4,718 4,720 4,710 4,700
- ---------------
(1) Effective June 15, 2000, AT&T acquired MediaOne Group which was attributed
to AT&T Broadband Group. The acquisition was accounted for under the
purchase method of accounting.
(2) Effective March 1, 1999, AT&T acquired Tele-Communications Inc. which was
attributed to AT&T Broadband Group. The acquisition was accounted for under
the purchase method of accounting.
31
SELECTED FINANCIAL DATA OF COMCAST MO OF DELAWARE, INC.
The consolidated selected financial data of Comcast MO of Delaware, Inc.
(formerly MediaOne of Delaware, Inc.) referred to in this prospectus as
"Continental," below for the nine months ended September 30, 2002 and 2001 and
the period from January 1, 2000 to June 14, 2000 were derived from the unaudited
condensed consolidated financial statements of Continental. The consolidated
selected financial data of Continental for the year ended December 31, 2001 and
the period from June 15, 2000 to December 31, 2000 were derived from the audited
consolidated financial statements of Continental. The financial data presented
below for the periods from January 1, 2000 to June 14, 2000 and from June 15,
2000 to December 31, 2000 is not necessarily comparable from period to period as
a result of the indirect acquisition of Continental by AT&T Corp. on June 15,
2000. Until the AT&T Broadband acquisition, Continental was a part of AT&T
Broadband Group, and financial statements of Continental for the year ended
December 31, 1999 were unavailable from AT&T Corp. or Arthur Andersen LLP,
Continental's auditor for that period.
PERIOD
NINE MONTHS PERIOD FROM
ENDED YEAR FROM JUNE 15, JANUARY 1,
SEPTEMBER 30, ENDED 2000 TO 2000 TO
------------------ DECEMBER 31, DECEMBER 31, JUNE 14,
2002 2001 2001 2000 2000
-------- ------- ------------ ----------------- --------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN MILLIONS)
INCOME STATEMENT DATA:
Revenues........................... $ 2,277 $ 2,131 $ 2,854 $ 1,515 $1,227
Operating loss..................... (10,570) (620) (821) (227) (168)
Income (loss) before cumulative
effect of accounting change...... (9,135) (613) (792) (222) (94)
Cumulative effect of accounting
change........................... (10,367) 34 34 -- --
BALANCE SHEET DATA (AT PERIOD END):
Total assets....................... $ 15,539 $37,474 $36,616 $19,951
Long-term debt..................... 1,885 1,916 1,911 2,105
Stockholders' equity............... 10,903 30,792 30,367 13,660
SUPPLEMENTARY FINANCIAL DATA:
Operating income (loss) before
depreciation and
amortization(1).................. $ (9,825) $ 599 $ 845 $ 432 $ 438
Net cash provided by (used in)(2)
Operating activities............. 571 214 921 77 376
Financing activities............. 58 537 28 559 105
Investing activities............. (629) (751) (949) (649) 485
- ---------------
(1) Operating income before depreciation and amortization is commonly referred
to in MediaOne of Delaware, Inc.'s business 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 MediaOne of Delaware, Inc.'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 MediaOne
of Delaware, Inc.'s industries, although MediaOne of Delaware, Inc.'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 MediaOne of Delaware, Inc.'s management to measure the operating
performance of MediaOne of Delaware, Inc.'s business. Operating cash flow
does not purport to represent net income or net cash provided by operating
activities, as those terms are defined under generally accepted accounting
principles, and should not be considered as an alternative to those
measurements as an indicator of MediaOne of Delaware, Inc.'s performance.
(2) Represents net cash provided by (used in) operating activities, financing
activities and investing activities as presented in MediaOne of Delaware,
Inc.'s consolidated statement of cash flows.
32
DESCRIPTION OF THE CONSENT SOLICITATION AND THE OFFER TO GUARANTEE
PURPOSE OF THE CONSENT SOLICITATION AND THE OFFER TO GUARANTEE
To simplify our capital structure and to insure that our traded debt
securities and those of Comcast Cable, Comcast Cable Communications Holdings,
Comcast Cable Holdings and Comcast MO Group will be treated equally, upon
completion of the AT&T Broadband acquisition, we, Comcast Cable, Comcast Cable
Communications Holdings, Comcast Cable Holdings and Comcast MO Group each fully
and unconditionally guaranteed each other's traded debt securities. Comcast
Holdings did not become a guarantor, and its debt securities were not
guaranteed, because we believe that future investors will be interested in "pure
play" debt securities of our cable communications operations and not Comcast
Holdings' commerce and content assets, such as QVC, E! Entertainment and Comcast
Spectacor.
Continental was one of AT&T's cable subsidiaries and was transferred to
Comcast Cable Communications Holdings in the AT&T Broadband acquisition.
Continental did not become a guarantor, and its debt securities were not
guaranteed, because Continental's indentures contain covenants that effectively
prohibit Continental from guaranteeing its affiliates' debt obligations.
The purpose of the consent solicitation is to amend the covenants and
events of default under the Continental Notes to conform them to those in our
publicly traded debt securities. If these indentures are amended as described in
this prospectus, the Continental Notes will be guaranteed, and Continental will
cross-guarantee our publicly traded debt securities and those of Comcast Cable,
Comcast Cable Communications Holdings, and Comcast MO Group. No consent fee or
other consideration will be paid for the amendment and the Continental
cross-guarantee other than the guarantees of the Continental Notes described
under "Description of the Continental Notes."
We intend to solicit the consent of the holders of each series of the
Continental Notes to the proposed amendment to the indentures governing the
Continental Notes described below under "-- The Amendment" and as otherwise
described in this prospectus upon the terms and subject to the conditions of
this consent solicitation, the accompanying letter of consent, applicable law
and, to the extent applicable, the indentures governing the Continental Notes.
REQUISITE CONSENTS; RECORD DATE; OUTSTANDING NOTES
We intend to seek the valid and unrevoked consents of registered holders of
a majority in aggregate principal amount of each series of Continental Notes
outstanding at the close of business on February 10, 2003, the record date for
determining the holders of the Continental Notes entitled to deliver consents in
connection with this consent solicitation. The following table sets forth the
principal amount outstanding of each series of Continental Notes as of February
7, 2003.
PRINCIPAL AMOUNT
CONTINENTAL NOTES OUTSTANDING
- ----------------- ----------------
8 7/8% Senior Debentures Due September 15, 2005 (CUSIP No.
211177AJ9)................................................ $ 275,000,000
8.30% Senior Notes Due May 15, 2006 (CUSIP No. 211177AM2)... 600,000,000
9% Senior Debentures Due September 1, 2008 (CUSIP No.
211177AG5)................................................ 300,000,000
9.5% Senior Debentures Due August 1, 2013 (CUSIP No.
211177AK6)................................................ 525,000,000
--------------
TOTAL.................................................. $1,700,000,000
==============
The failure of a holder to deliver, or cause to be delivered a consent with
respect to any Continental Notes, including any failures resulting from broker
non-votes with respect to Continental Notes, will have the same effect as if
that holder had marked "Does Not Consent" to the proposed amendment on the
letter of consent.
To our knowledge, no director or executive officer of ours, the cable
guarantors, Continental or any of their affiliates held any Continental Notes as
of the close of business on the record date.
33
EXPIRATION DATE; EXTENSION OF THE CONSENT SOLICITATION PERIOD; AMENDMENT;
TERMINATION
The consent solicitation period will expire at 5:00 p.m., New York City
time, on March 11, 2003, unless we extend this period as to any series of
Continental Notes. If, at that time, we have obtained the requisite consents, we
will so certify to the indenture trustees, and the consents will be effective
and irrevocable. We refer in this prospectus to the time that we deliver this
certification as the consent certification time. In the event that we do not
receive the requisite consents before the expiration of the solicitation period,
we reserve the right to extend the solicitation period as to any series of
Continental Notes on one or more occasions. If we extend the solicitation
period, we will give oral or written notice of this extension to the indenture
trustees and make a public announcement of this extension by no later than 9:00
a.m., New York City time, on the next business day after the scheduled
expiration date of the solicitation period.
We reserve the right, exercisable in our sole discretion, to terminate the
consent solicitation and not adopt the proposed amendment, whether or not we
have received the requisite consents, by giving oral or written notice of
termination to the indenture trustees and making a public announcement of
termination. We also reserve the right, subject to applicable law, to amend this
consent solicitation in any respect by giving oral or written notice of the
amendment to the indenture trustees and making a public announcement of the
amendment.
If we make any public announcement in connection with the consent
solicitation, we will disseminate it to holders of Continental Notes in a manner
reasonably designed to inform them of the announced change on a timely basis.
Without limiting the manner in which we may choose to make a public
announcement, except as may be required by applicable law, we will have no
obligation to publish, advertise or otherwise communicate any public
announcement other than by issuing a release to the Dow Jones News Service.
CONSEQUENCES TO NON-CONSENTING HOLDERS; NO DISSENTERS' RIGHTS
If we obtain the requisite consents and execute the proposed amendment, it
will be binding on each holder of Continental Notes, regardless of whether or
not that holder delivered its consent. You are not entitled to any dissenters'
rights in connection with the consent solicitation or amendment.
CONSENT PROCEDURES
In order to consent to the amendment a holder of Continental Notes must
execute and deliver to the Consent Agent at the address set forth on the back
cover of this prospectus a copy of the accompanying letter of consent, or cause
a letter of consent to be delivered to the Consent Agent on the holder's behalf,
before the expiration of the solicitation period in accordance with the
procedures described in the following paragraphs.
In accordance with the indenture governing the Continental Notes, only
registered holders of the notes as of the close of business on the record date
may execute and deliver to the Consent Agent a letter of consent. We expect that
DTC will authorize its participants, which include banks, brokers and other
financial institutions, to execute letters of consent with respect to the
Continental Notes they hold through DTC as if the participants were the
registered holders of those notes. Accordingly, for purposes of the consent
solicitation, when we use the term "registered holders," we include bank,
brokers and other financial institutions that are participants of DTC.
If you are a beneficial owner of Continental Notes held through a bank,
broker or other financial institution, in order to consent to the amendment you
must arrange for the bank, broker or other financial institution that is the
registered holder to either (1) execute a letter of consent and deliver it
either to the Consent Agent on your behalf or to you for forwarding to the
Consent Agent before the expiration of the solicitation period or (2) forward a
duly executed proxy from the registered holder authorizing you to execute and
deliver a letter of consent with respect to the notes on behalf of the
registered holder. You must deliver an executed letter of consent, together with
this proxy, to the Consent Agent before the expiration of the solicitation
period. Beneficial owners of Continental Notes are urged to contact the bank,
broker or other financial
34
institution through which they hold their notes to obtain a valid proxy or to
direct that a letter of consent be executed and delivered in respect of their
notes.
Giving a consent by submitting a letter of consent will not affect a
holder's right to sell or transfer the Continental Notes. All consents received
from the holder of record on the record date and not revoked by that holder of
record before the consent certification time will be effective notwithstanding
any transfer of those notes after the record date.
REGISTERED HOLDERS OF CONTINENTAL NOTES AS OF THE RECORD DATE WHO WISH TO
CONSENT SHOULD MAIL, HAND DELIVER OR SEND BY OVERNIGHT COURIER OR FACSIMILE
THEIR PROPERLY COMPLETED AND EXECUTED LETTERS OF CONSENT, A COPY OF WHICH
ACCOMPANIES THIS PROSPECTUS, TO THE CONSENT AGENT AT THE ADDRESS SET FORTH ON
THE BACK COVER PAGE OF THIS PROSPECTUS, IN ACCORDANCE WITH THE INSTRUCTIONS SET
FORTH IN THIS PROSPECTUS AND ON THE ACCOMPANYING LETTER OF CONSENT. LETTERS OF
CONSENT SHOULD BE DELIVERED TO THE CONSENT AGENT, NOT TO US, CONTINENTAL OR ONE
OF THE INDENTURE TRUSTEES. HOWEVER, WE RESERVE THE RIGHT TO ACCEPT ANY LETTER OF
CONSENT RECEIVED BY US, CONTINENTAL OR ONE OF THE INDENTURE TRUSTEES.
All letters of consent that are properly completed, executed and delivered
to the Consent Agent, and not revoked before the consent certification time,
will be given effect in accordance with the terms of those letters of consent.
Registered holders who desire to consent to the amendment should mark the
"CONSENTS" box on, and complete, sign and date, the letter of consent
accompanying this prospectus and mail, deliver or send by overnight courier or
facsimile (confirmed by the consent certification time by physical delivery) the
signed letter of consent to the Consent Agent at the address set forth on the
back cover page of this prospectus or on the accompanying letter of consent, all
in accordance with the instructions contained in this document and in the letter
of consent. If none of the boxes in the letter of consent is marked, but the
letter of consent is otherwise properly completed and signed, the registered
holder will be deemed to have consented to the amendment.
Letters of consent delivered by the registered holder(s) of Continental
Notes as of the record date must be executed in exactly the same manner as those
registered holder(s) name(s) appear(s) on the certificates representing the
notes or on the position listings of DTC, as applicable. If notes to which a
letter of consent relate are registered in the names of two or more joint
holders, all of those holders must sign the letter of consent. If a letter of
consent is signed by a trustee, partner, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, that person must so indicate when signing. In
addition, if a letter of consent relates to less than the total principal amount
of Continental Notes registered in the name of a holder, the registered holder
must list the serial numbers and principal amount of notes registered in the
name of that holder to which the letter of consent relates. If notes are
registered in different names, separate letters of consent must be signed and
delivered with respect to each registered note. If a letter of consent is
executed by a person other than the registered holder, then it must be
accompanied by a proxy executed by the registered holder.
All questions as to the validity, form and eligibility regarding the
consent procedures will be determined by us, which determination will be
conclusive and binding, subject only to final review as may be prescribed by the
applicable indenture trustee concerning proof of execution and ownership. We
also reserve the right, subject to any final review that the applicable
indenture trustee prescribes for proof of execution and ownership, to waive any
defects or irregularities in connection with deliveries of particular letters of
consent. Our interpretations of the terms and conditions of the consent
solicitation shall be conclusive and binding.
REVOCATION OF CONSENTS
If you hold Continental Notes and consent using a letter of consent:
- Each properly completed and executed letter of consent will be counted,
notwithstanding any transfer of the notes to which the letter of consent
relates, unless the procedure for revoking consents described below has
been followed.
- Before the expiration of the consent solicitation any registered holder
of Continental Notes as of the close of business on the record date may
revoke any consent given as to its notes or any portion of its
35
notes (in integral multiples of $1,000). A registered holder of
Continental Notes may revoke a consent by delivering to the Consent Agent
at the address set forth on the back cover page of this prospectus or the
indenture trustee a written notice of revocation of the consent (which
may be in the form of a subsequently dated letter of consent marked with
a specification, i.e., "CONSENTS" or "DOES NOT CONSENT") containing the
name of the registered holder, the serial numbers of the notes to which
the revocation relates, the principal amount of notes to which the
revocation relates and the signature of the registered holder. Only a
registered holder of notes as of the record date is entitled to revoke a
consent previously given.
- A beneficial owner of Continental Notes who is not the registered holder
as of the record date of the notes in respect of which the beneficial
owner desires to revoke a previously delivered consent must arrange with
the registered holder to either (1) execute and deliver to the Consent
Agent on the beneficial owner's behalf, or to the beneficial owner for
forwarding to the Consent Agent by the beneficial owner, in either case
before the expiration of the consent solicitation a notice of revocation
of any consent already given with respect to those notes or (2) forward a
duly executed proxy from the registered holder authorizing the beneficial
holder to deliver a notice of revocation on behalf of the registered
holder as to that consent. To revoke the consent, the beneficial owner
must deliver an executed notice of revocation, together with this proxy,
to the Consent Agent before the expiration of the consent solicitation.
- Any notice of revocation must be executed by a registered holder in the
same manner as the holder's name appears on the letter of consent to
which the revocation relates. If a notice of revocation is signed by a
trustee, partner, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or
representative capacity, that person must so indicate when signing and
must submit with the notice of revocation appropriate evidence of
authority to execute the revocation. A revocation of a consent will be
effective only as to the notes listed on the applicable notice of
revocation and only if that notice of revocation complies with the
procedures for revocation of consents described in this prospectus.
- We reserve the right to contest the validity of any revocation, and all
questions as to validity, including time of receipt of any revocation
will be determined by us. Our determination will be conclusive and
binding subject only to any final review as may be prescribed by the
applicable indenture trustee concerning proof of execution and ownership.
None of ourselves, any of our affiliates, the Consent Agent, any of the
indenture trustees or any other person will be under any duty to give
notification of any defects or irregularities with respect to any
revocation nor will any of them be liable for failure to give any
notification.
THE INFORMATION AGENT
We have engaged D.F. King & Co., Inc. as the information agent for the
consent solicitation and offer to guarantee. Questions regarding the consent
solicitation, and requests for additional copies of this prospectus or the
letter of consent and for assistance in tendering consents with respect to
Continental Notes should be directed to the information agent below.
D.F. KING & CO., INC.
48 WALL STREET, 22ND FLOOR
NEW YORK, NEW YORK 10005
BANKS AND BROKERS CALL COLLECT:
(212) 269-5550
ALL OTHERS CALL TOLL FREE:
(866) 868-2409
36
THE CONSENT AGENT
We have engaged The Bank of New York as the Consent Agent for the consent
solicitation and offer to guarantee. All executed letters of consent and notices
of revocation should be directed to the Consent Agent at the address set forth
below:
THE BANK OF NEW YORK, CONSENT AGENT
CORPORATE TRUST REORGANIZATION UNIT
101 BARCLAY STREET, 7E
NEW YORK, NEW YORK 10286
ATTN: WILLIAM BUCKLEY
FACSIMILE TRANSMISSIONS:
(212) 298-1915
TO CONFIRM BY TELEPHONE
OR FOR INFORMATION:
TOLL FREE (800) 254-2826
212-815-5788
Delivery of the letter of consent or a notice of revocation to an address
other than as listed above or transmission of instructions via facsimile other
than as listed above does not constitute a valid delivery.
FEES AND EXPENSES
The Information Agent and the Consent Agent will receive reasonable and
customary compensation for their services, will be reimbursed by us for various
reasonable out-of-pocket expenses and will be indemnified against various
liabilities in connection with the consent solicitation and offer to guarantee,
including liabilities under the federal securities laws.
No fees or commissions (other than fees to the Information Agent and
Consent Agent as described above) will be payable by us to brokers, dealers or
other persons for soliciting consents of noteholders pursuant to the consent
solicitation. We will, however, upon request, reimburse brokers, dealers and
commercial banks for customary mailing and handling expenses incurred by them in
forwarding this prospectus and related materials to the beneficial owners of
notes held by them as a nominee or in a fiduciary capacity. No broker, dealer,
commercial bank or trust company has been authorized to act as our agent or an
agent of the Consent Agent for purposes of the consent solicitation.
We estimate that the approximate amount of out-of-pocket fees and other
expenses of the consent solicitation will be $500,000.
THE CONTINENTAL CROSS GUARANTEES
If the amendment is approved, the Continental Notes would benefit from the
cable guarantees and Continental will also fully and unconditionally guarantee
the obligations, including the payment of principal, if any, and interest, on
the publicly traded debt securities of ourselves and the cable guarantors, which
we refer to in this prospectus as the "Continental cross-guarantees." The
Continental cross guarantees would be on the same terms as the cable guarantees.
We and the other cable guarantors will grant the cable guarantees with respect
to the Continental Notes promptly after the effective date of the amendment.
THE AMENDMENT
The amendment would amend the indentures governing the Continental Notes in
order to conform the covenants and events of default in the indentures for the
Continental Notes with those contained in our public debt securities. The
changes to the covenants and events of default applicable to the Continental
Notes will only take effect when the Continental Notes receive the cable
guarantees. We refer in this prospectus to the covenants and events of default
as amended which would apply to the Continental Notes if the amendment is
approved when the cable guarantees are granted as the "new covenants."
37
The new covenants would restrict or condition our, the cable guarantors and
Continental's ability to
- grant liens to secure other indebtedness;
- enter into sale-leaseback transactions; and
- consolidate or merge Continental, or sell, convey, transfer, lease, or
otherwise dispose of all or substantially all of Continental's property
and assets.
The amendment would also add as events of default under each indenture
- default by any of us or any other cable guarantor in the observance or
performance of any covenant under that indenture or notes outstanding
under that indenture for more than 60 days after written notice thereof
shall have been given to us or such other cable guarantor by the trustee,
or to us or such other cable guarantor and the trustee by the holders of
at least 25% in aggregate principal amount of the notes then outstanding
under that indenture;
- any cable guarantee is not (or is claimed by any cable guarantor not to
be) in full force and effect; or
- certain events involving bankruptcy, insolvency or reorganization of us
or any other cable guarantor.
A default under any of our or the cable guarantors' other indebtedness will
not be a default under the indentures.
In addition, the amendment would remove a default under, or the
acceleration of the maturity of, other indebtedness of Continental as an event
of default under the indentures.
The amendment would remove covenants in the indentures which restrict or
condition Continental's ability to
- make specified restricted payments;
- incur additional indebtedness;
- invest in entities other than specified subsidiaries;
- enter into transactions with Continental stockholders and affiliates;
- grant liens to secure other indebtedness;
- effect certain cash repurchases of convertible preferred stock that is no
longer outstanding, or incur indebtedness in connection with certain
equity repurchases, without prepayment of the Continental Notes; or
- consolidate, merge, or sell, convey, transfer, lease, or otherwise
dispose of all or substantially all of its property and assets.
The amendment would also require us to provide the trustee with copies of
our annual reports and the information, documents and other reports we file
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 instead
of providing financial statements for Continental, and provide that all the
Continental Notes not held as physical certificates as of the date of the
amendment may generally only be held in book-entry form through a depositary.
See "Description of the Continental Notes" for more complete descriptions
of the covenants and events of default that currently apply to the Continental
Notes and "Description of the Cable Guarantees and New Covenants" for a more
complete description of the effect of the amendment.
The amendment would allow for the granting of the Continental
cross-guarantees in return for the cable guarantees, notwithstanding any
covenants in the Continental Notes which would otherwise prohibit or condition
the granting of the Continental cross-guarantees.
38
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The amendments to the indentures governing the Continental Notes, together
with the provision of the cable guarantees and the grant by Continental of the
Continental cross-guarantees, will not be a taxable event for holders of the
Continental Notes. Consequently, a holder of Continental Notes will not
recognize any gain or loss, and the holder's holding period for and tax basis in
the Continental Notes will not be affected.
This discussion is based on the Internal Revenue Code of 1986, as amended,
applicable Treasury regulations, administrative interpretations and court
decisions as in effect as of the date of this prospectus, all of which may
change, possibly with retroactive effect. It does not describe all of the tax
consequences that may be relevant to a holder in light of the holder's
particular circumstances, and does not address any non-income tax or any
foreign, state or local tax consequences of the amendments to the indentures or
the provision of the guarantees. Each holder is urged to consult his or her own
tax advisor to determine the particular U.S. federal, state or local or foreign
income or other tax consequences to him or her.
39
DESCRIPTION OF THE CABLE GUARANTEES AND NEW COVENANTS
THE CABLE GUARANTEES
To simplify our capital structure and to insure that our traded debt
securities and those of Comcast Cable, Comcast Cable Communications Holdings,
Comcast Cable Holdings and Comcast MO Group will be treated equally, upon
completion of the AT&T Broadband acquisition, we, Comcast Cable, Comcast Cable
Communications Holdings, Comcast Cable Holdings and Comcast MO Group each fully
and unconditionally guaranteed each other's traded debt securities. Comcast
Holdings did not become a guarantor, and its debt securities were not
guaranteed, because we believe that future investors will be interested in "pure
play" debt securities of our cable communications operations and not Comcast
Holdings' commerce and content assets, such as QVC, E! Entertainment and Comcast
Spectacor.
Continental was one of AT&T's cable subsidiaries and was transferred to
Comcast Cable Communications Holdings in the AT&T Broadband acquisition.
Continental did not become a guarantor, and its debt securities were not
guaranteed, because Continental's indentures contain covenants that effectively
prohibit Continental from guaranteeing its affiliates' debt obligations.
In the event that the consent solicitation described in this prospectus is
successful and the amendment to the covenants and events of default under the
Continental Notes becomes effective, the Continental Notes would be fully and
unconditionally guarantees of the obligations, including the payment of
principal, premium, if any, and interest, on the Continental Notes by each of
us, and Comcast Cable, Comcast Cable Communications Holdings, Comcast Cable
Holdings and Comcast MO Group. We refer to these guarantees offered by this
prospectus as the "cable guarantees."
The cable guarantees will not contain any restrictions on the ability of
any cable guarantor to:
- pay dividends or distributions on, or redeem, purchase, acquire, or make
a liquidation payment with respect to, any of that cable guarantor's
capital stock;
- make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of that cable guarantor; or
- consolidate with or merge into or sell all or substantially all its
assets. Upon the sale or disposition of any cable guarantor (whether by
merger, consolidation, the sale of its capital stock or the sale of all
or substantially all of its assets) to any person, that cable guarantor
will be deemed released from all its obligations under its cable
guarantee.
The following table presents as of September 30, 2002 for each of
Continental and ourselves, Comcast Cable, Comcast Cable Holdings, and Comcast MO
Group, their pro forma payment obligations for principal, excluding obligations
of their subsidiaries and excluding interest but including principal accreted
under discount obligations, under (a) debt securities that are subject, or in
the case of Continental, would be subject, to the cross guarantees, (b) other
contractual liabilities, including capital leases, none of which will be subject
to the cross-guarantees and (c) operating leases, none of which will be subject
to the cross guarantees. For purposes of the table, amounts set forth opposite
"guaranteed debt securities" only include amounts with respect to the person who
is the primary obligor and not with respect to amounts for which that person may
be secondarily liable as guarantor. The table presents for Comcast Cable
Communications Holdings the pro forma effect of its issuance in connection with
the AT&T Broadband acquisition of approximately $3.50 billion in debt securities
to retire existing AT&T debt. The table also presents for us the pro forma
effect of our and Comcast Cable Communications Holdings' borrowings under the
New Credit Facility in connection with the closing of the AT&T Broadband
acquisition, as well as the issuance and sale in January 2003 of approximately
$600 million aggregate principal amount of our 5.85% Notes Due 2010 and $900
million aggregate principal amount of our 6.50% Notes Due 2015 and the
application of the proceeds from the issuance to repay short-term indebtedness
incurred in connection with the AT&T Broadband acquisition.
40
PAYMENTS DUE BY PERIOD
---------------------------------------------
PAYMENT REMAINDER AFTER 5
CONTRACTUAL OBLIGATION TOTAL OF 2002 1-2 YEARS 3-5 YEARS YEARS
- ---------------------- --------- --------- --------- --------- ---------
(IN MILLIONS, UNAUDITED)
Continental:
Potentially guaranteed debt
securities......................... $ 1,700.0 $ -- $ $ 875.0 $ 825.0
Other liabilities, including capital
leases............................. 103.8 0.7 103.1 -- --
Operating leases...................... 1.1 0.2 0.9 -- --
--------- ----- -------- -------- ---------
Total Continental.................. $ 1,804.9 $ 0.9 $ 104.0 $ 875.0 $ 825.0
--------- ----- -------- -------- ---------
Comcast:
New Credit Facility................... $ 680.0 $ -- $ 680.0 $ -- $ --
Guaranteed debt securities............ 1,500.0 1,500.0
--------- ----- -------- -------- ---------
Total Comcast...................... 2,180.0 -- $ 680.0 -- 1,500.0
--------- ----- -------- -------- ---------
Comcast Cable:
Guaranteed debt securities............ 7,821.7 -- 315.8 2,887.6 4,618.3
Other liabilities, including capital
leases............................. 6.8 1.1 2.8 0.5 2.4
--------- ----- -------- -------- ---------
Total Comcast Cable................ 7,828.5 1.1 318.6 2,888.1 4,620.7
--------- ----- -------- -------- ---------
Comcast Cable Communications Holdings:
New Credit Facility..................... 5,000.0 5,000.0
Guaranteed debt securities............ 3,505.1 -- -- -- 3,505.1
--------- ----- -------- -------- ---------
Total Comcast Cable Communications
Holdings......................... 8,505.1 -- 5,000.0 -- 3,505.1
--------- ----- -------- -------- ---------
Comcast Cable Holdings:
Guaranteed debt securities............ 5,883.9 30.0 1,748.7 1,165.5 2,939.7
Operating leases...................... 52.2 3.6 25.8 15.9 6.9
--------- ----- -------- -------- ---------
Total Comcast Cable Holdings....... 5,936.1 33.6 1,774.5 1,181.4 2,946.6
--------- ----- -------- -------- ---------
Comcast MO Group:
Guaranteed debt securities............ 302.8 10.4 7.2 82.3 202.9
Operating leases...................... 4.3 0.5 3.8 -- --
--------- ----- -------- -------- ---------
Total Comcast MO Group............. 307.1 10.9 11.0 82.3 202.9
--------- ----- -------- -------- ---------
Total of Continental, Comcast and cable
guarantors............................ $26.561.7 $46.5 $7,888.1 $5,026.8 $13,600.3
========= ===== ======== ======== =========
THE NEW COVENANTS
If the consent solicitation is successful and the amendment becomes
effective, we, Continental and the cable guarantors will agree to some
restrictions on our activities for the benefit of the holders of the Continental
Notes. The restrictive covenants and amended events of default summarized below
will apply, unless the covenants are waived or amended, so long as any of the
Continental Notes are outstanding, and will replace the existing Continental
covenants and amend the events of default described under "Description of the
Continental Notes." The following discussion of the new covenants and amended
events of default which will apply assumes that Continental will have granted
the Continental cross guarantees and will have become one of the "cable
guarantors." All references to the "indentures" are to the indentures governing
the Continental Notes as amended.
The Continental Notes will not contain any financial covenants other than
those summarized below and will not restrict us or our subsidiaries, including
Continental or its subsidiaries, from paying dividends or incurring additional
debt. In addition, the Continental Notes will not protect holders of the notes
in the event of a highly leveraged transaction or a change in control.
41
Limitation on Liens Securing Indebtedness. Neither we nor any cable
guarantor shall create, incur or assume any Lien (other than any Permitted Lien)
on such person's assets, including the Capital Stock of such person's
wholly-owned subsidiaries' to secure the payment of our Indebtedness or that of
any cable guarantor, unless we secure the outstanding Continental Notes or cable
guarantee, as the case may be, equally and ratably with (or prior to) all
Indebtedness secured by such Lien, so long as such Indebtedness shall be so
secured.
Limitation on Sale and Leaseback Transactions. Neither we nor any cable
guarantor shall enter into any Sale and Leaseback Transaction involving any of
such person's assets, including the Capital Stock of such person's wholly-owned
subsidiaries.
The restriction in the foregoing paragraph shall not apply to any Sale and
Leaseback Transaction if:
- the lease is for a period not in excess of three years, including renewal
of rights;
- the lease secures or relates to industrial revenue or similar financing;
- the transaction is solely between us and a cable guarantor or between or
among cable guarantors; or
- we or the applicable cable guarantor, within 270 days after the sale is
completed, applies an amount equal to or greater than (a) the net
proceeds of the sale of the assets or part thereof leased or (b) the fair
market value of the assets or part thereof leased (as determined in good
faith by our Board of Directors) either to:
- the retirement (or open market purchase) of Continental Notes, our other
long-term Indebtedness ranking on a parity with or senior to the
Continental Notes or long-term Indebtedness of a cable guarantor; or
- the purchase by us or any cable guarantor of other property, plant or
equipment related to our business or the business of any cable guarantor
having a value at least equal to the value of the assets or part thereof
leased.
This provision and the provision described under "-- Limitation on Liens
Securing Indebtedness" do not apply to any of our subsidiaries other than the
cable guarantors.
"Capitalized Lease" means, as applied to any person, any lease of any
property (whether real, personal, or mixed) of which the discounted present
value of the rental obligations of such person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such person; and
"Capitalized Lease Obligation" is defined to mean the rental obligations, as
aforesaid, under such lease.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations, or other equivalents (however designated, whether
voting or non-voting) of such person's capital stock or other ownership
interests, whether now outstanding or issued after the date of hereof,
including, without limitation, all common stock and preferred stock.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement, or other similar agreement or arrangement designed to protect against
the fluctuation in currency values.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of determination, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations contained in the
Continental indentures as amended shall be computed in conformity with GAAP
applied on a consistent basis.
42
"Guarantee" means any obligation, contingent or otherwise, of any person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such person:
- to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other person
(whether arising by virtue of partnership arrangements, or by agreement
to keep-well, to purchase assets, goods, securities, or services, to
take-or-pay, or to maintain financial statement conditions or otherwise);
or
- entered into for purposes of assuring in any other manner the obligee of
such Indebtedness or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in
part);
provided that the term "Guarantee" shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
"Indebtedness" means, with respect to any person at any date of
determination (without duplication):
- all indebtedness of such person for borrowed money;
- all obligations of such person evidenced by bonds, debentures, notes, or
other similar instruments;
- all obligations of such person in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect
thereto);
- all obligations of such person to pay the deferred and unpaid purchase
price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business);
- all obligations of such person as lessee under Capitalized Leases;
- all Indebtedness of other persons secured by a Lien on any asset of such
person, whether or not such Indebtedness is assumed by such person;
provided that the amount of such Indebtedness shall be the lesser of:
- the fair market value of such asset at such date of determination; and
- the amount of such Indebtedness;
- all Indebtedness of other persons Guaranteed by such person to the extent
such Indebtedness is Guaranteed by such person;
- to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements.
The amount of Indebtedness of any person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation; provided:
- that the amount outstanding at any time of any Indebtedness issued with
original issue discount is the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP; and
- that Indebtedness shall not include any liability for federal, state,
local, or other taxes.
"Interest Rate Agreements" means any obligations of any person pursuant to
any interest rate swaps, caps, collars, and similar arrangements providing
protection against fluctuations in interest rates. For purposes of the
Continental indentures as amended, the amount of such obligations shall be the
amount determined in respect thereof as of the end of the then most recently
ended fiscal quarter of such person, based on the assumption that such
obligation had terminated at the end of such fiscal quarter, and in making such
determination, if any agreement relating to such obligation provides for the
netting of amounts payable by and to such person thereunder or if any such
agreement provides for the simultaneous payment of amounts by and
43
to such person, then in each such case, the amount of such obligations shall be
the net amount so determined, plus any premium due upon default by such person.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of the Continental
indentures as amended, we or any cable guarantor shall be deemed to own subject
to a Lien any asset acquired or held subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
"Permitted Liens" means:
- any Lien on any asset incurred prior to the effective date of the
amendment;
- any Lien on any assets acquired after the effective date of the amendment
(including by way of merger or consolidation) by us or any cable
guarantor, which Lien is created, incurred or assumed contemporaneously
with such acquisition, or within 270 days thereafter, to secure or
provide for the payment or financing of any part of the purchase price
thereof, or any Lien upon any assets acquired after the effective date of
the amendment existing at the time of such acquisition (whether or not
assumed by us or any cable guarantor), provided that any such Lien shall
attach only to the assets so acquired;
- any Lien on any assets in favor of us or any cable guarantor;
- any Lien on assets incurred in connection with the issuance of tax-exempt
governmental obligations (including, without limitation, industrial
revenue bonds and similar financing);
- any Lien granted by any cable guarantor on assets to the extent
limitations on the incurrence of such Liens are prohibited by any
agreement to which such cable guarantor is subject as of the effective
date of the amendment; and
- any renewal of or substitution for any Lien permitted by any of the
preceding bullet points, including any Lien securing reborrowing of
amounts previously secured within 270 days of the repayment thereof,
provided that no such renewal or substitution shall extend to any assets
other than the assets covered by the Lien being renewed or substituted.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any person or to which any such person is a party, providing for the
leasing to us or a cable guarantor of any property, whether owned by us or such
cable guarantor at the date of the original issuance of the debt securities or
later acquired, which has been or is to be sold or transferred by us or such
cable guarantor to such person or to any other person by whom funds have been or
are to be advanced on the security of such property.
Financial Information. We will file, whether or not required to do so
under applicable law, with the trustee, within 15 days after being required to
file the same under the Securities Exchange Act of 1934, copies of the annual
reports and the information, documents and other reports to be filed pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. We intend to file
all such reports, information and documents with the SEC, whether or not
required by Section 13 or 15(d), and will send copies to the trustee within such
15-day period.
Consolidation, Merger and Sale of Assets. Each indenture as amended will
restrict Continental's ability to consolidate with, merge with or into, or sell,
convey, transfer, lease, or otherwise dispose of all or substantially all of its
property and assets as an entirety or substantially an entirety in one
transaction or a series of related transactions to any person (other than a
consolidation with or merger with or into or a sale, conveyance, transfer, lease
or other disposition to an affiliate with a positive net worth; provided that,
in connection with any merger of Continental and an affiliate, no consideration
other than common stock in the
44
surviving person shall be issued or distributed to Continental's stockholders)
or permit any person to merge with or into Continental unless:
- Continental is the continuing person or the person formed by such
consolidation or into which such party is merged or that acquired or
leased such property and assets shall be a corporation or limited
liability company organized and validly existing under the laws of the
United States of America or any jurisdiction thereof and shall expressly
assume, by a supplemental indenture, executed and delivered to the
trustee, all of Continental's obligations on all of the Continental notes
under that indenture;
- immediately after giving effect to such transaction, no default or event
of default shall have occurred and be continuing; and
- Continental delivers to the trustee an officers' certificate and opinion
of counsel, in each case stating that such consolidation, merger, or
transfer and such supplemental indenture complies with this provision and
that all conditions precedent provided for in that indenture and notes
relating to such transaction have been complied with;
provided, however, that the foregoing limitations will not apply if, in the good
faith determination of Continental's board of directors set forth in a board
resolution, the principal purpose of such transaction is to change the state of
incorporation of such party; and provided further that any such transaction
shall not have as one of its purposes the evasion of the foregoing limitations.
Upon any express assumption of Continental's obligations under an indenture
as described above, Continental will be released and discharged from all
obligations and covenants under that indenture and all the Continental Notes
issued under that indenture.
EVENTS OF DEFAULT
In the event the amendment becomes effective, upon the granting of the
cable guarantees the following changes will be made to the event of defaults
under the indentures for the Condor Notes. For purposes of this section, the
term "Obligor" shall mean each of us, Comcast Cable, Comcast Cable
Communications Holdings, Comcast Cable Holdings and Comcast MO Group, in each
case excluding such entity's subsidiaries.
The amendment would add as events of default under each indenture
- default by any Obligor in the observance or performance of any covenant
under that indenture or notes outstanding under that indenture for more
than 60 days after written notice thereof shall have been given to that
Obligor by the trustee, or to that Obligor and the trustee by the holders
of at least 25% in aggregate principal amount of the notes then
outstanding under that indenture;
- any cable guarantee is not (or is claimed by any cable guarantor not to
be) in full force and effect;
- certain events involving bankruptcy, insolvency or reorganization of us
or any cable guarantor.
A default under any of our or the cable guarantors' other indebtedness will
not be a default under the indentures.
In addition, upon the granting of the cable guarantees the amendment would
remove a default under, or the acceleration of the maturity of, other
indebtedness of Continental as an event of default under the indentures.
45
DESCRIPTION OF THE CONTINENTAL NOTES
GENERAL
This prospectus relates to Continental's $1,700,000,000 in principal amount
of
- 8 7/8% Debentures Due September 15, 2005, referred to in this prospectus
as the "2005 Notes";
- 8.30% Senior Notes Due May 15, 2006, referred to in this prospectus as
the "2006 Notes";
- 9% Senior Debentures Due September 1, 2008 of Continental, referred to in
this prospectus as the "2008 Notes"; and
- 9.5% Senior Debentures Due August 1, 2013, referred to in this prospectus
as the "2013 Notes."
We refer to these notes in this prospectus as the "Continental Notes." The
Continental Notes were issued under separate but substantially similar
indentures. We refer to these indentures in this prospectus as the "Continental
Indentures."
The following is a summary of the material terms common to all of the
Continental Indentures and is qualified by reference to the description of the
terms of the issues of Continental Notes below, which sets forth any terms of a
Continental Indenture or the Continental Notes issued under that indenture which
differ materially from the summary of common terms, and by reference to the
Continental Indentures and the Continental Notes, which are exhibits to the
registration statement of which this prospectus forms a part. Terms used in the
following description are defined below under "-- Certain Definitions."
The Continental Notes:
- represent unsecured senior indebtedness of Continental;
- are not guaranteed by any of Continental's subsidiaries;
- rank pari passu in right of payment with the other Continental Notes and
with all other Senior Indebtedness of Continental; and
- are senior in right of payment to all subordinated indebtedness of
Continental.
Continental has existing long-term indebtedness, all of which is senior
indebtedness, in the aggregate amount of approximately $1,885,000,000. Subject
to certain limitation set forth in the Continental Indentures described under
"-- Negative Covenants -- Limitations on Indebtedness" and "-- Limitation on
Liens" below, the Continental Indentures permit Continental and the Restricted
Subsidiaries to incur and secure additional Indebtedness, which Indebtedness may
be guaranteed by the Restricted Subsidiaries. The Continental Indentures do not
restrict the incurrence of Indebtedness, whether secured or unsecured, by
Continental's Unrestricted Subsidiaries. As of the date of this prospectus, all
of Continental's Subsidiaries are Restricted Subsidiaries.
As of September 30, 2002, Continental's subsidiaries had no long-term
indebtedness. Since substantially all of Continental's assets consist of the
stock of its subsidiaries, its ability to satisfy its obligations, including its
obligations in respect of the Continental Notes, is dependent upon its receipt
of funds from its subsidiaries. Upon any distribution of the assets of
Continental and its subsidiaries pursuant to any dissolution, winding up,
liquidation or reorganization, the assets of Continental's subsidiaries will be
applied first to discharge the claims of such subsidiaries' creditors and to
discharge any other indebtedness that has been guaranteed or secured by the
subsidiaries. As a result, holders of the Continental Notes may recover less,
ratably, than creditors of Continental's subsidiaries in the event that the
remaining assets of it and its subsidiaries are insufficient to discharge all of
the Senior Indebtedness of Continental.
PAYMENT AT MATURITY AND OPTIONAL PREPAYMENTS
Payment at Maturity. The principal of the Continental Notes will be
payable at maturity. No sinking fund is provided for the Continental Notes.
Continental may not elect to prepay the Continental Notes prior to
46
their maturity, with the exception of the 2013 Notes which Continental may elect
to prepay as described below under "Description of 2013 Notes -- Payment at
Maturity and Optional Prepayments -- Prepayment at the Option of Continental'
Prepayment at the Option of the Holders. The holders of Continental Notes
are entitled to demand prepayment of the Continental Notes upon the occurrence
of the following events:
- Prepayment in the Event of Certain Exempt Repurchases.
If Continental proposes:
- to make an Exempt Repurchase, and immediately after giving effect to any
such Indebtedness incurred for the purpose of making such Exempt
Repurchase, Continental would be unable to incur an additional One
Dollar ($1.00) of Indebtedness under the terms of Continental's covenant
on limitation on Indebtedness described below under "-- Negative
Covenants -- Limitation on Indebtedness" (without giving effect to that
portion of the covenant which excludes Exempt Repurchase Indebtedness),
as defined below under "-- Negative Covenants -- Limitation on
Indebtedness"; or
- to incur additional Indebtedness and immediately after giving effect to
the incurrence of such Indebtedness Continental would be able to incur
an additional One Dollar ($1.00) of Indebtedness under the foregoing
covenant on limitation on Indebtedness only because Exempt Repurchase
Indebtedness is not included in the computation of Indebtedness for
purposes of such covenant,
then Continental will give to each holder of Continental Notes notice (the
"Repurchase Notice") of such proposed Exempt Repurchase or proposed incurrence
of such additional Indebtedness (either, a "Put Option Transaction") not less
than 15 nor more than 45 days before the proposed date of consummation (the
"Proposed Consummation Date") specified in the Repurchase Notice.
If the Put Option Transaction is consummated on the Proposed Consummation Date
or within 30 days after such date, Continental will send notice to each holder
of Continental Notes on the date of consummation (the "Put Option Transaction
Date") that each holder has the right, for the 30 day period following the Put
Option Transaction Date, to tender all, but not less than all, of such holder's
Continental Notes and thereby to require Continental to redeem the holder's
Continental Notes at a price equal to the principal amount of such Continental
Notes and accrued interest thereon to the date of prepayment.
The prepayment price for any Continental Notes properly tendered will be
paid 35 days after the Put Option Transaction Date. Continental will be
prohibited from consummating a Put Option Transaction unless it has delivered to
the Trustee an Officers' Certificate to the effect that Continental has
committed financing sufficient to redeem all outstanding Continental Notes. In
the event that the proposed Put Option Transaction is not consummated within 30
days of the Proposed Consummation Date, Continental will give notice to each
holder of Continental Notes that the proposed Put Option Transaction was not
consummated. If a Put Option Transaction is consummated, Continental will comply
with all applicable tender offer rules, including, without limitation, Section
14(e) of the Securities Exchange Act of 1934, as amended, and Rule 14e-l
promulgated thereunder.
Following the consummation of a Put Option Transaction and the repurchase
by Continental of those Continental Notes, if any, properly tendered for
repurchase:
- holders of each series of the Continental Notes will have no further
right to cause Continental to prepay their Continental Notes as a result
of any subsequent Put Option Transaction; and
- Continental will no longer be bound by the covenants described below
under "-- Negative Covenants -- Limitation on Indebtedness,"
"-- Investments in Unrestricted Subsidiaries" and "-- Limitations on
Liens."
The Repurchase Notice will inform holders of the Continental Notes of the
events described above.
47
- Prepayment in the Event of Certain Cash Repurchases of Convertible
Preferred Stock.
The Continental Indentures provide for prepayment to the holders of
Continental Notes in the event of certain cash repurchases of convertible
preferred stock. This convertible preferred stock is no longer outstanding and
therefore this covenant is no longer relevant.
NEGATIVE COVENANTS
Restricted Payments. The Continental Note Indentures provide that, so long
as any of the Continental Notes remain outstanding, neither Continental nor any
of its Subsidiaries will pay any dividend on, or make any distribution in
respect of, any shares of any class of Continental's stock (except dividends or
distributions payable in shares of its stock), or purchase, redeem or otherwise
acquire for value any shares of any class of Continental's stock (or any rights,
warrants or options to purchase any class of Continental's stock, except if such
rights, warrants or options are held by an employee of Continental and such
purchase, redemption or acquisition occurs in connection with the termination of
such employee's employment with Continental), otherwise than pursuant to Exempt
Repurchases if either of the following is true:
- if a default shall have occurred and be continuing at the time of such
proposed Restricted Payment or shall occur as a consequence thereof; or
- if the aggregate of all Restricted Payments made from March 31, 1992
through and including the date on which such Restricted Payment is made,
would exceed the sum of
- the amount by which Operating Cash Flow of the Restricted Group on a
consolidated basis for the period, treated as a single accounting
period, from March 31, 1992 through the fiscal quarter immediately
preceding such proposed restricted payment for which financial
statements are available exceeds 1.20 times the Total Interest Expense
for the period, treated as a single accounting period from March 31,
1992 through said fiscal quarter immediately preceding such proposed
Restricted Payment, plus
- $150,000,000, plus
- the aggregate net proceeds, including the fair market value of property
other than cash, received by Continental from the issue or sale (other
than to a Subsidiary) subsequent to June 23, 1992 of capital stock of
Continental or from the exercise subsequent to June 23, 1992 of any
options, warrants or other rights to acquire capital stock of
Continental.
Any payment made in contravention of the terms above is referred to in this
description of the Continental Notes as a "Restricted Payment." Approximately
$4.4 billion would have been available as of September 30, 2002 for payments
subject to this test.
For all purposes of this covenant, any recapitalization of Continental
(whether or not effected through a merger or consolidation with, or sale of
substantially all of the assets of Continental to, any person) that has the
effect of transferring money, property, or securities other than capital stock
of Continental to any holder of any shares of the capital stock of Continental
(otherwise than in connection with an Exempt Repurchase) shall be deemed a
Restricted Payment. Exempt Repurchases shall not constitute Restricted Payments
or be taken into account in computing the amount of Restricted Payments that
Continental may make but may entitle the holders of Continental Notes to require
the prepayment of their Continental Notes. See "Description of the Continental
Notes -- Prepayment at the Option of the Holders" above.
Limitation on Indebtedness. The Continental Indentures provide that no
member of the Restricted Group will incur any additional Indebtedness -- other
than Indebtedness in connection with Exempt Repurchases ("Exempt Repurchase
Indebtedness") -- if, immediately thereafter and giving effect thereto on a pro
forma basis, the aggregate Indebtedness (exclusive of any and all Exempt
Repurchase Indebtedness) of the Restricted Group would be more than the product
of (a) the Annualized Operating Cash Flow of the Restricted Group multiplied by
(b) nine. Continental's obligation to comply with this covenant may terminate
under certain circumstances. See "-- Prepayment at the Option of the Holders"
above.
48
At September 30, 2002, the aggregate Indebtedness of the Restricted Group
(exclusive of any Exempt Repurchase Indebtedness) was $1,855.0 million. The
Operating Cash Flow of the Restricted Group would have been $213.3 million for
the three month period ending September 30, 2002. Accordingly, the ratio of
aggregate Indebtedness of the Restricted Group to four times such Operating Cash
Flow was 2.2 to 1 at September 30, 2002.
Investments in Unrestricted Subsidiaries. The Continental Indentures
provide that no member of the Restricted Group will make any loan or transfer of
property to or investment in a Unrestricted Subsidiary unless, immediately after
and giving effect to such loan or investment on a pro forma basis, the
Restricted Group would be able to incur additional One Dollar ($1.00) of
Indebtedness without violating the covenant in the Continental Indentures on
limitation of Indebtedness described above under "-- Limitation on
Indebtedness," as determined for the fiscal quarter most recently completed for
which financial statements are available at the date of such loan, transfer or
investment. The following loans, transfers of property to or investments in a
Restricted Subsidiary which would otherwise be prohibited are permitted:
- the provision of goods and services to an Unrestricted Subsidiary if such
goods and services are billed to an Unrestricted Subsidiary on the basis
of the provider's cost therefor; and
- advances to a Unrestricted Subsidiary in the ordinary course of business
by the Restricted Group if the interest payable on such advances is
generally consistent with Continental's cost of borrowings under its
credit facilities.
Continental's obligation to comply with this covenant may terminate under
certain circumstances. See "-- Prepayment at the Option of the Holders" above.
Transactions with Affiliates. The Continental Indentures provide that
Continental will not, and will not permit any Restricted Subsidiary to, enter
into any transaction (including, without limitation, the purchase, sale, lease
or exchange of any property or the rendering of any service) with any holder of
5% or more of any class of capital stock of Continental or with any affiliate of
Continental or of any such holder, on terms that are less favorable to
Continental or such Restricted Subsidiary, as the case may be, than those which
might be obtained at the time of such transaction from a person who is not such
a holder or affiliate. This covenant will not limit, or be applicable to:
- Exempt Repurchases;
- transactions between Continental and a Subsidiary or between
Subsidiaries;
- transactions pursuant or relating to a stock purchase agreement between
an employee selected by the Board of Directors and Continental pursuant
to which that employee may purchase shares of Common Stock; and
- the payment of reasonable and customary regular fees to directors of
Continental who are not employees of Continental.
Merger or Sales of Assets. The Continental Indentures provide that
Continental may not merge into or consolidate with another corporation or sell
or lease all or substantially all of its assets to another corporation unless
either Continental is the surviving corporation, or the resulting, surviving or
transferee corporation is organized under the laws of a state of the United
States or the District of Columbia and agrees to pay promptly when due the
principal of and premium, if any, and interest on the Continental Notes, and to
assume, perform and observe all the covenants and conditions of the Continental
Indentures, and immediately after and giving effect to such transaction, no
Event of Default has occurred.
Limitation on Liens. The Continental Indentures provide that Continental
will not, and will not permit any Restricted Subsidiary to, create, incur or
assume any Lien on any Principal Property or any shares of capital stock or
Indebtedness of any Restricted Subsidiary without making effective provision for
all of the Continental Notes and all other amounts due under the Continental
Indentures to be directly secured equally and ratably with (or prior to) the
obligation or liability secured by such Lien unless, at the time of such
creation, incurrence or assumption and, after giving effect thereto, the
aggregate amount of all Indebtedness so
49
secured does not exceed five times Annualized Cash Flow. However, if all Liens
(other than Liens created pursuant to this provision or a comparable provision
of the indenture under which the other Continental Notes were issued) on
principal property or shares of capital stock or Indebtedness of a Restricted
Subsidiary which secure indebtedness of Continental or any Restricted Subsidiary
are released, then:
- existing Liens so created (together with all then existing Liens created
pursuant to a comparable provision of the indentures under which the
other Continental Notes were issued) shall be automatically released; and
- the trustee shall be authorized to execute and deliver to Continental any
documents requested by Continental which are required to evidence the
release of such Liens.
Continental's obligation to comply with this covenant may terminate under
certain circumstances. See "-- Prepayment at the Option of the Holders" above.
Under the terms of the Continental Indentures, the foregoing limitation
does not apply to:
- Liens securing obligations of Continental to reimburse any bank or other
person in respect of amounts paid under letters of credit, acceptances or
other similar instruments; or
- Liens securing Indebtedness on the assets of any entity existing at the
time such assets are acquired by Continental or any of its Restricted
Subsidiaries, whether by merger, consolidation, purchase of assets or
otherwise, provided such Liens;
- are not created, incurred or assumed in connection with, or in
contemplation of, such assets being acquired by Continental or any of
its Restricted Subsidiaries; and
- do not extend to any other Principal Property or assets of Continental
or any of its Restricted Subsidiaries.
At September 30, 2002, the Restricted Group had no Indebtedness secured by
Liens.
CERTAIN DEFINITIONS
Terms used in these description generally are defined as set forth below.
However, terms that are defined under the description of any particular series
of Continental Notes or elsewhere in this prospectus are defined as set forth
under that section.
"Annualized Cash Flow" means Operating Cash Flow for the latest fiscal
quarter for which financial statements are available multiplied by four.
"Exempt Repurchases" mean repurchases by Continental at any time or from
time to time of up to 751,305 shares of its Common Stock which are subject to
the 1998-1999 Share Repurchase Program, provided that Continental has received
prior to any such Exempt Repurchase an opinion of an investment banker
knowledgeable in the communications industry (who may be Continental's
investment banker) that the price per share of Common Stock paid pursuant to any
such Exempt Repurchase does not exceed the greater of:
- the dollar amount that a holder of Common Stock would then receive per
share of Common Stock upon a sale of Continental as a whole pursuant to a
merger or sale of stock or, if greater, the dollar amount a holder of
Common Stock would then receive per share of Common Stock derived from
the sale of Continental's assets and subsequent distribution of the
proceeds therefrom (net of taxes including corporate, sales and capital
gain taxes in connection with such sale of assets), in each instance less
a discount of 22.5%; or
- the net proceeds which would be expected to be received by a shareholder
of Continental from the sale of a share of Continental's Common Stock in
an underwritten public offering held at the time any such Exempt
Repurchase is to occur after being reduced by pro forma expenses and
underwriting discounts unless the Common Stock is publicly traded and
such expenses and underwriting discounts would not be incurred in
connection with an underwritten public sale of a shareholder's
non-registered shares in the opinion of the investment banker;
50
provided, further, that no such opinion of an investment banker will be required
for repurchases of shares of Common Stock which are subject to the 1998-1999
Share Repurchase Program to the extent that the aggregate purchase price paid
therefor in any calendar year does not exceed $10,000,000.
"Indebtedness" means, with respect to any issue of Continental Notes,
without duplication, with respect to any person, any indebtedness, contingent or
otherwise, in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding any balances that constitute subscriber advance payments and
deposits, accounts payable or trade payables, and other accrued liabilities
arising in the ordinary course) if and to the extent any of the foregoing
indebtedness would appear as a liability upon a balance sheet of such person
prepared in accordance with generally accepted accounting principles, and shall
also include, to the extent not otherwise included, the maximum fixed repurchase
price of any equity securities or other similar interests of such person which
by their terms or otherwise are required to be redeemed prior to the maturity of
that issue of Continental Notes or at the option of the holder thereof,
obligations secured by a Lien to which the property or assets owned or held by
such person is subject, whether or not the obligation or obligations secured
thereby shall have been assumed, all obligations to reimburse any person in
respect of amounts paid under letters of credit, acceptances or other similar
instruments, and guarantees of any of the above items (whether or not such items
would appear upon such balance sheet). Indebtedness does not include:
- any Interest Rate Agreement, however denominated, of Continental or any
of its Subsidiaries;
- as to the Restricted Group, any indebtedness of any Subsidiary which is
non-recourse to the Restricted Group or any pledge of the stock of any
such Subsidiary to secure such indebtedness;
- as to the Restricted Group, Indebtedness of a Restricted Subsidiary to
Continental or another Restricted Subsidiary, and Indebtedness of
Continental to a Restricted Subsidiary;
- any obligation of Continental to redeem, or to pay dividends on, its
outstanding convertible preferred stock;
- any obligation of Continental to repurchase shares of its outstanding
Common Stock pursuant to the 1998-1999 Share Repurchase Program; or
- any equity securities or other similar interests which, at the option of
Continental or otherwise, are redeemable into shares of capital stock.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement or other similar agreement
designed to protect the party indicated therein against fluctuations in interest
rates.
"Lien" means, as to the Restricted Group and as used in the definition of
"Indebtedness," any mortgage, pledge, lien or security interest except for:
- pledges of the stock of unrestricted subsidiaries to secure indebtedness;
- Liens for taxes, assessments or governmental charges or claims the
payment of which is being contested in good faith by appropriate
proceedings and with respect to which Continental or a Restricted
Subsidiary shall have created adequate reserves on its books;
- Liens of mechanics, carriers, warehousemen or materialmen arising in the
ordinary course of business in respect of obligations which are not
overdue or which are being contested in good faith;
- Liens resulting from deposits or pledges made in the ordinary course of
business to secure payment of workers' compensation, unemployment
insurance, old age pension or other social security, or in connection
with or to secure the performance of bids, tenders or contracts made in
the ordinary course of business, or to secure statutory obligations or
surety, performance or appeal bonds;
51
- Liens in respect of judgments or awards the payment of which is being
contested in good faith by appropriate proceedings and with respect to
which the Restricted Group shall have created adequate reserves on its
books;
- purchase money security interests (including mortgages, any conditional
sale or other title retention agreement and any capitalized lease);
provided, however, that the principal amount of Indebtedness secured by
each such security interest in each such item (or group of items) of
property shall not exceed the cost of the item (or group of items)
subject thereto and each such security interest shall attach only the
particular item (or group of items) so acquired and any additions or
accessions thereto;
- landlord's or lessor's Liens under leases to which any member of the
Restricted Group is a party; and
- Liens of utilities and other persons pursuant to pole attachment
agreements, and restrictions on the transfer of rights under franchises
or pole attachment agreements, and any encumbrances created in favor of
franchising authorities and subscribers by provisions of franchises on
cable television plant and equipment located in the areas covered
thereby.
"Operating Cash Flow" means, for any period, an amount equal to:
- aggregate operating revenues plus interest and ordinary dividend income;
minus
- aggregate operating expenses, excluding therefrom nonoperating expenses
such as interest expense, depreciation and amortization, non-cash amounts
and taxes on income, of the Restricted Group for such period, determined
on a consolidated basis, after eliminating all intercompany items, in
accordance with generally accepted accounting principles consistently
applied.
For purposes of calculating Operating Cash Flow, there will be included in
the Operating Cash Flow of the Restricted Group for any fiscal quarter for which
Operating Cash Flow is being calculated the Operating Cash Flow for such fiscal
period of any Subsidiary which has been designated a Restricted Subsidiary or of
operating assets acquired by Continental or a Restricted Subsidiary (including
assets constituting a cable television system acquired by Continental or a
Restricted Subsidiary) after the commencement of such fiscal period. If the
actual financial Statements of any such new Restricted Subsidiary or new
operating assets for any fiscal period or portion thereof prior to the inclusion
of such subsidiary as a Restricted Subsidiary or the acquisition of such
operating assets by Continental or a Restricted Subsidiary are unavailable or
inaccurate in the reasonable opinion of Continental, then the Operating Cash
Flow of such new Restricted Subsidiary or new operating assets may be determined
from pro forma financial statements of such new Restricted Subsidiary or new
operating assets for such period as prepared in good faith by Continental,
provided, however, that not more than $10,000,000 of Operating Cash Flow
determined on an annualized basis from such pro forma financial statements shall
be included in the Operating Cash Flow of the Restricted Group. For purposes of
calculating Operating Cash Flow, there will not be included in the Operating
Cash Flow of the Restricted Group for any fiscal quarter for which Operating
Cash Flow is being calculated the Operating Cash Flow for such fiscal period of
any Restricted Subsidiary which has been designated an Unrestricted Subsidiary
after the commencement of such fiscal period or of operating assets (including
assets constituting a cable television system) owned by Continental or a
Restricted Subsidiary which has been transferred to an Unrestricted Subsidiary
after the commencement of such fiscal period.
"Principal Property" means, as of any date of determination, any property
or assets owned by any Restricted Subsidiary other than:
- any such property which, in the good faith opinion of the Board of
Directors, is not of material importance to the business conducted by
Continental and its Restricted Subsidiaries taken as a whole; and
- any shares of any class of stock or any other security of any
Unrestricted Subsidiary.
"Restricted Group" means Continental and its Restricted Subsidiaries.
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"Restricted Subsidiary" means:
- any subsidiary of Continental, whether existing on or after the date of
the Continental Indentures, which has been designated a Restricted
Subsidiary for purposes of
- the Credit Agreement dated as of May 1, 1989, as amended and restated as
of July 30, 1990 among Continental and certain financial institutions,
as amended from time to time; or
- the Credit Agreement, dated as of May 15, 1992, among Continental,
certain Restricted Subsidiaries and certain financial institutions, as
amended from time to time, unless any such Subsidiary is subsequently
classified as an Unrestricted Subsidiary by Continental for purposes of
the Continental Indentures; and
- an Unrestricted Subsidiary which is classified as a Restricted Subsidiary
for purposes of the Continental Indentures by Continental. Continental
may not classify as an Unrestricted Subsidiary for purposes of the
Continental Indentures any subsidiary that is classified as a Restricted
Subsidiary for purposes of the credit agreements set forth above in the
two bullet points above or any similar, successor agreements.
"Subsidiary" means:
- any corporation of which the outstanding stock having at least a majority
in voting power in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by Continental or by
Continental and one or more Subsidiaries or by one or more Subsidiaries;
or
- any other person of which at least a majority in voting interest, under
ordinary circumstances, is at the time, directly or indirectly, owned or
controlled by Continental or by Continental and one or more Subsidiaries
or by one or more Subsidiaries. A partnership of which Continental or any
Subsidiary is the managing general partner shall be deemed to be a
Subsidiary.
"Total Interest Expense" means, for any period, the aggregate amount of
interest in respect of Indebtedness (including amortization of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation and after taking into account the effect of any Interest Rate
Agreement, however denominated, with respect to such Indebtedness) and all but
the principal component of rentals in respect of capital lease obligations,
paid, accrued, or scheduled to be paid or accrued by the Restricted Group,
during such period, determined on a consolidated basis, after eliminating all
intercompany items, in accordance with generally accepted accounting principles,
provided that such amounts paid, accrued and scheduled to be paid or accrued by
any person which is not a Subsidiary but the accounts of which are consolidated
with those of Continental will be deducted therefrom. For purposes of this
definition, interest on a capital lease obligation will be deemed to accrue at
an interest rate reasonably determined by Continental to be the rate of interest
implicit in such capital lease obligation in accordance with generally accepted
accounting principles.
"Unrestricted Subsidiary" means any Subsidiary of Continental, whether
existing on or after the date of the Continental Indentures, which is not a
Restricted Subsidiary.
EVENTS OF DEFAULT
An Event of Default is defined with respect to each series of Continental
Notes as being:
- default in payment of any principal of or premium, if any, on that series
of Continental Notes;
- default for 30 days in payment of any installment of interest on that
series of Continental Notes;
- default by Continental in the observance or performance of any other
covenant in each of the Continental Notes or each of the Continental
Indentures for more than 60 days after notice thereof shall have been
given to Continental by the trustee, or to Continental and the trustee by
the holders of at least 25% in aggregate principal amount of that series
of Continental Notes then outstanding;
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- default by Continental in payment when due at maturity of indebtedness
for borrowed money in excess of $10,000,000 ($25,000,000 with respect to
the 2006 Notes) and the continuation of such default for the greater of
the applicable grace period thereto or ten days from the date of default;
- the acceleration of the maturity of any indebtedness for borrowed money
issued under an indenture or other instrument of Continental in excess of
$10,000,000 ($25,000,000 with respect to the 2006 Notes) if the trustee
or the holders of at least 25% in aggregate principal amount of that
series of Continental Notes then outstanding give to Continental and
trustee notice thereof requiring Continental to remedy the same and
within ten days after receiving such notice Continental fails to cause
such acceleration to be rescinded or annulled or such indebtedness to be
discharged; or
- certain events involving bankruptcy, insolvency or reorganization of
Continental.
The applicable trustee may withhold notice to the holders of Continental
Notes of any default (except in payment of principal of, or premium, if any, or
interest on, the Continental Notes) if the trustee considers it in the interest
of the holders of that series of Continental Notes to do so.
Each Continental Indenture provides that if an Event of Default shall have
occurred and be continuing, the trustee or the holders of not less than 25% in
the principal amount of the series of Continental Notes issued under that
Continental Indenture then outstanding may declare the principal of that series
of the Continental Notes and the interest accrued thereon to be due and payable
immediately by notice in writing to Continental (an "Acceleration Notice"),
provided that, except in the case:
- of an Event of Default in connection with certain events involving
bankruptcy, insolvency or reorganization of Continental; or
- that no more than 10 days and no less than 5 days prior to the giving of
an Acceleration Notice the trustee shall have given to Continental (or,
in the case of an acceleration by the holders of any series of the
Continental Notes, the holders shall have given to the trustee and
Continental) a notice (a "Pre-Acceleration Notice") in writing that in no
more than 10 days the Trustee (or the holders) intends to give an
Acceleration Notice, an Acceleration Notice shall not become effective
until 5 days after receipt of such notice by Continental (and the Trustee
if given by holders).
With respect to any series of Continental Notes, if Continental shall cure
all defaults (except the nonpayment of interest on and principal of any
Continental Notes which shall have become due by acceleration) and certain other
conditions are met, an acceleration notice may be annulled and past defaults may
be waived by the holders of a majority in principal amount of that series of the
Continental Notes then outstanding.
The applicable trustee shall give the holders of a series of Continental
Notes notice of any default under the applicable Continental Indenture as and to
the extent provided by the Trust Indenture Act of 1939, as in effect on the date
of applicable Continental Indenture. For this purpose, the term "default" shall
mean any event which is, or after notice or lapse of time or both would become,
an Event of Default under the Continental Indentures.
The holders of a majority of the aggregate principal amount of any series
of the Continental Notes then outstanding shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the trustee with respect to that series of Continental Notes, subject to certain
limitations specified in the applicable Continental Indentures. Prior to any
declaration accelerating the maturity of the Continental Notes, the holders of a
majority in aggregate principal amount of a series of the Continental Notes then
outstanding may on behalf of the holders of all the Continental Notes of that
series waive any past default or event of default and its consequences except a
default in the payment of interest, or premium, if any, on, or the principal of,
that series of Continental Notes.
Continental will furnish to the trustee not more than 90 days after the end
of Continental's fiscal year in each year (beginning with fiscal 1993) an
Officers' Certificate stating that in the course of the performance by the
signers of their duties as officers of Continental they would normally have
knowledge of any default by Continental in the performance of the covenants
contained in the Continental Indentures, stating whether or
54
not they have knowledge of any such default and, if so, specifying each such
default of which the signers have knowledge and the nature thereof.
DEFEASANCE
The Continental Indentures and the Continental Notes provide that
Continental will be discharged from any and all obligations in respect to any
series of the Continental Notes (except for certain obligations to register the
transfer, substitution or exchange of Continental Notes, to replace stolen, lost
or mutilated Continental Notes, and to maintain paying agencies, and except for
the right of the holders of the Continental Notes to receive payments of
principal, premium, if any, and interest, and the rights, obligations and
immunities of the trustee), upon the deposit with the trustee, in trust, of
money and/or U.S. government obligations which through the payment of interest
and principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of (and premium, if any) and
each installment of interest on each series of the Continental Notes on the
stated maturity of such payments or on a selected date of redemption or on the
remaining dates in accordance with the terms of each Continental Indenture and
the corresponding series of Continental Notes. Such a trust may only be
established if, among other things, Continental has received an opinion of
counsel:
- to the effect that neither the trust nor the trustee will be required to
register as an investment company under the Investment Company Act of
1940, as amended; and
- describing either a private ruling concerning the Continental Notes or a
published ruling of the Internal Revenue Service, to the effect that
holders of the Continental Notes or persons in their position will not
recognize income, gain or loss for Federal income tax purposes as a
result of such deposit, defeasance and discharge and will be subject to
Federal income tax on the same amount and in the same manner and at the
same times, as would have been the case if such deposit, defeasance and
discharge had not occurred.
MODIFICATION OF THE CONTINENTAL INDENTURES
The Continental Indentures contain provisions permitting Continental and
the trustee, with the consent of the holders of a majority in aggregate
principal amount of that series of the Continental Notes at the time
outstanding, to modify the corresponding Continental Indenture or any
supplemental note indenture or the rights of the holders of that series of
Continental Notes, except that no such modification shall:
- extend the fixed maturity of any Continental Note, reduce the rate or
extend the time of payment of interest thereon, reduce the principal
amount thereof or premium, if any, thereon or change the currency in
which the Continental Notes are payable, without the consent of the
holder of each 2003 Note so affected; or
- reduce the aforementioned percentage of Continental Notes, the consent of
the holders of which is required for any such modification, without the
consent of the holders of all that series of Continental Notes.
In addition, Continental and the trustee may execute supplemental note
indentures without the consent of holders of the Continental Notes:
- to evidence the succession of any successor corporation to Continental;
- to add further restrictions, covenants or conditions for Continental;
- to provide for the issuance of the Continental Notes in coupon form and
to provide for exchangeability of such Continental Notes with Continental
Notes issued in registered form; and
- to cure any ambiguity or supplement any provision which may be
inconsistent with any other provision of the Continental Indentures or
any supplemental note indenture or to make such other provision for
matters or questions arising under the Continental Indentures which shall
not adversely affect the interests of the holders of the Continental
Notes in any material respect.
55
REPORTS BY CONTINENTAL
Continental will deliver to the trustee and the holders of the Continental
Notes:
(1) as soon as available and in any event within 90 days after the end
of each fiscal year of Continental:
- a consolidated balance sheet of Continental and its subsidiaries as of
the end of such fiscal year and the related consolidated statements of
operations, shareholders' equity and cash flows for such fiscal year,
all reported on by Deloitte & Touche or other independent public
accountants of nationally recognized standing;
- a report containing a management's discussion and analysis of the
financial condition and results of operations and a description of the
business and properties of Continental; and
- a report as to the maximum amount of Restricted Payments that
Continental could have made as of the end of the fiscal year without
violating the covenant on Restricted Payments described above, which
will explain how such maximum amount was calculated and briefly
describe any transaction that occurred during the last quarter that
affected such maximum amount;
(2) as soon as available and in any event within 60 days after the end
of each of the first three quarters of each fiscal year of Continental:
- an unaudited consolidated financial report for such quarter; and
- a report containing a management's discussion and analysis of the
financial condition and results of operations of Continental; and
- a report as to the maximum amount of Restricted Payments that
Continental could have made as of the end of the quarter without
violating the covenant on Restricted Payments described above, which
shall explain how such maximum amount was calculated and briefly
describe any transaction that occurred during the quarter that
affected such maximum amount;
(3) promptly upon the mailing thereof to the shareholders of
Continental generally, copies of annual letters; and
(4) promptly upon the filing thereof, copies of all annual, quarterly,
monthly or periodic reports which Continental shall have filed with the
Securities and Exchange Commission.
BOOK ENTRY SYSTEM
The Continental Notes are currently held under a book-entry system in the
form of one or more global securities. The amendment will provide that all
series of Continental Notes must be held solely as book-entry securities in the
form of one or more global securities held by a depositary, with physical
certificates issued only under the limited circumstances described below.
We will register the global securities in the name of a depositary or its
nominee and deposit the global securities with that depositary. The Depository
Trust Company, New York, New York will be the depositary if we use a depositary.
DTC has advised us as follows:
DTC is a limited purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the New York
banking law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities of its participants and to facilitate
the clearance and settlement of securities transactions among its participants
through electronic book entry changes in accounts of its participants,
eliminating the need for physical movements of securities certificates. DTC's
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and others, some of whom own DTC. Access to DTC's
book-entry
56
system is also available to others that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Following the issuance of a global security in registered form, the
depositary will credit the accounts of its participants with the debt securities
upon our instructions. Only persons who hold directly or indirectly through
financial institutions that are participants in the depositary can hold
beneficial interests in the global securities. Since the laws of some
jurisdictions require certain types of purchasers to take physical delivery of
such securities in definitive form, you may encounter difficulties in your
ability to own, transfer or pledge beneficial interests in a global security.
So long as the depositary or its nominee is the registered owner of a
global security, we and the trustee will treat the depositary as the sole owner
or holder of the debt securities for purposes of the applicable indenture.
Therefore, except as set forth below, you will not be entitled to have debt
securities registered in your name or to receive physical delivery of
certificates representing the debt securities. Accordingly you will have to rely
on the procedures of the depositary and the participant in the depositary
through whom you hold your beneficial interest in order to exercise any rights
of a holder under the indentures. We understand that under existing practices,
the depositary would act upon the instructions of a participant or authorize
that participant to take any action that a holder is entitled to take.
We will make all payments of principal, premium and interest on the debt
securities to the depositary. We expect that the depositary will then credit
participants' accounts proportionately with these payments on the payment date
and that the participants will in turn credit their customers in accordance with
their customary practices. Neither we nor the Trustee will be responsible for
making any payments to participants and their customers and you will have to
rely on the procedures of the depositary and its participants.
Global securities are generally not transferable. We will issue physical
certificates to beneficial owners of a global security if:
- The depositary notifies us that it is unwilling or unable to continue as
depositary and we do not appoint a successor within 90 days;
- The depositary ceases to be a clearing agency registered under the
Exchange Act and we do not appoint a successor within 90 days; or
- We decide in our sole discretion that we do not want to have the debt
securities of that series represented by global securities.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Continental Indentures provide that no recourse for the payment of the
principal of, the premium, if any, or interest on any of the Continental Notes
or for any claim based thereon or otherwise in respect thereof, and no recourse
under or upon any obligation, covenant or agreement of Continental in any of the
Continental Indentures, or in any supplemental indenture, or in any of the
Continental Notes or because of the creation of any Indebtedness represented
thereby, shall be had against any incorporator, stockholder, officer, director,
employee or controlling person of Continental or of any successor thereof. Each
holder, by accepting the Continental Notes, waives and releases all such
liability.
CONCERNING THE TRUSTEE
If an event of default occurs and is continuing, the trustee will be
required to use the degree of care and skill of a prudent man in the conduct of
his own affairs. The trustee will become obligated to exercise any of its powers
under the applicable Continental Indenture at the request of any of the holders
of any Continental Notes only after those holders have offered the trustee
indemnity reasonably satisfactory to it.
If the trustee becomes one of Continental's creditors, it will be subject
to limitations in the applicable Continental Indenture on its rights to obtain
payment of claims or to realize on some property received for any such claim, as
security or otherwise. The trustee is permitted to engage in other transactions
with Continental
57
and we may have business relationships with the trustee, however if it acquires
any conflicting interest, it must eliminate that conflict or resign.
DESCRIPTION OF THE 2005 NOTES
The 8 7/8% Senior Debentures Due September 15, 2005 of Continental,
referred to in this prospectus as the "2005 Notes," were issued under an
Indenture, referred to in this prospectus as the "2005 Note Indenture," dated as
of August 1, 1993, between Continental and The Bank of New York, as trustee. The
2005 Notes are limited to $275,000,000 in aggregate principal amount, issued in
fully registered form in denominations of $100,000 and any larger amount which
is an integral multiple of $100,000, and mature on September 15, 2005. The
following description of the material terms of the 2005 Notes should be read in
connection with the description of the terms common to the Continental Notes
above.
Interest at the annual rate for the 2005 Notes of 8 7/8% is payable
semiannually on March 15 and September 15 of each year while the 2005 Notes are
outstanding, to holders of record at the close of business on the preceding
March 1 and September 1, respectively, and unless other arrangements are made,
is paid by check mailed to such holders at their registered addresses, as shown
on the 2005 Note register. Interest will be computed on the basis of a year of
twelve months of 30 days each.
Payments of principal of, and premium (if any) on, the 2005 Notes will be
made against presentation of the 2005 Notes at or after the due date for such
payments, at an office maintained by the trustee for such purpose at 101 Barclay
Street, New York, New York 10286, and the 2005 Notes may be presented for
registration of transfer and exchange, without service charge, at such office
during normal business hours on any day on which banks in the Borough of
Manhattan in the City of New York are open for business.
Prepayment at the Option of the Holders. The 2005 Note Indenture provides
for prepayment of the 2005 Notes by Continental in certain circumstances to the
same effect as those set forth under "Description of the Continental
Notes -- Payment at Maturity and Optional Prepayment -- Prepayment at the Option
of the Holders," except that the price at which each holder has the right, for
the 30 day period following the Put Option Transaction Date, to tender all, but
not less than all, of such holder's 2005 Notes and thereby to require
Continental to redeem the holder's 2005 Notes shall be equal to the principal
amount of such 2005 Notes and accrued interest thereon to the date of
prepayment, plus a premium (expressed as a percentage of the principal amount
prepaid) determined as follows:
If prepaid during the 12-month period ending September 14,
YEAR PREMIUM
- ---- -------
2003........................................................ 0.8875%
2004 and thereafter......................................... 0
DESCRIPTION OF THE 2006 NOTES
The 8.30% Senior Notes Due May 15, 2006 of Continental, referred to in this
prospectus as the "2006 Notes," were issued under an Indenture, referred to in
this prospectus as the "1995 Indenture," dated December 13, 1995 with The Bank
of New York, as successor trustee to Bank of Montreal Trust Company. The 2006
Notes are limited to $600,000,000 in aggregate principal amount, are issued in
fully registered form in denominations of $100,000 and any larger amount which
is an integral multiple of $50,000, and will mature on May 15, 2006. The
following description of the material terms of the 2006 Notes should be read in
connection with the description of the terms common to the Continental Notes
above.
Interest at the annual rate of 8.30% is payable semi-annually on May 15 and
November 15 of each year while the 2006 Notes are outstanding, commencing on May
15, 1996, to holders of record at the close of business on the preceding May 1
and November 1, respectively, and unless other arrangements are made, is paid by
check mailed to such holders at their registered addresses, as shown on the 2006
Note register. Interest will be computed on the basis of a year of twelve months
of 30 days each.
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Payments of principal of, and premium (if any) on, the 2006 Notes will be
made against presentation of the 2006 Notes at or after the due date for such
payments, at an office maintained by the trustee for such purpose at 101 Barclay
Street, New York, New York 10286, Attn: Corporate Trust Administration and the
2006 Notes may be presented for registration of transfer and exchange, without
service charge, at such office during normal business hours on any day on which
banks in the Borough of Manhattan in The City of New York are open for business.
Prepayment At The Option Of The Holders. The 1995 Indenture provides for
prepayment of the 2006 Notes by Continental in certain circumstances to the same
effect as those set forth under "Description of the Continental Notes -- Payment
at Maturity and Optional Prepayment -- Prepayment at the Option of the Holders,"
except that the price at which each holder has the right, for the 30 day period
following the Put Option Transaction Date, to tender all, but not less than all,
of such holder's 2006 Notes and thereby to require Continental to redeem the
holder's 2006 Notes shall be equal to the principal amount of such 2006 Notes
and accrued interest thereon to the date of prepayment, plus a premium
(expressed as a percentage of the principal amount prepaid) determined as
follows:
If prepaid during 12-month periods, each ending May 14,
YEAR PREMIUM
- ---- -------
2003........................................................ 2.0750
2004........................................................ 1.0375
2005 and thereafter......................................... 0
Restricted Payments. The 1995 Indenture provides that, so long as any of
the 2006 Notes remain outstanding, Continental will not declare or pay any
dividend on, or authorize or make any distribution in respect of, any shares of
any class of Continental's capital stock (except dividends or distributions
payable in shares of its capital stock), or authorize or make any purchase,
redemption or acquisition for value, or permit any Subsidiary to purchase,
redeem or otherwise acquire for value, any shares of any class of Continental's
capital stock (or any rights, warrants or options to purchase any class of
Continental's capital stock, except if such rights, warrants or options are held
by an employee of Continental and such purchase, redemption or acquisition
occurs in connection with the termination of such employee's employment with
Continental), otherwise than pursuant to Exempt Repurchases if either of the
following is true:
- if a default shall have occurred and be continuing at the time of such
proposed Restricted Payment or shall occur as a consequence of the
Restricted Payment; or
- if the aggregate of all Restricted Payments made from September 30, 1995
through and including the date on which such Restricted Payment is made,
would exceed the sum of (a) the amount by which Operating Cash Flow, as
defined under "Description of Continental Notes -- Certain Definitions,"
of the Restricted Group, as defined under "Description of Continental
Notes -- Certain Definitions," on a consolidated basis for the period,
treated as a single accounting period, from September 30, 1995 through
the fiscal quarter immediately preceding such proposed Restricted Payment
for which financial statements are available exceeds 1.20 times the Total
Interest Expense, as defined under "Description of Continental
Notes -- Certain Definitions," for the period, treated as a single
accounting period, from September 30, 1995 through said fiscal quarter
immediately preceding such proposed Restricted Payment, plus (b)
$1,029,726,000, plus (c) the aggregate net proceeds, including the fair
market value of property other than cash, received by Continental from
the issue or sale (other than to a Subsidiary) subsequent to September
30, 1995 of any class of capital stock of Continental.
We refer to any payments made in contravention of the above conditions in
this prospectus as a "Restricted Payment." Approximately $4.4 billion was
available as of September 30, 2002 for Restricted Payments under this covenant.
For all purposes of this covenant, any recapitalization of Continental
(whether or not effected through a merger or consolidation with, or sale of
substantially all of the assets of Continental to, any person) that has the
effect of transferring money, property, or securities other than capital stock
of Continental to any holder of
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any shares of the capital stock of Continental (otherwise than in connection
with an Exempt Repurchase) shall be deemed a Restricted Payment.
Exempt Repurchases shall not constitute Restricted Payments or be taken
into account in computing the amount of Restricted Payments that Continental may
make but may entitle the holders of the 2006 Notes to require the prepayment of
their 2006 Notes. See "-- Description of 2006 Notes -- Prepayment at the Option
of the Holders."
Investments In Subsidiaries Other Than The Restricted Group. The 1995
Indenture provides for covenants related to investments in Subsidiaries other
than the Restricted Group to the same effect as those set forth under
"Description of the Continental Notes -- Negative Covenants -- Investments In
Subsidiaries Other Than The Restricted Group." However, the 1995 Indenture
provides that Continental's obligation to comply with this covenant will be
suspended once the 2006 Notes are Investment Grade Rated, as defined below under
"Description of 2006 Notes -- Certain Definitions." The 2006 Notes are currently
Investment Grade Rated. Continental's obligation to comply with this covenant
may also terminate under certain other circumstances. See "Description of the
Continental Notes -- Prepayment at the Option of the Holders."
Transactions With Affiliates. The 1995 Indenture provides for covenants
related to transactions with affiliates to the same effect as those set forth
under "Description of the Continental Notes -- Negative
Covenants -- Transactions with Affiliates." However, the 1995 Indenture provides
that Continental's obligation to comply with this covenant will be suspended
once the 2006 Notes are Investment Grade Rated. The 2006 Notes are currently
Investment Grade Rated.
CERTAIN DEFINITIONS
Capitalized terms used in "Description of the 2006 Notes," unless defined
elsewhere in this prospectus, have the meanings set forth under "Description of
the Continental Notes -- Certain Definitions," with the following exceptions:
"Exempt Repurchases" means repurchases by Continental at any time or
from time to time of up to 16,684,150 shares of its Redeemable Common Stock
that are subject to the 1998-1999 Share Repurchase Program, provided that
Continental has received prior to any such Exempt Repurchase an opinion of
an investment banker knowledgeable in the communications industry (who may
be Continental's investment banker) that the price per share of Common
Stock paid pursuant to any such Exempt Repurchase does not exceed the
greater of (A) the dollar amount that a holder of Common Stock would then
receive per share of Common Stock upon a sale of Continental as a whole
pursuant to a merger or sale of stock or, if greater, the dollar amount a
holder of Common Stock would then receive per share of Common Stock derived
from the sale of Continental's assets and subsequent distribution of the
proceeds therefrom (net of taxes, including corporate, sales and capital
gains taxes in connection with such sale of assets), in each instance less
a discount of 22.5% or (B) the net proceeds which would be expected to be
received by a shareholder of Continental from the sale of a share of
Continental's Common Stock in any underwritten public offering held at the
time any such Exempt Repurchase is to occur after being reduced by pro
forma expenses and underwriting discounts unless the Common Stock is
publicly traded and such expenses and underwriting discounts would not be
incurred in connection with an underwritten public sale of a shareholders's
non-registered shares in the opinion of the investment banker; provided,
further, that no such opinion of an investment banker will be required for
repurchases of shares of Common Stock which are subject to the 1998-1999
Share Repurchase Program to the extent that the aggregate purchase price
paid therefor in any calendar year does not exceed $10.0 million.
"Investment Grade Rated" means, with respect to any security, both a
rating of such security by Standard & Poor's Ratings Group or successor
entity of BBB- or better and a rating of such security by Moody's Investors
Service or successor entity of Baa3 or better.
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"Lien" means, as to the Restricted Group and as used in the definition
of "Indebtedness," any mortgage, pledge, lien or security interest except
for:
- pledges of the stock of any Subsidiaries that are not part of the
Restricted Group to secure Indebtedness;
- Liens for taxes, assessments or governmental charges or claims the
payment of which is being contested in good faith by appropriate
proceedings and with respect to which Continental or a Subsidiary that
is part of the Restricted Group shall have created adequate reserves
on its books;
- Liens of mechanics, carriers, warehousemen or materialmen arising in
the ordinary course of business in respect of obligations which are
not overdue or which are being contested in good faith;
- Liens resulting from deposits or pledges made in the ordinary course
of business to secure payment of workers' compensation, unemployment
insurance, old age pension or other social security, or in connection
with or to secure the performance of, bids, tenders or contracts made
in the ordinary course of business, or to secure statutory obligations
or surety, performance or appeal bonds;
- Liens in respect of judgments or awards the payment of which is being
contested in good faith by appropriate proceedings and with respect to
which the Restricted Group shall have created adequate reserves on its
books;
- purchase money security interests (including mortgages, any
conditional sale or other title retention agreement and any
capitalized lease); provided, however, that the principal amount of
Indebtedness secured by each such security interest in each such item
(or group of items) of property shall not exceed the cost of the item
(or group of items) subject thereto and each such security interest
shall attach only to the particular item (or group of items) so
acquired and any additions or accessions thereto;
- landlord's or lessor's Liens under leases to which any member of the
Restricted Group is a party; and
- Liens of utilities and other persons pursuant to pole attachment
agreements, and restrictions on the transfer of rights under
franchises or pole attachment agreements, and any encumbrances created
in favor of franchising authorities and subscribers by provisions of
franchises on cable television plant and equipment located in the
areas covered thereby.
"Restricted Group" means, Continental and the Restricted Subsidiaries.
"Restricted Subsidiary" means:
- any Subsidiary that is a party to the Credit Agreement dated as of
July 18, 1995 among Colony Communications, Inc., Columbia Cable of
Michigan, Inc., and each of their respective Subsidiaries and certain
financial institutions, as amended from time to time, whether as
borrowers or as guarantors, and any other Subsidiary of Continental,
whether existing on or after the date of the 1995 Indenture, which has
been designated a Restricted Subsidiary for purposes of Continental's
Amended and Restated Credit Agreement dated as of October 1, 1994
among Continental, the Restricted Subsidiaries and certain financial
institutions, as amended from time to time, which we refer to in this
prospectus as the "1994 Credit Facility," unless any such Subsidiary
is subsequently classified as a Subsidiary that is not part of the
Restricted Group by Continental for purposes of the 1995 Indenture;
and
- any Subsidiary which is classified as a member of the Restricted Group
for purposes of the 1995 Indenture by Continental. Continental may not
classify a Subsidiary as not part of the Restricted Group for purposes
of the 1995 Indenture if such Subsidiary is classified as a Restricted
Subsidiary for purposes of the 1994 Credit Facility or any similar,
successor agreements.
61
DESCRIPTION OF THE 2008 NOTES
The 9% Senior Debentures Due September 1, 2008 of Continental, referred to
in this prospectus as the "2008 Notes," were issued under an Indenture, referred
to in this prospectus as the "2008 Notes Indenture," dated as of June 1, 1993,
between Continental and Bank One, N.A., as the successor trustee to First
National Bank of Chicago. The 2008 Notes are limited to $300,000,000 in
aggregate principal amount, issued in fully registered form in denominations of
$100,000 and any larger amount which is an integral multiple of $100,000, and
mature on September 1, 2008. The following description of the material terms of
the 2008 Notes should be read in connection with the description of the terms
common to the Continental Notes above.
Interest at the annual rate for the 2008 Notes set forth on the cover page
hereof is payable semiannually on March 1 and September 1 of each year while the
2008 Notes are outstanding, to holders of record at the close of business on the
preceding February 15 and August 15, respectively, and unless other arrangements
are made, is paid by check mailed to such holders at their registered addresses,
as shown on the 2008 Note register. Interest will be computed on the basis of a
year of twelve months of 30 days each.
Payments of principal of, and premium (if any) on, the 2008 Notes will be
made against presentation of the 2008 Notes at or after the due date for such
payments, at an office maintained by the trustee for such purpose at 14 Wall
Street, 8th Floor, New York, New York 10005, and the 2008 Notes may be presented
for registration of transfer and exchange, without service charge, at such
office during normal business hours on any day on which banks in the Borough of
Manhattan in the City of New York are open for business.
Prepayment at the Option of the Holders. The 2008 Notes Indenture provides
for prepayment of the 2008 Notes by Continental in certain circumstances to the
same effect as those set forth under "Description of the Continental
Notes -- Payment at Maturity and Optional Prepayment -- Prepayment at the Option
of the Holders -- Prepayment in the Event of Certain Exempt Repurchases," except
that the price at which each holder has the right, for the 30 day period
following the Put Option Transaction Date, to tender all, but not less than all,
of such holder's 2008 Notes and thereby to require Continental to redeem the
holder's 2008 Notes shall be equal to the principal amount of such 2008 Notes
and accrued interest thereon to the date of prepayment, plus a premium
(expressed as a percentage of the principal amount prepaid) determined as
follows:
If prepaid during the 12-month period ending August 31,
YEAR PREMIUM
- ---- -------
2003........................................................ 2.7692%
2004........................................................ 2.0769%
2005........................................................ 1.3846%
2006........................................................ 0.6923%
2007 and thereafter......................................... 0
The Repurchase Notice will inform holders of the 2008 Notes of the events
described in this section.
Limitation On Liens. The 2008 Note Indenture provides that Continental
will not, and will not permit any Subsidiary that is part of the Restricted
Group to, create, incur or assume any Lien on any Principal Property or any
shares of capital stock or Indebtedness of any such Subsidiary without making
effective provision for all of the 2008 Notes and all other amounts due under
the 2008 Note Indenture to be directly secured equally and ratably with (or
prior to) the obligation or liability secured by such Lien unless, at the time
of such creation, incurrence or assumption and, after giving effect thereto, the
aggregate amount of all Indebtedness of the Restricted Group so secured does not
exceed five times Annualized Cash Flow; provided, however, that if all Liens
(other than Liens created pursuant to this provision or the comparable
provisions of the 2003 Note Indenture) on Principal Property or shares of
capital stock or Indebtedness of any Subsidiary
62
that is part of the Restricted Group which secure Indebtedness of Continental or
any such Subsidiary are released, then:
- all then existing Liens so created (together with all then existing Liens
created pursuant to the comparable provisions of the 2003 Note Indenture)
shall be automatically released and
Continental's obligation to comply with this covenant may terminate under
certain circumstances. See "-- Description of the Continental
Notes -- Prepayment at the Option of the Holders."
- the trustee shall be authorized to execute and deliver to Continental any
documents requested by Continental which are required to evidence the
release of such Liens.
Continental's obligation to comply with this covenant may terminate under
certain circumstances. See "-- Description of the Continental
Notes -- Prepayment at the Option of the Holders."
Under the terms of the 2008 Note Indenture, the foregoing limitation does
not apply to:
- Liens securing obligations of Continental to reimburse any bank or other
person in respect of amounts paid under letters of credit, acceptances or
other similar instruments; or
- Liens securing Indebtedness on the assets of any entity existing at the
time such assets are acquired by Continental or any of its Subsidiaries
that are part of the Restricted Group, whether by merger, consolidation,
purchase of assets or otherwise;
provided, that such Liens described under the second clause above (i) are not
created, incurred or assumed in connection with, or in contemplation of, such
assets being acquired by Continental or any of its Subsidiaries that are part of
the Restricted Group and (ii) do not extend to any other Principal Property or
assets of Continental or any of its Subsidiaries that are part of the Restricted
Group.
DESCRIPTION OF THE 2013 NOTES
The 9.5% Senior Debentures Due August 1, 2013, referred to in this
prospectus as the "2013 Notes," were issued under an Indenture, referred to in
this prospectus as the "2013 Note Indenture," dated as of August 1, 1993,
between Continental and The Bank of New York, as trustee. The 2013 Notes are
limited to $525,000,000 in aggregate principal amount, were issued in fully
registered form in denominations of $100,000 and any larger amount which is an
integral multiple of $100,000, and will mature on August 1, 2013. The following
description of the material terms of the 2013 Notes should be read in connection
with the description of the terms common to the Continental Notes above.
Interest at the annual rate for the 2013 Notes set forth on the cover page
hereof is payable semiannually on February 1 and August 1 of each year while the
2013 Notes are outstanding to holders of record at the close of business on the
preceding January 15 and July 15, respectively, and unless other arrangements
are made, is paid by cheek mailed to such holders at their registered addresses,
as shown on the 2013 Note register. Interest is computed on the basis of a year
of twelve months of 30 days each.
Payments of principal of, and premium (if any) on, the 2013 Notes will be
made against presentation of the 2013 Notes at or after the due date for such
payments, at an office maintained by the trustee for such purpose at 101 Barclay
Street, New York, New York 10286, Attn: Corporate Trust Administration, and the
2013 Notes may be presented for registration of transfer and exchange, without
service charge, at such office during normal business hours on any day on which
banks in the Borough of Manhattan in the City of New York are open for business.
Prepayments at the Option of Continental. Except as set forth in the
following paragraph, the 2013 Notes may not be called for prepayment at the
option of Continental prior to August 1, 2005, On and after that date,
Continental may prepay all or any part of the 2013 Notes at its option, at any
time or from time to time, on at least 30- and not more than 60-days notice, at
the principal amount thereof plus accrued interest
63
thereon to the date fixed for prepayment, plus a premium (expressed as a
percentage of the principal amount prepaid) determined as follows:
If prepaid during the 12-month period ending July 31,
YEAR PREMIUM
- ---- -------
2006........................................................ 4.7500%
2007........................................................ 3.1667%
2008........................................................ 1.5833%
2009 and thereafter......................................... 0
In addition to optional prepayments of the 2013 Notes in accordance with
the provisions of the preceding paragraph, at any time prior to August 1, 1996.
with the proceeds from any offering by Continental of its capital stock, other
than Disqualified Stock (as defined below), Continental may prepay the 2013
Notes, in part, at 109.5% of their principal amount, plus accrued interest
thereon to the date fixed for prepayment, provided that after such prepayment no
less than $341,250,000 in aggregate principal amount of 2013 Notes remains
outstanding. Notice of such prepayment shall be given at least 30-days and no
more than 60-days prior to the date fixed for prepayment.
For this purpose, "Disqualified Stock" shall mean any class or series of
capital stock of Continental that by its terms or otherwise is:
- required to be redeemed prior to the stated maturity of the 2013 Notes;
- redeemable at the option of the holder at any time prior to the stated
maturity of the 2013 Notes; or
- convertible into or exchangeable for capital stock referred to in the two
clauses above; provided that any capital stock which would not constitute
Disqualified Stock but for provisions giving holders the right to require
Continental to repurchase or redeem such capital stock upon the
occurrence of a change in control shall not constitute Disqualified
Stock, and any capital stock which is redeemable by its terms or at
Continental's option solely for shares of Continental's Common Stock
shall not constitute Disqualified Stock.
Prepayment in the Event of Certain Exempt Repurchases. The 2013 Notes
Indenture provides for prepayment of the 2013 Notes by Continental in certain
circumstances to the same effect as those set forth under "Description of the
Continental Notes -- Payment at Maturity and Optional Prepayment -- Prepayment
at the Option of the Holders -- Prepayment in the Event of Certain Exempt
Repurchases," except that the price at which each holder has the right, for the
30 day period following the Put Option Transaction Date, to tender all, but not
less than all, of such holder's 2013 Notes and thereby to require Continental to
redeem the holder's 2013 Notes shall be equal to the principal amount of such
2013 Notes and accrued interest thereon to the date of prepayment, plus a
premium (expressed as a percentage of the principal amount prepaid) determined
as follows:
If prepaid during the 12-month period ending July 31,
YEAR PREMIUM
- ---- -------
2003........................................................ 4.7500%
2004........................................................ 4.2222%
2005........................................................ 3.6944%
2006........................................................ 3.1667%
2007........................................................ 2.6389%
2008........................................................ 2.1111%
2009........................................................ 1.5833%
2010........................................................ 1.0556%
2011........................................................ 0.5278%
2012 and thereafter......................................... 0
The Repurchase Notice will inform holders of the 2013 Notes of the events
described above.
64
DESCRIPTION OF AT&T BROADBAND ACQUISITION
The following summary of material transactions and continuing obligations
in connection with the AT&T Broadband acquisition is qualified by reference to
the merger agreement, as amended, and the related agreements described below,
which are exhibits to the registration statement of which this prospectus is a
part.
THE MERGER AGREEMENT
GOVERNANCE ARRANGEMENTS
Our Board of Directors. Our Board has twelve members, five of
whom -- Ralph J. Roberts, Brian L. Roberts, Sheldon M. Bonovitz, Julian A.
Brodsky and Decker Anstrom -- were designated at the time of the AT&T Broadband
acquisition by Comcast Holdings from the then-existing Comcast Holdings Board,
four of whom -- C. Michael Armstrong, J. Michael Cook, Louis A. Simpson and
Michael I. Sovern -- were designated by AT&T from the then-existing AT&T Board,
two of whom -- Kenneth J. Bacon and Dr. Judith Rodin -- were independent persons
jointly designated by Comcast Holdings and AT&T, and one of whom -- Joseph L.
Castle, II -- was designated by the other AT&T designated directors to replace
George M.C. Fisher, one of the original AT&T designees. At all times, our Board
will consist of a majority of independent persons. The individuals designated by
each of Comcast Holdings and AT&T were mutually agreed upon by Comcast Holdings
and AT&T. All of the initial director designees will hold office until the 2004
annual meeting of our shareholders, which will be held in April 2004. After this
initial term, our entire Board will be elected annually. Brian L. Roberts,
through his control of BRCC Holdings LLC, holds a 33 1/3% nondilutable voting
interest in our stock.
Management. Under the merger agreement, C. Michael Armstrong, AT&T's
Chairman of the Board, will be our Chairman of the Board until the 2005 annual
meeting of our shareholders and will serve as non-executive Chairman of the
Board from April 1, 2004 until the 2005 annual meeting of our shareholders.
Thereafter, Brian L. Roberts will be the Chairman of the Board. Removal of the
Chairman of the Board will require the vote of at least 75% of the entire Board
until the earlier to occur of (1) the date on which neither C. Michael Armstrong
nor Brian L. Roberts is Chairman of the Board and (2) the sixth anniversary of
the 2004 annual meeting of our shareholders.
Upon completion of the AT&T Broadband acquisition, Brian L. Roberts,
Comcast Holdings' President, became our CEO. Brian L. Roberts will also be
President for as long as he is the CEO. Removal of the CEO requires the vote of
at least 75% of our entire Board until the earlier of the date when Brian L.
Roberts is not the CEO and the sixth anniversary of the 2004 annual meeting of
shareholders.
We will also have an Office of the Chairman comprised of the Chairman of
the Board and the CEO until the earlier to occur of (1) the 2005 annual meeting
of our shareholders and (2) the date on which C. Michael Armstrong ceases to be
the Chairman of the Board. The Office of the Chairman will be our principal
executive deliberative body with responsibility for corporate strategy, policy
and direction, governmental affairs and other significant matters.
Our charter provisions that implement the foregoing governance arrangements
may not be amended or changed except with the approval of at least 75% of our
entire Board until the earlier to occur of (1) the date on which Brian L.
Roberts is no longer serving as Chairman of the Board or CEO and (2) the sixth
anniversary of the 2004 annual meeting of our shareholders.
BRCC Holdings LLC hold shares of our Class B common stock constituting
33 1/3% of the combined voting power of our common stock. Brian L. Roberts has
sole voting power over membership interests representing a majority of the
voting power of all BRCC Holdings LLC equity.
EMPLOYEE BENEFITS MATTERS; INDEMNIFICATION AND INSURANCE
In the merger agreement, we agreed to honor the terms of all Comcast Cable
Communications Holdings' employee benefit plans and arrangements and to pay and
provide the benefits required thereunder, recognizing that the AT&T Broadband
acquisition is a change in control under the plans, and to provide, until
65
December 31, 2003, to employees of Comcast Cable Communications Holdings and its
subsidiaries (other than those subject to collective bargaining obligations or
agreements) aggregate employee benefits and compensation that are substantially
comparable in the aggregate to those provided by Comcast Cable Communications
Holdings and its subsidiaries as of the completion of the AT&T Broadband
acquisition, other than benefits provided under severance or separation plans of
Comcast Cable Communications Holdings or its subsidiaries. Until December 31,
2003, we have agreed to continue certain severance plans of Comcast Cable
Communications Holdings and its subsidiaries without adverse change, including
those that provide certain enhanced benefits to AT&T executive officers who
became employees of Comcast Cable Communications Holdings prior to consummation
of the AT&T Broadband acquisition. Based on currently available information, if
all such executive officers were terminated without cause immediately following
completion of the AT&T Broadband acquisition, they would receive severance
payments equal in the aggregate to approximately $44.7 million.
OBLIGATIONS RELATING TO COMCAST CABLE COMMUNICATIONS HOLDINGS' TOPRS SECURITIES
We have agreed, on the earliest date on which the Comcast Cable
Communications Holdings debt known by the acronym TOPrS as to which AT&T has
guaranteed certain obligations may be redeemed, to either redeem such series of
TOPrS, cause AT&T to be released from any such guarantee or post a letter of
credit in respect of such debt. As of the date of this filing, approximately
$500 million of outstanding TOPrS remains subject to this obligation.
THE SEPARATION AND DISTRIBUTION AGREEMENT
THE SEPARATION
Assignment. AT&T assigned and transferred to Comcast Cable Communications
Holdings all of AT&T's and its subsidiaries' right, title and interest in all of
the assets of AT&T's broadband business which are not already held by Comcast
Cable Communications Holdings or a Comcast Cable Communications Holdings
subsidiary. The assets comprising AT&T's broadband business are generally
determined in the following manner:
- assets reflected in the AT&T Broadband Group balance sheet dated as of
December 31, 2000 are assets of AT&T's broadband business, except as
described below;
- assets reflected in the AT&T Communications balance sheet dated as of
December 31, 2000 are assets of AT&T's communications business, except as
described below;
- assets acquired after December 31, 2000 by AT&T or any of its
subsidiaries utilizing assets of AT&T's broadband business are assets of
AT&T's broadband business, except as described below;
- any assets acquired after December 31, 2000 by AT&T or any of its
subsidiaries utilizing assets of AT&T's communications business are
assets of AT&T's communications business, except as described below;
- certain assets are specifically assigned to AT&T's broadband business
regardless of whether or not they are reflected in the AT&T Broadband
Group balance sheet dated as of December 31, 2000;
- certain assets are specifically assigned to AT&T's communications
business regardless of whether or not they are reflected in the AT&T
Communications balance sheet dated as of December 31, 2000; and
- assets that are not reflected in the AT&T Broadband Group balance sheet
or the AT&T Communications balance sheet, in each case dated as of
December 31, 2000, or specifically assigned to AT&T's broadband business
or AT&T's communications business are assigned to the business to which
they primarily relate.
Assumption. At the same time as the assignment, Comcast Cable
Communications Holdings assumed all of the liabilities of AT&T's broadband
business that were not already liabilities of Comcast Cable
66
Communications Holdings or a Comcast Cable Communications Holdings subsidiary.
The liabilities of AT&T's broadband business were generally determined in the
following manner:
- liabilities reflected in the AT&T Broadband Group balance sheet dated as
of December 31, 2000 are liabilities of AT&T's broadband business, except
as described below;
- liabilities reflected in the AT&T Communications balance sheet dated as
of December 31, 2000 are liabilities of AT&T's communications business,
except as described below;
- liabilities incurred after December 31, 2000 by entities transferred as
part of AT&T's broadband business are liabilities of AT&T's broadband
business, except as described below;
- liabilities incurred after December 31, 2000 by entities not transferred
as part of AT&T's broadband business are liabilities of AT&T's
communications business, except as described below;
- certain liabilities are specifically assigned to AT&T's broadband
business regardless of whether or not they are reflected in the AT&T
Broadband Group balance sheet dated as of December 31, 2000;
- certain liabilities are specifically assigned to AT&T's communications
business regardless of whether or not they are reflected in the AT&T
Communications balance sheet dated as of December 31, 2000;
- certain liabilities such as liabilities arising out of the AT&T Broadband
acquisition or involving At Home or AT&T Wireless (to the extent AT&T is
not indemnified by AT&T Wireless for such liabilities) are divided evenly
between AT&T's broadband business and AT&T's communications business
regardless of whether or not they are reflected in the AT&T Broadband
Group balance sheet or the AT&T Communications balance sheet, in each
case dated as of December 31, 2000; and
- liabilities that are not reflected in the AT&T Broadband Group balance
sheet or the AT&T Communications balance sheet, in each case dated as of
December 31, 2000, or specifically assigned to AT&T's broadband business
or AT&T's communications business are assigned to the business to which
they primarily relate.
The separation occurred on November 18, 2002, immediately prior to the
mergers which occurred as part of the AT&T Broadband acquisition.
REPAYMENT OF INTRACOMPANY DEBT
In connection with the closing of the AT&T Broadband acquisition, Comcast
Cable Communications Holdings repaid all intracompany debt owed by AT&T's
broadband business to AT&T's communications business. Comcast Cable
Communications Holdings effected this repayment by making a cash payment to AT&T
in an amount equal to $5.85 billion and by issuing approximately $3.50 billion
in debt to retire existing AT&T debt. The cash payment referred to in the
preceding sentence reflected certain adjustments and was made with the proceeds
of (i) a borrowing by Comcast Cable Communications Holdings of $4 billion under
a bridge credit agreement dated April 26, 2002 among Comcast Cable
Communications Holdings, us, the lenders party thereto and JPMorgan Chase Bank,
as administrative agent, Citibank N.A., as syndication agent, and Bank of
America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan
Stanley Senior Funding, Inc., as co-documentation agents, and (ii) a borrowing
by Comcast Cable Communications Holdings of $2.5 billion under a credit
agreement dated April 26, 2002 among Comcast Cable Communications Holdings, us,
the lenders party thereto and JPMorgan Chase Bank, as administrative agent,
swingline lender and issuing lender, Citibank N.A., as syndication agent, and
Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Morgan Stanley Senior Funding, Inc., as co-documentation agents, together
referred to as the New Credit Facility in this prospectus. The retirement of
existing AT&T debt by Comcast Cable Communications Holdings referred to above
resulted from a recently completed debt exchange offer pursuant to which Comcast
Cable Communications Holdings issued debt guaranteed by us and the cable
guarantors in an aggregate principal amount of approximately $3.50 billion
consisting of approximately $2.43 billion of 8.375% Notes Due 2013 and
approximately $1.07 billion of 9.455% Notes Due 2022.
67
POST-SPIN-OFF TRANSACTIONS
Our ability and the ability of Comcast Cable Communications Holdings to
engage in specified acquisitions, redeem stock, issue equity securities or take
any other action or actions that in the aggregate would be reasonably likely to
have the effect of causing or permitting one or more persons to acquire directly
or indirectly stock representing a 50% or greater interest, within the meaning
of Section 355(e) of the Code, in Comcast Cable Communications Holdings or
otherwise jeopardize the non-recognition of taxable gain or loss for U.S.
federal income tax purposes to AT&T, AT&T affiliates and AT&T shareholders in
connection with the separation and the Comcast Cable Communications Holdings
spin-off may be limited until December 18, 2004.
DISPOSITION OF TIME WARNER ENTERTAINMENT INTEREST
Sharing of Proceeds. The separation and distribution agreement provides
that upon any disposition of all or any portion of its interest in TWE after the
signing of the merger agreement, Comcast Cable Communications Holdings will pay
AT&T 50% of the proceeds received from such disposition in excess of the
threshold amount described in the next sentence reduced by taxes on 50% of such
excess. The threshold amount is equal to the balance, plus 7% simple interest
per annum on the balance, of $10.2 billion reduced by the aggregate proceeds of
any previous dispositions of any portion of the TWE interest. If the TWE
interest has not been fully disposed of within 54 months of the completion of
the AT&T Broadband acquisition, the remaining TWE interest will be appraised at
fair market value. To the extent that the amount of such appraisal exceeds the
threshold amount specified above, Comcast Cable Communications Holdings has
agreed to pay AT&T 50% of such excess, on a tax-adjusted basis.
Restructuring Agreement. On August 21, 2002, AT&T and Comcast Holdings
announced that they had entered into an agreement with AOL Time Warner providing
for the restructuring of TWE. The restructuring agreement was intended to
provide for a more orderly and timely disposition of AT&T Broadband Group's
entire stake in TWE than would likely be available under the registration rights
provisions of the TWE partnership agreement, which AT&T Broadband Group had been
pursuing. Upon consummation of the AT&T Broadband acquisition, we assumed all of
AT&T's interest in TWE and in the restructuring agreement.
Under the restructuring agreement, which is expected to close in the first
quarter of 2003, for its 27.64% interest in TWE, Comcast Cable Communications
Holdings will receive $1.5 billion in common stock of AOL Time Warner Inc.
(valued at the time of the closing and subject to certain limitations) and an
effective 21% equity interest in all of AOL Time Warner's cable properties,
including those already in TWE, and Comcast Cable Communications Holdings will
also receive $2.1 billion in cash. As part of the restructuring, TWE will
distribute to AOL Time Warner all of TWE's major content assets, which include
Home Box Office (HBO), Warner Bros., and stakes in The WB Network, Comedy
Central and Court TV. Time Warner Cable, which will own substantially all of AOL
Time Warner's cable interests, is expected to conduct an initial public offering
of common stock following the restructuring. Under the restructuring agreement,
Comcast Cable Communications Holdings has registration rights enabling it to
dispose of its shares in Time Warner Cable and in AOL Time Warner. In connection
with the transactions, Comcast Holdings and Comcast Cable Communications
Holdings will also enter into a three-year non-exclusive agreement with AOL Time
Warner under which AOL High-Speed Broadband service would be made available on
certain of our cable systems which pass approximately 10 million homes.
On November 13, 2002, the FCC gave conditional approval to the transfer of
certain FCC licenses required to complete the AT&T Broadband acquisition. The
Memorandum Opinion and Order issued by the FCC ordered AT&T and Comcast Holdings
to place Comcast Cable Communications Holdings' interest in TWE into irrevocable
trust prior to completion of the transaction and to fully divest the TWE
interest within five-and-a-half years after completion of the transaction.
During the divestiture period, the divestiture order prohibits us from any
involvement in the video programming activities of TWE. Copies of the trust
agreements pursuant to which Comcast Cable Communications Holdings' TWE interest
will be placed into irrevocable trust are attached as exhibits to our Current
Report on Form 8-K filed on November 18, 2002 incorporated by reference herein.
68
AT&T acquired its stake in TWE as part of its June 2000 acquisition of
Comcast MO Group. In February of 2001, AT&T requested that TWE convert from a
limited partnership into a corporation and create equity securities for
registration with the Securities and Exchange Commission. On July 30, 2002, AT&T
and TWE agreed to suspend the registration process to explore alternative
approaches that led to the transactions contemplated by the restructuring
agreement. In connection with the Comcast Cable Communications Holdings
spin-off, all of AT&T Broadband Group's interests and rights with respect to TWE
were transferred to Comcast Cable Communications Holdings subsidiaries, and
subsequently placed in trust for orderly disposition. The TWE restructuring is
subject to receipt of certain regulatory approvals and other closing conditions,
certain of which are outside our control. There can be no assurance that the
transactions contemplated by the TWE restructuring agreement will be
consummated. 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.
MUTUAL RELEASE; INDEMNIFICATION
Mutual Release of Pre-Closing Claims. AT&T and Comcast Cable
Communications Holdings have each released the other from any and all claims
that it may have against the other party arising from any acts or events
occurring or failing to occur prior to the completion of the Comcast Cable
Communications Holdings spin-off, subject to certain exceptions specified in the
separation and distribution agreement.
Indemnification by AT&T. AT&T has indemnified Comcast Cable Communications
Holdings from any and all liabilities relating to, arising out of or resulting
from any of the following:
- the failure of AT&T or any of its subsidiaries or any other person to pay
any liabilities, or perform under any contracts, of AT&T's communications
business;
- the assets or contracts of AT&T's communications business; and
- any breach of the separation and distribution agreement or any of the
ancillary agreements by AT&T.
Indemnification by Comcast Cable Communications Holdings. Comcast Cable
Communications Holdings has indemnified AT&T from any and all liabilities
relating to, arising out of or resulting from any of the following:
- the failure of Comcast Cable Communications Holdings or any of its
subsidiaries or any other person to pay any liabilities, or perform under
any contracts, of AT&T's broadband business;
- the assets or contracts of AT&T's broadband business; and
- any breach of the separation and distribution agreement or any of the
ancillary agreements by Comcast Cable Communications Holdings;
Tax Indemnification. Subject to the exceptions described below, Comcast
Cable Communications Holdings has indemnified AT&T against 50% of the taxes and
related costs assessed against AT&T resulting from the disqualification of the
separation and the Comcast Cable Communications Holdings spin-off as tax-free
transactions under Section 355 of the Code.
If such disqualification results from a transaction involving the stock or
assets of Comcast Cable Communications Holdings occurring after the Comcast
Cable Communications Holdings spin-off, from Comcast Cable Communications
Holdings' failure to remain actively engaged in a trade or business or from the
failure of any representation made with respect to Comcast Cable Communications
Holdings in connection with certain tax opinions and Internal Revenue Service
rulings, then Comcast Cable Communications Holdings will be required to
indemnify AT&T against all such taxes and related costs.
If such disqualification results from a transaction involving the stock or
assets of AT&T occurring after the Comcast Cable Communications Holdings
spin-off, from AT&T's failure to remain actively engaged in a trade or business
or from the failure of any representation made with respect to AT&T in
connection with certain tax opinions and Internal Revenue Service rulings, then
Comcast Cable Communications Holdings is not required to indemnify AT&T against
any such taxes or related costs.
69
Comcast Cable Communications Holdings has also indemnified AT&T against 50%
of the taxes and related costs resulting from the Liberty Media or AT&T Wireless
spin-offs failing to be tax-free, unless either spin-off becomes taxable as a
result of an action taken by AT&T or Comcast Cable Communications Holdings, in
which case the acting party bears full responsibility for any resulting AT&T
liabilities. Comcast Cable Communications Holdings' obligation described in the
preceding sentence is reduced by Comcast Cable Communications Holdings' share of
any indemnification that AT&T receives from Liberty Media or AT&T Wireless as a
result of the relevant spin-off failing to qualify as tax-free.
Other Indemnification. Subject to the next sentence, AT&T and Comcast
Cable Communications Holdings have indemnified each other for 50% of any
liability resulting from any untrue statement or omission of a material fact in
any registration statement relating to the Comcast Cable Communications Holdings
spin-off or in any other filing made by AT&T or Comcast Cable Communications
Holdings with the Securities and Exchange Commission in connection with the
separation, the Comcast Cable Communications Holdings spin-off, the Comcast
Cable Communications Holdings merger or any related agreements. AT&T also
indemnified us and Comcast Cable Communications Holdings for any liability
resulting from any untrue statement or omission of a material fact in any
registration statement relating to the Consumer Services charter amendment
proposal, any other proposal related to the creation of AT&T Consumer Services
Group tracking stock, the reverse stock split proposal or any AT&T 2002 annual
meeting proposal other than the AT&T transaction proposal or the proposal
related to our charter.
THE TAX SHARING AGREEMENT
In General. Comcast Cable Communications Holdings' tax liability, as
described below, for the period beginning January 1, 2002 through November 18,
2002 will be included in the consolidated federal income tax return of AT&T for
2002 and for the period beginning November 19, 2002 through December 31, 2002
will be included in the consolidated federal income tax return of Comcast. The
tax sharing agreement provides for tax sharing payments between Comcast Cable
Communications Holdings and AT&T for periods prior to the Comcast Cable
Communications Holdings spin-off, based on the taxes or tax benefits of
hypothetical affiliated groups consisting of the businesses, assets and
liabilities that make up Comcast Cable Communications Holdings, on the one hand,
and all other businesses, assets and liabilities of AT&T, on the other hand.
Each group is generally responsible for the taxes attributable to its lines of
business and entities comprising its group.
AT&T and Comcast Cable Communications Holdings have agreed that the
consolidated tax liability (before credits) of the hypothetical group will be
allocated to each group based on such group's contribution to consolidated
taxable income. This allocation will take into account losses, deductions and
other tax attributes that are utilized by the hypothetical group even if these
attributes could not be utilized on a stand-alone basis. Tax sharing payments in
respect of the consolidated tax liability of the hypothetical group, after
allocation of consolidated tax credits, will be made between AT&T and Comcast
Cable Communications Holdings consistent with the allocations under the tax
sharing agreement. As between AT&T and Comcast Cable Communications Holdings,
certain tax items are specially allocated to the AT&T group and Comcast Cable
Communications Holdings group under the tax sharing agreement.
Comcast Cable Communications Holdings Spin-off. AT&T and Comcast Cable
Communications Holdings have agreed that taxes related to intercompany
transactions that are triggered by the Comcast Cable Communications Holdings
spin-off will be generally allocated to Comcast Cable Communications Holdings.
Non-Income Tax Liabilities. AT&T and Comcast Cable Communications Holdings
have agreed that joint non-income tax liabilities will generally be allocated
between AT&T and Comcast Cable Communications Holdings based on the amount of
such taxes attributable to each group's line of business. If the line of
business with respect to which the liability is appropriately associated cannot
be readily determined, the tax liability will be allocated to the AT&T group.
Audit Adjustments. AT&T and Comcast Cable Communications Holdings have
agreed that taxes resulting from audit adjustments will generally be allocated
between the two groups based on line of business. In general, AT&T controls
audits and administrative matters related to pre-spin-off periods.
70
Post-Spin-off Tax Attributes. Generally, Comcast Cable Communications
Holdings may not carry back a loss, credit or other tax attribute from a
post-spin-off period to a pre-spin-off period, unless Comcast Cable
Communications Holdings obtains AT&T's consent (which, in the case of
significant net operating or capital loss carrybacks, may not be unreasonably
withheld) and then only to the extent permitted by applicable law.
THE ANCILLARY AGREEMENTS
In addition to the other agreements described in this section, AT&T and
Comcast Cable Communications Holdings entered into various other commercial
agreements in connection with the AT&T Broadband acquisition. A brief summary of
these agreements follows:
Network Service Agreements. AT&T and Comcast Cable Communications Holdings
entered into principal network service agreements as follows.
- Master Carrier Agreement. This agreement reflects the rates, terms and
conditions on which AT&T Business Services Group will provide voice, data
and Internet services to Comcast Cable Communications Holdings, including
both wholesale services (those used as a component in Comcast Cable
Communications Holdings' services to its customers) and "administrative"
services (for internal Comcast Cable Communications Holdings usage).
Pricing is market based, with provisions defining an ongoing process to
ensure that the prices remain competitive.
- First Amended and Restated Local Network Connectivity Services
Agreement. This agreement reflects the rates, terms and conditions on
which AT&T Business Services Group will provide certain local network
connectivity services to Comcast Cable Communications Holdings for use in
providing local telephone services to Comcast Cable Communications
Holdings' subscribers. This agreement consists of two parts:
- a capital lease from AT&T Business Services Group to Comcast Cable
Communications Holdings of certain network switching and transport
assets to be used exclusively by Comcast Cable Communications Holdings
for a term of up to ten years, commencing January 1, 2002 for initial
assets leased under the agreement; and
- an operating agreement for the provision of local network connectivity,
management and operational services in support of Comcast Cable
Communications Holdings' local cable telephone services, with a minimum
term of five years commencing January 1, 2002.
- Master Facilities Agreement. This agreement permits AT&T or any of its
subsidiaries to use existing fiber facilities owned or leased by Comcast
Cable Communications Holdings or its controlled affiliates, together with
related services. In addition, Comcast Cable Communications Holdings will
construct and lease to AT&T new fiber facilities in the areas served by
Comcast Cable Communications Holdings' cable systems for use in providing
telecommunications services. The term of the build-out period will expire
on January 8, 2012. Subject to certain termination rights specified in
this agreement, the term of AT&T's right to use facilities leased under
this agreement will expire on January 8, 2028, renewable at AT&T's option
for successive 20-year terms in perpetuity.
- Interconnection and Intercarrier Compensation Term Sheet. This
agreement, which has a five-year initial term commencing January 1, 2002,
specifies the terms of interconnection of the parties' networks, and
compensation for:
- the origination or termination of interexchange traffic for the other
party; and
- the exchange of local traffic between the parties' local customers.
- High Speed Internet Services Binding Term Sheet. This agreement reflects
the rates, terms and conditions on which AT&T will provide specified
processes, procedures and services to support Comcast Cable
Communications Holdings in its provision of broadband Internet services
to Comcast Cable Communications Holdings subscribers. This agreement has
a four-year initial term commencing December 4, 2001.
71
- Intellectual Property Agreement. This agreement specifies the ownership
and license rights granted by each party to the other in specified
patents, software, copyrights and trade secrets. Among other rights
granted, the effect of this agreement is to allow Comcast Cable
Communications Holdings and AT&T to continue to have the same rights to
use the intellectual property that they had at the time of the separation
and Comcast Cable Communications Holdings spin-off.
- Corporate Name Agreement. AT&T and we entered into a corporate name
agreement immediately prior to the completion of the AT&T Broadband
acquisition pursuant to which AT&T will grant to us the right to use the
term "AT&T" as part of our full corporate name, but prohibit any use of
"AT&T" as a trade name, trademark, or service mark, or in a domain name
other than specified domain names permitted for certain purposes. Such
grant of rights will be perpetual unless terminated as a result of the
Roberts family's voting power falling below 33% or pursuant to any other
terms of the agreement. On November 18, 2002, we changed our name from
AT&T Comcast Corporation to Comcast Corporation.
THE QUIPS EXCHANGE
Prior to the AT&T Broadband acquisition, Microsoft (through a wholly owned
subsidiary) held $5 billion in aggregate liquidation preference amount of 5%
Convertible Quarterly Income Preferred Securities, referred to in this
prospectus by their acronym "QUIPS," of AT&T Finance Trust I, a Delaware
business trust. The QUIPS were convertible into $5 billion aggregate face amount
of 5% Junior Convertible Subordinated Debentures due 2029 of AT&T, which were in
turn convertible into AT&T common stock. In connection with the AT&T Broadband
acquisition, Comcast Holdings and Microsoft entered into an exchange agreement
dated December 7, 2001 relating to the exchange of the QUIPS for a combination
of our voting and non-voting shares to be issued in the merger, and on December
19, 2001 we became a party to the exchange agreement by executing the instrument
of admission. On March 11, 2002, the parties amended the exchange agreement and
instrument of admission. The following summary of the exchange agreement and the
instrument of admission, in each case as amended, is qualified in its entirety
by reference to the complete texts of the amended exchange agreement and the
instrument of admission, which are incorporated by reference and attached as
exhibits to the registration statement in which this prospectus is included.
The Exchange. In the exchange agreement and instrument of admission, we
agreed to exchange the QUIPS for approximately 100.6 million shares of our Class
A Common Stock, and approximately 14.4 million shares of our non-voting Class A
Special Common Stock in the AT&T Broadband acquisition. If Microsoft transfers
shares of our Class A Common Stock or its voting interest in us is diluted below
4.95%, subject to certain conditions, Microsoft will have the right to cause us
to exchange the shares of our non-voting Class A Special Common Stock received
in the AT&T Broadband acquisition for shares of our voting Class A Common Stock
provided that its voting interest in us does not exceed 4.95% after the
exchange. Prior to six months after completion of the Microsoft transaction,
subject to certain exceptions, Microsoft has agreed that neither Microsoft nor
any of its wholly-owned subsidiaries will sell, or enter into any agreement,
arrangement or negotiations relating to the sale of, any of the shares of our
Class A Special Common Stock that it received in connection with the Microsoft
transaction. Comcast Holdings agreed to indemnify Microsoft against any claim by
Comcast Holdings, AT&T or any shareholder of Comcast Holdings, AT&T or us for
any loss arising as a result of the Comcast Cable Communications Holdings
spin-off or the mergers failing to be tax-free, except to the extent such a
failure results directly from a breach by Microsoft of the lock-up agreement
described above or of the failure of a related representation and warranty made
by Microsoft in the exchange agreement.
Internet Access. Until the fifth anniversary of the Microsoft transaction,
we have agreed that if we offer a high-speed Internet access agreement to any
third party, then we will be obligated to offer an agreement on
nondiscriminatory terms with respect to the same cable systems to Microsoft for
its ISP, The Microsoft Network. In connection with Comcast Holdings' and AT&T's
agreement with AOL Time Warner providing for the restructuring of TWE, Comcast
Holdings and Comcast Cable Communications will enter into a three-year
non-exclusive access agreement with AOL Time Warner. Because Comcast Holdings
has also entered into an access agreement with United Online and Comcast Cable
Communications Holdings has also entered
72
into an access agreement with each of Earthlink, Internet Central, Connected
Data Systems, Galaxy Internet Services and Connect Plus International, we will
be required after the consummation of the AT&T Broadband acquisition, with
respect to each such agreement with another ISP, including the agreement to be
entered into with AOL Time Warner, to offer an access agreement to Microsoft on
terms no less favorable than those provided to the other ISP with respect to the
specific cable systems covered under the agreement with the other ISP.
Interactive Technology Agreement. In connection with the exchange
agreement, Microsoft and Comcast Cable entered into a letter of intent and are
currently negotiating a definitive agreement pursuant to which the parties will
conduct a trial during 2003 of an interactive television platform, including
set-top box middleware. If the trial results meet agreed technical standards,
the platform meets defined competitive requirements and a launch would meet
Comcast Cable's reasonable business objectives, Comcast Cable has agreed that it
will commercially launch the Microsoft platform to at least 25% of its newly
installed middleware customer base.
LEGAL MATTERS
Davis Polk & Wardwell will pass upon the validity of the cable guarantees
on our behalf and on behalf of the cable guarantors.
EXPERTS
COMCAST
The balance sheet of Comcast at December 31, 2001 incorporated by reference
from Comcast's Current Report on Form 8-K/A dated November 18, 2002 filed on
December 16, 2002 has been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and has been so incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
COMCAST HOLDINGS
The consolidated financial statements and the related financial statement
schedule of Comcast Holdings incorporated in this prospectus by reference from
Comcast's Current Report on Form 8-K/A dated November 18, 2002 filed on December
16, 2002 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report (which report expresses an unqualified opinion and
includes an explanatory paragraph related to the adoption of Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended, effective January 1, 2001), which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
COMCAST CABLE
The financial statements and the related financial statement schedule of
Comcast Cable, an indirect wholly-owned subsidiary of Comcast, and subsidiaries
incorporated in this prospectus by reference from Comcast Cable's Annual Report
on Form 10-K for the year ended December 31, 2001 have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports (which report on
the financial statements expresses an unqualified opinion and includes an
explanatory paragraph related to the adoption of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, effective January 1, 2001), which are incorporated
herein by reference, and have been so incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
73
COMCAST MO OF DELAWARE, INC.
The financial statements of Comcast MO of Delaware, Inc. (formerly MediaOne
of Delaware, Inc.), and its subsidiaries as of December 31, 2001 and 2000, and
for the year ended December 31, 2001 and for the period June 15, 2000 to
December 31, 2000 included in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in accounting and auditing.
AT&T BROADBAND GROUP
The audited historical combined financial statements of AT&T Broadband
Group incorporated in this prospectus by reference to Comcast's Current Report
on Form 8-K/A dated November 18, 2002 filed on December 16, 2002, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
We, along with the cable guarantors, have filed this prospectus as part of
a combined registration statement on Form S-4 with the SEC. The registration
statement contains exhibits and other information that are not contained in this
prospectus. In particular, the registration statement includes as exhibits a
form of the amendment, a form of cable guarantee, a form of Continental cross
guarantee, copies of the indentures under which the Continental notes were
issued, and the forms of the Continental notes. Our descriptions in this
prospectus of the provisions of documents filed as an exhibit to the
registration statement or otherwise filed with the SEC are only summaries of the
documents' material terms. If you want a complete description of the content of
the documents, you should obtain the documents by following the procedures
described below.
Comcast Cable Communications Holdings, Comcast MO Group, Comcast Cable
Holdings and Continental do not currently file information with the SEC. We, and
Comcast Holdings as our predecessor, file annual, quarterly and special reports
and other information with the SEC. Although Comcast Cable, which currently
files annual, quarterly and special reports and other information with the SEC,
the other cable guarantors and Continental would normally be required to file
information with the SEC on an ongoing basis, we expect that Comcast Cable and
the cable guarantors will be exempt from this filing obligation for as long as
we continue to file our information with the SEC. You may read and copy any
document we, Comcast Holdings or Comcast Cable file at the SEC's public
reference room located at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Our SEC filings, including the complete registration statement and all of
the exhibits to it, and the SEC filings of Comcast Holdings and Comcast Cable
are available through the SEC's web site at http://www.sec.gov.
You should rely only on the information contained in this prospectus, in
the accompanying prospectus supplement and in material we, Comcast Holdings and
Comcast Cable file with the SEC and incorporate by reference herein. We have not
authorized anyone to provide you with information that is different. We are
offering the cable guaranties, and seeking consents to the amendment, only where
the consent solicitation and offer to guarantee are permitted. The information
contained in this prospectus and our filings and the filings of Comcast Holdings
and Comcast Cable with the SEC is accurate only as of its date, regardless of
the time of delivery of this prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you directly to those documents. The information incorporated by
reference is considered to be part of this prospectus. In addition, information
we file with the SEC in the future will automatically update and supersede
information contained in this prospectus and any accompanying prospectus
supplement.
74
This prospectus incorporates by reference the documents set forth below
that we, Comcast Holdings and Comcast Cable have previously filed with the SEC.
Comcast SEC Filings (File No. 333-82460)
- Current Report on Form 8-K filed on October 30, 2002, Current Report on
Form 8-K filed on November 18, 2002, Current Report on Form 8-K/A dated
November 18, 2002 filed on December 16, 2002, Current Report on Form 8-K
filed on January 10, 2003 and Current Report on Form 8-K filed on
February 5, 2003.
Comcast Holdings SEC Filings (File No. 001-15471)
- Annual Report on Form 10-K (except for Item 8) for the year ended
December 31, 2001, filed on March 29, 2002.
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002,
filed on May 15, 2002, June 30, 2002, filed on August 14, 2002, and
September 30, 2002, filed on October 30, 2002.
- Current Report on Form 8-K filed on November 18, 2002.
Comcast Cable SEC Filings (File No. 333-30745)
- Annual Report on Form 10-K for the year ended December 31, 2001, filed on
March 29, 2002.
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002,
filed on May 15, 2002, June 30, 2002, filed on August 14, 2002, and
September 30, 2002, filed on November 13, 2002.
- Current Report on Form 8-K filed on November 18, 2002.
We also incorporate by reference into this prospectus additional documents
that we may file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until we sell all of the securities we are
offering. Any statements contained in a previously filed document incorporated
by reference into this prospectus is deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement contained in this
prospectus, or in a subsequently filed document also incorporated by reference
herein, modifies or supersedes that statement.
We will provide free copies of any of those documents, if you write or
telephone us at: 1500 Market Street, Philadelphia, Pennsylvania 19102-2148,
(215) 665-1700.
75
INDEX TO FINANCIAL STATEMENTS
COMCAST MO OF DELAWARE, INC. (FORMERLY MEDIAONE OF DELAWARE, INC.)
Condensed Consolidated Statement of Operations and
Comprehensive Loss for the Nine Months Ended September 30,
2002 and 2001 (Unaudited)................................. F-2
Condensed Consolidated Balance Sheet as of September 30,
2002 and December 31, 2001 (Unaudited).................... F-3
Condensed Consolidated Statement of Stockholder's Equity for
the Period from January 1, 2002 to September 30, 2002
(Unaudited)............................................... F-4
Condensed Consolidated Statement of Cash Flows for the Nine
Months Ended September 30, 2002 and 2001 (Unaudited)...... F-5
Notes to Condensed Consolidated Financial Statements for the
Nine Months Ended September 30, 2002 and 2001
(Unaudited)............................................... F-6
Report of Independent Accountants........................... F-14
Consolidated Statement of Operations and Comprehensive Loss
for the Year Ended December 31, 2001...................... F-15
Consolidated Balance Sheet as of December 31, 2001.......... F-16
Consolidated Statement of Stockholder's Equity for the Year
Ended December 31, 2001................................... F-17
Consolidated Statement of Cash Flows for the Year Ended
December 31, 2001......................................... F-18
Notes to Consolidated Financial Statements for the Year
Ended December 31, 2001................................... F-19
Report of Independent Accountants........................... F-33
Consolidated Statement of Operations and Comprehensive Loss
for the Period from January 1, 2000 to June 14, 2000
(unaudited) and for the Period from June 15, 2000 to
December 31, 2000......................................... F-34
Consolidated Balance Sheet as of December 31, 2000.......... F-35
Consolidated Statement of Stockholder's Equity for the
Period from January 1, 2000 to June 14, 2000 (unaudited)
and for the Period from June 15, 2000 to December 31,
2000...................................................... F-36
Consolidated Statement of Cash Flows for the Period from
January 1, 2000 to June 14, 2000 (unaudited) and for the
Period from June 15, 2000 to December 31, 2000............ F-38
Notes to Consolidated Financial Statements for the Year
Ended December 31, 2000................................... F-39
F-1
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2002 2001
---------- --------
(DOLLARS IN MILLIONS)
REVENUE..................................................... $ 2,277 $2,131
Costs and expenses:
Operating:
Programming -- related parties (note 6).............. 647 568
Other (excluding depreciation of $544 and $429,
included below)..................................... 495 467
Selling, general and administrative:
Related party (note 6)............................... 132 115
Other................................................ 420 353
Restructuring charge (note 5).......................... 14 29
Goodwill and franchise impairment charges (note 4)..... 10,394 --
Depreciation........................................... 678 549
Amortization (note 3).................................. 67 670
-------- ------
Total costs and expenses.......................... 12,847 2,751
-------- ------
OPERATING LOSS.............................................. (10,570) (620)
Other income (expense):
Interest expense.......................................... (109) (118)
Other income (expense), net............................... 2 (43)
-------- ------
Loss before income taxes, net losses related to equity
investments and cumulative effect of accounting change.... (10,677) (781)
Income tax benefit.......................................... 1,559 176
Net loss related to equity investments (note 4)............. (17) (8)
-------- ------
Loss before cumulative effect of accounting change.......... (9,135) (613)
Cumulative effect of accounting change (net of income taxes
of $148 and $(20)) (note 3)............................... (10,367) 34
-------- ------
Net loss.................................................... (19,502) (579)
Other comprehensive loss, net of taxes:
Unrealized loss on securities............................. (4) (1)
Recognition of previously unrealized losses............... -- 4
-------- ------
Comprehensive loss.......................................... $(19,506) $ (576)
======== ======
See accompanying notes to condensed consolidated financial statements.
F-2
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
(DOLLARS IN MILLIONS)
ASSETS
Cash and cash equivalents................................... $ -- $ --
Accounts receivable -- net of allowance of $12 and $10...... 181 160
Investments................................................. 324 370
Property, plant and equipment............................... 5,597 5,054
Less: accumulated depreciation............................ 1,637 997
-------- -------
3,960 4,057
-------- -------
Franchise costs (notes 3 and 4)............................. 10,342 14,536
Goodwill (notes 3 and 4).................................... -- 16,727
Other intangible assets (note 3)............................ 876 876
Less: accumulated amortization............................ 209 143
-------- -------
667 733
-------- -------
Other assets................................................ 65 33
-------- -------
Total assets........................................... $ 15,539 $36,616
======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable............................................ $ 97 $ 98
Accrued interest............................................ 32 46
Accrued liabilities and other............................... 229 246
Debt........................................................ 1,885 1,911
Deferred income taxes....................................... 2,393 3,948
-------- -------
Total liabilities...................................... 4,636 6,249
-------- -------
Stockholder's Equity:
Common stock, $.01 par value; 100 shares authorized and
outstanding............................................ -- --
Additional paid-in-capital................................ 30,585 30,585
Accumulated deficit....................................... (20,482) (980)
Accumulated other comprehensive loss...................... (3) 1
Due to related parties -- net (note 6).................... 803 761
-------- -------
Total stockholder's equity............................. 10,903 30,367
-------- -------
Commitments and contingencies (note 7)
Total liabilities and stockholder's equity............. $ 15,539 $36,616
======== =======
See accompanying notes to condensed consolidated financial statements.
F-3
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(UNAUDITED)
ACCUMULATED DUE TO
ADDITIONAL OTHER RELATED TOTAL
COMMON PAID-IN- ACCUMULATED COMPREHENSIVE PARTIES -- STOCKHOLDER'S
STOCK CAPITAL DEFICIT INCOME (LOSS) NET EQUITY
------ ---------- ----------- ------------- ---------- -------------
(DOLLARS IN MILLIONS)
Balance, January 1, 2002....... $ -- $30,585 $ (980) $ 1 $761 $ 30,367
Net loss....................... -- -- (19,502) -- -- (19,502)
Change in amounts due to
related parties, net......... -- -- -- -- 42 42
Other comprehensive loss, net
of income taxes.............. -- -- -- (4) -- (4)
----- ------- -------- --- ---- --------
Balance, September 30, 2002.... $ -- $30,585 $(20,482) $(3) $803 $ 10,903
===== ======= ======== === ==== ========
See accompanying notes to condensed consolidated financial statements.
F-4
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2002 2001
---------- --------
(DOLLARS IN MILLIONS)
OPERATING ACTIVITIES:
Net loss.................................................. $(19,502) $ (579)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Cumulative effect of accounting change, net of income
taxes................................................. 10,367 (34)
Goodwill and franchise impairment charges.............. 10,394 --
Depreciation and amortization.......................... 745 1,219
Net revaluation of warrants............................ 5 53
Net loss related to equity investments................. 27 13
Net realized gain on investments....................... -- (16)
Deferred income taxes.................................. (1,404) 88
Other noncash credits, net............................. (15) (12)
Change in operating assets and liabilities:
Accounts receivable and other assets................. (24) (471)
Accounts payable and other accrued liabilities....... (22) (47)
-------- ------
Net cash provided by operating activities................. 571 214
-------- ------
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment............ (605) (650)
Net cash paid on exchange of cable systems................ -- (119)
Investment distributions and sales........................ 12 275
Investment contributions and purchases.................... (14) (247)
Other..................................................... (22) (10)
-------- ------
Net cash used in investing activities..................... (629) (751)
-------- ------
FINANCING ACTIVITIES:
Repayments of debt........................................ (5) (200)
Funds advanced from related parties, net.................. 63 740
Other..................................................... -- (3)
-------- ------
Net cash provided by financing activities................. 58 537
-------- ------
CASH AND CASH EQUIVALENTS:
Net change................................................ -- --
Beginning balance......................................... -- --
-------- ------
Ending balance............................................ $ -- $ --
======== ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Transfer of net assets to parent.......................... $ 21 $ --
======== ======
Transfer of telephony assets.............................. $ -- $ 305
======== ======
Cash paid for interest.................................... $ 123 $ 138
======== ======
See accompanying notes to condensed consolidated financial statements.
F-5
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
1. BASIS OF PRESENTATION
MediaOne of Delaware, Inc. (the "Company") is a wholly-owned subsidiary of
MediaOne Group, Inc., ("MediaOne"). On November 18, 2002, Comcast Corporation
("Comcast") completed the acquisition of AT&T's broadband business ("AT&T
Broadband") (the "AT&T Broadband Acquisition"). Prior to the AT&T Broadband
Acquisition, MediaOne was a subsidiary of AT&T. MediaOne and the Company became
subsidiaries of Comcast as of the date of the AT&T Broadband Acquisition.
Subsequent to the AT&T Broadband Acquisition the Company changed its name to
Comcast MO of Delaware, Inc.
The Company is a provider of domestic broadband communications services,
having the capability to offer its subscribers video and high speed Internet
access services simultaneously over its broadband network. The Company's cable
systems include large clusters in California, Chicago, Florida, Massachusetts
and Minneapolis/St. Paul. In addition, the Company holds domestic investments
encompassing cable television and broadband systems and programming services.
The accompanying condensed consolidated financial statements were part of
the consolidated financial statements and accounting records of AT&T. The
Company's consolidated financial statements are based on the operating
procedures implemented by management of the Company and reflect the assets,
liabilities, revenues and expenses attributable to the Company, as well as
allocations deemed reasonable by management to present the financial position,
results of operations, and cash flows of the Company on a stand-alone basis. The
financial position, results of operations, and cash flows of the Company could
differ from reported results had the Company operated autonomously or as an
entity independent of AT&T. The allocation methodologies have been described
within the respective notes to the financial statements where appropriate and
management considers the allocations to be reasonable.
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries and, in management's opinion, contain all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the financial information set forth therein. All significant intercompany
accounts and transactions have been eliminated. The consolidated results for the
interim periods presented are not necessarily indicative of results for the full
year. These condensed consolidated financial statements should be read in
conjunction with the Company's annual financial statements for the year ended
December 31, 2001.
In connection with the review of these interim financial statements
prepared in connection with the filing by Comcast of a registration statement,
the Company recorded a noncash adjustment to goodwill and franchise impairment
charges of $6,599 million to the previously reported results for the period
ended September 30, 2002. The impairment charge resulted from the assessment of
goodwill in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142") (see note 4). In
addition, the Company recorded certain other adjustments related to the nine
month periods ended September 30, 2002 and 2001. The adjustments for the nine
month period ended September 30, 2001 had been included in the Company's fourth
quarter results of operations and, accordingly, do not affect the Company's
previously reported results for the year ended December 31, 2001. The effect of
the goodwill impairment charge and the other adjustments, which have been
recorded in the accompanying condensed consolidated financial statements, is
summarized as follows (amounts in millions):
STOCKHOLDER'S NET LOSS NET LOSS
EQUITY NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
------------------ ------------------ ------------------
As previously reported.................... $17,511 $12,896 $228
Adjustments............................... (6,608) 6,606 351
------- ------- ----
As restated............................... $10,903 $19,502 $579
======= ======= ====
F-6
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS, EXCHANGES AND DISPOSITIONS
In January 2001, the Company exchanged certain cable systems in New York,
providing cable services to approximately 130,000 subscribers, and cash of $184
million, for certain cable systems in Massachusetts owned by Cablevision Systems
Corp., providing cable services to approximately 150,000 cable subscribers
valued at approximately $675 million. The Company accounted for the cable
systems acquired under the purchase method of accounting.
In January 2001, the Company received cash of $54 million and contributed
various cable systems in Illinois, providing cable services to approximately
45,000 subscribers to an existing partnership owned equally by Insight Midwest,
LP ("Insight") and AT&T. The partnership interest attributable to the Company
was valued at $119 million. No gain or loss was recognized on the transaction.
In April 2001, the joint venture to provide high speed internet access
services under the Roadrunner brand name ("Roadrunner") was liquidated. The
Company received cash distributions of $67 million for its 31.4% interest in
Roadrunner at liquidation and recorded a loss of $27 million. In connection with
the liquidation of Roadrunner, the Company acquired fixed assets of $81 million
from Roadrunner and assumed $16 million of obligations under capital leases.
During the third quarter of 2001, the Company sold certain investments for
cash proceeds of $209 million. The Company recognized a gain of $43 million on
such sale.
3. NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
SFAS NO. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS"
Effective January 1, 2002, the Company adopted SFAS No. 142. SFAS 142
requires that goodwill and indefinite-lived intangible assets no longer be
amortized, but instead be tested for impairment at least annually. Intangible
assets that have finite useful lives will continue to be amortized over their
useful lives. In addition, the amortization period of intangible assets with
finite lives will no longer be limited to 40 years. The Company has determined
that franchise costs are indefinite-lived assets, as defined in SFAS 142, and
therefore are not subject to amortization beginning in 2002. In accordance with
SFAS 142, goodwill was tested for impairment by comparing the fair value of the
reporting unit to its carrying value. As of January 1, 2002, a goodwill
impairment loss of $10,128 million was recorded and included in the cumulative
effect of accounting change in the accompanying condensed consolidated statement
of operations. Franchise costs were tested for impairment as of January 1, 2002,
by comparing the fair value to the carrying value (at the market level). An
impairment loss for franchise costs of $239 million, net of taxes of $148
million, was recorded and included in the cumulative effect of accounting change
in the accompanying condensed consolidated statement of operations.
F-7
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the impact of amortization under SFAS 142 on
net loss had the standard been in effect for the nine months ended September 30,
2001.
NINE MONTHS ENDED
SEPTEMBER 30
------------------
2002 2001
--------- ------
Reported loss before cumulative effect of accounting
change.................................................... $ (9,135) $(613)
Add back amortization, net of tax:
Goodwill.................................................. -- 322
Equity method excess basis................................ -- 1
Franchise costs........................................... -- 175
-------- -----
Adjusted reported loss before cumulative effect of
accounting change......................................... (9,135) (115)
Cumulative effect of accounting change, net of income
taxes.................................................. (10,367) 34
-------- -----
Adjusted net loss........................................... $(19,502) $ (81)
======== =====
During 2002, all goodwill had been impaired primarily as a result of the
adoption of SFAS 142 and impairment losses recorded in the second quarter of
2002 (see note 4).
Other intangible assets are amortized and consist primarily of customer
lists. The amortization expense associated with other intangible assets for the
nine months ended September 30, 2002 was $66 million. Annual amortization
expense for other intangible assets is estimated to be $88 million for the years
ended 2002 through 2006.
SFAS NO. 144, "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS"
On January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which supercedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121"). SFAS 144 applies to all long-lived
assets, including discontinued operations, and consequently amends Accounting
Principles Board ("APB") Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" ("APB
30"). Based on SFAS 121, SFAS 144 develops one accounting model for long-lived
assets that are to be disposed of by sale, as well as addresses the principal
implementation issues. SFAS 144 requires that long-lived assets that are to be
disposed of by sale be measured at the lower of book value or fair value less
cost to sell. Additionally, SFAS 144 expands the scope of discontinued
operations to include all components of an entity with operations that (1) can
be distinguished from the rest of the entity and (2) will be eliminated from the
ongoing operations of the entity in a disposal transaction. SFAS 144 also amends
Accounting Research Bulletin No. 51, "Consolidated Financial Statements" to
eliminate the exception to consolidation for a subsidiary for which control is
likely to be temporary. The adoption of SFAS 144 had no impact on the Company's
results of operations, financial position or cash flows.
SFAS NO. 133 "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES"
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities", and its corresponding
amendments under SFAS No. 138. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. All derivatives,
whether designated in hedging relationships or not, are required to be recorded
on the balance sheet at fair value. If the derivative is designated as a fair
value hedge, the changes in the fair value of the derivative and of the hedged
item attributable to the hedged risk are recognized in earnings. If the
derivative is designated as a cash flow hedge,
F-8
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the effective portions of changes in the fair value of the derivative are
recorded in other comprehensive income and are recognized in the income
statement when the hedged item affects earnings. Changes in fair values of
derivative instruments not designated as hedging instruments and ineffective
portions of hedges, if any, are recognized in earnings in the current period.
The adoption of SFAS No. 133 resulted in a pretax cumulative-effect
decrease to net loss of $54 million ($34 million net of tax). Such decrease was
attributable to warrants held in both public and private companies. Included in
the after tax cumulative effect benefit was a $4 million after tax loss which
was reclassified from other comprehensive loss for changes in the fair value of
warrants.
For the nine months ended September 30, 2002 and 2001, other income
included a total pretax loss of $5 million and $53 million, respectively,
related to changes in the fair value of warrants.
4. IMPAIRMENT CHARGES
GOODWILL AND FRANCHISE IMPAIRMENT CHARGES
SFAS 142 requires that intangible assets not subject to amortization and
goodwill shall be tested for impairment annually, or more frequently if events
or changes in circumstances indicate that the asset might be impaired. The
impairment test shall consist of a comparison of the fair value of the
intangible asset/goodwill with its carrying amount.
In the second quarter of 2002, the Company noted significant changes in the
general business climate as evidenced by the severe downward movement in the
U.S. stock market (including the decline in values of publicly traded cable
industry stocks). At June 30, 2002, five cable competitors as a group
experienced an average decline in total market capitalization of over 20% since
January 1, 2002. The Company also witnessed corporate bankruptcies. The Company
believes these factors created a "trigger event" which necessitated the testing
of goodwill and franchise costs for impairment as of the end of the second
quarter.
The Company assessed impairment on similar principles employed during the
initial adoption of SFAS 142. Such testing resulted in the recognition of a
$3,795 million franchise cost impairment charge and a $6,599 million goodwill
impairment charge (aggregating $8,942 million after-tax) recorded in goodwill
and franchise impairment charges in the accompanying condensed consolidated
statement of operations.
INVESTMENT IMPAIRMENT CHARGES
In accordance with SFAS No. 115 "Accounting for Certain Investments in Debt
and Equity Securities" and APB Opinion No. 18 "The Equity Method of Accounting
for Investments in Common Stock" ("APB 18"), the Company evaluated its portfolio
of investments as of September 30, 2002 for potential impairments. SFAS 115 and
APB 18 both require the recognition in earnings of declines in value of cost and
equity method securities that are other than temporary.
Given the significant decline in stock prices in the first half of the
year, the length of time these investments were below market and industry
specific issues, the Company believes that its investment in Insight would not
recover its cost basis in the foreseeable future. Accordingly, the Company
believes the decline in value is other than temporary and, as a result, the
Company recorded an investment impairment charge of $23 million pretax ($14
million after tax) related to Insight which is included in net losses related to
equity investments in the accompanying condensed consolidated statement of
operations.
5. RESTRUCTURING CHARGE
During the nine months ended September 30, 2002, the Company recorded a $14
million charge for restructuring and exit costs associated with efforts to
reorganize and streamline certain field functions. The restructuring charge
included $4 million related to severance costs for approximately 103 employees
and
F-9
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$10 million for facilities closings. Substantially all of the affected employees
are non-management employees. Nearly all of the employees have left their
positions as of September 30, 2002.
During the nine months ended September 30, 2001, the Company recorded a $29
million charge for restructuring and exit costs primarily as part of an
initiative to reduce costs. The restructuring and exit plans primarily resulted
from synergies created by AT&T's acquisition of MediaOne. The restructuring
charge included $26 million related to severance costs for approximately 1,170
employees and $3 million for facilities closings. Approximately 36% of the
affected employees are management and 64% are non-management employees. Nearly
all of the employees had left their positions as of December 31, 2001.
6. RELATED PARTIES
Due to the significant capital requirements associated with upgrading its
cable systems, cash generated from the Company's operations is not sufficient to
fund capital expenditures. Accordingly, AT&T provided cash advances to the
Company. Such amounts are non-interest bearing and are reflected in the
accompanying consolidated balance sheet as due to related parties -- net.
Amounts due to related parties have been classified as a component of
stockholder's equity in the accompanying condensed consolidated balance sheet as
AT&T owned all of the outstanding stock of the Company as of September 30, 2002
and December 31, 2001.
Certain subsidiaries of AT&T provided administrative services to the
Company and assumed managerial responsibility for the Company's operations. As
compensation for these services, the Company pays a fee to such subsidiaries
calculated on a per-subscriber basis. In addition, the Company reimbursed AT&T
for all direct expenses incurred by AT&T in providing services to the Company.
Such amounts are reflected in the accompanying condensed consolidated statement
of operations as selling, general and administrative expenses -- related party.
The Company purchased certain pay television and other programming services
from an indirect subsidiary of AT&T. Charges for such programming totaled $647
million and $568 million for the nine months ended September 30, 2002 and 2001,
respectively.
During the second quarter of 2001, the Company transferred ownership of its
broadband telephone business to AT&T and certain of its subsidiaries. The
transfer included the following assets and liabilities (amounts in millions):
Accounts receivable......................................... $ 12
Property and equipment...................................... 289
Other net assets............................................ 12
Accounts payable............................................ 8
Due to related parties...................................... 458
Additional paid in capital.................................. (153)
7. COMMITMENTS AND CONTINGENCIES
The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") imposed certain rate regulations on the cable television
industry. Under the 1992 Cable Act, all cable systems are subject to rate
regulation, unless they face "effective competition," as defined by the 1992
Cable Act and expanded in the Telecommunications Act of 1996 (the "1996 Act"),
in their local franchise area.
The Company believes that it has complied in all material respects with the
provisions of the 1992 Cable Act and the 1996 Act, including its rate setting
provisions. If, as a result of the review process, a system cannot substantiate
its rates, it could be required to retroactively reduce its rates to the
appropriate benchmark and refund the excess portion of rates received.
F-10
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's rates for its cable systems have also been subject to rate
regulation under a social contract (the "Social Contract") with the Federal
Communications Commission (the "FCC") which expired on December 31, 2000. As
part of the Social Contract, the Company agreed to, among other things, rebuild
and upgrade its cable television systems to expand channel capacity and improve
system reliability and picture quality. At September 30, 2002, the Company had
not met the upgrade requirements of the Social Contract for certain of its cable
television systems. In the event that the Company is not able to address
individual franchise authority concerns through negotiations and alternative
methods of providing similar levels of service, the Company could be required to
pay fines and/or refund a portion of its rates for the systems in which the
upgrade requirements have not been met. The Company has worked with the FCC and
local franchising authorities to resolve this matter, however, at this time, the
ultimate outcome of this matter is unknown.
The Company is subject to legal proceedings and claims that arise in the
ordinary course of business. Although it is reasonably possible that the Company
may incur losses upon conclusion of such matters, an estimate of any loss or
range of loss cannot be made.
8. NEW ACCOUNTING PRONOUNCEMENTS
In 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). This standard
requires that obligations associated with the retirement of tangible long-lived
assets be recorded as liabilities when those obligations are incurred, with the
amount of the liability initially measured at fair value. Upon initially
recognizing a liability for an asset retirement obligation, an entity must
capitalize the cost by recognizing an increase in the carrying amount of the
related long-lived asset. Over time, this liability is accreted to its future
value, and the capitalized cost is depreciated over the useful life of the
related asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement.
SFAS 143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002, which for the Company means the standard will be adopted on
January 1, 2003. The Company does not expect that the adoption of this statement
will have a material impact on the Company's results of operations, financial
position or cash flows.
On April 30, 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical
Corrections" ("SFAS 145"). SFAS 145 eliminates the requirement that gains and
losses from the extinguishment of debt be aggregated and classified as an
extraordinary item, net of the related income tax. An entity is not prohibited
from classifying such gains and losses as extraordinary items, as long as they
meet the criteria in paragraph 20 of APB 30. In addition, FAS 145 requires that
capital leases that are modified so that the resulting lease agreement is
classified as an operating lease be accounted for in the same manner as
sale-leaseback transactions. The rescission of SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt" is effective for fiscal years beginning
after May 15, 2002, which for the Company means January 1, 2003. Earlier
application is encouraged. Any gain or loss on extinguishment of debt that was
previously classified as an extraordinary item would be reclassified to other
income (expense). The remainder of the statement is generally effective for
transactions occurring after May 15, 2002. The Company does not expect that the
adoption of SFAS No. 145 will have a material impact on the Company's results of
operations, financial position or cash flows.
On June 28, 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
Disposal Activities" ("SFAS 146"). This statement addresses the recognition,
measurement and reporting of costs that are associated with exit and disposal
activities. This statement includes the restructuring activities that are
currently accounted for pursuant to the guidance set forth in Emerging Issues
Task Force 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to exit an Activity (including Certain Costs incurred
in a Restructuring)" ("EITF 94-3"), costs related to terminating a contract that
is not a capital lease and one-time benefit arrangements received by employees
who are involuntarily terminated --
F-11
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
nullifying the guidance under EITF 94-3. Under SFAS 146 the cost associated with
an exit or disposal activity is recognized in the period in which it is incurred
rather than at the date the company committed to the exit plan. This statement
is effective for exit or disposal activities initiated after December 31, 2002
with earlier application encouraged. Previously issued financial statements will
not be restated. The provisions of EITF 94-3 shall continue to apply for exit
plans initiated prior to the adoption of SFAS 146. Accordingly, the initial
adoption of SFAS 146 will not have an effect on the Company's results of
operations, financial position or cash flows. However, liabilities associated
with future exit and disposal activities will not be recognized until actually
incurred.
In November 2002, the EITF reached a consensus on EITF 02-16, "Accounting
by a Customer (including a Reseller) for Cash Consideration Received from a
Vendor" ("EITF 02-16"). EITF 02-16 requires that cash consideration received by
a customer from a vendor should be classified as a reduction of cost of sales
when recognized in the customer's income statement unless certain criteria are
met. EITF 02-16 also requires that a rebate or refund of cash that is payable
only if the customer completes a specified cumulative level of purchases or
remains a customer for a specified time period should be recognized as a
reduction of the cost of sales based on a systematic and rational allocation,
provided the amounts are reasonably estimable. The Company adopted EITF 02-16 in
the fourth quarter of 2002. The Company's cable subsidiaries have received or
may receive distribution fees from programming networks for carriage of their
programming. The Company classifies these fees as a reduction of programming
costs which are included in operating expenses in the Company's condensed
consolidated statement of operations. Accordingly, the adoption of EITF 02-16
had no impact on the Company's results of operations, financial position or cash
flows.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 expands on the
accounting guidance of SFAS No.'s 5, 57, and 107 and supercedes FIN 34. FIN 45
clarifies that a guarantor is required to disclose in its interim and annual
financial statements its obligations under certain guarantees that it has issued
including, the nature and terms of the guarantee, the maximum potential amount
of future payments under the guarantee, the carrying amount, if any, for the
guarantor's obligations under the guarantee, and the nature and extent of any
recourse provisions or available collateral that would enable the guarantor to
recover the amounts paid under the guarantee. FIN 45 also clarifies that, for
certain guarantees, a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. FIN 45 does not prescribe a specific approach for
subsequently measuring the guarantor's recognized liability over the term of the
related guarantee. The initial recognition and initial measurement provisions of
FIN 45 apply on a prospective basis to certain guarantees issued or modified
after December 31, 2002. The disclosure requirements in FIN 45 are effective for
financial statements of interim or annual periods ending after December 15,
2002. The Company adopted the disclosure provisions of FIN 45 in the fourth
quarter of 2002 and adopted the initial recognition and measurement provisions
of FIN 45 on January 1, 2003, as required by the Interpretation. The Company is
currently evaluating the impact the adoption of FIN 45 will have on its results
of operations, financial position and cash flows.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). FIN 46 is an Interpretation of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements" ("ARB
51"). FIN 46 clarifies the application of ARB 51 to certain entities in which
equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties.
FIN 46 requires existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries if the entities do not effectively
disperse risks among parties involved. Variable interest entities that
effectively disperse risks will not be consolidated unless a single party holds
an interest or combination of interests that effectively recombines risks that
were previously dispersed. FIN 46 will require disclosures
F-12
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
regarding ownership interests in variable interest entities. FIN 46 applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. FIN 46 applies in the first fiscal year or interim period beginning after
June 15, 2003 to variable interest entities in which an enterprise holds a
variable interest that it acquired before February 1, 2003. Fin 46 may be
applied prospectively with a cumulative-effect adjustment as of the date on
which it is first applied or by restating previously issued financial statements
for one or more years with a cumulative-effect adjustment as of the beginning of
the first year restated. The Company will adopt the initial recognition and
measurement provisions of FIN 46 on February 1, 2003, as required by the
Interpretation. The Company is currently evaluating the impact the adoption of
FIN 46 will have on its results of operations, financial position and cash
flows.
F-13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
AT&T Broadband LLC:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and comprehensive loss, of stockholder's
equity and of cash flows, present fairly, in all material respects, the
financial position of MediaOne of Delaware Inc. and its subsidiaries at December
31, 2001, and the results of their operations and their cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
MediaOne of Delaware Inc.'s management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
MediaOne of Delaware, Inc. is an indirect wholly-owned subsidiary of AT&T
Corp.; consequently, as indicated in Note 1, these consolidated financial
statements have been derived from the consolidated financial statements and
accounting records of AT&T Corp. and reflect certain assumptions and
allocations. Moreover, as indicated in Note 1, MediaOne of Delaware, Inc. relies
on AT&T Corp. for administrative, management and other services. The financial
position, results of operations and cash flows of MediaOne of Delaware, Inc.
could differ from those that would have resulted had MediaOne of Delaware, Inc.
operated autonomously or as an entity independent of AT&T Corp.
As discussed in the notes to the financial statements, MediaOne of Delaware
Inc. was required to adopt Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, effective January
1, 2001.
PricewaterhouseCoopers LLP
Denver, Colorado
March 31, 2002
F-14
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
YEAR ENDED
DECEMBER 31,
2001
------------
(DOLLARS IN
MILLIONS)
REVENUE..................................................... $ 2,854
Costs and expenses:
Operating:
Programming -- related parties (note 12)............. 743
Other (excluding depreciation of $588, included
below).............................................. 610
Selling, general and administrative:
Related party (note 12).............................. 155
Other................................................ 472
Restructuring charge (note 5).......................... 29
Depreciation........................................... 752
Amortization........................................... 914
-------
Total costs and expenses.......................... 3,675
-------
OPERATING LOSS.............................................. (821)
Other income (expense):
Interest expense.......................................... (157)
Other expense, net........................................ (20)
-------
Loss before income taxes, net losses related to equity
investments and cumulative effect of accounting change.... (998)
Income tax benefit.......................................... 218
Net losses related to equity investments.................... (12)
-------
Loss before cumulative effect of accounting change.......... (792)
Cumulative effect of accounting change (net of income taxes
of $20)................................................... 34
-------
Net loss.................................................. (758)
Other comprehensive earnings (losses), net of taxes:
Unrealized gains on securities............................ 4
Recognition of previously unrecognized losses............. 3
-------
Other comprehensive income.................................. 7
-------
Comprehensive loss.......................................... $ (751)
=======
See accompanying notes to consolidated financial statements.
F-15
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
2001
------------
(DOLLARS IN
MILLIONS)
ASSETS
Cash and cash equivalents................................... $ --
Accounts receivable -- net of allowance of $10.............. 160
Investments................................................. 370
Property, plant and equipment:
Land...................................................... 35
Distribution systems...................................... 4,364
Support equipment and buildings........................... 655
-------
5,054
Less: accumulated depreciation............................ 997
-------
4,057
-------
Franchise costs............................................. 15,101
Less: accumulated amortization............................ 565
-------
14,536
-------
Goodwill.................................................... 17,156
Less: accumulated amortization............................ 429
-------
16,727
-------
Other assets -- net of accumulated amortization of $143..... 766
-------
Total assets........................................... $36,616
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable............................................ $ 98
Accrued interest............................................ 46
Accrued liabilities and other............................... 246
Debt (note 7)............................................... 1,911
Deferred income taxes (note 11)............................. 3,948
-------
Total liabilities...................................... 6,249
-------
Stockholder's Equity:
Common stock, $.01 par value; 100 shares authorized and
outstanding............................................ --
Additional paid-in capital................................ 30,585
Accumulated deficit....................................... (980)
Accumulated other comprehensive income.................... 1
Due to related parties -- net (note 12)................... 761
-------
Total stockholder's equity............................. 30,367
-------
Commitments and contingencies (note 13)
Total liabilities and stockholder's equity............. $36,616
=======
See accompanying notes to consolidated financial statements.
F-16
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
ACCUMULATED DUE TO
ADDITIONAL OTHER RELATED TOTAL
COMMON PAID IN ACCUMULATED COMPREHENSIVE PARTIES -- STOCKHOLDER'S
STOCK CAPITAL DEFICIT INCOME (LOSS) NET EQUITY
------ ---------- ----------- ------------- ---------- -------------
(DOLLARS IN MILLIONS)
Balance, January 1,
2001.................... $ -- $12,940 $(222) $(6) $ 948 $13,660
Net loss.................. -- -- (758) -- -- (758)
Adjustments in connection
with allocation of
purchase price.......... -- 17,492 -- -- -- 17,492
Transfer of assets........ -- 153 -- -- (426) (273)
Change in amount due to
related parties, net.... -- -- -- -- 239 239
Other comprehensive
income, net of income
taxes of $4............. -- -- -- 7 -- 7
----- ------- ----- --- ----- -------
Balance, December 31,
2001.................... $ -- $30,585 $(980) $ 1 $ 761 $30,367
===== ======= ===== === ===== =======
See accompanying notes to consolidated financial statements.
F-17
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED
DECEMBER 31,
2001
------------
(DOLLARS IN
MILLIONS)
OPERATING ACTIVITIES:
Net loss.................................................. $ (758)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 1,666
Cumulative effect of accounting change, net of income
taxes................................................. (34)
Net revaluation of warrants............................ 53
Net loss on equity investments......................... 19
Gain on disposition of investments..................... (23)
Deferred income tax benefit............................ (49)
Other noncash credits, net............................. (15)
Change in operating assets and liabilities:
Accounts receivable and other assets................. 6
Accounts payable and other accrued liabilities....... 56
------
Net cash provided by operating activities................. 921
------
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment............ (785)
Net cash paid on exchange of cable systems................ (130)
Proceeds from sales of investments........................ 209
Investment distributions.................................. (284)
Investment contributions.................................. 67
Other investing activities................................ (26)
------
Net cash used in investing activities..................... (949)
------
FINANCING ACTIVITIES:
Repayments of debt........................................ (211)
Funds advanced from related parties, net.................. 239
------
Net cash provided by financing activities................. 28
------
CASH AND CASH EQUIVALENTS:
Net change................................................ --
Beginning balance......................................... --
------
Ending balance............................................ $ --
======
SUPPLEMENTAL CASH FLOW INFORMATION:
Transfer of assets to related party....................... $ 273
======
Cash paid for interest.................................... $ 177
======
See accompanying notes to consolidated financial statements.
F-18
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001
1. BASIS OF PRESENTATION
MediaOne of Delaware, Inc. and its subsidiaries (the "Company") is a
wholly-owned subsidiary of MediaOne Group, Inc., ("MediaOne"). On June 15, 2000,
AT&T Corp. ("AT&T") acquired MediaOne in a merger transaction (the "AT&T
Merger"). In the AT&T Merger, MediaOne became a subsidiary of AT&T.
The Company is a provider of domestic broadband communications services,
having the capability to offer its subscribers video, high speed Internet access
and telephone services simultaneously over its broadband network. The Company's
cable systems include large clusters in California, Chicago, Florida,
Massachusetts and Minneapolis/St. Paul. In addition, the Company holds domestic
investments encompassing cable television and broadband systems and programming
services.
On December 19, 2001, AT&T and Comcast Corporation ("Comcast") announced
that their Boards of Directors approved a definitive agreement to combine AT&T's
broadband business ("AT&T Broadband") with Comcast in a transaction that values
AT&T Broadband at an aggregate value of $72 billion (the "AT&T Broadband
Acquisition"). The AT&T Broadband Acquisition is subject to regulatory review,
approval by both companies' shareholders and certain other conditions. MediaOne
of Delaware, Inc. is included in AT&T Broadband.
The accompanying consolidated financial statements are part of the
consolidated financial statements and accounting records of AT&T. The Company's
consolidated financial statements are based on the operating procedures
implemented by management of the Company and reflect the assets, liabilities,
revenues and expenses attributable to the Company, as well as allocations deemed
reasonable by management to present the financial position, results of
operations, and cash flows of the Company on a stand-alone basis. The financial
position, results of operations, and cash flows of the Company could differ from
reported results had the Company operated autonomously or as an entity
independent of AT&T. The allocation methodologies have been described within the
respective notes to the financial statements where appropriate and management
considers the allocations to be reasonable.
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries and contain all adjustments, consisting of
normal recurring adjustments, necessary to present fairly the financial
information set forth therein. All significant intercompany accounts and
transactions have been eliminated.
2. AT&T MERGER
As described in note 1, on June 15, 2000, AT&T acquired MediaOne. The AT&T
Merger was completed in a cash and stock transaction valued at approximately $45
billion. The AT&T shares issued in the AT&T Merger had an aggregate market value
of approximately $21 billion and cash payments totaled approximately $24
billion.
The AT&T Merger was accounted for using the purchase method of accounting.
Accordingly, the purchase price was preliminarily allocated to the assets
acquired and liabilities assumed based on their estimated fair values in 2000. A
final allocation of the purchase price was made in 2001. The allocation of
AT&T's purchase price to acquire MediaOne has been reflected in the accompanying
consolidated financial statements of the Company.
F-19
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The final purchase price allocation in 2001 resulted in the following
increases (decreases) to certain assets and liabilities of the Company as
follows (amounts in millions):
Investments................................................. $ 141
Property and equipment...................................... $ (358)
Franchise costs............................................. $ 877
Goodwill.................................................... $17,156
Other net assets............................................ $ (81)
Deferred income tax liability............................... $ 243
Additional paid-in capital.................................. $17,492
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less that are readily convertible into cash.
AT&T performs cash management functions on behalf of the Company.
Substantially all of the Company's cash balances are swept to AT&T on a daily
basis, where they are managed and invested by AT&T. Transfers of cash to and
from AT&T are reflected in the due to related parties account, with no interest
income or expense reflected.
INVESTMENTS
Investments in which the Company and AT&T exercise significant influence,
but do not control, are accounted for under the equity method of accounting.
Under the equity method, investments are stated at cost and are adjusted for the
Company's subsequent contributions and share of earnings, losses and
distributions. The excess of the investment over the underlying book value of
the investee's net assets is being amortized over periods ranging from 25 to 40
years. Effective January 1, 2002, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 142, "Accounting for Goodwill and Other
Intangible Assets ("SFAS 142")," such excess costs will no longer be amortized.
Investments in which the Company and AT&T have no significant influence over the
investee are accounted for under the cost method of accounting. Under the cost
method, investments are stated at cost and earnings are recognized to the extent
distributions are received from the accumulated earnings of the investee.
Distributions in excess of accumulated earnings are recognized as a reduction of
the investment balance.
Marketable equity securities are classified as available-for-sale and are
carried at fair market value with unrealized gains and losses, net of tax,
included in combined attributed net assets as a component of other comprehensive
income. The fair market value of these securities is based on quoted market
prices.
The Company recognizes impairment charges on investment holdings in the
consolidated statement of operations when management believes the decline in the
investment value is other-than-temporary.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost, including acquisition
costs allocated to tangible assets acquired. Construction costs, labor and
applicable overhead related to installations and interest during construction
are capitalized. The Company capitalized interest of $3 million during the year
ended December 31, 2001. Costs of additions and substantial improvements to
property, plant and equipment are capitalized. The cost of repairs and
maintenance of property, plant and equipment are charged to operations.
F-20
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation is computed on a straight-line basis based upon the assets
estimated useful lives using either the group or unit method. The useful lives
of distribution systems ranges from 3 to 15 years. The useful lives of support
equipment and buildings ranges from 3 to 40 years. The group method is used for
most depreciable assets, including distribution systems.
Under the group method, at the time of ordinary retirements, sales or other
dispositions of property, the original cost and cost of removal of such property
are charged to accumulated depreciation, without recognition of a gain or loss.
Gains or losses are only recognized in connection with the sale of properties in
their entirety.
FRANCHISE COSTS
Franchise costs include the value attributed to agreements with local
authorities that allow access to homes in cable service areas acquired in
connection with a business combination. Such amounts are generally amortized on
a straight-line basis over 25 to 40 years. Costs incurred in negotiating and
renewing the franchise agreements are amortized on a straight-line basis over
the 15 year life of the franchise.
Beginning in 2002, in accordance with SFAS 142, franchise costs associated
with a business combination will no longer be amortized, but will continue to be
tested for impairment (see note 14).
GOODWILL
Goodwill is the excess of the purchase price over the fair value of net
assets acquired in business combinations accounted for as purchases. Goodwill is
amortized on a straight-line basis over 40 years. Beginning in 2002, in
accordance with SFAS 142, goodwill will no longer be amortized but will continue
to be tested for impairment (see note 14).
OTHER INTANGIBLE ASSETS
The Company has other intangible assets which relate to the value
attributed to customers in connection with a business combination. Such
intangibles are included in other assets and are amortized on a straight-line
basis over ten years.
VALUATION OF LONG-LIVED ASSETS
Long-lived assets such as property, plant and equipment, franchise costs,
goodwill and software are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount may not be recoverable. If the total
of the expected future undiscounted cash flows is less than the carrying amount
of the asset, a loss is recognized for the difference between the fair value and
carrying value of the asset. Assets to be disposed of are carried at the lower
of their financial statement carrying value or fair value less cost to sell.
Beginning in 2002, in accordance with SFAS 142, franchise costs and
goodwill will be tested for impairment on an annual basis by comparing their
fair values to their carrying values (see note 14).
DERIVATIVE FINANCIAL INSTRUMENTS
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133"), and its
corresponding amendments under SFAS No. 138. The Company does not use derivative
financial instruments for speculative purposes. All derivatives, whether
designated in hedging relationships or not, are required to be recorded on the
balance sheet at fair value. If the derivative is designated as a fair value
hedge, the changes in the fair value of the derivative and of the hedged item
attributable to the hedged risk are recognized in earnings. If the derivative is
designated as a cash flow
F-21
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
hedge, the effective portions of changes in the fair value of the derivative are
recorded in other comprehensive income and are recognized in the income
statement when the hedged item affects earnings. Changes in fair values of
derivative instruments not designated as hedging instruments and ineffective
portions of hedges, if any, are recognized in earnings in the current period.
REVENUE RECOGNITION
Video, voice and data services revenue is recognized based upon monthly
service fees, fees per event or minutes of traffic processed. Revenue for
customer fees, equipment rental, advertising and pay-per-view programming is
recognized in the period services are delivered. Video and nonvideo installation
revenue is recognized in the period the installation services are provided to
the extent of direct selling costs. Any remaining amount is deferred and
recognized over the estimated average period that customers are expected to
remain connected to the cable distribution system.
ADVERTISING COSTS
Costs related to advertising and promotions are expensed as incurred.
During the year ended December 31, 2001, advertising expense was $70 million.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair market value of financial instruments is based upon
pertinent information available to management as of December 31, 2001. Although
management is not aware of any factors which could significantly affect the
estimates provided, such amounts have not been comprehensively revalued for
purposes of these consolidated financial statements since that date, and current
estimates of fair market value may differ significantly. At December 31, 2001,
the carrying value of the Company's financial instruments, exclusive of debt,
approximated fair market value.
INCOME TAXES
The Company is not a separate taxable entity for federal and state income
tax purposes and its results of operations are included in the consolidated
federal and state income tax returns of AT&T and its affiliates. The provision
for income taxes is based on the Company's contribution to the overall income
tax liability or benefit of AT&T and its affiliates. Under the balance sheet
method, the Company recognizes deferred tax assets and liabilities at enacted
income tax rates for the temporary differences between the financial reporting
basis and the tax basis of its assets and liabilities. Any effects of changes in
income tax rates or tax laws are included in the provision for income taxes in
the period of enactment. When it is more likely than not that a portion or all
of a deferred tax asset will not be realized in the future, the Company provides
a corresponding valuation allowance against the deferred tax asset.
STOCK-BASED COMPENSATION
Stock-based compensation is accounted for in accordance with Accounting
Principles Board ("APB") No. 25, "Accounting for Stock Issued to Employees ("APB
25")." The Company follows the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation ("SFAS 123")."
STATEMENT OF CASH FLOWS
With the exception of certain asset transfers, transactions effected
through the intercompany account due to related parties have been considered
constructive cash receipts and payments for purposes of the statement of cash
flows.
F-22
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATIONS
As of December 31, 2001, except as disclosed below, the Company does not
have any significant concentration of business transacted with a particular
customer, supplier, or lender that could, if suddenly eliminated, severely
impact its operations. The Company does not have a concentration of available
sources of labor, services or other rights that could, if suddenly eliminated,
severely impact its operations.
All video and high speed data billing services are provided by a single
vendor. In addition, all broadband telephone billing services are provided by a
separate single vendor. AT&T Broadband Group also purchases its digital set-top
devices from one source.
RECOGNITION OF GAINS ON ASSET DISPOSITIONS
From time to time, AT&T and its affiliates contribute cable television
systems to joint ventures and partnerships in exchange for a non-controlling
interest in such entity. In connection with such contributions, affiliates of
AT&T may guarantee the debt of the joint venture or partnership. The Company
defers any gain associated with such transactions until such time as AT&T and
its affiliates have no remaining financial obligation to the joint venture or
partnership.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and revenue and expenses during the period reported. Actual results
could differ from those estimates. Estimates are used when accounting for
certain items such as long-term contracts, allowance for doubtful accounts,
depreciation and amortization, employee benefit plans, taxes and contingencies.
4. EXCHANGES AND DISPOSITIONS
In January 2001, the Company exchanged certain cable systems in New York,
providing cable services to approximately 130,000 subscribers, and cash of $184
million, for certain cable systems in Massachusetts owned by Cablevision Systems
Corp., providing cable services to approximately 150,000 cable subscribers
valued at approximately $675 million. The Company accounted for the cable
systems acquired in conjunction with the purchase accounting for MediaOne.
In January 2001, the Company received cash of $54 million and contributed
various cable systems in Illinois, providing cable services to approximately
45,000 subscribers, to an existing partnership owned equally by Insight Midwest,
L.P. and AT&T. The partnership interest attributable to the Company was valued
at $119 million. No gain or loss was recognized on the transaction due to a debt
support agreement with Insight Midwest, L.P.
In April 2001, the joint venture to provide high speed Internet access
services under the Roadrunner brand name ("Roadrunner") was liquidated. The
Company received cash distributions of $67 million for its 31.4% interest in
RoadRunner at liquidation and recorded a loss of $20 million. In connection with
the liquidation of RoadRunner, the Company acquired fixed assets of $81 million
from RoadRunner and assumed $16 million of obligations under capital leases.
During 2001, the Company sold certain investments for cash proceeds of $209
million. The Company recognized a gain of $43 million on such sale.
F-23
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. RESTRUCTURING CHARGE
The Company recorded a $29 million charge in 2001 for restructuring and
exit costs primarily as part of an initiative to reduce costs. The restructuring
and exit plans primarily resulted from synergies created by the AT&T Merger and
cost control efforts. The restructuring charge included $26 million related to
severance costs for approximately 1,170 employees and $3 million for facilities
closings. Approximately 36% of the affected employees are management and 64% are
non-management employees. Nearly all of the employees have left their positions
as of December 31, 2001 and the remaining balance to be paid is not significant.
6. INVESTMENTS
The Company's investments consist of the following (amounts in millions):
DECEMBER 31,
2001
------------
Equity method investments................................... $105
Marketable equity securities and warrants................... 34
Other cost method investments............................... 231
----
Total investments........................................... $370
====
The Company has investments in partnerships accounted for under the equity
method of accounting of $105 million. The carrying value of these investments
exceeded the Company's share of the underlying reported net assets by
approximately $42 million. The excess cost is being amortized over 25 years.
Amortization of the excess cost for the year ended December 31, 2001 totaled $2
million (before taxes) and is reflected as a component of other expense in the
consolidated statement of operations. In accordance with SFAS 142, such excess
costs will no longer be amortized beginning in 2002 (see note 14).
The Company's significant equity method investments include an ownership
interest of 7.05% in Insight Midwest LP and 16.67% in National Cable
Communications, LLC. Such investments are accounted for under the equity method,
as the combined investments of the Company and AT&T result in significant
influence over such investees. Summarized combined financial information for
investments accounted for under the equity method are as follows (amounts in
millions):
YEAR ENDED
DECEMBER 31,
2001
------------
Revenue..................................................... $ 764
Operating loss.............................................. $ (59)
Loss from continuing operations before extraordinary items
and cumulative effect of accounting change................ $(249)
Net loss.................................................... $(260)
DECEMBER 31,
2001
------------
Assets...................................................... $3,703
Liabilities................................................. $2,660
Minority interest........................................... $ 186
As of December 31, 2001, the marketable equity securities had a cost basis
of $20 million and gross unrealized gains of $4 million. Such securities are
classified as available for sale.
F-24
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2001, the fair market value of warrants held by the Company
was $10 million.
Cost method investments consist primarily of investments in programming and
other similar entities. Included in cost method investments are certain
investments which, in accordance with regulatory orders, the Company is
prohibited from contacting and is unable to obtain financial or other
information about the results of operations of such investments. Absent such
orders, these investments would be accounted for under the equity method. In the
event that the Company is no longer restricted from contact with these investees
in the future, such investments would be accounted for under the equity method.
7. DEBT
Total debt outstanding is as follows (amounts in millions):
DECEMBER 31,
2001
------------
Senior Notes and Debentures:
8 5/8% Senior Notes, due 8/15/2003........................ $ 100
8 7/8% Senior Debentures, due 9/15/2005................... 275
8 3/10% Senior Notes, due 5/15/2006....................... 600
9% Senior Debentures, due 9/1/2008........................ 300
9 1/2% Senior Debentures, due 8/1/2013.................... 525
------
Total senior notes and debentures........................... 1,800
Capital lease obligations................................... 28
------
1,828
Debt premiums............................................... 83
------
Total debt outstanding...................................... $1,911
======
The Company's unsecured Senior Notes and Debentures are non-redeemable
prior to maturity, except for the 9% Senior Debentures which are redeemable at
the Company's option at par plus declining premiums beginning in 2005. No
sinking fund is required for any of the Senior Notes and Debentures. The Senior
Notes and Debentures limit the Company with respect to payment of dividends, the
creation of liens and additional indebtedness, property dispositions,
investments, and leases, and require a minimum ratio of cash flow to debt, among
other things.
Debt premiums resulted from valuing the Company's outstanding debt at fair
market value as of June 15, 2000 in connection with the AT&T Merger. Debt
premiums are amortized to interest expense over the life of the corresponding
debt, using the effective interest method.
F-25
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Debt maturities of Senior Notes and Debentures at December 31, 2001 are as
follows (amounts in millions):
YEAR
----
2002........................................................ $ 4
2003........................................................ 103
2004........................................................ 4
2005........................................................ 278
2006........................................................ 603
Thereafter.................................................. 836
------
Total....................................................... $1,828
======
The fair value of debt at December 31, 2001 was $2,006 million, based on
quoted market prices where available, or, if not available, based on discounting
future cash flows using current interest rates.
8. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133 "ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES"
Effective January 1, 2001, the Company adopted SFAS 133, and its
corresponding amendments under SFAS No. 138. SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. All
derivatives, whether designated in hedging relationships or not, are required to
be recorded on the balance sheet at fair value.
The adoption of SFAS 133 resulted in a pretax cumulative-effect decrease to
net loss of $54 million ($34 million net of tax). Such decrease was attributable
to warrants held in both public and private companies. Included in the after tax
cumulative effect benefit was a $4 million after tax loss which was reclassified
from other comprehensive loss for changes in the fair value of warrants.
The Company may obtain warrants to purchase equity securities in other
private and public companies as a result of certain transactions. Private
warrants and public warrants that provide for net share settlement (i.e. allow
for cashless exercise) are considered to be derivative instruments and
recognized in the balance sheet at fair value in accordance with SFAS 133.
Warrants are not eligible to be designated as hedging instruments because there
is no underlying exposure. Instead, warrants are effectively investments on
private and public companies (see note 6).
For the year ended December 31, 2001, other income included a total pretax
loss of $53 million related to changes in the fair value of warrants.
9. LEASING ARRANGEMENTS
The Company and its subsidiaries have entered into various operating lease
agreements for office facilities, equipment and real estate. In addition, the
Company and its subsidiaries also rent pole space from various companies under
agreements that can be terminated on short notice. Lease and rental costs
charged to operations during the year ended December 31, 2001 totaled $53
million.
F-26
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under noncancelable operating leases for each
of the next five years are summarized as follows (amounts in millions):
2002........................................................ $25
2003........................................................ 23
2004........................................................ 22
2005........................................................ 20
2006........................................................ 18
It is expected that, in the normal course of business, expiring leases will
be renewed or replaced by leases on other properties.
10. EMPLOYEE BENEFITS AND STOCK-BASED COMPENSATION PLANS
The Company participates in various employee benefit plans sponsored by
AT&T, such as a defined benefit pension plan, a non qualified pension plan, a
post-retirement medical and life insurance benefit plan, and a defined
contribution savings plan.
The defined contribution savings plan covers substantially all employees.
The plans allow employees to contribute a portion of their pretax and/or after
tax income in accordance with specified guidelines. Employee contributions are
matched up to certain limits. The Company's contributions amounted to $16
million during the year ended December 31, 2001.
Under AT&T's 1997 Long-term Incentive Program (the "Program"), AT&T grants
stock options, performance shares, restricted stock and other awards on AT&T
common stock as well as stock options on the AT&T Wireless Group tracking stock
prior to the split-off of the AT&T Wireless Group. The exercise price of any
stock option is equal to the stock price when the option is granted. Generally
the options vest over three to four years and are exercisable up to 10 years
from the date of grant.
Under the Program, performance share units are awarded to key employees in
the form of either common stock or cash at the end of a three-year period, based
on AT&T's total shareholder return and/or certain financial-performance targets.
On July 9, 2001, AT&T completed the split-off of AT&T Wireless Group as a
separate, independently-traded company. The AT&T Wireless common stock held by
AT&T was distributed to AT&T common shareowners on a basis of 0.3218 of a share
of AT&T Wireless for each AT&T share outstanding. All outstanding AT&T Wireless
Group common stock options granted prior to January 1, 2001 were treated in a
similar manner. AT&T modified the terms and conditions of all outstanding stock
option grants to allow the AT&T Wireless Group common stock options held by AT&T
employees to immediately vest and become exercisable for their remaining
contractual term.
Under the AT&T 1996 Employee Stock Purchase Plan (the "Plan"), which was
effective July 1, 1996, and amended on May 23, 2001, AT&T is authorized to sell
up to 105 million shares of AT&T common stock to its eligible employees through
June 30, 2006. Under the terms of the Plan, employees may have up to 10% of
their earnings withheld to purchase AT&T's common stock. The purchase price of
the stock on the date of exercise is 85% of the average high and low sale prices
of shares on the New York Stock Exchange for that day.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its plans. Accordingly, no compensation expense has been recognized for
stock-based compensation plans for the Company.
F-27
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." If the Company had elected to
recognize compensation costs based on the fair value at the date of grant for
AT&T awards granted to Company employees, consistent with the provisions of SFAS
No. 123, the Company's net loss would have been adjusted to reflect additional
compensation expense resulting in the following pro forma amounts (amounts in
millions):
YEAR ENDED
DECEMBER 31,
2001
------------
Net loss.................................................... $781
AT&T granted approximately 2.2 million stock options to the Company's
employees during 2001. At the date of grant, the exercise price was $17.39. The
fair value at date of grant was $5.66, and was estimated using the Black-Scholes
option-pricing model. The following assumptions were applied in determining the
fair value of the stock options: (i) expected dividend yield of 0.86%, (ii)
expected volatility rate of 35.0%, (iii) risk-free interest rate of 5.08%, and
(iv) expected life of 4 years.
11. INCOME TAXES
The Company is included in the consolidated federal income tax return of
AT&T. Income tax expense or benefit for the Company is based on those items in
the consolidated calculation applicable to the Company. Intercompany tax
allocation represents an apportionment of tax expense or benefit (other than
deferred taxes) among the subsidiaries of AT&T in relation to their respective
amounts of taxable earnings or losses. The payable or receivable arising from
the intercompany tax allocation is recorded as an increase or decrease in
amounts due to related parties.
The components of the income tax benefit for the year ended December 31,
2001 are as follows (amounts in millions):
FEDERAL:
Current................................................... $152
Deferred.................................................. 37
----
189
----
STATE AND LOCAL:
Current................................................... 23
Deferred.................................................. 6
----
29
----
Income tax benefit.......................................... $218
====
The effective tax rates differ from the federal statutory tax rate of 35%
as follows (amounts in millions):
Computed "expected" tax benefit............................. $ 349
Goodwill amortization (federal only)........................ (150)
State income tax -- net of federal effect................... 19
-----
$ 218
=====
In addition, the Company also recorded deferred income tax benefits of $7
million in net losses related to equity investments in the accompanying
condensed consolidated statement of operations.
F-28
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred tax liability at December 31, 2001 are
as follows (amounts in millions):
Intangible assets........................................... $3,197
Property, plant and equipment............................... 490
State deferred tax liability -- net of federal effect....... 331
Other....................................................... 49
------
Deferred tax liabilities.................................. 4,067
------
State deferred tax asset -- net of federal effect........... 9
Net operating loss carryforwards............................ 7
Tax credit carryforwards.................................... 3
Other accrued liabilities................................... 91
Other....................................................... 9
------
Deferred tax assets....................................... 119
------
Net deferred tax liability.................................. $3,948
======
The Company has net operating loss carryforwards of approximately $21
million for federal tax purposes, expiring in various years through 2011.
12. RELATED PARTIES
Due to the significant capital requirements associated with upgrading its
cable systems, cash generated from the Company's operations is not sufficient to
fund capital expenditures. Accordingly, AT&T provides cash advances to the
Company. Such amounts are non-interest bearing and are reflected in the
accompanying consolidated balance sheet as due to related parties -- net.
Amounts due to related parties have been classified as a component of
stockholder's equity in the accompanying consolidated balance sheet as AT&T owns
all of the outstanding stock of the Company.
Certain subsidiaries of AT&T provide administrative services to the Company
and have assumed managerial responsibility for the Company's operations. As
compensation for these services, the Company pays a monthly fee to such
subsidiaries based on the number of the Company's subscribers. In addition, the
Company reimburses AT&T for all direct expenses expenses incurred by AT&T in
providing services to the Company. Such amounts are reflected in the
accompanying consolidated statement of operations as selling, general and
administrative expenses -- related party.
The Company purchases certain pay television and other programming services
from an indirect subsidiary of AT&T. Charges for such programming totaled $743
million for the year ended December 31, 2001.
F-29
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the second quarter of 2001, the Company transferred ownership of its
broadband telephone business to AT&T and certain of its subsidiaries. The
transfer included the following assets and liabilities (amounts in millions):
Accounts receivable......................................... $ 12
Property and equipment...................................... 257
Other net assets............................................ 12
Accounts payable............................................ 8
Due to related parties...................................... 426
Additional paid in capital.................................. (153)
13. COMMITMENTS AND CONTINGENCIES
The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") imposed certain rate regulations on the cable television
industry. Under the 1992 Cable Act, all cable systems are subject to rate
regulation, unless they face "effective competition," as defined by the 1992
Cable Act and expanded in the Telecommunications Act of 1996 (the "1996 Act"),
in their local franchise area.
The entities attributed to the Company believe that they have complied in
all material respects with the provisions of the 1992 Cable Act and the 1996
Act, including its rate setting provisions. If, as a result of the review
process, a system cannot substantiate its rates, it could be required to
retroactively reduce its rates to the appropriate benchmark and refund the
excess portion of rates received.
The Company's rates for its cable systems have also been subject to rate
regulation under a social contract (the "Social Contract") with the Federal
Communications Commission (the "FCC") which expired on December 31, 2000. As
part of the Social Contract, the Company agreed to, among other things, rebuild
and upgrade its cable television systems to expand channel capacity and improve
system reliability and picture quality. At December 31, 2001, the Company had
not met the upgrade requirements of the Social Contract for certain of its cable
television systems. In the event that the Company is not able to address
individual franchise authority concerns through negotiations and alternative
methods of providing similar levels of service, the Company could be required to
pay fines and/or refund a portion of its rates for the systems in which the
upgrade requirements have not been met. The Company is working with the FCC to
resolve this matter, however, at this time, the ultimate outcome of this matter
is unknown.
The Company is subject to legal proceedings and claims that arise in the
ordinary course of business. Although it is reasonably possible that the Company
may incur losses upon conclusion of such matters, an estimate of any loss or
range of loss cannot be made.
14. NEW ACCOUNTING PRONOUNCEMENTS
In 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations ("SFAS 141")," which supercedes APB Opinion No. 16.
SFAS 141 requires all business combinations initiated after June 30, 2001 be
accounted for under the purchase method. In addition, SFAS 141 establishes
criteria for the recognition of intangible assets separately from goodwill. The
adoption of SFAS 141 did not have a material effect on the Company's results of
operations, financial position or cash flow.
Also in 2001, the FASB issued SFAS 142, which supercedes APB Opinion No.
17. Under SFAS 142 goodwill and indefinite lived intangible assets will no
longer be amortized, but rather will be tested for impairment upon adoption and
at least annually thereafter. In addition, the amortization period of intangible
assets with finite lives will no longer be limited to 40 years. SFAS 142 is
effective for fiscal years beginning
F-30
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
after December 15, 2001, which for the Company means the standard will be
adopted on January 1, 2002. In connection with the adoption of this standard,
the Company's unamortized goodwill balance and excess basis related to goodwill
in equity method investments will no longer be amortized, but will continue to
be tested for impairment. The net goodwill balance as of December 31, 2001 was
$16,727 million with related amortization for the year ended December 31, 2001
of $429 million. The excess basis related to the Company's equity method in
investments was $42 million at December 31, 2001 with related amortization of $2
million for the year ended December 31, 2001. In addition the Company has
determined that franchise costs are indefinite lived assets and therefore, as of
January 1, 2002, will no longer be subject to amortization, but will continue to
be tested for impairment. The net franchise cost balance as of December 31, 2001
was $14,536 million with related amortization expense of $397 million. In
accordance with SFAS 142, franchise costs were tested for impairment as of
January 1, 2002, by comparing the fair values to the carrying values. As a
result of such tests, an impairment loss of approximately $350 million (before
taxes) will be recognized as a change in accounting principle in the first
quarter of 2002. The Company is continuing to assess the adoption impairment
impacts of SFAS 142 on goodwill. The results of this goodwill assessment could
have a significant impact on the Company's results of operations and financial
position.
The following table presents the impact of amortization under SFAS 142 on
net loss had the standard been in effect for year ended December 31, 2001.
Reported loss before cumulative effect of accounting
change.................................................... $(792)
Add back amortization, net of tax:
Goodwill.................................................. 429
Equity method excess basis................................ 1
Franchise costs........................................... 245
-----
Adjusted reported loss before cumulative effect of
accounting change......................................... (117)
Cumulative effect of accounting change, net of income
taxes.................................................. 34
-----
Adjusted net loss........................................... $ (83)
=====
In 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations ("SFAS 143")." This standard requires that obligations associated
with the retirement of tangible long-lived assets be recorded as liabilities
when those obligations are incurred, with the amount of the liability initially
measured at fair value. Upon initially recognizing a liability for an asset
retirement obligation, an entity must capitalize the cost by recognizing an
increase in the carrying amount of the related long-lived asset. Over time, this
liability is accreted to its present value, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. SFAS 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002, which for the
Company means the standard will be adopted on January 1, 2003. The Company does
not expect that the adoption of this statement will have a material impact on
the Company's results of operations, financial position or cash flows.
In 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS 144")," which supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." SFAS 144 applies to all long-lived assets, including
discontinued operations, and consequently amends APB Opinion No. 30, "Reporting
the Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." Based on SFAS 121, SFAS 144 develops one accounting model for
long-lived assets that are to be disposed of by sale, as well as addresses the
principal implementation issues. SFAS 144 requires that long-lived assets that
are to be disposed of by sale be measured at the lower of
F-31
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
book value of fair value less cost to sell. Additionally, SFAS No. 144 expands
the scope of discontinued operations to include all components of an entity with
operations that (i) can be distinguished from the rest of the entity and (ii)
will be eliminated from the ongoing operations of the entity in a disposal
transaction. SFAS 144 is effective for financial statements issued for fiscal
years beginning after December 15, 2001, which for the Company means the
standard will be adopted on January 1, 2002. The Company does not expect that
the adoption of SFAS 144 will have a material impact on the Company's results of
operations, financial position or cash flows.
F-32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
AT&T Broadband LLC:
In our opinion, the accompanying consolidated balance sheet as of December
31, 2000 and the related consolidated statements of operations, of stockholder's
equity and of cash flows present fairly, in all material respects, the financial
position of MediaOne of Delaware Inc. and its subsidiaries at December 31, 2000
and the results of their operations and its cash flows for the period from June
15, 2000 to December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of MediaOne of Delaware Inc.'s management; our responsibility is
to express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
MediaOne of Delaware, Inc. is an indirect wholly-owned subsidiary of AT&T
Corp.; consequently, as indicated in Note 1, these consolidated financial
statements have been derived from the consolidated financial statements and
accounting records of AT&T Corp. and reflect certain assumptions and
allocations. Moreover, as indicated in Note 1, MediaOne of Delaware, Inc. relies
on AT&T Corp. for administrative, management and other services. The financial
position, results of operations and cash flows of MediaOne of Delaware, Inc.
could differ from those that would have resulted had MediaOne of Delaware, Inc.
operated autonomously or as an entity independent of AT&T Corp.
As discussed in the Notes 1 and 2 to the financial statements, MediaOne of
Delaware, Inc. was indirectly acquired by AT&T Corp. on June 15, 2000, resulting
in a new basis of accounting for the period from June 15, 2000 to December 31,
2000.
PricewaterhouseCoopers LLP
Denver, Colorado
April 30, 2001
F-33
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
NEW MEDIAONE OLD MEDIAONE
----------------- ------------------
JUNE 15, 2000 TO JANUARY 1, 2000 TO
DECEMBER 31, 2000 JUNE 14, 2000
----------------- ------------------
(UNAUDITED)
(DOLLARS IN MILLIONS)
REVENUE..................................................... $1,515.1 $1,226.7
Costs and expenses:
Operating:
Programming.......................................... -- 294.0
Programming -- related parties (note 11)............. 381.1 --
Other (excluding depreciation of $356.2 and $284.0
included below)................................... 341.7 241.7
Selling, general and administrative:
Related party (note 11).............................. 38.5 --
Other................................................ 322.0 253.2
Depreciation........................................... 430.5 374.1
Amortization........................................... 228.3 231.5
-------- --------
Total costs and expenses.......................... 1,742.1 1,394.5
-------- --------
OPERATING LOSS.............................................. (227.0) (167.8)
Other income (expense):
Interest expense.......................................... (80.3) (63.4)
Interest expense -- related parties -- net (note 11)...... -- (94.3)
Gain on sale of assets -- net............................. -- 223.8
Merger costs.............................................. (26.1) (20.3)
Other income (expense).................................... (25.0) 11.0
-------- --------
Loss before income taxes.................................... (358.4) (111.0)
Income tax benefit.......................................... 136.8 16.7
-------- --------
Net loss.................................................... (221.6) (94.3)
-------- --------
Other comprehensive earnings (losses), net of taxes (note
8):
Foreign currency translation adjustments.................. -- 1.3
Unrealized losses on securities........................... (5.8) (12.8)
-------- --------
Other comprehensive loss.................................... (5.8) (11.5)
-------- --------
Comprehensive loss.......................................... $ (227.4) $ (105.8)
======== ========
See accompanying notes to consolidated financial statements.
F-34
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
CONSOLIDATED BALANCE SHEET
NEW MEDIAONE
------------
DECEMBER 31, 2000
-----------------
(DOLLARS IN MILLIONS)
ASSETS
Cash and cash equivalents................................... $ --
Accounts receivable -- net of allowance of $21.8............ 178.2
Investments................................................. 277.4
Property, plant and equipment:
Land...................................................... 34.3
Distribution systems...................................... 4,384.6
Support equipment and buildings........................... 570.8
---------
4,989.7
Less: accumulated depreciation............................ 380.7
---------
4,609.0
---------
Franchise costs............................................. 14,205.3
Less: accumulated amortization............................ 163.0
---------
14,042.3
---------
Other assets -- net accumulated amortization of $56.6....... 844.1
---------
Total assets........................................... $19,951.0
=========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable............................................ $ 82.6
Accrued interest............................................ 51.3
Accrued liabilities and other............................... 325.0
Debt (note 6)............................................... 2,104.7
Deferred income taxes (note 10)............................. 3,727.6
---------
Total liabilities...................................... 6,291.2
---------
Stockholder's Equity:
Common stock, $.01 par value; 100 shares authorized and
outstanding............................................ --
Additional paid-in capital................................ 12,939.8
Accumulated deficit....................................... (221.6)
Accumulated other comprehensive loss...................... (5.8)
Due to related parties -- net............................. 947.4
---------
Total stockholder's equity............................. 13,659.8
---------
Commitments and contingencies (note 12)
Total liabilities and stockholder's equity............. $19,951.0
=========
See accompanying notes to consolidated financial statements.
F-35
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(UNAUDITED)
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID IN ACCUMULATED COMPREHENSIVE STOCKHOLDER'S
STOCK CAPITAL DEFICIT LOSS EQUITY
------ ---------- ----------- ------------- -------------
(DOLLARS IN MILLIONS)
OLD MEDIAONE
Balance, January 1, 2000............ $ -- $6,921.5 $(533.4) $ 22.0 $6,410.1
Equity infusions from parent........ -- 47.0 47.0
Net loss............................ -- -- (94.3) -- (94.3)
Market value adjustments for equity
securities, net of income taxes of
$8.7.............................. -- -- -- (12.8) (12.8)
Foreign currency translation, net of
income taxes of $0.9.............. -- -- -- 1.3 1.3
----- -------- ------- ------ --------
Balance, June 14, 2000.............. $ -- $6,968.5 $(627.7) $ 10.5 $6,351.3
===== ======== ======= ====== ========
(continued)
F-36
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY -- (CONTINUED)
ACCUMULATED DUE TO
ADDITIONAL OTHER RELATED TOTAL
COMMON PAID IN ACCUMULATED COMPREHENSIVE PARTIES STOCKHOLDER'S
STOCK CAPITAL DEFICIT LOSS NET EQUITY
------ ---------- ----------- ------------- ------- -------------
(DOLLARS IN MILLIONS)
NEW MEDIAONE
Balance, June 15, 2000..... $ -- $12,939.8 $ -- $ -- $ -- $12,939.8
Change in amount due to
related parties, net..... -- -- -- -- 947.4 947.4
Net loss................... -- -- (221.6) -- -- (221.6)
Market value adjustments
for equity securities,
net of income taxes of
$3.6..................... -- -- -- (5.8) -- (5.8)
----- --------- ------- ----- ------ ---------
Balance, December 31,
2000..................... $ -- $12,939.8 $(221.6) $(5.8) $947.4 $13,659.8
===== ========= ======= ===== ====== =========
See accompanying notes to consolidated financial statements.
F-37
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
CONSOLIDATED STATEMENT OF CASH FLOWS
NEW MEDIAONE OLD MEDIAONE
----------------- ------------------
JUNE 15, 2000 TO JANUARY 1, 2000 TO
DECEMBER 31, 2000 JUNE 14, 2000
----------------- ------------------
(UNAUDITED)
(DOLLARS IN MILLIONS)
OPERATING ACTIVITIES:
Net loss.................................................. $(221.6) $ (94.3)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 658.8 605.6
Gain on sale assets -- net............................. -- (223.8)
Deferred income taxes.................................. 24.7 52.2
Change in operating assets and liabilities:
Accounts receivable and other assets................. (97.6) 245.5
Accounts payable and other accrued liabilities....... (279.4) (40.6)
Other -- net........................................... (7.8) (168.8)
------- -------
Net cash provided by operating activities................. 77.1 375.8
------- -------
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment -- net..... (648.5) (727.8)
Investments in unconsolidated affiliates.................. -- (9.6)
Net proceeds from sales of investments and assets......... -- 252.9
------- -------
Net cash used in investing activities..................... (648.5) (484.5)
------- -------
FINANCING ACTIVITIES:
Repayments of debt........................................ (200.0) --
Funds advanced from related parties -- net................ 759.1 57.9
Equity contributions from parent.......................... -- 47.0
------- -------
Net cash provided by financing activities................. 559.1 104.9
------- -------
CASH AND CASH EQUIVALENTS:
Net change................................................ (12.3) (3.8)
Beginning balance......................................... 12.3 16.1
------- -------
Ending balance............................................ $ -- 12.3
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Transfer of assets from related party..................... $ 188.3 --
======= =======
Cash paid for interest.................................... $ 88.4 $ 69.6
======= =======
See accompanying notes to consolidated financial statements.
F-38
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2000
1. BASIS OF PRESENTATION
MediaOne of Delaware, Inc. and its subsidiaries (the "Company") is a
wholly-owned subsidiary of MediaOne Group, Inc., ("MediaOne"). On June 15, 2000,
AT&T Corp., ("AT&T") acquired MediaOne in a merger transaction (the "AT&T
Merger"). In the AT&T Merger, MediaOne became a subsidiary of AT&T. The
consolidated financial statements for the period from January 1, 2000 through
June 14, 2000 are referred to herein as the "Pre Merger Period," or "Old
MediaOne" and consolidated financial statements for the period from June 15,
2000 through December 31, 2000 are referred to herein as the "Post Merger
Period" or "New MediaOne." Due to the application of purchase accounting in
connection with the AT&T Merger, the predecessor consolidated financial
statements of Old MediaOne are not comparable to the successor consolidated
financial statements of New MediaOne. In the following text, "the Company"
refers to both Old MediaOne and New MediaOne. See note 2.
The Company is a provider of domestic broadband communications services,
having the capability to offer its subscribers video, high speed Internet access
and telephone services simultaneously over its broadband network. The Company's
cable systems include large clusters in California, Chicago, Florida,
Massachusetts and Minneapolis/St. Paul. In addition, the Company holds domestic
investments encompassing cable television and broadband systems and programming
services.
The accompanying consolidated financial statements are part of the
consolidated financial statements and accounting records of MediaOne for the Pre
Merger Period and of AT&T for the Post Merger Period. The Company's consolidated
financial statements are based on the operating procedures implemented by
management of the Company and reflect the assets, liabilities, revenues and
expenses attributable to the Company, as well as allocations deemed reasonable
by management to present the financial position, results of operations, and cash
flows of the Company on a stand-alone basis. The financial position, results of
operations, and cash flows of the Company could differ from reported results had
the Company operated autonomously or as an entity independent of AT&T or
MediaOne. The allocation methodologies have been described within the respective
notes to the financial statements where appropriate and management considers the
allocations to be reasonable.
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries and contain all adjustments, consisting of
normal recurring adjustments, necessary to present fairly the financial
information set forth therein. All significant intercompany accounts and
transactions have been eliminated.
2. AT&T MERGER
On June 15, 2000, the AT&T Merger was completed in a cash and stock
transaction valued at approximately $45 billion. The AT&T shares had an
aggregate market value of approximately $21 billion and cash payments totaled
approximately $24 billion.
The AT&T Merger was accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values. The Company's portion
of the preliminary allocation of AT&T's purchase price to acquire MediaOne has
been reflected in the accompanying consolidated financial statements as of June
15, 2000. A final allocation of such purchase price will be made by AT&T upon
resolution of pre-acquisition contingencies and receipt of final third party
appraisals.
F-39
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reflects the opening summarized balance sheet of New
MediaOne as adjusted to give effect to the preliminary allocation of AT&T's
purchase price to acquire MediaOne (as adjusted through December 31, 2000):
(AMOUNTS IN MILLIONS)
ASSETS
Cash........................................................ $ 12.3
Accounts receivable, net.................................... 153.8
Investments................................................. 286.8
Property, plant and equipment............................... 4,461.3
Franchise costs............................................. 13,886.3
Other assets................................................ 896.9
---------
$19,697.4
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses....................... $ 738.4
Debt........................................................ 2,312.7
Deferred income taxes....................................... 3,706.5
---------
Total liabilities...................................... 6,757.6
---------
Stockholders' equity........................................ 12,939.8
---------
$19,697.4
=========
Following are summarized, combined, unaudited pro forma results of
operations for the Company assuming the AT&T Merger had occurred as of January
1, 2000 (in millions):
YEAR ENDED
DECEMBER 31,
2000
------------
(UNAUDITED)
Revenue..................................................... $2,741.8
Net loss.................................................... $ (351.3)
Pro forma data may not be indicative of the results that would have been
obtained had the events actually occurred at the beginning of the periods
presented, nor does it intend to be a projection of future results.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less that are readily convertible into cash and
are not subject to significant risk from fluctuations in interest rates.
INVESTMENTS
Investments in which the Company exercises significant influence, but does
not control, are accounted for under the equity method of accounting. Under the
equity method, investments are stated at cost and are adjusted for the Company's
subsequent contributions and share of earnings, losses and distributions.
Investments in which the Company has no significant influence over the investee
are accounted for under the cost method of accounting. Under the cost method,
investments are stated at cost and earnings are recognized
F-40
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to the extent distributions are received from the accumulated earnings of the
investee. Distributions in excess of accumulated earnings are recognized as a
reduction of the investment balance.
Marketable equity securities are classified as available-for-sale and are
carried at fair market value with unrealized gains and losses, net of tax,
included in combined attributed net assets as a component of other comprehensive
income. The fair market value of these securities is based on quoted market
prices.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost, including acquisition
costs allocated to tangible assets acquired. Construction costs, labor and
applicable overhead related to installations and interest during construction
are capitalized. The Company capitalized interest of $6.4 million during the
Post Merger period and $7.4 million during the Pre Merger Period (unaudited).
Depreciation is computed on a straight-line basis using estimated useful
lives of 3 to 15 years for distribution systems and 3 to 40 years for support
equipment and building.
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales or other
dispositions of property, the original cost and cost of removal of such property
are charged to accumulated depreciation, and salvage, if any, is credited
thereto. Gains or losses are only recognized in connection with the sale of
properties in their entirety.
FRANCHISE COSTS
Franchise costs include the value attributed to agreements with local
authorities that allow access to homes in cable service areas acquired in
connection with a business combination. Such amounts are generally amortized on
a straight-line basis over 40 years. Costs incurred in negotiating and renewing
the franchise agreements are amortized on a straight-line basis over the 15 year
life of the franchise.
OTHER INTANGIBLE ASSETS
The Company has other intangible assets which relate to the value
attributed to customers in connection with a business combination. Such
intangibles are included in other assets and are amortized on a straight-line
basis over ten years.
VALUATION OF LONG-LIVED ASSETS
Long-lived assets such as property, plant and equipment, franchise costs,
and software are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount may not be recoverable. If the total
of the expected future undiscounted cash flows is less than the carrying amount
of the asset, a loss is recognized for the difference between the fair value and
carrying value of the asset. Assets to be disposed of are carried at the lower
of their financial statement carrying value or fair value less cost to sell. In
addition, in accordance with Accounting Principles Board ("APB") Opinion No. 17,
"Intangible assets", the amortization periods are evaluated to determine whether
events or circumstances warrant revised amortization periods.
REVENUE RECOGNITION
Revenue for customer fees, equipment rental, advertising and pay-per-view
programming is recognized in the period services are delivered. Installation
revenue is recognized in the period the installation services are provided to
the extent of direct selling costs. Any remaining amount is deferred and
recognized over the estimated average period that customers are expected to
remain connected to the cable distribution system.
F-41
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 2000, the System adopted Securities and Exchange Commission ("SEC")
Staff Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in
Financial Statements". The adoption of SAB No. 101 did not have a material
impact on the results of operations or financial condition.
ADVERTISING COSTS
Costs related to advertising and promotions are expensed as incurred.
During 2000, advertising expense was $41.2 million for the Post Merger Period
and $24.8 million for the Pre Merger Period (unaudited).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair market value of financial instruments is based upon
pertinent information available to management as of December 31, 2000. Although
management is not aware of any factors which could significantly affect the
estimates provided, such amounts have not been comprehensively revalued for
purposes of these consolidated financial statements since that date, and current
estimates of fair market value may differ significantly. At December 31, 2000,
the carrying value of the Company's financial instruments, exclusive of debt,
approximated fair market value.
INCOME TAXES
The provision for income taxes consists of an amount for taxes currently
payable or receivable and an amount for tax consequences deferred to future
periods. For federal income tax purposes, the Company's operations are included
in the consolidated tax return filed by AT&T. The Company calculates federal
income tax (expense) benefit on its results of operations for those items which
carryover onto AT&T's consolidated tax return. The Company records an income tax
receivable for such benefits or an income tax payable for such liabilities,
which is reflected in amounts due to related parties on the consolidated balance
sheet. For state income tax purposes, the Company is allocated state tax expense
as if it filed tax returns on a stand alone basis.
STATEMENT OF CASH FLOWS
AT&T performs cash management functions on behalf of the Company.
Substantially all of the Company's cash balances are swept to AT&T on a daily
basis, where they are managed and invested by AT&T. Transfers of cash to and
from AT&T are reflected in the due to related parties account, with no interest
income or expense reflected.
With the exception of certain asset transfers, transactions effected
through the intercompany account due to related parties have been considered
constructive cash receipts and payments for purposes of the statement of cash
flows.
CONCENTRATIONS
As of December 31, 2000, the Company does not have any significant
concentration of business transacted with a particular customer, supplier, or
lender that could, if suddenly eliminated, severely impact its operations. The
Company does not have a concentration of available sources of labor, services or
other rights that could, if suddenly eliminated, severely impact its operations.
Cash is invested with high-quality credit institutions.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and revenue
F-42
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and expenses during the period reported. Actual results could differ from those
estimates. Estimates are used when accounting for certain items such as
long-term contracts, allowance for doubtful accounts, depreciation and
amortization, employee benefit plans, taxes and contingencies.
4. EXCHANGES AND DISPOSITIONS
Effective on December 31, 2000, the Company completed an exchange of
certain cable systems with Comcast Corporation ("Comcast"). The Company
exchanged cable systems in Florida and Michigan serving approximately 330,000
subscribers for cable systems in Chicago and California serving approximately
270,000 subscribers valued at $1,913.9 million. The Company accounted for the
cable systems acquired under the purchase method of accounting. The purchase
price allocation is based on preliminary information and may be modified upon
the receipt of final asset appraisals. In addition, prior to the exchange with
Comcast, the Company transferred a cable system in Michigan serving
approximately 90,000 subscribers to a separate subsidiary of AT&T for proceeds
of $562.1 million. No gain or loss was recognized on such exchange.
On March 1, 2000, the Company sold its investment in shares of Motorola,
Inc. ("Motorola") for gross proceeds of $41.3 million, resulting in a net pretax
gain of $24.5 million (unaudited). The Motorola shares were received in January
2000 as a result of the exercise of certain General Instrument Corporation
("GI") warrants held by the Company, which were converted to Motorola shares as
a result of the merger of GI into Motorola.
On February 15, 2000, the Company sold its 25% interest in Singapore
Cablevision ("Singapore") to Singapore Technologies for gross proceeds of $218.0
million, resulting in a net pretax gain of $199.3 million (unaudited).
5. INVESTMENTS
The Company's investments consist of the following:
NEW MEDIAONE
DECEMBER 31,
2000
-------------
(IN MILLIONS)
Marketable equity investments............................... $134.2
Other cost investments...................................... 143.2
------
Total investments........................................... $277.4
======
During the fourth quarter of 2000, the Company suspended equity method
accounting, including the suspension of amortization of the Company's excess
basis, on all of its equity method investments which have been included in other
cost investments. In accordance with regulatory orders, the Company is
prohibited from contacting and is unable to obtain financial or other
information about the results of operations of such investments. In the event
that the Company is no longer restricted from contact with these investees in
the future, such investments would be accounted for under the equity method.
As of December 31, 2000, the marketable equity method investments balance
included investments in equity securities with a cost basis of $29.5 million and
gross unrealized losses of $9.4 million. The securities are classified as
available for sale and are carried at market value.
F-43
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT
Total debt outstanding is as follows:
NEW MEDIAONE
DECEMBER 31,
2000
-------------
(IN MILLIONS)
Senior Notes and Debentures:
8 1/2% Senior Notes, due 9/15/2001........................ $ 200.0
8 5/8% Senior Notes, due 8/15/2003........................ 100.0
8 7/8% Senior Debentures, due 9/15/2005................... 275.0
8 3/10% Senior Notes, due 5/15/2006....................... 600.0
9% Senior Debentures, due 9/1/2008........................ 300.0
9 1/2% Senior Debentures, due 8/1/2013.................... 525.0
--------
Total senior notes and debentures........................... 2,000.0
Capital lease obligations and other......................... 6.2
--------
Sub-total................................................... 2,006.2
Plus: debt premiums......................................... 98.5
--------
Total debt outstanding...................................... $2,104.7
========
The Company's unsecured Senior Notes and Debentures are non-redeemable
prior to maturity, except for the 9% Senior Debentures which are redeemable at
the Company's option at par plus declining premiums beginning in 2005. No
sinking fund is required for any of the Senior Notes and Debentures. The Senior
Notes and Debentures limit the Company with respect to payment of dividends, the
creation of liens and additional indebtedness, property dispositions,
investments, and leases, and require a minimum ratio of cash flow to debt, among
other things.
Debt premiums resulted from valuing the Company's outstanding debt to fair
market value as of June 15, 2000 in connection with the AT&T Merger. Debt
premiums are being amortized to interest expense over the life of the
corresponding debt, using the effective interest method.
Debt maturities of Senior Notes and Debentures at December 31, 2000 are as
follows:
YEAR MATURITIES
---- -------------
(IN MILLIONS)
2001........................................................ $ 201.2
2002........................................................ 1.2
2003........................................................ 101.2
2004........................................................ 1.2
2005........................................................ 276.2
Thereafter.................................................. 1,425.2
--------
Total....................................................... $2,006.2
========
The fair value of debt at December 31, 2000 was $2,111.7 million, based on
quoted market prices where available, or, if not available, based on discounting
future cash flows using current interest rates, compared with a carrying value
of $2,104.7 million.
F-44
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LEASING ARRANGEMENTS
The Company and its subsidiaries have entered into various operating lease
agreements for office facilities, equipment and real estate. In addition, the
Company and its subsidiaries also rent pole space from various companies under
agreements that can be terminated on short notice. Lease and rental costs
charged to operations during 2000 totaled $16.9 million for the Post Merger
Period and $16.5 million for the Pre Merger Period (unaudited).
Future minimum lease payments as of December 31, 2000 under noncancelable
operating leases follow:
YEAR MATURITIES
- ---- ----------
(IN MILLIONS)
2001........................................................ $ 23.1
2002........................................................ 22.6
2003........................................................ 21.8
2004........................................................ 21.4
2005........................................................ 26.2
Thereafter.................................................. 38.2
------
Total....................................................... $153.3
======
8. COMPREHENSIVE EARNINGS (LOSSES)
The following table presents the components of comprehensive loss and
related tax impacts:
PRE AFTER
TAX TAX TAX
------ ----- ------
(IN MILLIONS)
OLD MEDIAONE
- ------------------------------------------------------------
For the Period from January 1 through June 14, 2000
(unaudited):
Unrealized loss on equity securities........................ $ (1.3) $ 0.6 $ (0.7)
Reclassification of gains realized in net income............ (20.2) 8.1 (12.1)
------ ----- ------
Net unrealized loss....................................... (21.5) 8.7 (12.8)
------ ----- ------
Reclassification of loss realized in net income............. 2.2 (0.9) 1.3
------ ----- ------
Net foreign currency translation.......................... 2.2 (0.9) 1.3
------ ----- ------
Other comprehensive loss.................................. $(19.3) $ 7.8 $(11.5)
====== ===== ======
- -------------------------------------------------------------------------------------
NEW MEDIAONE
- ------------------------------------------------------------
For the Period from June 15 through December 31, 2000:
Unrealized loss on equity securities........................ $ (9.4) $ 3.6 $ (5.8)
------ ----- ------
Other comprehensive loss.................................... $ (9.4) $ 3.6 $ (5.8)
====== ===== ======
The reclassifications of gains and losses realized represent the gains
realized upon the sale of the Motorola shares and an adjustment to foreign
currency translation loss for the sale of the Company's investment in Singapore,
respectively.
F-45
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. EMPLOYEE BENEFITS AND STOCK-BASED COMPENSATION PLANS
The Company participates in various employee benefit plans sponsored by
AT&T, such as a defined benefit pension plan, a non qualified pension plan, a
post-retirement medical and life insurance benefit plan, and a defined
contribution savings plan.
Substantially all of the Company's employees participate in the defined
benefit pension plan. Benefits are based on a final pay formula. The Company's
policy is to fund amounts required under the Employee Retirement Income Security
Act of 1974.
The nonqualified pension plan pays supplemental pension benefits to key
executives in addition to amounts received under the defined benefit pension
plan.
Certain health care and life insurance benefits are paid to retired
employees. The Company uses the projected unit credit method to determine
post-retirement medical and life costs for financial reporting purposes.
The defined contribution savings plan covers substantially all employees.
The Company matches up to 6% of an employee's eligible contribution to the plan
with AT&T common stock. The first 4% of a participant's salary contribution is
matched 100% by the Company; the remaining 2% of a participant's salary
contribution is matched 50% by the Company. Participants in the defined
contribution savings plan are fully vested in the Company's matching
contributions. The Company's contributions amounted to $11.3 million during the
Post Merger Period.
Under AT&T's 1997 Long-term Incentive Program (the "Program"), which was
effective June 1, 1997, and amended on May 19, 1999 and March 14, 2000, AT&T
grants stock options, performance shares, restricted stock and other awards on
AT&T common stock as well as stock options on the AT&T Wireless Group tracking
stock. Employees of the Company were eligible to receive stock options under
this plan effective with the AT&T Merger (see Note 1).
Under the Program, there were 150 million shares of AT&T common stock
available for grant with a maximum of 22.5 million common shares that could be
used for awards other than stock options. Beginning with January 1, 2000, the
remaining shares available for grant at December 31 of the prior year, plus
1.75% of the shares of AT&T common stock outstanding on January 1 of each year,
become available for grant. There is a maximum of 37.5 million shares that may
be used for awards other than stock options. The exercise price of any stock
option is equal to the stock price when the option is granted. Generally, the
options vest over three or four years and are exercisable up to 10 years from
the date of grant.
Under the AT&T 1996 Employee Stock Purchase Plan (the "Plan"), which was
effective July 1, 1996, AT&T is authorized to sell up to 75 million shares of
AT&T common stock to its eligible employees. Under the terms of the Plan,
employees may have up to 10% of their earnings withheld to purchase AT&T's
common stock. The purchase price of the stock on the date of exercise is 85% of
the average high and low sale prices of shares on the New York Stock Exchange
for that day.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its plans. Accordingly, no compensation expense has been recognized for
stock-based compensation plans for the Company.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." If the Company had elected to
recognize compensation costs based on the fair value at the date of grant for
AT&T awards granted to Company employees in 2000, consistent with the provisions
of
F-46
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 123, the Company's net loss would have been adjusted to reflect
additional compensation expense resulting in the following pro forma amounts:
YEAR ENDED
DECEMBER 31,
2000
------------
(AMOUNTS IN
MILLIONS)
Net loss.................................................... $238.6
AT&T granted approximately 2.1 million and .7 million stock options to the
Company's employees during 2000 for AT&T stock and AT&T Wireless Group tracking
stock, respectively. At the date of grant, the exercise price for AT&T options
and AT&T Wireless Group tracking stock options granted to AT&T Broadband
employees during 2000 was $33.81 and $27.56, respectively. The fair value at
date of grant for AT&T options and AT&T Wireless Group tracking stock options
granted to MediaOne employees during 2000 was $9.18 and $11.74, respectively,
and was estimated using the Black-Scholes option-pricing model. The following
assumptions were applied for 2000 for the AT&T options and the AT&T Wireless
Group tracking stock options: (i) expected dividend yield of 1.7% and 0%,
respectively, (ii) expected volatility rate of 34% and 55%, respectively, (iii)
risk-free interest rate of 6.21% and 6.20%, respectively, and (iv) expected life
of 3 years.
10. INCOME TAXES
The Company is included in the consolidated federal income tax return of
AT&T for the period from June 15, 2000 to December 31, 2000 and is included in
the consolidated federal income tax return of MediaOne for the period from
January 1, 2000 to June 14, 2000. Income tax expense or benefit for the Company
is based on those items in the consolidated calculation applicable to the
Company. Intercompany tax allocation represents an apportionment of tax expense
or benefit (other than deferred taxes) among the subsidiaries of MediaOne or
AT&T, as applicable, in relation to their respective amounts of taxable earnings
or losses. The payable or receivable arising from the intercompany tax
allocation is recorded as an increase or decrease in amounts due to related
parties.
The components of the income tax (expense) benefit follow (in millions):
NEW MEDIAONE OLD MEDIAONE
JUNE 16, 2000 TO JANUARY 1, 2000 TO
DECEMBER 31, 2000 JUNE 15, 2000
----------------- ------------------
(UNAUDITED)
FEDERAL:
Current............................................ $135.1 $ 61.9
Deferred........................................... (21.5) (49.2)
------ ------
113.6 12.7
------ ------
STATE AND LOCAL:
Current............................................ 26.4 7.0
Deferred........................................... (3.2) (3.0)
------ ------
23.2 4.0
------ ------
Income tax benefit................................... $136.8 $ 16.7
====== ======
F-47
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective tax rates differ from the federal statutory tax rate of 35%
as follows:
NEW MEDIAONE OLD MEDIAONE
JUNE 16, 2000 TO JANUARY 1, 2000 TO
DECEMBER 31, 2000 JUNE 15, 2000
----------------- ------------------
(UNAUDITED)
Computed "expected" tax benefit...................... $125.4 $ 38.9
Goodwill amortization (federal only)................. -- (22.2)
State income tax -- net of federal effect............ 11.4 2.6
Other................................................ -- (2.6)
------ ------
$136.8 $ 16.7
====== ======
The components of the net deferred tax liability follow:
NEW MEDIAONE
-----------------
DECEMBER 31, 2000
-----------------
(IN MILLIONS)
Intangible assets........................................... $3,098.2
Property, plant and equipment............................... 362.2
State deferred tax liability -- net of federal effect....... 313.2
Other....................................................... 91.0
--------
Deferred tax liabilities.................................. 3,864.6
--------
State deferred tax asset -- net of federal effect........... 10.3
Net operating loss carryforwards............................ 7.1
Tax credit carryforwards.................................... 3.0
Other accrued liabilities................................... 103.3
Other....................................................... 13.3
--------
Deferred tax assets....................................... 137.0
--------
Net deferred tax liability.................................. $3,727.6
========
The Company has net operating loss carryforwards of approximately $21.0
million for federal tax purposes, expiring in various years through 2011.
11. RELATED PARTIES
Due to the significant capital requirements associated with upgrading its
cable systems, cash generated from the Company's operations is not sufficient to
fund capital expenditures. Prior to the merger with AT&T, MediaOne Group
provided to the Company equity contributions of $47.0 million and working
capital loans of $57.9 million, net of repayments (unaudited). As a result of
the AT&T Merger, the working capital loans were deemed to be settled in full.
Subsequent to the AT&T Merger, AT&T provides cash advances to the Company. Such
amounts are non-interest bearing and are reflected in the accompanying
consolidated balance sheet as due to related parties -- net. Amounts due to
related parties have been classified as a component of stockholder's equity in
the accompanying consolidated balance sheet as AT&T owns all of the outstanding
stock of the Company.
Certain subsidiaries of AT&T provide administrative services to New
MediaOne and have assumed managerial responsibility for New MediaOne's
operations. As compensation for these services, New MediaOne pays a monthly fee
to such subsidiaries based on the number of New MediaOne's subscribers. In
addition, New MediaOne reimburses AT&T for all direct expenses incurred by AT&T
in providing services to
F-48
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
New MediaOne. Such amounts are reflected in the accompanying consolidated
statement of operations as selling, general and administrative
expenses -- related party.
New MediaOne purchases certain pay television and other programming
services from an indirect subsidiary of AT&T. Charges for such programming
totaled $381.1 million for the Post Merger period.
During February and March 2000, two loans outstanding as of December 1999
and due from MediaOne subsidiaries were repaid. The loans were originally issued
in 1997 for certain asset sales proceeds, and had a face value of $896.0 million
and $397.8 million. Proceeds from the repayments were used to reduce the
outstanding working capital loans advanced to the Company by MediaOne and
certain of its subsidiaries, resulting in a net cash receipt of $40.3 million
(unaudited).
Prior to the AT&T Merger, Old MediaOne provided certain corporate services
to MediaOne's cable television systems in Atlanta, Georgia ("Atlanta"). Fees
related to such services totaled $17.7 million (unaudited) during the Pre Merger
period, and are recorded as a reduction to operating, selling, general and
administrative expenses in the accompanying consolidated statement of
operations.
12. COMMITMENTS AND CONTINGENCIES
The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") imposed certain rate regulations on the cable television
industry. Under the 1992 Cable Act, all cable systems are subject to rate
regulation, unless they face "effective competition," as defined by the 1992
Cable Act and expanded in the Telecommunications Act of 1996 (the "1996 Act"),
in their local franchise area.
The entities attributed to the Company believe that they have complied in
all material respects with the provisions of the 1992 Cable Act and the 1996
Act, including its rate setting provisions. If, as a result of the review
process, a system cannot substantiate its rates, it could be required to
retroactively reduce its rates to the appropriate benchmark and refund the
excess portion of rates received.
The Company's rates for its cable systems have also been subject to rate
regulation under a social contract (the "Social Contract") with the Federal
Communications Commission (the "FCC") which expired on December 31, 2000. As
part of the Social Contract, the Company agreed to, among other things, rebuild
and upgrade its cable television systems to expand channel capacity and improve
system reliability and picture quality. At December 31, 2000, the Company had
not met the upgrade requirements of the Social Contract for certain of its cable
television systems. In the event that the Company is not able to address
individual franchise authority concerns through negotiations and alternative
methods of providing similar levels of service, the Company could be required to
pay fines and/or refund a portion of its rates for the systems in which the
upgrade requirements have not been met. The Company is working with the FCC to
resolve this matter, however, at this time, the ultimate outcome of this matter
is unknown.
The Company is subject to legal proceedings and claims that arise in the
ordinary course of business. Although it is reasonably possible that the Company
may incur losses upon conclusion of such matters, an estimate of any loss or
range of loss cannot be made.
13. SUBSEQUENT EVENTS
In January 2001, the Company exchanged certain cable systems in New York,
providing cable services to approximately 130,000 subscribers, for certain cable
systems in Massachusetts owned by Cablevision Systems Corp., providing cable
services to approximately 150,000 cable subscribers valued at approximately $585
million. The Company accounted for the cable systems acquired under the purchase
method of accounting. The Company also contributed various cable systems in
Illinois, providing cable services to approximately 45,000 subscribers, to an
existing partnership owned equally by Insight Midwest, L.P. and AT&T. No gain or
loss was recognized on such transaction.
F-49
MEDIAONE OF DELAWARE, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF AT&T CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
14. NEW ACCOUNTING PRONOUNCEMENTS
In 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets",
which supercedes APB Opinion No. 17. Under SFAS 142 goodwill and indefinite
lived intangible assets will no longer be amortized, but rather will be tested
for impairment upon adoption and at least annually thereafter. In addition, the
amortization period of intangible assets with finite lives will no longer be
limited to 40 years. SFAS 142 is effective for fiscal years beginning after
December 15, 2001, which for the Company means the standard will be adopted on
January 1, 2002. In connection with the adoption of this standard, the Company
has determined that franchise costs are indefinite lived assets and therefore,
as of January 1, 2002, will no longer be subject to amortization, but will
continue to be tested for impairment.
The following table presents the impact of amortization under SFAS 142 on
net loss had the standard been in effect as of January 1, 2000.
NEW MEDIAONE OLD MEDIAONE
----------------- ------------------
JUNE 15, 2000 TO JANUARY 1, 2000 TO
DECEMBER 31, 2000 JUNE 14, 2000
----------------- ------------------
(UNAUDITED)
Reported net loss.................................... $(221.6) $(94.3)
Add back amortization, net of tax:
Goodwill........................................... -- 63.6
Franchise costs.................................... 106.1 96.1
------- ------
Adjusted net income (loss)........................... $(115.5) $ 65.4
======= ======
F-50
THE CONSENT AGENT
The Bank of New York
Corporate Trust Reorganization Unit
101 Barclay Street, 7E
New York, New York 10286
Attn: William Buckley
Toll Free: (800) 254-2826
Telephone: (212) 815-5788
Facsimile: (212) 298-1915
THE INFORMATION AGENT
D.F. King & Co., Inc.
48 Wall Street, 22nd Floor
New York, New York 10005
Banks and Brokers Call Collect:
(212) 269-5550
All Others Call Toll Free:
(866) 868-2409
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
COMCAST CORPORATION
Indemnification under Pennsylvania Law and Comcast Charter and Bylaws.
Sections 1741 through 1750 of Subchapter D, Chapter 17, of the Pennsylvania
Business Corporation Law ("PBCL") contain provisions for mandatory and
discretionary indemnification of a corporation's directors, officers and other
personnel, and related matters.
Under Section 1741 of the PBCL, subject to certain limitations, a
corporation has the power to indemnify directors and officers under certain
prescribed circumstances against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with an action or proceeding, whether civil, criminal,
administrative or investigative (other than derivative actions), to which any
such officer or director is a party or is threatened to be made a party by
reason of such person being a representative of the corporation or serving at
the request of the corporation as a representative of another domestic or
foreign corporation for profit or not-for-profit, partnership, joint venture,
trust or other enterprise, so long as the director or officer acted in good
faith and in a manner reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal proceeding, such
officer or director had no reasonable cause to believe his/her conduct was
unlawful.
Section 1742 of the PBCL permits indemnification in derivative and
corporate actions if the appropriate standard of conduct is met, except in
respect of any claim, issue or matter as to which the person has been adjudged
to be liable to the corporation unless and only to the extent that the proper
court determines upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for the expenses that the court deems proper.
Under Section 1743 of the PBCL, indemnification is mandatory to the extent
that the officer or director has been successful on the merits or otherwise in
defense of any action or proceeding referred to in Section 1741 or 1742 of the
PBCL.
Section 1744 of the PBCL provides that, unless ordered by a court, any
indemnification under Section 1741 or 1742 of the PBCL shall be made by the
corporation only as authorized in the specific case upon a determination that
the representative met the applicable standard of conduct, and such
determination will be made by (i) the board of directors by a majority vote of a
quorum of directors not parties to the action or proceeding, (ii) if a quorum is
not obtainable, or if obtainable and a majority of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
shareholders.
Section 1745 of the PBCL provides that expenses (including attorneys' fees)
incurred by an officer, director, employee or agent in defending any action or
proceeding referred to in Subchapter D of Chapter 17 of the PBCL may be paid by
the corporation in advance of the final disposition of such action or proceeding
upon receipt of an undertaking by or on behalf of such person to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation. Except as otherwise provided in the
corporation's bylaws, advancement of expenses must be authorized by the board of
directors.
Section 1746 of the PBCL provides generally that the indemnification and
advancement of expenses provided by Subchapter D of Chapter 17 of the PBCL shall
not be deemed exclusive of any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding that office. In no event may indemnification be made in any case where
the act or failure to act giving rise to the claim for indemnification is
determined by a court to have constituted willful misconduct or recklessness.
Section 1747 of the PBCL grants a corporation the power to purchase and
maintain insurance on behalf of any director or officer against any liability
incurred by him in his capacity as officer or director, whether or
II-1
not the corporation would have the power to indemnify him against that liability
under Subchapter D of Chapter 17 of the PBCL.
Sections 1748 and 1749 of the PBCL extend the indemnification and
advancement of expenses provisions contained in Subchapter D of Chapter 17 of
the PBCL to successor corporations in fundamental changes and to representatives
serving as fiduciaries of employee benefit plans.
Section 1750 of the PBCL provides that the indemnification and advancement
of expenses provided by, or granted pursuant to, Subchapter D of Chapter 17 of
the PBCL shall, unless otherwise provided when authorized or ratified, continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs and personal representatives of such
person.
Article Eleventh of the Comcast charter and Article VII of the Comcast
bylaws provide that no director of Comcast will be personally liable, as such,
for monetary damages (other than under criminal statutes and under laws imposing
such liability on directors or officers for the payment of taxes) unless such
person's conduct constitutes self-dealing, willful misconduct or recklessness.
Article Eleventh of the Comcast charter also extends such protection to
officers.
Article VII of the Comcast bylaws provides that each officer and director
of Comcast is indemnified and held harmless by Comcast for all actions taken by
him or her and for all failures to take action (regardless of the date of any
such action or failure to take action) to the fullest extent permitted by
Pennsylvania law against all expense, liability and loss (including, without
limitation, attorneys' fees, judgments, fines, taxes, penalties and amounts paid
or to be paid in settlement) reasonably incurred or suffered by such officer or
director in connection with any threatened, pending or completed action, suit or
proceeding (including, without limitation, an action, suit or proceeding by or
in the right of Comcast), whether civil, criminal, administrative or
investigative.
The foregoing statements are subject to the detailed provisions of the PBCL
and to the applicable provisions of the Comcast charter and bylaws.
MERGER AGREEMENT PROVISION RELATING TO AT&T AND COMCAST HOLDINGS DIRECTORS AND
OFFICERS
Comcast has agreed in the merger agreement to indemnify the present and
former officers and directors of AT&T, the AT&T subsidiaries, Comcast Cable
Communications Holdings, the Comcast Cable Communications Holdings subsidiaries,
Comcast Holdings and the Comcast Holdings subsidiaries, and each individual who
prior to the completion of the AT&T Broadband acquisition becomes such an
officer or director, from their acts or omissions in those capacities occurring
at or prior to the completion of such transaction to the maximum extent
permitted by law; provided, however, no such indemnification will be required
for officers or directors acting in a capacity for AT&T and its subsidiaries
other than in connection with either AT&T's broadband business or the merger
agreement and the transactions contemplated by the merger agreement.
AT&T (and not Comcast Cable Communications Holdings) will indemnify and
hold harmless Comcast for 50% of any losses described in the preceding paragraph
arising out of acts or omissions of the AT&T officers and directors in
connection with the merger agreement and the transactions contemplated by the
merger agreement.
For six years after completion of the AT&T Broadband acquisition, Comcast
will provide officers' and directors' liability insurance in respect of acts or
omissions occurring prior to completion of the transactions covering each
officer and director identified in the second preceding paragraph (for officers
and directors of AT&T and its subsidiaries, only for acts or omissions of such
person acting in connection with either AT&T's broadband business or the merger
agreement and the transactions contemplated by the merger agreement) currently
covered by the officers' and directors' liability insurance policy of AT&T or
Comcast Holdings, as the case may be, on terms no less favorable than those of
such policy in effect on December 19, 2001, except that Comcast will only be
obligated to pay up to 300% of the annual premium paid for such insurance by
either AT&T or Comcast Holdings as of December 19, 2001.
II-2
COMCAST CABLE COMMUNICATIONS HOLDINGS, INC.
Comcast Cable Communications Holdings, Inc. is a corporation organized
under the laws of the State of Delaware. Subsection (a) of Section 145 of the
General Corporation Law of the State of Delaware empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification may be made in respect to any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the Court of Chancery or the court in which such action
or suit was brought shall determine that despite the adjudication of liability
but in view of all the circumstances of the case such person is fairly and
reasonably entitled to indemnify for such expenses which the court shall deem
proper.
Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful in the defense of any
action, suit or proceeding referred to in subsections (a) or (b) or in the
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification or advancement of expenses provided
for by Section 145 shall not be deemed exclusive of any other rights to which
the indemnified party may be entitled; and empowers the corporation to purchase
and maintain insurance on behalf of a director, officer, employee or agent of
the corporation against any liability asserted against him or incurred by him in
any such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
Article VIII, Section 1 of Comcast Cable Communications Holdings'
Certificate of Incorporation provides that a director of Comcast Cable
Communications Holdings will not be personally liable to Comcast Cable
Communications Holdings or its shareholder for monetary damages for breach of
fiduciary duty as director, except if this exemption is not permitted by the
General Corporation Law of the State of Delaware. Any repeal or modification of
this provision will not affect the rights of a director of Comcast Cable
Communications Holdings prior to such repeal or modification.
Article VIII, Section 2 of Comcast Cable Communications Holdings'
Certificate of Incorporation provides that each person who was or is made a
party or is otherwise in any way involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he, or the person from whom he is
legal representative, is or was a director or officer of Comcast Cable
Communications Holdings or is or was serving at its request as a director,
officer or employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of the
proceeding is alleged action in an official capacity or in any other capacity
while serving as a director, officer or employee, will be indemnified and held
harmless by Comcast Cable Communications Holdings to the fullest extent
authorized by the General Corporation Law of the State of Delaware against all
expense, liability and loss (including attorneys' fees, judgments, fines,
Employee Retirement Income Security Act of 1974 excise taxes or penalties and
amounts paid in settlement) reasonably incurred or suffered by the indemnitee in
connection
II-3
with the proceeding. In the event that the General Corporation Law of the State
of Delaware is amended, the indemnification provided will change only to the
extent that the amendment permits Comcast Cable Communications Holdings to
provide broader indemnification rights than previously permitted. However,
except in the case of proceedings to enforce rights to indemnification, Comcast
Cable Communications Holdings will indemnify an indemnitee in connection with a
proceeding (or part thereof) initiated by the indemnitee only if the proceeding
was authorized by the Board of Directors of Comcast Cable Communications
Holdings. The right to indemnification includes the right to be paid by Comcast
Cable Communications Holdings the advancement of expenses incurred in defending
any proceeding in advance of its final disposition; provided, however, that, if
the General Corporation Law of the State of Delaware requires, an advancement of
expenses incurred by an indemnitee in his capacity as a director or officer only
will be made only upon delivery to Comcast Cable Communications Holdings of an
undertaking, by or on behalf of the indemnitee, to repay all amounts so advanced
if it is ultimately determined that the indemnitee is not entitled to be
indemnified for the expenses. Also, the Board of Directors of Comcast Cable
Communications Holdings may grant rights to indemnification as described above
to any of Comcast Cable Communications Holdings' employees and agents.
If a claim for indemnification is not paid in full within 30 days after a
written claim is received by Comcast Cable Communications Holdings, the
indemnitee may bring suit to recover the unpaid amount of the claim, and if
successful in whole or in part, the indemnitee will be entitled to be paid also
the expense of prosecuting the suit. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered) that the claimant has not
met the standards of conduct which make it permissible under the General
Corporation Law of the State of Delaware for Comcast Cable Communications
Holdings to indemnify the claimant for the amount claimed, but Comcast Cable
Communications Holdings would bear the burden of proving this defense.
Comcast Cable Communications Holdings may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of
Comcast Cable Communications Holdings or another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss,
whether or not Comcast Cable Communications Holdings would have the power to
indemnify such person under the General Corporation Law of the State of
Delaware.
COMCAST CABLE COMMUNICATIONS, INC.
Comcast Cable Communications, Inc. is a corporation organized under the
laws of the State of Delaware. The applicable provisions relating to the
indemnification of officers and directors under the General Corporation Law of
the State of Delaware are described above under "-- Comcast Cable Communications
Holdings, Inc."
In addition, Section 7-1 of Comcast Cable's By-laws provides that Comcast
Cable will indemnify any of its directors or officers or any director or officer
who is or was serving as a director, officer, employee or agent of another
company, partnership, joint venture, trust or other enterprise (any such person
is hereinafter referred to as a "director or officer") against expenses
(including, but not limited to, attorneys' fees), judgments, fines and amounts
paid in settlement, actually and reasonably incurred by such director or
officer, to the fullest extent now or hereafter permitted by law in connection
with any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "Proceeding"), brought or
threatened to be brought against such director or officer by reason of the fact
that he or she is or was serving in any such capacity or in any other capacity
on behalf of the company, its parent or any of its subsidiaries.
Section 7-2 of Comcast Cable's By-laws provides that expenses incurred by
any director or officer in defending a Proceeding will be paid by Comcast Cable
in advance of the final disposition of such Proceeding as authorized by the
Board of Directors in the specific case upon receipt of an undertaking, by or on
behalf of such director or officer, to repay such amount without interest if it
is ultimately determined that he or she is not entitled to be indemnified by
Comcast Cable as authorized by law.
II-4
Section 7-4 of Comcast Cable's By-laws provides that Comcast Cable may
purchase and maintain insurance on behalf of any person who is or was a director
or officer of Comcast Cable against any liability asserted against him or her
and incurred by him or her in any such capacity, or arising out of his or her
status as such, whether or not Comcast Cable would have the power to indemnify
him or her against such liability under law.
COMCAST CABLE HOLDINGS, LLC
Comcast Cable Holdings, LLC is a limited liability company organized under
the laws of the State of Delaware. Section 18-108 of the Delaware Limited
Liability Company Act permits a limited liability company, subject to any
restrictions that may be set forth in its limited liability company agreement,
to indemnify its members and managers from and against any and all claims and
demands.
Section 12(a) of Comcast Cable Holdings' LLC Agreement provides that
Comcast Cable Holdings will indemnify the manager and the member, which in each
case is Comcast Cable Communications Holdings, and any current or former
director or officer of Comcast Cable Communications Holdings (each, an
"indemnitee") from and against all loss, damage, expense (including reasonable
attorney's and other advisor's fees, court costs and other liabilities incurred
in any proceeding to which Comcast Cable Communications Holdings is made a
party) incurred because of Comcast Cable Communications Holdings' role as
manager or member. Also, each indemnitee will be indemnified for losses
resulting from the indemnitee's acts or failures to act with respect to the
business or affairs of Comcast Cable Holdings, if the indemnitee (a) acts in
good faith, (b) if acting in an official capacity, reasonably believed the
action was in the best interests of Comcast Cable Holdings, and if not acting in
an official capacity, believed that the conduct was not opposed to Comcast Cable
Holdings' best interests, and (c) if in a criminal proceeding, had no reasonable
cause to believe its conduct was unlawful. Section 12(c) of Comcast Cable
Holdings' LLC Agreement provides that Comcast Cable Holdings may advance funds
to Comcast Cable Communications Holdings in respect of expenses incurred by
Comcast Cable Communications Holdings in a proceeding prior to the final
disposition of the proceeding if Comcast Cable Communications Holdings gives
written affirmation of its good-faith belief that it has complied with the
standards of conduct described in the preceding sentence, agrees to repay the
advancement with interest if it is determined that the standards of conduct were
not met, and Comcast Cable Holdings determines that indemnification is
permissible under these standards. Also, Section 12(e) provides that Comcast
Cable Holdings will indemnify specified officers, and it may in its discretion
indemnify employees, on the same basis as it indemnifies Comcast Cable
Communications Holdings as described above.
Section 12(b) of Comcast Cable Holdings' LLC Agreement provides that,
notwithstanding the above paragraph, Comcast Cable Holdings will not indemnify
an indemnitee in connection with any proceeding in which Comcast Cable
Communications Holdings is adjudged liable to Comcast Cable Holdings or any
proceeding charging improper personal benefit to Comcast Cable Communications
Holdings wherein the indemnitee was adjudged liable on the basis of improperly
receiving a personal benefit.
Section 12(f) of Comcast Cable Holdings' LLC Agreement provides that
neither Comcast Cable Communications Holdings nor specified officers will be
liable to Comcast Cable Holdings for any loss, damage or expense if Comcast
Cable Communications Holdings or such officers, as the case may be (a) acts in
good faith, (b) if acting in an official capacity, reasonably believed the
action was in the best interests of Comcast Cable Holdings, and if not in an
official capacity, believed that the conduct was not opposed to Comcast Cable
Holdings' best interests, and (c) if in a criminal proceeding, had no reasonable
cause to believe its conduct was unlawful. However, Comcast Cable Communications
Holdings or the specified officers will be liable for any loss, expense or
damage incurred in connection with a proceeding in which Comcast Cable
Communications Holdings or such officers is adjudged liable to Comcast Cable
Holdings as a result of not meeting the standards of conduct described in the
preceding sentence or a proceeding charging improper personal benefit to Comcast
Cable Communications Holdings wherein the indemnitee was adjudged liable on the
basis of improperly receiving a personal benefit.
II-5
COMCAST MO GROUP, INC.
Comcast MO Group, Inc. is a corporation organized under the laws of the
State of Delaware. The indemnification of officers and directors provided for by
Comcast MO Group's organizational documents and the General Corporation Law of
the State of Delaware is identical to the indemnification provisions described
above under "-- Comcast Cable Communications Holdings, Inc."
ITEM 21. EXHIBITS.
The following exhibits are filed as part of the Registration Statement:
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Composite copy of Agreement and Plan of Merger dated as of
December 19, 2001, as amended, among Comcast Holdings
Corporation (formerly known as Comcast Corporation), AT&T
Corp., Comcast Cable Communications Holdings, Inc. (formerly
known as AT&T Broadband Corp.), Comcast Corporation
(formerly known as AT&T Comcast Corporation) and the other
parties signatory thereto.(2)
2.2 Composite copy of Separation and Distribution Agreement
dated as of December 19, 2001, as amended, between AT&T
Corp. and Comcast Cable Communications Holdings, Inc.
(formerly known as AT&T Broadband Corp.).(2)
2.3 Support Agreement dated as of December 19, 2001, as amended,
among AT&T Corp., Comcast Holdings Corporation (formerly
known as Comcast Corporation), Comcast Corporation (formerly
known as AT&T Comcast Corporation), Sural LLC and Brian L.
Roberts.(3)
2.4 Tax Sharing Agreement dated as of December 19, 2001 between
AT&T Corp. and Comcast Cable Communications Holdings, Inc.
(formerly known as AT&T Broadband Corp.).(3)
2.5 Employee Benefits Agreement dated as of December 19, 2001
between AT&T Corp. and Comcast Cable Communications
Holdings, Inc. (formerly known as AT&T Broadband Corp.).(4)
2.6 Exchange Agreement dated as of December 7, 2001, as amended,
between Microsoft Corporation and Comcast Holdings
Corporation (formerly known as Comcast Corporation).(3)
2.7 Instrument of Admission dated as of December 19, 2001, as
amended, between Comcast Corporation (formerly known as AT&T
Comcast Corporation) and AT&T Corp.(3)
3.1 Articles of Incorporation of Comcast Corporation.(2)
4.1 Rights Agreement dated as of November 18, 2002 between
Comcast Corporation (formerly known as AT&T Comcast
Corporation) and EquiServe Trust Company, N.A., as Rights
Agent, which includes the Form of Certificate of Designation
of Series A Participant's Cumulative Preferred Stock as
Exhibit A and the Form of Right Certificate as Exhibit B.(5)
4.2 Credit Agreement dated as of April 26, 2002 among Comcast
Corporation (formerly known as AT&T Comcast Corporation),
Comcast Cable Communications Holdings, Inc. (formerly known
as AT&T Broadband Corp.), the Financial Institutions party
thereto, JP Morgan Chase Bank, as Administrative Agent,
Swing Line Lender and Issuing Lender, Citibank, N.A., as
Syndication Agent, and Bank of America, N.A., Merrill Lynch
& Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Morgan Stanley Senior Funding, Inc., as Co-Documentation
Agents.(6)
4.3 Bridge Credit Agreement dated as of April 26, 2002 among
Comcast Corporation (formerly known as AT&T Comcast
Corporation), Comcast Cable Communications Holdings, Inc.
(formerly known as AT&T Broadband Corp.), the Financial
Institutions party thereto, JP Morgan Chase Bank, as
Administrative Agent, Swing Line Lender and Issuing Lender,
Citibank, N.A., as Syndication Agent, and Bank of America,
N.A., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Morgan Stanley Senior Funding, Inc.,
as Co-Documentation Agents.(6)
4.4 Credit Agreement dated as of May 3, 2002 among Comcast Cable
Communications Holdings, Inc. (formerly known as AT&T
Broadband Corp.), Comcast Corporation (formerly known as
AT&T Comcast Corporation), the Financial Institutions party
thereto, JP Morgan Chase Bank, as Administrative Agent,
Citibank, N.A., Bank of America, N.A., Merrill Lynch Capital
Corporation and Morgan Stanley Senior Funding, Inc.(6)
4.5 Indenture dated as of June 1, 1993 among Comcast MO of
Delaware, Inc. and Bank One, N.A., as successor trustee to
The First National Bank of Chicago, for the 9% Senior
Debentures Due September 1, 2008.(7)
II-6
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.6 Indenture dated as of August 1, 1993, and First Supplemental
Indenture, dated as of November 15, 1996, among Comcast MO
of Delaware, Inc. and The Bank of New York, as trustee, for
the 8 7/8% Senior Debentures Due September 15, 2005.(7)
4.7 Indenture dated as of December 13, 1995 among Comcast MO of
Delaware, Inc. and The Bank of New York, as successor
trustee to Bank of Montreal Trust Company, for the 8.30%
Senior Notes Due May 15, 2006.(7)
4.8 Indenture dated as of August 1, 1993, and First Supplemental
Indenture, dated as of November 15, 1996, among Comcast MO
of Delaware, Inc. and The Bank of New York, as trustee, for
the 9.5% Senior Debentures Due August 1, 2013.(7)
4.9 Forms of the Continental Notes (included in the applicable
indenture).(7)
4.10 Form of Supplemental Indenture.(1)
5.1 Opinion of Davis Polk & Wardwell.(1)
12.1 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges of Comcast Corporation.(7)
12.2 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges of Comcast Cable Communications, Inc.(7)
12.3 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges of Comcast Cable Communications Holdings,
Inc.(7)
12.4 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges of Comcast Cable Holdings, LLC.(7)
12.5 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges of Comcast MO Group, Inc.(7)
12.6 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges of Comcast MO of Delaware, Inc.(7)
23.1 Consent of Deloitte & Touche LLP with respect to Comcast
Corporation (formerly known as AT&T Comcast Corporation).(8)
23.2 Consent of Deloitte & Touche LLP with respect to Comcast
Holdings Corporation (formerly known as Comcast
Corporation).(8)
23.3 Consent of Deloitte & Touche LLP with respect to Comcast
Cable Communications, Inc.(8)
23.4 Consent of PricewaterhouseCoopers LLP with respect to AT&T
Broadband Group.(8)
23.5 Consents of PricewaterhouseCoopers LLP with respect to
Comcast MO of Delaware, Inc.(8)
23.6 Consent of Davis Polk & Wardwell (included in Exhibit 5.1).
24.1 Powers of Attorney (8).
25.1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Bank One, N.A., as successor trustee to
The First National Bank of Chicago, under the Indenture
dated as of June 1, 1993 for the 9% Senior Debentures Due
September 1, 2008.(7)
25.2 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The Bank of New York, as trustee, under
the Indenture dated August 1, 1993 for the 8 7/8 Senior
Debentures Due September 15, 2005.(7)
25.3 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The Bank of New York, as successor
trustee to Bank of Montreal Trust Company, under the
Indenture dated as of June 1, 1993 for the 8.30% Senior
Notes Due May 15, 2006.(7)
25.4 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The Bank of New York, as trustee, under
the Indenture dated August 1, 1993 for the 9.5% Senior
Debentures Due August 1, 2013.(7)
99.1 Form of Letter of Consent.(1)
99.2 Form of Letter to Registered Holders and the Depositary
Trust Company Participants.(1)
99.3 Form of Letter to Clients.(1)
99.4 Form of Instructions to Registered Holder and/or Book-Entry
Transfer Participant from Owner.(1)
- ---------------
(1) Filed herewith.
(2) Incorporated by reference to our Current Report on Form 8-K12g3, filed on
November 18, 2002.
(3) Incorporated by reference to our registration statement on Form S-4, filed
on February 11, 2002.
II-7
(4) Incorporated by reference to AT&T Corp.'s Annual Report on Form 10-K for
the year ended December 31, 2001, filed on April 1, 2002.
(5) Incorporated by reference to our registration statement on Form 8-A12g,
filed on November 18, 2002.
(6) Incorporated by reference to our Amended Registration Statement on Form
S-4/A, filed on May 14, 2002.
(7) Incorporated by reference to our Registration Statement on Form S-4, filed
on January 31, 2003.
(8) Previously filed in our Registration Statement on Form S-4 filed on January
31, 2003.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned registrants hereby undertake to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
If a claim for indemnification against such liabilities (other than the payment
by us of expenses incurred or paid by one of our directors, officers or
controlling persons in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the notes being registered, we will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(d) The undersigned hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(e) The undersigned hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-8
SIGNATURES FOR COMCAST CORPORATION
Pursuant to the requirements of the Securities Act of 1933, Comcast
Corporation has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized in
Philadelphia, Pennsylvania, on the 7th day of February, 2003.
COMCAST CORPORATION
By: /s/ ARTHUR R. BLOCK
------------------------------------
Name: Arthur R. Block
Title: Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman of the Executive and February 7, 2003
------------------------------------------ Finance Committee of the Board
Ralph J. Roberts of Directors; Director
* Chairman of the Board of February 7, 2003
------------------------------------------ Directors; Director
C. Michael Armstrong
* Vice Chairman of the Board of February 7, 2003
------------------------------------------ Directors; Director
Julian A. Brodsky
* President and Chief Executive February 7, 2003
------------------------------------------ Officer (Principal Executive
Brian L. Roberts Officer); Director
* Executive Vice President February 7, 2003
------------------------------------------ (Co-Principal Financial
Lawrence S. Smith Officer)
* Executive Vice President and February 7, 2003
------------------------------------------ Treasurer (Co-Principal
John R. Alchin Financial Officer)
* Senior Vice President and February 7, 2003
------------------------------------------ Controller
Lawrence J. Salva (Principal Accounting Officer)
* Director February 7, 2003
------------------------------------------
S. Decker Anstrom
* Director February 7, 2003
------------------------------------------
Kenneth J. Bacon
II-9
SIGNATURE TITLE DATE
--------- ----- ----
Director
------------------------------------------
Joseph L. Castle, II
* Director February 7, 2003
------------------------------------------
Sheldon M. Bonovitz
* Director February 7, 2003
------------------------------------------
J. Michael Cook
* Director February 7, 2003
------------------------------------------
Dr. Judith Rodin
* Director February 7, 2003
------------------------------------------
Louis A. Simpson
* Director February 7, 2003
------------------------------------------
Michael I. Sovern
*By: /s/ ARTHUR R. BLOCK
------------------------------------------
Arthur R. Block
(Attorney-in-fact)
II-10
SIGNATURES FOR
COMCAST CABLE COMMUNICATIONS, INC.
Pursuant to the requirements of the Securities Act of 1933, Comcast Cable
Communications, Inc. has duly caused this Amendment No. 1 to Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Philadelphia, Pennsylvania, on the 7th day of February, 2003.
COMCAST CABLE COMMUNICATIONS, INC.
By: /s/ ARTHUR R. BLOCK
------------------------------------
Name: Arthur R. Block
Title: Senior Vice President;
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman (Principal February 7, 2003
------------------------------------------------ Executive Officer); Director
Brian L. Roberts
* Executive Vice President February 7, 2003
------------------------------------------------ (Co-Principal Financial
Lawrence S. Smith Officer);
Director
* Executive Vice President and February 7, 2003
------------------------------------------------ Treasurer (Co-Principal
John R. Alchin Financial Officer)
* Executive Vice President; February 7, 2003
------------------------------------------------ Director
David L. Cohen
/s/ ARTHUR R. BLOCK Senior Vice President; February 7, 2003
------------------------------------------------ Director
Arthur R. Block
* Senior Vice President February 7, 2003
------------------------------------------------ (Principal Accounting
Lawrence J. Salva Officer)
*By: /s/ ARTHUR R. BLOCK
-----------------------------------------
Arthur R. Block
(Attorney-in-fact)
II-11
SIGNATURES FOR
COMCAST CABLE COMMUNICATIONS HOLDINGS, INC.
Pursuant to the requirements of the Securities Act of 1933, Comcast Cable
Communications Holdings, Inc. has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in Philadelphia, Pennsylvania, on the 7th of February, 2003.
COMCAST CABLE COMMUNICATIONS
HOLDINGS, INC.
By: /s/ ARTHUR R. BLOCK
------------------------------------
Name: Arthur R. Block
Title: Senior Vice President;
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman February 7, 2003
------------------------------------------------ (Principal Executive
Brian L. Roberts Officer)
* Executive Vice President February 7, 2003
------------------------------------------------ (Co-Principal Financial
Lawrence S. Smith Officer);
Director
* Executive Vice President and February 7, 2003
------------------------------------------------ Treasurer (Co-Principal
John R. Alchin Financial Officer)
* Executive Vice President; February 7, 2003
------------------------------------------------ Director
David L. Cohen
/s/ ARTHUR R. BLOCK Senior Vice President; February 7, 2003
------------------------------------------------ Director
Arthur R. Block
* Senior Vice President February 7, 2003
------------------------------------------------ (Principal Accounting
Lawrence J. Salva Officer)
*By: /s/ ARTHUR R. BLOCK
------------------------------------------------
Arthur R. Block
(Attorney-in-fact)
II-12
SIGNATURES FOR COMCAST CABLE HOLDINGS, LLC
Pursuant to the requirements of the Securities Act of 1933, Comcast Cable
Holdings, LLC has duly caused this Amendment No. 1 to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized in
Philadelphia, Pennsylvania, on the 7th of February, 2003.
COMCAST CABLE HOLDINGS, LLC
By: /s/ ARTHUR R. BLOCK
--------------------------------------
Name: Arthur R. Block
Title: Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman February 7, 2003
------------------------------------------ (Principal Executive Officer)
Brian L. Roberts
* Executive Vice President February 7, 2003
------------------------------------------ (Co-Principal Financial Officer)
Lawrence S. Smith
* Executive Vice President and February 7, 2003
------------------------------------------ Treasurer (Co-Principal
John R. Alchin Financial Officer)
* Senior Vice President (Principal February 7, 2003
------------------------------------------ Accounting Officer)
Lawrence J. Salva
*By: /s/ ARTHUR R. BLOCK
-----------------------------------------
Arthur R. Block
(Attorney-in-fact)
COMCAST CABLE COMMUNICATIONS HOLDINGS,
INC.
By: /s/ ARTHUR R. BLOCK Sole Member February 7, 2003
------------------------------------------
Arthur R. Block
Senior Vice President
II-13
SIGNATURES FOR COMCAST MO GROUP, INC.
Pursuant to the requirements of the Securities Act of 1933, Comcast MO
Group, Inc. has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized in
Philadelphia, Pennsylvania, on the 7th of February, 2003.
COMCAST MO GROUP, INC.
By: /s/ ARTHUR R. BLOCK
--------------------------------------
Name: Arthur R. Block
Title: Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman February 7, 2003
------------------------------------------ (Principal Executive Officer)
Brian L. Roberts
* Executive Vice President February 7, 2003
------------------------------------------ (Co-Principal Financial
Lawrence S. Smith Officer);
Director
* Executive Vice President and February 7, 2003
------------------------------------------ Treasurer (Co-Principal
John R. Alchin Financial Officer)
* Executive Vice President; February 7, 2003
------------------------------------------ Director
David L. Cohen
/s/ ARTHUR R. BLOCK Senior Vice President; Director February 7, 2003
------------------------------------------
Arthur R. Block
* Senior Vice President February 7, 2003
------------------------------------------ (Principal Accounting Officer)
Lawrence J. Salva
*By: /s/ ARTHUR R. BLOCK
-----------------------------------------
Arthur R. Block
(Attorney-in-fact)
II-14
EXHIBIT LIST
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Composite copy of Agreement and Plan of Merger dated as of
December 19, 2001, as amended, among Comcast Holdings
Corporation (formerly known as Comcast Corporation), AT&T
Corp., Comcast Cable Communications Holdings, Inc. (formerly
known as AT&T Broadband Corp.), Comcast Corporation
(formerly known as AT&T Comcast Corporation) and the other
parties signatory thereto.(2)
2.2 Composite copy of Separation and Distribution Agreement
dated as of December 19, 2001, as amended, between AT&T
Corp. and Comcast Cable Communications Holdings, Inc.
(formerly known as AT&T Broadband Corp.).(2)
2.3 Support Agreement dated as of December 19, 2001, as amended,
among AT&T Corp., Comcast Holdings Corporation (formerly
known as Comcast Corporation), Comcast Corporation (formerly
known as AT&T Comcast Corporation), Sural LLC and Brian L.
Roberts.(3)
2.4 Tax Sharing Agreement dated as of December 19, 2001 between
AT&T Corp. and Comcast Cable Communications Holdings, Inc.
(formerly known as AT&T Broadband Corp.).(3)
2.5 Employee Benefits Agreement dated as of December 19, 2001
between AT&T Corp. and Comcast Cable Communications
Holdings, Inc. (formerly known as AT&T Broadband Corp.).(4)
2.6 Exchange Agreement dated as of December 7, 2001, as amended,
between Microsoft Corporation and Comcast Holdings
Corporation (formerly known as Comcast Corporation).(3)
2.7 Instrument of Admission dated as of December 19, 2001, as
amended, between Comcast Corporation (formerly known as AT&T
Comcast Corporation) and AT&T Corp.(3)
3.1 Articles of Incorporation of Comcast Corporation.(2)
4.1 Rights Agreement dated as of November 18, 2002 between
Comcast Corporation (formerly known as AT&T Comcast
Corporation) and EquiServe Trust Company, N.A., as Rights
Agent, which includes the Form of Certificate of Designation
of Series A Participant's Cumulative Preferred Stock as
Exhibit A and the Form of Right Certificate as Exhibit B.(5)
4.2 Credit Agreement dated as of April 26, 2002 among Comcast
Corporation (formerly known as AT&T Comcast Corporation),
Comcast Cable Communications Holdings, Inc. (formerly known
as AT&T Broadband Corp.), the Financial Institutions party
thereto, JP Morgan Chase Bank, as Administrative Agent,
Swing Line Lender and Issuing Lender, Citibank, N.A., as
Syndication Agent, and Bank of America, N.A., Merrill Lynch
& Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Morgan Stanley Senior Funding, Inc., as Co-Documentation
Agents.(6)
4.3 Bridge Credit Agreement dated as of April 26, 2002 among
Comcast Corporation (formerly known as AT&T Comcast
Corporation), Comcast Cable Communications Holdings, Inc.
(formerly known as AT&T Broadband Corp.), the Financial
Institutions party thereto, JP Morgan Chase Bank, as
Administrative Agent, Swing Line Lender and Issuing Lender,
Citibank, N.A., as Syndication Agent, and Bank of America,
N.A., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Morgan Stanley Senior Funding, Inc.,
as Co-Documentation Agents.(6)
4.4 Credit Agreement dated as of May 3, 2002 among Comcast Cable
Communications Holdings, Inc. (formerly known as AT&T
Broadband Corp.), Comcast Corporation (formerly known as
AT&T Comcast Corporation), the Financial Institutions party
thereto, JP Morgan Chase Bank, as Administrative Agent,
Citibank, N.A., Bank of America, N.A., Merrill Lynch Capital
Corporation and Morgan Stanley Senior Funding, Inc.(6)
4.5 Indenture dated as of June 1, 1993 among Comcast MO of
Delaware, Inc. and Bank One, N.A., as successor trustee to
The First National Bank of Chicago, for the 9% Senior
Debentures Due September 1, 2008.(7)
4.6 Indenture dated as of August 1, 1993, and First Supplemental
Indenture, dated as of November 15, 1996, among Comcast MO
of Delaware, Inc. and The Bank of New York, as trustee, for
the 8 7/8% Senior Debentures Due September 15, 2005.(7)
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.7 Indenture dated as of December 13, 1995 among Comcast MO of
Delaware, Inc. and The Bank of New York, as successor
trustee to Bank of Montreal Trust Company, for the 8.30%
Senior Notes Due May 15, 2006.(7)
4.8 Indenture dated as of August 1, 1993, and First Supplemental
Indenture, dated as of November 15, 1996 among Comcast MO of
Delaware, Inc. and The Bank of New York, as trustee, for the
9 1/2% Senior Debentures Due August 1, 2013.(7)
4.9 Forms of the Continental Notes (included in the applicable
indenture).(7)
4.10 Form of Supplemental Indenture.(1)
5.1 Opinion of Davis Polk & Wardwell.(1)
12.1 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges of Comcast Corporation.(7)
12.2 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges of Comcast Cable Communications, Inc.(7)
12.3 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges of Comcast Cable Communications Holdings,
Inc.(7)
12.4 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges of Comcast Cable Holdings, LLC.(7)
12.5 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges of Comcast MO Group, Inc.(7)
12.6 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges of Comcast MO of Delaware, Inc.(7)
23.1 Consent of Deloitte & Touche LLP with respect to Comcast
Corporation (formerly known as AT&T Comcast Corporation).(8)
23.2 Consent of Deloitte & Touche LLP with respect to Comcast
Holdings Corporation (formerly known as Comcast
Corporation).(8)
23.3 Consent of Deloitte & Touche LLP with respect to Comcast
Cable Communications, Inc.(8)
23.4 Consent of PricewaterhouseCoopers LLP with respect to AT&T
Broadband Group.(8)
23.5 Consents of PricewaterhouseCoopers LLP with respect to
Comcast MO of Delaware, Inc.(8)
23.6 Consent of Davis Polk & Wardwell (included in Exhibit 5.1).
24.1 Powers of Attorney (8).
25.1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of Bank One, N.A., as successor trustee to
The First National Bank of Chicago, under the Indenture
dated as of June 1, 1993 for the 9% Senior Debentures Due
September 1, 2008.(7)
25.2 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The Bank of New York, as trustee, under
the Indenture dated August 1, 1993 for the 8 7/8 Senior
Debentures Due September 15, 2005.(7)
25.3 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The Bank of New York, as successor
trustee to Bank of Montreal Trust Company, under the
Indenture dated as of June 1, 1993 for the 8.30% Senior
Notes Due May 15, 2006.(7)
25.4 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The Bank of New York, as trustee, under
the Indenture dated August 1, 1993 for the 9.5% Senior
Debentures Due August 1, 2013.(7)
99.1 Form of Letter of Consent.(1)
99.2 Form of Letter to Registered Holders and the Depositary
Trust Company Participants.(1)
99.3 Form of Letter to Clients.(1)
99.4 Form of Instructions to Registered Holder and/or Book-Entry
Transfer Participant from Owner.(1)
- ---------------
(1) Filed herewith.
(2) Incorporated by reference to our Current Report on Form 8-K12g3, filed on
November 18, 2002.
(3) Incorporated by reference to our registration statement on Form S-4, filed
on February 11, 2002.
(4) Incorporated by reference to AT&T Corp.'s Annual Report on Form 10-K for
the year ended December 31, 2001, filed on April 1, 2002.
(5) Incorporated by reference to our registration statement on Form 8-A12g,
filed on November 18, 2002.
(6) Incorporated by reference to our Amended Registration Statement on Form
S-4/A, filed on May 14, 2002.
(7) Incorporated by reference to our Registration Statement on Form S-4, filed
on January 31, 2003.
(8) Previously filed in our Registration Statement on Form S-4 filed on January
31, 2003.
Exhibit 4.10
[FIRST] SUPPLEMENTAL INDENTURE
[FIRST] SUPPLEMENTAL INDENTURE dated as of , 2003 (this "SUPPLEMENTAL
INDENTURE"), among Comcast Mo of Delaware, Inc., a Delaware corporation
(excluding its subsidiaries, the "COMPANY"), Comcast Corporation, a Pennsylvania
corporation (excluding its subsidiaries, "COMCAST"), Comcast Cable
Communications, Inc., a Delaware corporation (excluding its subsidiaries,
"COMCAST CABLE"), Comcast Cable Communications Holdings, Inc., a Delaware
corporation (excluding its subsidiaries, "COMCAST CABLE COMMUNICATIONS
HOLDINGS"), Comcast Cable Holdings, LLC, a Delaware limited liability company
(excluding its subsidiaries, "COMCAST CABLE HOLDINGS"), and Comcast MO Group,
Inc., a Delaware corporation (excluding its subsidiaries, "COMCAST MO GROUP")
(each of Comcast, Comcast Cable, Comcast Cable Communications Holdings, Comcast
Cable Holdings and Comcast MO Group, a "CABLE GUARANTOR") and [Trustee](1), as
trustee (the "TRUSTEE").
WHEREAS, the Company is the successor issuer under the [Indenture](2) (the
"ORIGINAL INDENTURE" and together with this Supplemental Indenture, the
"INDENTURE"), pursuant to which the Company (as successor issuer) issued, and
the Trustee authenticated and delivered certain Debentures(3) which are, as of
the date hereof, outstanding (the "OUTSTANDING SECURITIES") and pursuant to
Section 2.06 of which the Company may issue Debentures in the future (the "NEW
SECURITIES," and together with the Outstanding Securities, the "SECURITIES");
WHEREAS, each of the Company, Comcast Cable, Comcast Cable Communications
Holdings, Comcast Cable Holdings, and Comcast MO Group is a Wholly-Owned
Subsidiary of Comcast;
WHEREAS, the Company is the obligor with respect to the Securities;
WHEREAS, the Cable Guarantors desire to irrevocably, fully and
unconditionally guarantee, jointly and severally, on an unsecured basis, the
full and punctual payment (whether at maturity, upon redemption, or otherwise)
of the principal of and interest on, and all other amounts payable under, each
Security, and the full and punctual payment of all other amounts payable by the
Company
- ----------
(1) To be replaced with the name of the applicable trustee.
(2) To be replaced with the title, date and parties to the indenture under
which the applicable series of Continental Notes was issued together with any
prior supplemental indentures thereto.
(3) All references to "Debentures" in this form of supplemental indenture
shall be replaced with "Notes" for the supplemental indenture for the 8.30%
Senior Notes Due May 15, 2006.
under the Indenture, in consideration for the amendments to the Original
Indenture made hereby.
WHEREAS, the consent of the holders of the requisite amount of the
Outstanding Securities has been obtained to the amendment of the Original
Indenture effected hereby, and the Company and the Cable Guarantors and such
holders have requested that the Trustee execute and deliver this Supplemental
Indenture and all requirements necessary to make this Supplemental Indenture a
valid instrument in accordance with its terms and to make the guarantees
provided herein the valid obligations of the Cable Guarantors, and the execution
and delivery of this Supplemental Indenture have been duly authorized in all
respects;
NOW, THEREFORE, in consideration of the mutual promises contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company, each Cable Guarantor and the Trustee
hereby agree as follows for the equal and ratable benefit of the holders of the
Securities:
ARTICLE 1
DEFINITIONS
Section 1.01. Certain Terms Defined. The following terms (except as
otherwise expressly provided or unless the context otherwise clearly requires)
for all purposes of the Indenture shall have the respective meanings specified
in this Section. The words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Supplemental Indenture as a whole and not to any
particular Article, Section or other subdivision. The terms defined in this
Article have the meanings assigned to them in this Article and include the
plural as well as the singular. Any terms used but not defined in this
Supplemental Indenture (except as otherwise expressly provided or unless the
context otherwise clearly requires) shall have the respective meanings specified
in the Original Indenture for all purposes of the Indenture.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal, or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person; and
"Capitalized Lease Obligation" is defined to mean the rental obligations, as
aforesaid, under such lease.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's capital stock or other ownership
interests,
2
whether now outstanding or issued after the date hereof, including, without
limitation, all Common Stock and Preferred Stock.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the date hereof, including, without limitation, all series and
classes of such common stock.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement, or other similar agreement or arrangement designed to protect against
the fluctuation in currency values.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of determination, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations contained in this
Indenture shall be computed in conformity with GAAP applied on a consistent
basis.
"Cable Guarantee" means the guarantee of the Securities by a Cable
Guarantor pursuant to this Supplemental Indenture.
"Depositary" means, with respect to the Securities issuable or issued in
the form of one or more Registered Global Securities, the Person designated as
Depositary by the Issuer pursuant to Section 2.10 until a successor Depositary
shall have become such pursuant to the applicable provisions of this Indenture,
and thereafter "Depositary" shall mean or include each Person who is then a
Depositary hereunder.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person:
(a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person (whether
arising by virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities, or services, to take-or-pay, or to maintain
financial statement conditions or otherwise); or
3
(b) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
Provided that the term "Guarantee" shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication):
(a) all indebtedness of such Person for borrowed money;
(b) all obligations of such Person evidenced by bonds, debentures,
notes, or other similar instruments, in each case, for value received or
settlement of claims;
(c) all obligations of such Person in respect of letters of credit or
other similar instruments (including reimbursement obligations with respect
thereto);
(d) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business);
(e) all obligations of such Person as lessee under Capitalized Leases;
(f) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of such Indebtedness shall be the lesser of:
(i) the fair market value of such asset at such date of
determination; and
(ii) the amount of such Indebtedness;
(g) all Indebtedness of other Persons to the extent Guaranteed by such
Person; and
(h) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements.
Notwithstanding the foregoing, in no event shall the term "Indebtedness"
be deemed to include letters of credit or bonds that secure performance or
surety bonds or similar instruments that are issued in the ordinary course of
business.
4
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation; provided:
(a) that the amount outstanding at any time of any Indebtedness issued
with original issue discount is the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP; and
(b) that Indebtedness shall not include any liability for federal,
state, local, or other taxes.
"Interest Rate Agreements" means any obligations of any Person pursuant to
any interest rate swaps, caps, collars, and similar arrangements providing
protection against fluctuations in interest rates. For purposes of the
Indenture, the amount of such obligations shall be the amount determined in
respect thereof as of the end of the then most recently ended fiscal quarter of
such Person, based on the assumption that such obligation had terminated at the
end of such fiscal quarter, and in making such determination, if any agreement
relating to such obligation provides for the netting of amounts payable by and
to such Person thereunder or if any such agreement provides for the simultaneous
payment of amounts by and to such Person, then in each such case, the amount of
such obligations shall be the net amount so determined, plus any premium due
upon default by such Person.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Indenture, the
Company or any Cable Guarantor shall be deemed to own subject to a Lien any
asset that it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
"Permitted Liens" means (a) any Lien on any asset incurred prior to the
date of this Indenture; (b) any Lien on any assets acquired after the date of
this Indenture (including by way of merger or consolidation) by the Company or
any Cable Guarantor, which Lien is created, incurred or assumed
contemporaneously with such acquisition, or within 270 days thereafter, to
secure or provide for the payment or financing of any part of the purchase price
thereof, or any Lien upon any assets acquired after the date of this Indenture
existing at the time of such acquisition (whether or not assumed by the Company
or any Cable Guarantor), provided that any such Lien shall attach only to the
assets so acquired; (c) any Lien on any assets in favor of the Company or any
Cable Guarantor; (d) any Lien
5
on assets incurred in connection with the issuance of tax-exempt governmental
obligations (including, without limitation, industrial revenue bonds and similar
financing); (e) any Lien granted by any Cable Guarantor on assets to the extent
limitations on the incurrence of such Liens are prohibited by any agreement to
which such Cable Guarantor is subject as of the date of this Indenture; and (f)
any renewal of or substitution for any Lien permitted by any of the preceding
clauses, including any Lien securing reborrowing of amounts previously secured
within 270 days of the repayment thereof, provided that no such renewal or
substitution shall extend to any assets other than the assets covered by the
Lien being renewed or substituted.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's preferred or preference stock, whether
now outstanding or issued after the date hereof, including, without limitation,
all series and classes of such preferred or preference stock.
"Registered Global Security" means a Security issued to the Depositary for
the Securities in accordance with Section 2.10 of the Indenture, and bearing the
legend prescribed in Section 2.10.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Cable Guarantor of any property, whether owned by
the Company or such Cable Guarantor at the date of the original issuance of the
Securities or later acquired, which has been or is to be sold or transferred by
the Company or such Cable Guarantor to such Person or to any other Person by
whom funds have been or are to be advanced on the security of such property.
Notwithstanding the foregoing no arrangement shall be deemed a "Sale and
Leaseback Transaction" if (a) the lease is for a period of not in excess of
three years, including renewal of rights; (b) the lease secures or relates to
industrial revenue or similar financing; (c) the transaction is solely between
the Company and a Cable Guarantor or between or among Cable Guarantors; or (d)
the Company or such Cable Guarantor, within 270 days after the sale is
completed, applies an amount equal to or greater than (i) the net proceeds of
the sale of the assets or part thereof leased or (ii) the fair market value of
the assets or part thereof leased (as determined in good faith by the Board of
Directors) either to (A) the retirement (or open market purchase) of Securities,
other long-term Indebtedness of the Company ranking on a parity with or senior
to the Securities or long-term Indebtedness of a Cable Guarantor; or (B) the
purchase by the
6
Company or any Cable Guarantor of other property, plant or equipment related to
the business of the Issuer or any Cable Guarantor having a value at least equal
to the value of the assets or part thereof leased.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of all votes
represented by all classes of outstanding Voting Stock is owned, directly or
indirectly, by such Person and one or more other Subsidiaries of such Person.
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly-Owned" is defined to mean, with respect to any Subsidiary of any
person, such Subsidiary if all of the outstanding common stock or other similar
equity ownership interests (but not including preferred stock) in such
Subsidiary (other than any director's qualifying shares or investments by
foreign nationals mandated by applicable law) is owned directly or indirectly by
such person.
The definitions of the following terms in the Original Indenture no longer
relevant to the Indenture as amended are hereby deleted: "Accreted Value,"
"Annualized Cash Flow," "Credit Agreement," "Exempt Indebtedness," "Exempt
Repurchases," "Initial Tender Period," "June Senior Debt Securities," "Operating
Cash Flow," "Preferred Event Put Notice," "Preferred Event Redemption Date,"
"Preferred Event Redemption Price," "1992 Preferred Stock," "Preferred Stock
Change of Control Event," "Preferred Stock Redemption Payment," "Principal
Property," "Proposed Date," "Put Option Borrowing," "Put Option Redemption
Date," "Put Option Redemption Price" "Put Option Stock Repurchase," "Put Option
Transaction," "Put Option Transaction Date," "1998-1999 Share Repurchase
Program," "Restricted Group," "Restricted Stock Purchase Agreement," "Restricted
Payment," "Restricted Subsidiary," "Revolving Credit Agreement," "Stock
Liquidation Agreement," "Tender Discharge Date," "Tender Period," "Total
Interest Expense," and "Unrestricted Subsidiary."(4)
- ----------
(4) The following terms shall be deleted from this paragraph in the
Supplemental Indenture for the 2006 Notes: "Exempt Indebtedness," "Restricted
Group," "Restricted Subsidiary," "Revolving Credit Agreement." The following
terms shall be added to this paragraph in the Supplemental Indenture for the
2006 Notes: "1994 Credit Facility," "1995 Credit Facility," "Exempt Repurchase
Indebtedness," "Investment Grade Rated," "New Borrowing Group," and "Notes
Restricted Group."
7
ARTICLE 2
CABLE GUARANTEES
Section 2.01. The Cable Guarantees. Subject to the provisions of this
Article, each Cable Guarantor hereby irrevocably, fully and unconditionally
guarantees, jointly and severally, on an unsecured basis, the full and punctual
payment (whether at maturity, upon redemption, or otherwise) of the principal of
and interest on, and all other amounts payable under, each Security, and the
full and punctual payment of all other amounts payable by the Company under the
Indenture. Upon failure by the Company to pay punctually any such amount, each
Cable Guarantor shall forthwith on demand pay the amount not so paid at the
place and in the manner specified in the Indenture.
Section 2.02. Guarantee Unconditional. The obligations of each Cable
Guarantor hereunder with respect to the Securities are unconditional and
absolute and, without limiting the generality of the foregoing, will not be
released, discharged or otherwise affected by
(a) any extension, renewal, settlement, compromise, waiver or release in
respect of any obligation of the Company under the Indenture or such Security,
by operation of law or otherwise;
(b) any modification or amendment of or supplement to the Indenture or
such Security;
(c) any change in the corporate existence, structure or ownership of the
obligor, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting the Company or its assets or any resulting release or
discharge of any obligation of the Company contained in the Indenture or such
Security;
(d) the existence of any claim, set-off or other rights which any Cable
Guarantor may have at any time against the Company, the Trustee, any other Cable
Guarantor or any other Person, whether in connection with the Indenture or an
unrelated transactions, provided that nothing herein prevents the assertion of
any such claim by separate suit or compulsory counterclaim;
(e) any invalidity, irregularity or unenforceability relating to or
against the Company for any reason of the Indenture or such Security, or any
provision of applicable law or regulation purporting to prohibit the payment by
the Company of the principal of or interest on such Security or any other amount
payable by the Company under the Indenture; or
(f) any other act or omission to act or delay of any kind by the
Company, the Trustee or any other Person or any other circumstance whatsoever
which might, but for the provisions of this paragraph, constitute a legal or
8
equitable discharge of or defense to such Cable Guarantor's obligations
hereunder.
Section 2.03. Discharge; Reinstatement. Each Cable Guarantor's obligations
hereunder will remain in full force and effect until the principal of and
interest on the Securities and all other amounts payable by the Company under
the Indenture have been paid in full. If at any time any payment of the
principal of or interest on any Security or any other amount payable by the
Company under the Indenture is rescinded or must be otherwise restored or
returned upon the insolvency, bankruptcy or reorganization of the Company or
otherwise, each Cable Guarantor's obligations hereunder with respect to such
payment will be reinstated as though such payment had been due but not made at
such time.
Section 2.04. Waiver by the Cable Guarantors. Each Cable Guarantor
irrevocably waives acceptance hereof, presentment, demand, protest and any
notice not provided for herein, as well as any requirement that at any time any
action be taken by any Person against the Company or any other Person.
Section 2.05. Subrogation and Contribution. Upon making any payment with
respect to any obligation of the Company under this Article, the Cable Guarantor
making such payment will be subrogated to the rights of the payee against the
Company with respect to such obligation, provided that the Cable Guarantor may
not enforce either any right of subrogation, or any right to receive payment in
the nature of contribution, or otherwise, from any other Cable Guarantor, with
respect to such payment so long as any amount payable by the Company under the
Indenture or under the Securities remains unpaid.
Section 2.06. Stay of Acceleration. If acceleration of the time for
payment of any amount payable by the Company under the Indenture or the
Securities is stayed upon the insolvency, bankruptcy or reorganization of the
Company, all such amounts otherwise subject to acceleration under the terms of
the Indenture are nonetheless payable by the Cable Guarantors hereunder
forthwith on demand by the applicable trustee or the applicable holders of such
Securities.
Section 2.07. Limitation on Amount of Cable Guarantee. Notwithstanding
anything to the contrary in this Article, each Cable Guarantor hereby confirms
that it is the intention of all such parties that the Cable Guarantee of such
Cable Guarantor not constitute a fraudulent conveyance under applicable
fraudulent conveyance provisions of the United States Bankruptcy Code or any
comparable provision of other U.S. and non-U.S. law. To effectuate that
intention, the obligations of each Cable Guarantor under its Guarantee are
limited to the maximum amount that would not render the Cable Guarantor's
obligations subject to avoidance under applicable fraudulent conveyance
provisions of the
9
United States Bankruptcy Code or any comparable provision of other U.S. and
non-U.S. law.
Section 2.08. Execution and Delivery of Guarantee. The execution by each
Cable Guarantor of this Supplemental Indenture evidences the Cable Guarantee of
such Cable Guarantor and constitutes due delivery of the Cable Guarantees set
forth in this Supplemental Indenture on behalf of each Cable Guarantor with
respect to the Outstanding Securities. The execution by each Cable Guarantor of
this Supplemental Indenture evidences the Cable Guarantee of such Cable
Guarantor with respect to any New Security, whether or not the person signing as
an officer of the Cable Guarantor still holds that office at the time of
authentication of such New Security. The delivery of any New Security by the
Trustee after authentication constitutes due delivery of the Cable Guarantees
set forth in this Supplemental Indenture on behalf of each Cable Guarantor.
Section 2.09. Release of Guarantee. This Cable Guarantee of a Cable
Guarantor will terminate upon
(a) A sale or other disposition (including by way of consolidation or
merger) of the Cable Guarantor or the sale or disposition of all or
substantially all the assets of the Cable Guarantor (in each case other than to
a Cable Guarantor or a Person who, prior to such sale or other disposition, is
an affiliate of a Cable Guarantor); or
(b) Defeasance or discharge of the Securities, as provided in the
Indenture.
ARTICLE 3
AMENDMENTS TO ORIGINAL INDENTURE
Section 3.01. Prior Covenants Removed. Sections 3.02, 3.03, 4.06, 4.07,
4.08 and 4.09 of the Original Indenture are hereby deleted in their entirety.
Section 4.06 of the Original Indenture shall be replaced as described below, and
Sections 4.07, 4.08 and 4.09 of the Original Indenture shall be replaced with
"[Reserved.]"
The first sentence of Section 3.01(a) of the Original Indenture is hereby
deleted in its entirety and replaced by the following: "The Securities are not
redeemable by the Company prior to maturity."(5)
- ----------
(5) This paragraph will be deleted in the Supplemental Indenture for the
2013 Debentures and replaced with "The references to Sections 3.02 and 3.03 in
the first sentence of Section 3.01(a) of the Original Indenture are hereby
deleted." Additionally, the Supplemental Indenture for the
(...continued)
10
Section 3.02. Limitation on Sale and Leaseback Transactions. Section 4.06
of the Original Indenture is hereby deleted and replaced by the following:
Neither the Company nor any Cable Guarantor shall enter into any Sale and
Leaseback Transaction involving any of such Person's assets, including the
Capital Stock of its Wholly-Owned Subsidiaries."
Section 3.03. Limitation on Liens. Section 4.11 of the Original Indenture
is hereby deleted and replaced by the following:
Neither the Company nor any Cable Guarantor shall create, incur or assume
any Lien (other than any Permitted Lien) on such Person's assets, including the
Capital Stock of its Wholly-Owned Subsidiaries, to secure the payment of
Indebtedness of the Company or any Cable Guarantor, unless the Company secures
the Outstanding Securities equally and ratably with (or prior to) all
Indebtedness secured by such Lien, so long as such Indebtedness shall be so
secured.
Section 3.04. Reports by the Company and Comcast. Sections
5.02(b)(1)(iii) and 5.02(b)(2)(iii) of the Original Indenture are hereby deleted
in their entirety. Section 5.02 of the Original Indenture is hereby retitled
"Reports by the Company and Comcast", and there is hereby added at the end of
Section 5.02(b) of the Original Indenture the following:
Notwithstanding the foregoing, if Comcast is required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that
includes combined or consolidating financial information of the Company pursuant
to Rule 3-10 of Regulation S-X, this Section 5.02(b) shall be deemed satisfied
by Comcast filing with the Trustee, within 15 days after Comcast is required to
file the same under the Securities Exchange Act of 1934, copies of Comcast
Corporation annual reports and the information, documents and other reports to
be filed by it pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.
Comcast covenants to file, whether or not required to do so under
applicable law, with the Trustee, within 15 days after the Issuer is required to
file the same with the Commission, copies of the annual reports and of the
information, documents, and other reports which Comcast may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the Securities
- -------------------
(continued...)
2013 Debentures shall provide that the last paragraph of Section 3.04 of the
Original Indenture and the parenthetical "except as otherwise provided in
Sections 3.02 and 3.03" located in the second paragraph of Section 3.04 shall be
deleted.
11
Exchange Act of 1934; or, if Comcast is not required to file with the
Commission, annual reports, information, documents and other reports pursuant to
either Section 13 or Section 15(d) of the Securities Exchange Act of 1934, then
Comcast will file with the Trustee and will file with the Commission, in
accordance with rules and regulations prescribed by the Commission, such of the
supplementary and periodic information, documents and reports required pursuant
to Section 13 of the Securities Exchange Act of 1934 in respect of a security
listed and registered on a national securities exchange as may be prescribed in
such rules and regulations.
Delivery of such reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates)
Section 3.05. Events of Default. Section 6.01(d) of the Original Indenture
is hereby deleted and replaced with the following:
(d)(1) default by a Cable Guarantor in the performance, or breach by any
Cable Guarantor, of any of its covenants or agreements in respect
of the Securities (other than a covenant or agreement in respect of
the Securities a default in whose performance or whose breach is
elsewhere in this section specifically dealt with), and continuance
of such default or breach for a period of 60 consecutive days after
there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the
holders of at least 25% in principal amount of the Outstanding
Securities affected thereby, a written notice specifying such
default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" hereunder;
(2) any Cable Guarantee shall not be (or claimed by any Cable Guarantor
not to be) in full force and effect;
(3) a court having jurisdiction in the premises shall enter a decree or
order for relief in respect of any Cable Guarantor in an
involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee or sequestrator
(or similar official) of any Cable Guarantor or for any substantial
part of such party's property and assets or ordering the winding up
or liquidation of any Cable Guarantor's affairs, and such decree or
order shall remain unstayed and in effect for a period of 180
consecutive days;
12
(4) any Cable Guarantor shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for relief
in an involuntary case under any such law, or consent to the
appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee or sequestrator (or similar official)
of such party or for any substantial part of such party's property,
or make any general assignment for the benefit of creditors;
3.06. Global Registered Note. The following new Section 2.10 will be added
to the Indenture, and shall control to the extent of any conflict with the terms
set forth in Section 2.02 or 2.05 of the Original Indenture(6):
The Securities were issued (with the exception of Securities currently
outstanding in definitive registered form and not held in the form of one or
more Registered Global Securities) and, in the event of any issuance of New
Securities (including without limitation in the event Holders of Securities
currently outstanding in definitive registered form hereafter agree to exchange
their Securities pursuant to Section 2.04 or 2.06 of the Indenture for New
Securities which would be held in the form of Registered Global Securities) will
be issued, in the form of one or more Registered Global Securities which (i)
shall represent and shall be denominated in an amount equal to the aggregate
principal amount of all of the Securities held in such form and not yet
canceled, (ii) shall be registered in the name of the Depositary for such
Registered Global Security or Securities or the nominee of such Depositary,
(iii) shall be held by such Depositary or its custodian or pursuant to such
Depositary's instructions and (iv) shall bear a legend substantially to the
following effect: "Unless and until it is exchanged in whole or in part for
Securities in definitive registered form, this Security may not be transferred
except as a whole by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary
or by the Depositary or any such nominee to a successor Depositary or a nominee
of such successor Depositary."
Unless and until it is exchanged in whole or in part for Securities in
definitive registered form, a Registered Global Security representing all or a
portion of the Securities may not be transferred except as a whole by the
Depositary for such Securities to a nominee of such Depositary or by a nominee
of such Depositary to such Depositary or another nominee of such Depositary or
by such Depositary or any such nominee to a successor Depositary for such series
or a nominee of such successor Depositary.
- ----------
(6) This Section 3.06 will not be included in the Supplemental Indenture
for the 2006 Notes.
13
If at any time the Depositary for any Registered Global Securities
notifies the Company that it is unwilling or unable to continue as Depositary
for such Registered Global Securities or if at any time the Depositary for such
Registered Global Securities shall no longer be eligible under applicable law,
the Company shall appoint a successor Depositary eligible under applicable law
with respect to such Registered Global Securities. If a successor Depositary
eligible under applicable law for such Registered Global Securities is not
appointed by the Company within 90 days after the Company receives such notice
or becomes aware of such ineligibility, the Company will execute, and the
Trustee, upon receipt of the Company's order for the authentication and delivery
of definitive Securities of such tenor, will authenticate and make available for
delivery Securities of such tenor, in any authorized denominations, in an
aggregate principal amount equal to the principal amount of such Registered
Global Securities, in exchange for such Registered Global Securities.
The Company may at any time and in its sole discretion determine that any
Securities represented by Registered Global Securities shall no longer be
maintained in global form. In such event, or in the event that there shall have
occurred and be continuing an Event of Default with respect to the Securities,
the Company will, upon the request of any holder, execute, and the Trustee, upon
receipt of the Company's order for the authentication and delivery of definitive
registered Securities of such tenor, will authenticate and make available for
delivery, definitive registered Securities of such tenor in any authorized
denominations, in an aggregate principal amount equal to the principal amount of
such Registered Global Securities, in exchange for such Registered Global
Securities.
Section 3.06. Defeasance. The phrase "and that such defeasance is not in
anticipation of a Preferred Stock Redemption Payment" in Section 13.01(a) of the
Original Indenture is hereby deleted.
ARTICLE 4
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
Section 4.01. Company May Consolidate, etc., on Certain Terms. Section
11.01 of the Original Indenture is hereby deleted and replaced by the following:
The Company covenants that it will not merge or consolidate with any other
Person or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets to any Person (other than a
consolidation with or merger with or into or a sale, conveyance, transfer, lease
or other disposition to a Wholly-Owned Subsidiary with a positive net worth;
provided that, in connection with any such merger of the Company with a
Wholly-Owned Subsidiary, no consideration (other than common stock) in the
14
surviving person or the Company shall be issued or distributed to the
stockholders of the Company), unless (i) either (x) the Company shall be the
continuing corporation, or the successor corporation or (y) the Person formed by
such consolidation or into which the Company is merged or that acquires by sale
or conveyance substantially all the assets of the Company (if other than the
Company) shall be a corporation or limited liability company organized and
validly existing under the laws of the United States of America or any
jurisdiction thereof and shall expressly assume the due and punctual payment of
the principal of and interest on all the Securities, according to their tenor,
and the due and punctual performance and observance of all of the covenants and
conditions of this Indenture to be performed or observed by the Company, by
supplemental indenture satisfactory to the Trustee, executed and delivered to
the Trustee by such Person, (ii) immediately after giving effect to such
transaction, no default or Event of Default shall have occurred and be
continuing and (iii) the Company delivers to the Trustee an Officers'
Certificate and Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture complies with
this Section 11.01 and that all conditions precedent provided for herein
relating to such transaction have been complied with; provided, however, that
the foregoing limitations shall not apply if, in the good faith determination of
the Board of Directors, whose determination shall be evidenced by a board
resolution certified to the Trustee, the principal purpose of such transaction
is to change the state of incorporation of the Company; and provided further
that any such transaction shall not have as one of its purposes the evasion of
the foregoing limitations.
Section 4.02. Successor Corporation Substituted. Section 11.02 of the
Original Indenture is hereby deleted and replaced with the following:
In case of any such consolidation, merger, sale, conveyance, transfer,
lease or other disposition, and following such an assumption by the successor
Person, such successor Person shall succeed to and be substituted for the
Company, with the same effect as if it had been named herein. Such successor
Person may cause to be signed, and may issue either in its own name or in the
name of the Company prior to such succession any or all of the Securities
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee; and, upon the order of such successor Person
instead of the Company and subject to all the terms, conditions and limitations
in this Indenture prescribed, the Trustee, pursuant to the terms hereof, shall
authenticate and shall deliver any Securities which previously shall have been
signed and delivered by the officers of the Company to the Trustee for
authentication, and any Securities which such successor Person thereafter shall
cause to be signed and delivered to the Trustee for that purpose. All of the
Securities so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Securities theretofore or thereafter issued in
accordance with the terms of this Indenture as though all of such Securities had
been issued at the date of the execution hereof.
15
In case of any such consolidation, merger, sale, conveyance, transfer,
lease or other disposition, such changes in phraseology and form (but not in
substance) may be made in the Securities thereafter to be issued as may be
appropriate.
Upon the assumption by the successor Person in the manner described in
this Article, the Company shall be discharged from all obligations and covenants
under this Indenture and the Securities.
ARTICLE 5
MISCELLANEOUS
Section 5.01. Date and Time of Effectiveness. This Supplemental Indenture
shall become a legally effective and binding instrument at and as of the date
hereof.
Section 5.02. Supplemental Indenture Incorporated Into Indenture. The
terms and conditions of this Supplemental Indenture shall be deemed to be part
of the Indenture for all purposes relating to the Securities. The Original
Indenture, as amended hereby, is hereby incorporated by reference herein and the
Original Indenture, as amended and supplemented by this Supplemental Indenture,
is in all respects adopted, ratified and confirmed.
Section 5.03. Outstanding Securities Deemed Conformed. As of the date
hereof, the provisions of the Outstanding Securities, and the form of the
Securities set forth in the recitals of the Original Indenture, shall be deemed
to be conformed, without the necessity for any reissuance or exchange of such
Outstanding Security or any other action on the part of the holders of
Outstanding Securities, the Company or the Trustee, so as to reflect this
Supplemental Indenture.
Section 5.04. Separability. In case any provision in this Supplemental
Indenture, or in the Indenture, shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby, it being intended that all of the
provisions hereof shall be enforceable to the full extent permitted by law.
Section 5.05. Benefits of Supplemental Indenture. Nothing in this
Supplemental Indenture, expressed or implied, shall give or be construed to give
to any person, firm or corporation, other than the parties hereto and the
holders of Securities, any benefit or any legal or equitable right, remedy or
claim under this Supplemental Indenture or the Indenture.
16
Section 5.06. Successors. Subject to Section 2.09 hereof, all agreements
of the Company, the Cable Guarantors and the Trustee in this Supplemental
Indenture and in the Indenture shall bind their respective successors.
Section 5.07. New York Law to Govern. This Supplemental Indenture shall be
deemed to be a contract under the laws of the State of New York, and for all
purposes shall be construed in accordance with the laws of such State.
Section 5.08. Counterparts. This Supplemental Indenture may be executed in
any number of counterparts, each of which shall be an original; but such
counterparts shall together constitute but one and the same instrument.
Section 5.09. Effect Of Headings. The Article and Section headings herein
are for convenience only and shall not affect the construction hereof.
Section 5.10 Trustee Makes No Representation. The recitals contained
herein are made by the Company and the Cable Guarantors and not by the Trustee,
and the Trustee assumes no responsibility for the correctness thereof. The
Trustee makes no representation as to the validity or sufficiency of this
Supplemental Indenture.
[SIGNATURE PAGE FOLLOWS]
17
IN WITNESS WHEREOF, each the parties have caused this Supplemental
Indenture to be duly executed, and its corporate seal to be hereunto affixed and
attested, all as of the first date written above.
COMCAST CORPORATION
By: __________________________________
Name:
Title:
[CORPORATE SEAL]
Attest:
By: __________________________________
COMCAST CABLE COMMUNICATIONS, INC.
By: __________________________________
Name:
Title:
[CORPORATE SEAL]
Attest:
By: __________________________________
COMCAST CABLE COMMUNICATIONS
HOLDINGS, INC.
By: __________________________________
Name:
Title:
[CORPORATE SEAL]
Attest:
By: __________________________________
COMCAST MO GROUP, INC.
By: __________________________________
Name:
Title:
[CORPORATE SEAL]
Attest:
By: __________________________________
COMCAST CABLE HOLDINGS, LLC
By: __________________________________
Name:
Title:
[CORPORATE SEAL]
Attest:
By: __________________________________
THE BANK OF NEW YORK, as Trustee
By: __________________________________
Name:
Title:
[CORPORATE SEAL]
Attest:
By: __________________________________
EXHIBIT 5.1
[LETTERHEAD OF DAVIS POLK & WARDWELL]
February 7, 2003
Comcast Corporation
1500 Market Street
Philadelphia, Pennsylvania 19102
Ladies and Gentlemen:
We have acted as counsel to Comcast Corporation, Comcast Cable
Communications, Inc., Comcast Cable Communications Holdings, Inc., Comcast
Holdings, LLC, and Comcast MO Group, Inc. (the "Guarantors") in connection with
the Registration Statement on Form S-4, as amended (the "Registration
Statement") (File No. 333-102833) filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended.
The Registration Statement relates to the solicitation of consents from
the holders of the 8 7/8% Senior Debentures Due September 15, 2005, 8.30% Senior
Notes Due May 15, 2006, 9% Senior Debentures Due September 1, 2008 and 9.5%
Senior Debentures Due August 1, 2013 (the "Continental Notes") of Comcast MO of
Delaware, Inc. ("Continental") to an amendment (the "Amendment") to the terms of
the indentures governing the Continental Notes in consideration for full and
unconditional guarantees (the "Guarantees") by the Guarantors of the obligations
of Continental under the Continental Notes, as more fully described in the
prospectus (the "Prospectus") included in the Registration Statement.
The 8 7/8% Senior Debentures Due September 15, 2005 were issued
pursuant to the Indenture dated as of August 1, 1993, as amended by the First
Supplemental Indenture, dated as of November 15, 1996, between Continental and
The Bank of New York, as trustee, the 9% Senior Debentures Due September 1, 2008
were issued pursuant to the Indenture dated as of June 1, 1993, between
Continental and Bank One, N.A., as successor trustee to The First National Bank
of Chicago, the 8.30% Senior Notes Due May 15, 2006 were issued pursuant to the
Indenture dated as of December 13, 1995, between Continental and The Bank of New
York, as successor trustee to the Bank of Montreal Trust Company, and the 9.5%
Senior Debentures Due August 1, 2013 were issued pursuant to the Indenture dated
as of August 1, 1993, as amended by the First Supplemental Indenture, dated as
of November 15, 1996, between Continental and The Bank of New York, as trustee
(collectively, the "Indentures"). We refer to the supplemental indentures which,
subject to receipt of the requisite consents to the Amendment, will be entered
into among the Guarantors, Continental and the trustee under the applicable
Indenture to effect the Amendment and the Cable Guarantees as the "Supplemental
Indentures."
Comcast Corporation 2 February 7, 2003
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments as we have deemed necessary for the
purposes of rendering this opinion.
On the basis of the foregoing, we are of the opinion that upon the
receipt of the requisite consents from the holders of the Continental Notes to
the Amendment as described in the Prospectus, and the due authorization,
execution and delivery of the Supplemental Indentures in accordance with the
terms of the Continental Notes and the Indentures, the Cable Guarantees will be
valid and binding obligations of the Guarantors.
In connection with the opinions expressed above, we have assumed (a)
the due authorization, execution and delivery of the Indentures, (b) the due
authorization, execution, authentication, issuance and delivery of the
Continental Notes in accordance with the terms of the Indentures, (c) the due
authorization, execution and delivery of the Supplemental Indentures, (d) the
qualification of the Indentures and Supplemental Indentures under the Trust
Indenture Act of 1939, as amended, (e) there will not have occurred any change
in law affecting the validity or enforceability of the Continental Notes,
Indentures, Supplemental Indentures or Guarantees and (f) none of the terms of
the Continental Notes, Indentures or Supplemental Indentures, the issuance and
delivery of the Continental Notes, or the compliance by Continental and the
Guarantors with the terms of the Continental Notes, Indentures and Supplemental
Indentures violated or will violate any applicable law or resulted in or will
result in a violation of any provision of any instrument or agreement then
binding upon Continental or any Guarantor, or any restriction imposed by any
court or governmental body having jurisdiction over Continental or any
Guarantor.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York and the federal laws of
the United States of America.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to Davis Polk & Wardwell under the caption "Legal
Matters" in the prospectus incorporated by reference therein.
Very truly yours,
/s/ Davis Polk & Wardwell
EXHIBIT 99.1
LETTER OF CONSENT
COMCAST CORPORATION
CONSENT SOLICITATION AND OFFER TO GUARANTEE
8 7/8% SENIOR DEBENTURES DUE SEPTEMBER 15, 2005 (CUSIP NO. 211177AJ9)
8.30% SENIOR NOTES DUE MAY 15, 2006 (CUSIP NO. 211177AM2)
9% SENIOR DEBENTURES DUE SEPTEMBER 1, 2008 (CUSIP NO. 211177AG5)
9.5% SENIOR DEBENTURES DUE AUGUST 1, 2013 (CUSIP NO. 211177AK6)
OF
COMCAST MO OF DELAWARE, INC.
THE CONSENT SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
MARCH 11, 2003 UNLESS THE OFFER IS EXTENDED.
The undersigned hereby acknowledges receipt of the Prospectus dated
February 7, 2003 (the "Prospectus") and this Letter of Consent (the "Letter of
Consent") (together, the "Consent Solicitation") relating to Comcast
Corporation's ("Comcast") consent solicitation and offer to guarantee with
respect to the above-listed securities (the "Continental Notes") of Comcast MO
of Delaware, Inc. (formerly MediaOne of Delaware, Inc.) ("Continental"). The
undersigned hereby consents or does not consent as set forth below to the
amendment described in the Prospectus with respect to the Continental Notes held
of record by the undersigned as of the end of business on February 10, 2003 (the
"Record Date").
The Consent Agent for the Consent Solicitation Is:
THE BANK OF NEW YORK
By Registered or Certified Mail: Facsimile Transmissions: By Overnight Delivery or Hand:
(212) 298-1915
The Bank of New York The Bank of New York
Corporate Trust Reorganization To Confirm by Telephone: Corporate Trust Reorganization
Unit Toll Free (800) 254-2826 Unit
101 Barclay Street, 7E (212) 815-5788 101 Barclay Street, 7E
New York, New York 10286 New York, New York 10286
Attn: William Buckley Attn: William Buckley
DELIVERY OF THIS LETTER OF CONSENT OTHER
THAN AS SET FORTH HEREIN WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS IN THIS LETTER OF CONSENT SHOULD BE READ CAREFULLY
BEFORE THIS LETTER OF CONSENT IS COMPLETED. IF YOU HAVE QUESTIONS REGARDING
COMPLETING THIS LETTER OF CONSENT, YOU MAY CONTACT THE INFORMATION AGENT:
D.F. KING & CO., INC.
48 WALL STREET, 22ND FLOOR
NEW YORK, NEW YORK 10005
BANKS AND BROKERS CALL COLLECT:
(212) 269-5550
ALL OTHERS CALL TOLL FREE:
(866) 868-2409
THE UNDERSIGNED UNDERSTANDS THAT IF THIS LETTER OF CONSENT IS EXECUTED AND
DELIVERED TO THE CONSENT AGENT, BUT NO BOX IS CHECKED BELOW, OR A LESSER
PRINCIPAL AMOUNT OF CONTINENTAL NOTES WITH RESPECT TO WHICH PRINCIPAL IS BEING
GIVEN IS NOT SPECIFIED BELOW, THE UNDERSIGNED WILL BE DEEMED TO HAVE CONSENTED
TO THE PROPOSED AMENDMENT FOR ALL NOTES OF EACH SERIES OF CONTINENTAL NOTES HELD
BY THE UNDERSIGNED AS OF THE RECORD DATE.
THE UNDERSIGNED HEREBY AGREES THAT IT WILL NOT REVOKE ANY CONSENT IT GRANTS
HEREBY EXCEPT IN ACCORDANCE WITH THE PROCEDURES SET FORTH HEREIN AND IN THE
PROSPECTUS.
The aggregate face amount of the Continental Notes held by you as of the
Record Date was (fill in amount):
$
- ------------ 8 7/8% Senior Debentures Due September 15, 2005 (CUSIP No.
211177AJ9)
$
- ------------ 8.30% Senior Notes Due May 15, 2006 (CUSIP No. 211177AM2)
$
- ------------ 9% Senior Debentures Due September 1, 2008 (CUSIP No. 211177AG5)
$
- ------------ 9.5% Senior Debentures Due August 1, 2013 (CUSIP No. 211177AK6)
With respect to the Consent Solicitation, the undersigned hereby (check
appropriate box):
[ ] CONSENTS to the amendment of the terms of the Continental Notes as
described in the Prospectus with respect to all of the Continental Notes held by
the undersigned as of the Record Date (if consent is being given with respect to
less than all of the Continental Notes held, insert below the principal amount
of Continental Notes with respect to which consent is given):
$
- ------------ 8 7/8% Senior Notes Due September 15, 2005 (CUSIP No. 211177AJ9)
$
- ------------ 8 3/4% Senior Notes Due May 15, 2006 (CUSIP No. 211177AM2)
$
- ------------ 9% Senior Debentures Due September 1, 2008 (CUSIP No. 211177AG5)
$
- ------------ 9.5% Senior Notes Due August 1, 2013 (CUSIP No. 211177AK6)
[ ] DOES NOT CONSENT to the amendment of the terms of any Continental
Notes held by the undersigned as of the Record Date.
2
IMPORTANT INFORMATION -- PLEASE READ CAREFULLY
If this Letter of Consent is executed by a registered holder of the
Continental Notes, it must be executed in exactly the same manner as the name of
the holder appears on the Continental Notes as of the Record Date. An authorized
DTC participant must execute this Letter of Consent exactly as its name appears
on DTC's position listing as of the Record Date. If any holder's Continental
Notes are held of record by two or more joint holders, all such holders must
sign this Letter of Consent for it to be effective with respect to the jointly
held Continental Notes. If a signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other holder acting in a
fiduciary or representative capacity, such person should so indicate when
signing and must submit proper evidence satisfactory to Comcast of such person's
authority to so act. If a holder has Continental Notes registered in different
names, separate Letter of Consents must be executed covering each form of
registration. If a Letter of Consent is executed by a person other than the
holder as of the Record Date, then such person must have been authorized by
proxy or in some other manner acceptable to Comcast to execute this Letter of
Consent with respect to the applicable Continental Notes on behalf of the holder
of record. Any beneficial owner of the Continental Notes who is not a holder of
record of such Continental Notes must arrange with the person who is the holder
or such holder's assignee or nominee to execute and deliver this Letter of
Consent on behalf of such owner. Any holder of the Continental Notes who was not
the holder of record of such Continental Notes on the Record Date must arrange
with the person who was the holder on the Record Date to execute and deliver
this Letter of Consent on behalf of such holder.
The undersigned authorizes and directs the Consent Agent to deliver this
Letter of Consent and any proxy delivered in connection herewith to Comcast and
to the appropriate indenture trustee as evidence of the undersigned's action
with respect to the Consent Solicitation.
FOR EACH SERIES OF CONTINENTAL NOTES INDICATED ABOVE, THE UNDERSIGNED
HEREBY CONSENTS TO THE PROPOSED AMENDMENT TO THE TERMS OF THAT SERIES OF
CONTINENTAL NOTES AS DESCRIBED IN THE PROSPECTUS. THE UNDERSIGNED ALSO HEREBY
REPRESENTS THAT (1) THE UNDERSIGNED IS NOT AN "AFFILIATE" OF COMCAST, (2) THE
UNDERSIGNED WAS THE HOLDER OF THE CONTINENTAL NOTES INDICATED ABOVE AS OF THE
END OF BUSINESS ON THE RECORD DATE, AND (3) THE UNDERSIGNED HAS FULL POWER AND
AUTHORITY TO CONSENT TO THE AMENDMENT TO THE TERMS OF THE CONTINENTAL NOTES
DESCRIBED IN THE PROSPECTUS.
PLEASE SEE THE INSTRUCTIONS BELOW FOR DETAILED INSTRUCTIONS ON COMPLETING
THE LETTER OF CONSENT. THE INSTRUCTIONS FORM PART OF THE TERMS AND CONDITIONS OF
THE CONSENT SOLICITATION.
SIGN HERE
Signature(s): ------------------------------------------------------------------
Name(s) ------------------------------------------------------------------------
(PLEASE PRINT)
Address: -----------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area Code and Telephone Number: ------------------------------------------------
Taxpayer Identification or Social Security Number: ----------------------------
Date: ------------------------------------------------------------------------
3
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED, SEE INSTRUCTIONS 5 AND 6 BELOW)
Authorized Signature(s): -------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Name(s) and Title: -----------------------------------------------------------
(PLEASE PRINT)
Date: ------------------------------------------------------------------------
Name of Firm: -----------------------------------------------------------
4
INSTRUCTIONS FOR CONSENTING HOLDERS, FORMING PART OF THE TERMS AND
CONDITIONS OF THE CONSENT SOLICITATION
1. DELIVERY OF THIS LETTER OF CONSENT. Upon the terms and subject to the
conditions set forth herein and in the Prospectus, a properly completed and duly
executed copy of this Letter of Consent and any other documents required by this
Letter of Consent must be received by the Consent Agent at its address or
facsimile number set forth on the cover hereof on or prior to the Expiration
Time (as defined below). THE METHOD OF DELIVERY OF THIS LETTER OF CONSENT AND
ALL OTHER REQUIRED DOCUMENTS TO THE CONSENT AGENT IS AT THE RISK OF THE HOLDER
OF CONTINENTAL NOTES, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE CONSENT AGENT. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED
TO ASSURE TIMELY DELIVERY. NO LETTER OF CONSENT SHOULD BE SENT TO ANY PERSON
OTHER THAN THE CONSENT AGENT.
Any beneficial owner of Continental Notes who is not a registered holder of
such Continental Notes (e.g., where such Continental Notes are held in the name
of DTC or the beneficial owner's broker, dealer, commercial bank, trust company
or other nominee institution) must arrange with the person who is the registered
holder or such registered holder's assignee or nominee to execute and deliver
this Letter of Consent on behalf of such beneficial owner.
2. EXPIRATION TIME. The Consent Solicitation expires at 5:00 p.m., New
York City time, on March 11, 2003, unless Comcast, in its sole discretion,
extends the period during which the Consent Solicitation is open, in which case
the term "Expiration Time" shall mean, with respect to the Consent Solicitation
as so extended, the latest date and time to which the Consent Solicitation is
extended. In order to extend the Expiration Time, Comcast will give oral or
written notice of this extension to the indenture trustees and will notify the
Consent Agent and the holders of Continental Notes by making a public
announcement of this extension not later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Time. Comcast
may extend the Consent Solicitation for such specified period of time as it
determines in its sole discretion. Failure by any holder or beneficial owner of
the Continental Notes to be so notified will not affect the extension of the
Consent Solicitation.
3. QUESTIONS REGARDING VALIDITY, FORM, LEGALITY, ETC. All questions as to
the validity, form, eligibility (including time of receipt) and acceptance of
Letters of Consent and revocations of Letters of Consent will be resolved by
Comcast, whose determinations will be binding. Comcast reserves the absolute
right to reject any or all Letters of Consent and revocations that are not in
proper form or the acceptance of which could, in the opinion of Comcast's
counsel, be unlawful. Comcast also reserves the right to waive any
irregularities in connection with deliveries or which Comcast may require to be
cured within such time as Comcast determines. None of Comcast, Comcast's
affiliates, the Consent Agent, any of the indenture trustees or any other person
shall have any duty to give notification of any such defects, irregularities or
waiver, nor shall any of them incur any liability for failure to give any such
notification. Deliveries of Letters of Consent or notices of revocation will not
be deemed to have been made until such irregularities have been cured or waived.
Comcast's interpretation of the terms and conditions of the Consent Solicitation
(including this Letter of Consent and the accompanying Prospectus and the
instructions hereto and thereto) will be final and binding on all parties.
4. RECORD DATE; HOLDERS ENTITLED TO CONSENT. In accordance with the
indenture governing the Continental Notes, only registered holders of the notes
as of the close of business on the Record Date may execute and deliver to the
Consent Agent a Letter of Consent. We expect that DTC will authorize its
participants, which include banks, brokers and other financial institutions, to
execute Letters of Consent with respect to the Continental Notes they hold
through DTC as if the participants were the registered holders of those notes.
Accordingly, for purposes of the Consent Solicitation, when we use the term
"registered holders," we include banks, brokers and other financial institutions
that are participants of DTC.
If you are a beneficial owner of Continental Notes held through a bank,
broker or other financial institution, in order to consent to the amendment you
must arrange for the bank, broker or other financial institution that is the
registered holder to either (1) execute a Letter of Consent and deliver it
either to the Consent Agent on your behalf or to you for forwarding to the
Consent Agent before the Expiration Time or (2) provide you with a duly executed
proxy from the registered holder authorizing you to execute and deliver a Letter
of Consent with respect to the notes on behalf of the registered holder and you
must deliver an executed Letter of Consent, together with this proxy, to the
Consent Agent before the Expiration Time. Beneficial owners of Continental Notes
are urged to contact the bank, broker or other financial institution through
which they hold their notes to obtain a valid proxy or to direct that a letter
of consent be executed and delivered in respect of their notes.
5
Giving consent to the proposed amendment to the terms of the Continental
Notes by submitting a Letter of Consent will not affect a holder's right to sell
or transfer the Continental Notes. All Letters of Consent received from the
registered holder as of the Record Date and not revoked by that registered
holder before the Expiration Time will be effective notwithstanding any transfer
of those notes after the Record Date.
5. SIGNATURES ON THIS LETTER OF CONSENT. If this Letter of Consent is
signed by the registered holder of the Continental Notes with respect to which
consent is given, the signature(s) of such registered holder must correspond
with the name(s) as contained on the books of the register maintained by the
applicable trustee or as set forth in DTC's position listing without alteration,
enlargement or any change whatsoever.
If any of the Continental Notes with respect to which consent is given were
held of record on the Record Date by two or more joint registered holders, all
such registered holders must sign this Letter of Consent. If any Continental
Notes with respect to which consent is given have different registered holders,
it will be necessary to complete, sign and submit as many separate copies of
this Letter of Consent and any necessary accompanying documents as there are
different registered holders.
If this Letter of Consent is signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should indicate such fact
when signing, and, unless waived by Comcast, evidence satisfactory to Comcast of
their authority to so act must be submitted with this Letter of Consent.
6. SIGNATURE GUARANTEES. All signatures on this Letter of Consent must be
guaranteed by a firm or other entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, including (as such terms are
defined therein): (a) a bank; (b) a broker, dealer, municipal securities dealer,
municipal securities broker, government securities dealer or government
securities broker; (c) a credit union; (d) a national securities exchange,
registered securities association or clearing agency; or (e) a savings
institution that is a participant in a Securities Transfer Association
recognized program (each an "ELIGIBLE INSTITUTION"). However, signatures need
not be guaranteed if this Letter of Consent is given by or for the account of an
Eligible Institution. If the registered holder of the Continental Notes is a
person other than the signer of this Letter of Consent, see Instruction 5.
7. REVOCATION OF CONSENT. Any registered holder of Continental Notes as
to which consent has been given using a Letter of Consent may revoke such Letter
of Consent as to such Continental Notes or any portion of such Continental Notes
(in integral multiples of $1,000) by delivering a written notice of revocation
or a changed Letter of Consent bearing a date later than the date of the prior
Letter of Consent to the Consent Agent or to the applicable indenture trustee at
any time prior to the Expiration Time. THE TRANSFER OF THE CONTINENTAL NOTES
AFTER THE RECORD DATE WILL NOT HAVE THE EFFECT OF REVOKING ANY LETTER OF CONSENT
THERETOFORE VALIDLY GIVEN BY A REGISTERED HOLDER OF SUCH CONTINENTAL NOTES, AND
EACH PROPERLY COMPLETED AND EXECUTED LETTER OF CONSENT WILL BE COUNTED
NOTWITHSTANDING ANY TRANSFER OF THE CONTINENTAL NOTES TO WHICH SUCH LETTER OF
CONSENT RELATES, UNLESS THE PROCEDURE FOR REVOKING LETTERS OF CONSENT DESCRIBED
BELOW HAS BEEN COMPLIED WITH.
To be effective, a notice of revocation must be in writing, must contain
the name of the registered holder and the aggregate principal amount of the
Continental Notes to which it relates, and must be (a) signed in the same manner
as the original Letter of Consent or (b) signed by the transferee of the
relevant Continental Notes and accompanied by a duly executed proxy or other
authorization from the relevant registered holder as of the Record Date in form
satisfactory to Comcast. All revocations of consents must be sent to the Consent
Agent at its address set forth in this Letter of Consent.
To be effective, the revocation must be executed by the registered holder
of such Continental Notes in the same manner as the name of such registered
holder appears on the books of the register maintained by the applicable trustee
or as set forth in DTC's position listing without alteration, enlargement or any
change whatsoever. If a revocation is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person must
indicate such fact when signing and must submit with the revocation appropriate
evidence of authority to execute the revocation. A REVOCATION OF CONSENT WILL BE
EFFECTIVE ONLY AS TO THE CONTINENTAL NOTES LISTED ON THE REVOCATION AND ONLY IF
SUCH REVOCATION COMPLIES WITH THE PROVISIONS OF THIS LETTER OF CONSENT AND THE
PROSPECTUS. Only a registered holder of the Continental Notes is entitled to
revoke a Letter of Consent previously given. A beneficial owner of the
Continental Notes must arrange with the registered holder to execute and
6
deliver on its behalf a revocation of any Letter of Consent already given with
respect to such Continental Notes. A transfer of Continental Notes after the
Record Date must be accompanied by a duly executed proxy from the relevant
registered holder if the subsequent transferee is to have revocation rights with
respect to the relevant to the proposed amendments. A purported notice of
revocation that is not received by the Consent Agent in a timely fashion will
not be effective to revoke a Letter of Consent previously given.
A REVOCATION OF A LETTER OF CONSENT MAY ONLY BE RESCINDED BY THE DELIVERY
OF A WRITTEN NOTICE OF REVOCATION OR THE EXECUTION AND DELIVERY OF A NEW LETTER
OF CONSENT. A HOLDER WHO HAS DELIVERED A REVOCATION MAY THEREAFTER DELIVER A NEW
LETTER OF CONSENT BY FOLLOWING ONE OF THE DESCRIBED PROCEDURES AT ANY TIME PRIOR
TO THE EXPIRATION TIME.
Prior to the Expiration Time, Comcast intends to consult with the Consent
Agent to determine whether the Consent Agent has received any revocations of
Letters of Consents. Comcast reserves the right to contest the validity of any
such revocations.
8. TERMINATION. Comcast reserves the right, in its sole discretion,
subject to applicable law, at any time prior to the effectiveness of the
proposed amendment to the Continental Notes, to terminate the Consent
Solicitation for one or more series of the Continental Notes for any reason.
Comcast may amend or terminate the Consent Solicitation for one or more of the
series of the Continental Notes without amending or terminating the Consent
Solicitation for the other series of Continental Notes. In the event the Consent
Solicitation is abandoned or terminated for a series of the Continental Notes
prior to the effectiveness of the proposed amendment to the applicable
Continental Notes indenture any Consent Solicitation received for such series
will be voided.
9. QUESTIONS AND REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions
concerning the terms of the Consent Solicitation, or requests for assistance in
completing this Letter of Consent or for additional copies of the Prospectus,
Letter of Consent or other related documents should be directed to the
Information Agent, whose address and telephone number appear on the back of this
Letter of Consent.
7
THE CONSENT AGENT
The Bank of New York
Corporate Trust Reorganization Unit
101 Barclay Street, 7E
New York, New York 10286
Attn: William Buckley
Toll Free: (800) 254-2826
Telephone: (212) 815-5788
Facsimile: (212) 298-1915
THE INFORMATION AGENT
D.F. King & Co., Inc.
48 Wall Street, 22nd Floor
New York, New York 10005
Banks and Brokers Call Collect:
(212) 269-5550
All Others Call Toll Free:
(866) 868-2409
8
EXHIBIT 99.2
LETTER TO REGISTERED HOLDERS
AND THE DEPOSITORY TRUST COMPANY PARTICIPANTS
COMCAST CORPORATION
CONSENT SOLICITATION AND OFFER TO GUARANTEE
8 7/8% SENIOR DEBENTURES DUE SEPTEMBER 15, 2005 (CUSIP NO. 211177AJ9)
8.30% SENIOR NOTES DUE MAY 15, 2006 (CUSIP NO. 211177AM2)
9% SENIOR DEBENTURES DUE SEPTEMBER 1, 2008 (CUSIP NO. 211177AG5)
9.5% SENIOR DEBENTURES DUE AUGUST 1, 2013 (CUSIP NO. 211177AK6)
OF
COMCAST MO OF DELAWARE, INC.
To Registered Holders and The Depository Trust Company Participants:
Enclosed herewith are copies of the following documents relating to Comcast
Corporation's ("Comcast") Consent Solicitation and Offer to Guarantee with
respect to the above-listed securities (the "Continental Notes") of Comcast MO
of Delaware, Inc. (formerly MediaOne of Delaware, Inc.) ("Continental"):
1. Prospectus dated February 7, 2003;
2. Letter of Consent;
3. Instruction to Registered Holder and/or Book-Entry Transfer Participant
from Owner; and
4. Letter which may be sent to your clients for whose account you hold
Continental Notes in your name or in the name of your nominee, to
accompany the instruction form referred to above, for obtaining such
client's instructions regarding the consent solicitation and offer to
guarantee.
Pursuant to the Prospectus dated February 7, 2003 (the "Prospectus") and
related Letter of Consent (the "Letter of Consent") (together, the "Consent
Solicitation"), Comcast and a number of its wholly-owned cable subsidiaries are
offering to fully and unconditionally guarantee the Continental Notes in return
for your consent to an amendment to the terms of each series of Continental
Notes which would change the covenants and events of default applicable to the
Continental Notes as described in the Prospectus in order to conform them with
those contained in Comcast's public debt securities and allow, among other
things, Continental to cross-guarantee Comcast's and the wholly-owned cable
subsidiaries' outstanding debt securities. The proper completion, execution and
delivery of the Letter of Consent will constitute a consent to the amendment
described in the Prospectus.
The guarantees will be provided only if consents to the amendment have been
validly submitted and not withdrawn by the holders of record as of the end of
business on February 10 of more than 50% of the principal amount of each series
of Continental Notes by the expiration date. The amendment will amend any series
of notes so long as more than 50% by principal amount of that series consents,
so the terms of your notes may be affected by the amendment even if you do not
consent to the amendment.
WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE EXCHANGE
OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MARCH 11, 2003 UNLESS
EXTENDED.
Pursuant to the Letter of Consent, each holder of Continental Notes will
represent to Comcast that it (1) is not an "affiliate" of Comcast, (2) was the
holder of the Continental Notes indicated above as of the end of business on
February 10, 2003, the record date for the Consent Solicitation, (3) has full
power and authority to consent to the amendment to the terms of the Continental
Notes described in the Prospectus, and (4) agrees to the terms of the Consent
Solicitation. The enclosed Instruction to Registered Holder and/or Book-Entry
Transfer Participant from Owner contains an authorization by the beneficial
owners of the Continental Notes for you to make the foregoing representations,
and provides for the beneficial owners to make the foregoing representations to
you with respect to that beneficial owner.
Neither Comcast nor Continental will pay any fees or commissions to any
broker or dealer or other person (other than the Consent Agent and the
Information Agent) in connection with the solicitation of consents.
Questions regarding the consent solicitation, and requests for additional
copies of the enclosed material may be addressed to the Information Agent, D.F.
King & Co., Inc., at the address and telephone number set forth on the back
cover of the Letter of Consent.
Very truly yours,
COMCAST CORPORATION
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
THE AGENT OF COMCAST CORPORATION OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE
ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE CONSENT SOLICITATION OTHER
THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
EXHIBIT 99.3
LETTER TO CLIENTS
COMCAST CORPORATION
CONSENT SOLICITATION AND OFFER TO GUARANTEE
8 7/8% SENIOR DEBENTURES DUE SEPTEMBER 15, 2005 (CUSIP NO. 211177AJ9)
8.30% SENIOR NOTES DUE MAY 15, 2006 (CUSIP NO. 211177AM2)
9% SENIOR DEBENTURES DUE SEPTEMBER 1, 2008 (CUSIP NO. 211177AG5)
9.5% SENIOR DEBENTURES DUE AUGUST 1, 2013 (CUSIP NO. 211177AK6)
OF
COMCAST MO OF DELAWARE, INC.
To Our Clients:
Comcast Corporation ("Comcast") and a number of its wholly-owned cable
subsidiaries (the "Cable Guarantors") described in the enclosed Prospectus dated
February 7, 2003 (the "Prospectus") are offering to fully and unconditionally
guarantee the above-listed securities (the "Continental Notes") of Comcast MO of
Delaware, Inc. (formerly MediaOne of Delaware, Inc.) ("Continental") in return
for your consent to an amendment to the terms of each series of Continental
Notes which would change the covenants and events of default applicable to the
Continental Notes as described in the Prospectus in order to conform them with
those contained in Comcast's public debt securities and allow, among other
things, Continental to cross-guarantee Comcast's and the cable subsidiaries'
outstanding debt securities. The terms of the consent solicitation, including a
full description of the proposed amendment, are set forth in the enclosed
Prospectus and related Letter of Consent (the "Letter of Consent," and together
with the Prospectus, the "Consent Solicitation").
We are writing to request instructions as to whether you wish to consent to
the amendment described in the Prospectus with respect to any or all of the
Continental Notes held by us for your account as of the end of business on
February 10, 2003, the record date for the Consent Solicitation, and to agree to
the terms and conditions of the Consent Solicitation. We are the holder of
record and/or participant in the book-entry transfer facility of Continental
Notes held by us for your account. A consent with respect to such Continental
Notes can be made only by us as the record holder and/or participant in the
book-entry transfer facility and pursuant to your instructions. The Letter of
Consent is furnished to you for your information and cannot be used by you to
consent to the amendment of the terms of your Continental Notes held by us for
your account. PLEASE NOTE THAT THE CONSENT SOLICITATION WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON MARCH 11, 2003 UNLESS EXTENDED, SO IT IS IMPORTANT
THAT YOU READ THE PROSPECTUS AND LETTER OF CONSENT AND FURNISH US WITH YOUR
INSTRUCTIONS AS PROMPTLY AS POSSIBLE.
We also request that you confirm that we may on your behalf make the
representations contained in the Letter of Consent, including that (1) you are
not an "affiliate" of Continental, (2) you were the holder of the Continental
Notes held by us for your account as of the end of business on February 10,
2003, the record date for the Consent Solicitation, and (3) you have full power
and authority to consent to the amendment to the terms of the Continental Notes
described in the Prospectus.
The guarantees will be provided only if consents to the amendment have been
validly submitted and not withdrawn by the holders of record as of the end of
business on February 10, 2003 of more than 50% of the principal amount of each
series of Continental Notes by the expiration date.
EXHIBIT 99.4
INSTRUCTION TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER PARTICIPANT FROM OWNER
COMCAST CORPORATION
CONSENT SOLICITATION AND OFFER TO GUARANTEE
8 7/8% SENIOR NOTES DUE SEPTEMBER 15, 2005 (CUSIP NO. 211177AJ9)
8 3/4% SENIOR NOTES DUE MAY 15, 2006 (CUSIP NO. 211177AM2)
9% SENIOR DEBENTURES DUE SEPTEMBER 1, 2008 (CUSIP NO. 211177AG5)
9.5% SENIOR NOTES DUE AUGUST 1, 2013 (CUSIP NO. 211177AK6)
OF
COMCAST MO OF DELAWARE, INC.
To Registered Holder And/Or Participant Of The Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated
February 7, 2003 (the "Prospectus") and the accompanying Letter of Consent (the
"Letter of Consent") (together, the "Consent Solicitation") and hereby instructs
you, the registered holder and/or book-entry transfer facility participant, as
to the action to be taken by you relating to the Consent Solicitation with
respect to the above-listed securities (the "Continental Notes") of Comcast MO
of Delaware, Inc. (formerly MediaOne of Delaware, Inc.) ("Continental") held by
you for the account of the undersigned.
The aggregate face amount of the Continental Notes held by you for the
account of the undersigned as of the end of business on February 10, 2003, the
record date for the Consent Solicitation (the "Record Date") was (fill in
amount):
$ 8 7/8% Senior Debentures Due September 15, 2005 (CUSIP No.
--------------------- 211177AJ9)
$ 8.30% Senior Notes Due May 15, 2006 (CUSIP No. 211177AM2)
---------------------
$ 9% Senior Debentures Due September 1, 2008 (CUSIP No.
--------------------- 211177AG5)
$ 9.5% Senior Debentures Due August 1, 2013 (CUSIP No.
--------------------- 211177AK6)
With respect to the Consent Solicitation, the undersigned hereby instructs
you (check appropriate box):
[ ] TO CONSENT to the amendment of the terms of the Continental Notes
described in the Prospectus with respect to all of the Continental Notes held by
you for the account of the undersigned as of the Record Date (if consent is
being given with respect to less than all of the Continental Notes held, insert
below the principal amount of Continental Notes with respect to which consent is
given):
$ 8 7/8% Senior Notes Due September 15, 2005 (CUSIP No.
--------------------- 211177AJ9)
$ 8.30% Senior Notes Due May 15, 2006 (CUSIP No. 211177AM2)
---------------------
$ 9% Senior Debentures Due September 1, 2008 (CUSIP No.
--------------------- 211177AG5)
$ 9.5% Senior Notes Due August 1, 2013 (CUSIP No. 211177AK6)
---------------------
[ ] NOT TO CONSENT to the amendment with respect to any of the Continental
Notes held by you for the account of the undersigned as of the Record Date.
If the undersigned instructs you to consent to the amendment, you are
authorized to make on behalf of the undersigned (and the undersigned, by its
signature below, hereby makes to you) the representations and warranties
contained in the Letter of Consent that are to be made with respect to the
undersigned as a beneficial owner, including but not limited to the
representations that the undersigned (1) is not an "affiliate" of Comcast, (2)
was the holder of the Continental Notes indicated above on the Record Date, (3)
has full power and authority to consent to the amendment to the terms of the
Continental Notes described in the Prospectus, and (4) agrees to the terms of
the Consent Solicitation.
SIGN HERE
Signature(s):
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Name(s) (please print):
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Address:
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Area Code and Telephone Number:
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Taxpayer Identification
or Social Security Number:
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Date:
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