UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended:
SEPTEMBERJUNE 30, 20022003
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ________ to ________.
Commission File Number 1-15471
[GRAPHIC OMITTED - LOGO]001-15471
COMCAST HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1709202
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Market Street, Philadelphia, PA 19102-2148
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
__________________________--------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes X No
--- ---
__________________________----- -----
--------------------------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12-b2 of the Exchange Act). Yes No X
----- ----
As of SeptemberJune 30, 2002,2003, there were 915,871,55221,591,115 shares of Class A Special
Common Stock,
21,591,115916,198,519 shares of Class A Special Common Stock and 9,444,375 shares of Class
B Common Stock outstanding.
--------------------------
The Registrant meets the conditions set forth in General Instructions H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBERJUNE 30, 20022003
TABLE OF CONTENTS
Page Number
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet as of SeptemberJune 30, 20022003
and December 31, 20012002 (Unaudited)......................................................2
Condensed Consolidated Statement of Operations for the Three and NineSix Months
Ended SeptemberJune 30, 2003 and 2002 and 2001 (Unaudited)..........................................3...............................................3
Condensed Consolidated Statement of Cash Flows for the NineSix Months
Ended SeptemberJune 30, 2003 and 2002 and 2001 (Unaudited)..........................................4...............................................4
Notes to Condensed Consolidated Financial Statements (Unaudited)..................5 - 20.......................5
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................21 - 30Operations.............................................................18
ITEM 4. Evaluation of Disclosure Controls and Procedures......................................31Procedures...............................................................24
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings................................................................31 - 32Proceedings.....................................................................24
ITEM 6. Exhibits and Reports on Form 8-K......................................................32
SIGNATURE........................................................................................33
CERTIFICATIONS..............................................................................34 - 368-K......................................................24
SIGNATURES.......................................................................................25
___________________________________-----------------------------------
This Quarterly Report on Form 10-Q is for the three and six months ended
SeptemberJune 30, 2002.2003. This Quarterly Report modifies and supersedes documents filed
prior to this Quarterly Report. The SEC allows us to "incorporate by reference"
information that we file with them, which means that we can disclose important
information to you by referring you directly to those documents. Information
incorporated by reference is considered to be part of this Quarterly Report. In
addition, information that we file with the SEC in the
future will automatically update and supersede information contained in this
Quarterly Report. In this Quarterly Report, "Comcast Holdings," "we," "us""us,"
"our" and "our"the "Company" refer to Comcast Holdings Corporation and its
subsidiaries.subsidiaries, and "Comcast" refers to Comcast Corporation.
You should carefully review the information contained in this Quarterly
Report and in other reports or documents that we file from time to time with the
SEC. In this Quarterly Report, we state our beliefs of future events and of our
future financial performance. In some cases, you can identify those so-called
"forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
Factors Affecting Future Operations
On December 19, 2001,As more fully described elsewhere in this Quarterly Report, in July 2003
we, Comcast and Liberty Media Corporation entered into an Agreement and Plan of Merger with
AT&T Corp. ("AT&T")agreement pursuant to
which we agreed toLiberty will purchase our approximate 57% interest in QVC in a transaction
which will
result in the combination of Comcast and a holding company of AT&T's broadband
business ("AT&T Broadband"). On July 10, 2002, the shareholders of both Comcast
and AT&T approved the transaction. The transaction, which is subject to
customary closing conditions and regulatory and other approvals, is expectedwe expect to close by the end of November 2002. Upon closing of the transaction, we will own
cable systems in new communities in which we do not have established
relationships with the cable subscribers, franchising authority and community
leaders. Further, a substantial number of new employees must be integrated into
our business practices and operations. Our results of operations may be
significantly affected by our ability to efficiently and effectively manage
these changes.2003.
In addition, factors that may cause our businesses may be affected by, among other things:actual results to differ materially
from any of our forward-looking statements presented in this Quarterly Report
include, but are not limited to:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o industry consolidation and mergers,
o franchise related matters,
o market conditions that may adversely affect the availability of debt and
equity financing for working capital, capital expenditures or other
purposes,
o demand for the programming content we distribute or the willingness of
other video program distributors to carry our content, and
o general economic conditions.
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2003
PART I. FINANCIAL INFORMATION
- -------
---------------------
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in millions, except share data)
SeptemberJune 30, December 31,
2003 2002
2001
-------------- ----------------------- -----------
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents.................................................... $569.8 $350.0
Investments.................................................................. 905.9 2,623.2equivalents.................................................. $1,298 $676
Investments................................................................ 179 525
Accounts receivable, less allowance for doubtful accounts of $174.1$164 and $153.9 932.8 967.4$160 959 1,015
Inventories, net............................................................. 482.7 454.5net........................................................... 506 479
Deferred income taxes........................................................ 132.9 128.7taxes...................................................... 137 129
Due from affiliates........................................................ 317
Other current assets......................................................... 171.5 153.7
----------assets....................................................... 176 153
--------- -----------
Total current assets..................................................... 3,195.6 4,677.5
----------assets................................................... 3,572 2,977
--------- -----------
INVESTMENTS..................................................................... 585.6 1,679.2NOTE RECEIVABLE FROM AFFILIATE................................................ 198 191
INVESTMENTS................................................................... 694 627
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $3,496.5$4,174 and $2,725.7 7,035.6 7,011.1
GOODWILL........................................................................ 6,446.3 6,289.4$3,604 6,902 6,916
FRANCHISE RIGHTS................................................................ 16,601.5 16,533.0RIGHTS.............................................................. 16,631 16,611
GOODWILL...................................................................... 6,446 6,446
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $890.3$1,103 and $664.6... 1,414.6 1,686.9$975.. 1,388 1,481
OTHER NONCURRENT ASSETS, net.................................................... 498.1 383.4
----------net.................................................. 362 440
--------- -----------
$35,777.3 $38,260.5
==========$36,193 $35,689
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable............................................................. $806.1 $698.2payable........................................................... $662 $792
Accrued expenses and other current liabilities............................... 1,805.8 1,660.4liabilities............................. 1,909 1,874
Due to affiliates.......................................................... 76
Deferred income taxes........................................................ 69.7 404.1taxes...................................................... 45 46
Current portion of long-term debt............................................ 113.9 460.2
----------debt.......................................... 378 23
--------- -----------
Total current liabilities................................................ 2,795.5 3,222.9
----------liabilities.............................................. 2,994 2,811
--------- -----------
LONG-TERM DEBT, less current portion............................................ 9,927.9 11,741.6
----------portion.......................................... 8,108 9,257
--------- -----------
NOTES PAYABLE TO AFFILIATES................................................... 565 22
--------- -----------
DEFERRED INCOME TAXES........................................................... 6,665.0 6,375.7
----------TAXES......................................................... 7,016 6,836
--------- -----------
OTHER NONCURRENT LIABILITIES.................................................... 1,419.9 1,567.1
----------LIABILITIES.................................................. 1,107 1,265
--------- -----------
MINORITY INTEREST............................................................... 1,027.4 880.2
----------INTEREST............................................................. 1,267 1,133
--------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 10)9)
STOCKHOLDERS' EQUITY
Class A special commonPreferred stock $1 par value - authorized 2,500,000,00020,000,000 shares; issued, 915,871,552 and 937,256,465; outstanding,
915,871,552 and 913,931,554................................................ 915.9 913.9zero...............
Class A common stock, $1$1.00 par value - authorized,
200,000,000 shares; issued, 21,591,115 and 21,829,422.......................................... 21.6 21.8.................................. 22 22
Class A special common stock, $1.00 par value - authorized,
2,500,000,000 shares; issued 916,198,519................................. 916 916
Class B common stock, $1$1.00 par value - authorized, 50,000,000
shares; issued, 9,444,375.......................................................... 9.4 9.49,444,375 ................................................ 9 9
Additional capital........................................................... 11,800.8 11,752.0capital......................................................... 12,273 11,818
Retained earnings............................................................ 1,391.6 1,631.5earnings.......................................................... 1,913 1,595
Accumulated other comprehensive income (loss)................................ (197.7) 144.4
----------income..................................... 3 5
--------- -----------
Total stockholders' equity............................................... 13,941.6 14,473.0
----------equity............................................. 15,136 14,365
--------- -----------
$35,777.3 $38,260.5
==========$36,193 $35,689
========= ===========
See notes to condensed consolidated financial statements.
2
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2003
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(Amounts(Dollars in millions, except per share data)millions)
Three Months Ended NineSix Months Ended
SeptemberJune 30, SeptemberJune 30,
2003 2002 20012003 2002 2001
--------- --------- --------- ---------
REVENUES
Service revenues....................................................... $1,692.9 $1,505.7 $5,086.3 $4,316.4$1,927 $1,714 $3,802 $3,393
Net sales from electronic retailing.................................... 1,011.8 895.1 2,999.8 2,655.11,101 990 2,163 1,978
--------- --------- --------- ---------
2,704.7 2,400.8 8,086.1 6,971.53,028 2,704 5,965 5,371
--------- --------- --------- ---------
COSTS AND EXPENSES
Operating (excluding depreciation)..................................... 722.0 678.4 2,191.4 1,989.8793 722 1,637 1,465
Cost of goods sold from electronic retailing (excluding depreciation).. 643.1 573.8 1,903.1 1,685.6697 626 1,370 1,255
Selling, general and administrative.................................... 513.8 448.0 1,491.0 1,268.4551 490 1,079 977
Depreciation........................................................... 338.9 314.7 1,015.5 829.4350 342 673 676
Amortization........................................................... 56.4 564.1 155.1 1,610.356 46 113 99
--------- --------- --------- ---------
2,274.2 2,579.0 6,756.1 7,383.52,447 2,226 4,872 4,472
--------- --------- --------- ---------
OPERATING INCOME (LOSS).................................................... 430.5 (178.2) 1,330.0 (412.0)INCOME........................................................... 581 478 1,093 899
OTHER INCOME (EXPENSE)
Interest expense....................................................... (174.2) (190.7) (543.5) (551.5)(170) (182) (342) (369)
Investment income (expense)............................................ (53.3) 328.3 (760.4) 1,045.7(loss), net.......................................... 29 (459) (6) (707)
Equity in net losses of affiliates..................................... (11.5) (19.5) (59.9) (26.1)(21) (44) (34) (49)
Other income (expense)................................................. 3.2 (7.0) (10.8) 1,180.93 9 2 (14)
--------- --------- --------- ---------
(235.8) 111.1 (1,374.6) 1,649.0(159) (676) (380) (1,139)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE............................. 194.7 (67.1) (44.6) 1,237.0INTEREST.................... 422 (198) 713 (240)
INCOME TAX EXPENSE......................................................... (82.5) (13.5) (52.3) (602.1)(EXPENSE) BENEFIT............................................... (148) 33 (269) 30
--------- --------- --------- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE................................................... 112.2 (80.6) (96.9) 634.9INTEREST..................................... 274 (165) 444 (210)
MINORITY INTEREST.......................................................... (36.6) (26.2) (126.0) (89.8)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE................ 75.6 (106.8) (222.9) 545.1
CUMULATIVE EFFECT OF ACCOUNTING CHANGE..................................... 384.5(71) (45) (126) (89)
--------- --------- --------- ---------
NET INCOME (LOSS).......................................................... $75.6$203 ($106.8)210) $318 ($222.9) $929.6
========= ========= ========= =========
BASIC EARNINGS (LOSS) PER COMMON SHARE
Income (loss) before cumulative effect of accounting change............ $0.08 ($0.11) ($0.23) $0.58
Cumulative effect of accounting change................................. 0.40
--------- --------- --------- ---------
Net income (loss)................................................... $0.08 ($0.11) ($0.23) $0.98
========= ========= ========= =========
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Income (loss) before cumulative effect of accounting change............ $0.08 ($0.11) ($0.23) $0.56
Cumulative effect of accounting change................................. 0.40
--------- --------- --------- ---------
Net income (loss)................................................... $0.08 ($0.11) ($0.23) $0.96299)
========= ========= ========= =========
See notes to condensed consolidated financial statements.
3
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBERJUNE 30, 20022003
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in millions)
NineSix Months Ended SeptemberJune 30,
2003 2002
2001
--------- --------------------- -------------
OPERATING ACTIVITIES
Net income (loss)................................................................................................................ $318 ($222.9) $929.6299)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation............................................................... 1,015.5 829.4
Amortization............................................................... 155.1 1,610.3Depreciation....................................................... 673 676
Amortization....................................................... 113 99
Non-cash interest expense, net............................................. 31.7 33.5net..................................... 5 22
Equity in net losses of affiliates......................................... 59.9 26.1affiliates................................. 34 49
Losses (gains) on investments and other (income) expense, net.............. 799.5 (2,172.8)net...... 32 739
Minority interest.......................................................... 126.0 89.8
Cumulative effect of accounting change..................................... (384.5)interest.................................................. 126 89
Deferred income taxes...................................................... (59.5) (141.7)taxes.............................................. 123 (4)
Proceeds from sales of trading security.................................... 367.1
Other...................................................................... (40.4) 1.7
--------- ---------
1,864.9 1,188.5securities.......................... 85
Other.............................................................. (36) (10)
------------ -------------
1,473 1,361
Changes in working capital, net of effects of acquisitions and
divestitures:divestitures
Decrease in accounts receivable, net..................................... 33.1 110.3
Increasenet............................. 54 9
(Increase) decrease in inventories, net............................................. (28.2) (65.8)net.......................... (27) 40
Increase in other current assets......................................... (33.0) (44.5)assets................................. (39) (18)
Increase (decrease) in accounts payable, accrued expenses and other
current liabilities............................................................ 163.4 394.1
--------- ---------
135.3 394.1liabilities............................................ 45 (342)
------------ -------------
33 (311)
Net cash provided by operating activities............................ 2,000.2 1,582.6
--------- ---------activities........................ 1,506 1,050
------------ -------------
FINANCING ACTIVITIES
Proceeds from borrowings..................................................... 876.2 5,030.9borrowings............................................. 710 632
Retirements and repayments of debt........................................... (2,009.0) (3,791.1)debt................................... (1,572) (1,169)
Net transactions with affiliates..................................... (333)
Capital contribution from parent..................................... 425
Proceeds from settlement of interest rate exchange agreements................ 56.8
Issuances of common stock.................................................... 15.0 23.2
Repurchases of common stock.................................................. (27.1)
Equity contributions from minority partnernotes payable to a subsidiary................... 10.9 6.4
Deferred financing costs..................................................... (2.3) (22.5)
--------- ---------affiliates............................ 539
Other................................................................ 66
------------ -------------
Net cash (used in) provided byused in financing activities.................. (1,052.4) 1,219.8
--------- ---------activities............................ (231) (471)
------------ -------------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired........................................... (15.8) (917.5)
Sales (purchases) of short-term investments, net............................. 3.8 (173.3)
Purchases of investments..................................................... (48.1) (238.7)
Increase in notes receivable................................................. (400.0)acquired................................... (22) (16)
Proceeds from sales and settlements of investments........................... 733.5 784.4(purchases of) short-term investments, net.... (2) 3
Proceeds from sales of investments................................... 212 596
Purchases of investments............................................. (43) (32)
Capital expenditures......................................................... (1,145.8) (1,681.2)expenditures................................................. (724) (789)
Additions to intangible and other noncurrent assets.......................... (255.6) (169.2)
--------- ---------assets.................. (74) (133)
------------ -------------
Net cash used in investing activities................................ (728.0) (2,795.5)
--------- ---------activities............................ (653) (371)
------------ -------------
INCREASE IN CASH AND CASH EQUIVALENTS .......................................... 219.8 6.9EQUIVALENTS................................... 622 208
CASH AND CASH EQUIVALENTS, beginning of period.................................. 350.0 651.5
--------- ---------period.......................... 676 350
------------ -------------
CASH AND CASH EQUIVALENTS, end of period........................................ $569.8 $658.4
========= =========period................................ $1,298 $558
============ =============
See notes to condensed consolidated financial statements.
4
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBERJUNE 30, 20022003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
Comcast Holdings Corporation ("Comcast Holdings") and its subsidiaries ("Comcast" or the(the
"Company") has prepared these unaudited condensed consolidated financial
statements based upon Securities and Exchange Commission ("SEC") rules that
permit reduced disclosure for interim periods. The Company is an indirect
wholly owned subsidiary of Comcast Corporation ("Comcast").
These financial statements include all adjustments that are necessary for a
fair presentation of the Company's results of operations and financial
condition for the interim periods shown including normal recurring accruals
and other items. The results of operations for the interim periods
presented are not necessarily indicative of results for the full year.
For a more complete discussion of the Company's accounting policies and
certain other information, refer to the financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31,
2001.2002.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to those classifications used in 2003. In the first
quarter of 2003, QVC, Inc. ("QVC") completed the sale of its infomercial
operations in Mexico ("QVC Mexico"). The results of operations for QVC
Mexico for the 2003 and 2002 (see Note 2).interim periods were not significant and are
included in equity in net losses of affiliates in the Company's
consolidated statement of operations.
2. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, as Amended
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivatives and Hedging
Activities," as amended. SFAS No. 133 establishes accounting and reporting
standards for derivatives and hedging activities. SFAS No. 133 requires
that all derivative instruments be reported on the balance sheet at their
fair values. Upon adoption of SFAS No. 133, the Company recognized as
income a cumulative effect of accounting change, net of related income
taxes, of $384.5 million. The increase in income consisted of a $400.2
million adjustment to record the debt component of indexed debt at a
discount from its value at maturity and $191.3 million principally related
to the reclassification of gains previously recognized as a component of
accumulated other comprehensive income (loss) on the Company's equity
derivative instruments, net of related deferred income taxes of $207.0
million.
SFAS No. 142143
The Financial Accounting Standards Board ("FASB") issued SFAS No. 142,
"Goodwill and Other Intangible Assets," in June 2001. SFAS No. 142
addresses how intangible assets that are acquired individually or with a
groupStatement of
other assets should be accounted for in financial statements upon
and subsequent to their acquisition. The Company adopted SFAS No. 142 on
January 1, 2002, as required by the new statement. Upon adoption, the
Company no longer amortizes goodwill and other indefinite lived intangible
assets, which consist of cable and sports franchise rights. The Company is
required to test its goodwill and intangible assets that are determined to
have an indefinite life for impairment at least annually. The provisions of
SFAS No. 142 require the completion of an initial transitional impairment
assessment, with any impairments identified treated as a cumulative effect
of a change in accounting principle. The Company completed this assessment
and determined that no cumulative effect results from adopting this change
in accounting principle. The provisions of SFAS No. 142 also require the
completion of an annual impairment test, with any impairments recognized in
current earnings. The Company completed the annual impairment test during
the quarter ended June 30, 2002 and determined that no impairment charge is
necessary (see Note 6).
SFAS No. 143
The FASB issued SFASFinancial Accounting Standards ("SFAS") No. 143, "Accounting for Asset
Retirement Obligations," in June 2001. SFAS No. 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
Company adopted SFAS No. 143 is effective for fiscal years beginning after June 15,
5
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
2002.on January 1, 2003, in accordance with the new
statement. The Company does not expect the adoption of SFAS No. 143 will have a
material impact on its financial condition or results of operations.
SFAS No. 144
The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," in August 2001. SFAS No. 144, which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of, supercedes SFAS No. 121 and is
effective for fiscal years beginning after December 15, 2001. The Company
adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 had no impact on the Company's
financial condition or results of operations.
SFAS No. 145148
The FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44,148, "Accounting for Stock-Based Compensation -
Transition and 64, Amendment of FASB Statement No. 13, and Technical Corrections,Disclosure," in AprilDecember 2002. SFAS No. 145 rescinds,148 amends or makes various technical
corrections to certain existing authoritative pronouncements. Among other
things, SFAS No.
145123 to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for
certain gains and losses
resulting from extinguishments of debt by requiring that a gain or loss
from extinguishments of debt be classified as an extraordinary item only if
it meets the specific criteria of APB Opinion No. 30.stock-based employee compensation. SFAS No. 145148 also requires that cash flows from all trading securities, such asamends the Company's
investment in Sprint PCS, be classified as cash flows from operating
activities in its statement of cash flows.
The Company adopted thedisclosure
provisions of SFAS No. 145123 to require disclosure about the effects on
reported net income of an entity's stock-based employee compensation in
interim financial statements. SFAS No. 148 is effective April 1, 2002,
as permitted by the new statement.for fiscal years
beginning after December 31, 2002. The Company previously classified losses
from debt extinguishments as extraordinary items in its statementadopted SFAS No. 148 on
January 1, 2003. The Company did not change to the fair value based method
of operations. Uponaccounting for stock-based employee compensation. Accordingly, the
adoption of SFAS No. 145,148 would only affect the Company's financial
condition or results of operations if Comcast elects to change to the fair
value method specified in SFAS No. 123. The adoption of SFAS No. 148
requires the Company reclassified these
losses from extraordinary items to interest expense for all periods
presented in its statement of operations. The change in classification had
no effect ondisclose the Company's net income (loss) or financial condition. The
Company previously classified cash flows from purchases, sales and
maturitieseffects of its investmentstock-based employee
compensation in Sprint PCS as cash flows from investing
activities in its statementinterim financial statements beginning with the first
quarter of cash flows. The change in classification was
to increase the Company's net cash provided by operating activities and to
increase the Company's net cash used in investing activities for the nine
months ended September 30, 2001.2003 (see Note 7).
SFAS No. 146
The149
In April 2003, the FASB issued SFAS No. 146, "Accounting149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." The Statement amends and
clarifies accounting for Costs Associated with Exit or
Disposal Activities,"derivative instruments, including certain
derivative instruments embedded in June 2002.other contracts, and for hedging
activities under SFAS No. 146 changes the standards for
recognition of a liability for a cost associated with an exit or disposal
activity.133. SFAS No. 146 requires that a liability149 is effective for a cost associated with
an exitcontracts
entered into or disposal activity be recognized when the liability is incurred.modified after June 30, 2003, for hedging relationships
designated after June 30, 2003, and to certain preexisting contracts. The
Company adopted SFAS No. 146 establishes that fair value is the objective for initial
measurement of the liability. SFAS No. 146 nullifies the guidance of
Emerging Issues Task Force ("EITF") 94-3 under which an entity recognized149 on July 1, 2003 on a
liability for an exit cost on the date that the entity committed itself to
an exit plan. The Company will adopt the provisions of SFAS No. 146 for
exit or disposal activities that are initiated after December 31, 2002, as
required by5
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
prospective basis in accordance with the new statement. The Company does
not expect the adoption of SFAS No. 146149 will have a material impact on its
financial conditionstatements.
SFAS No. 150
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
This Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 requires that an issuer classify a
financial instrument that is within its scope as a liability or, resultsin some
circumstances, as an asset, with many such financial instruments having
been previously classified as equity. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003, and
otherwise is effective July 1, 2003. SFAS No. 150 is to be implemented by
reporting the cumulative effect of operations.
EITF 01-9a change in an accounting principle for
financial instruments outstanding before the issuance date of the Statement
and still existing at July 1, 2003. Restatement is not permitted. The
Company is assessing the impact SFAS No. 150 may have on its financial
statements.
FIN 45
In November 2001,2002, the EITFFASB 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 FASB reachedguarantee, 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 consensus on EITF 01-9,
"Accountingguarantor
is required to recognize, at the inception of a guarantee, a liability for
Consideration Given to a Customer (Including a Resellerthe fair value of the Vendor's Products"). EITF 01-9 requires, among other things, that
consideration paid to customers should be classified asobligation undertaken in issuing the guarantee. FIN
45 does not prescribe a reduction of
revenue unless certain criteria are met. Certainspecific approach for subsequently measuring the
guarantor's recognized liability over the term of the Company's content
subsidiaries have paidrelated guarantee.
The initial recognition and initial measurement provisions of FIN 45 apply
on a prospective basis to certain guarantees issued or may pay distribution fees to cable television and
satellite broadcast systemsmodified after
December 31, 2002. The disclosure requirements in FIN 45 are effective for
carriagefinancial statements of their programming.interim or annual periods ending after December 15,
2002. The Company previously classifiedadopted the amortizationdisclosure provisions of these distribution fees as
expenseFIN 45 in its statementthe fourth
quarter of operations. Upon adoption2002 and adopted the initial recognition and measurement
provisions of EITF 01-9FIN 45 on January 1, 2002,2003, as required by the Interpretation.
The impact of the adoption of FIN 45 will depend on the nature and terms of
guarantees entered into or modified by the Company reclassified certainin the future. The
adoption of these distribution
fees from expense toFIN 45 in the first quarter of 2003 did not have a revenue reduction for all periods presented in its
statement of operations. The change in classification had nomaterial
impact on the Company's reported operating income (loss) orconsolidated financial condition. This
change does not applystatements (see Note 9).
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Sale of QVC
On March 3, 2003, Comcast announced that Liberty Media Corporation
("Liberty") delivered a notice to distribution fees paid byit, pursuant to the stockholders
agreement between the Company and Liberty, which triggered an exit rights
process with respect to Liberty's approximate 42% interest in QVC. On June
25, 2003, the Company, Comcast and Liberty entered into an agreement (the
"June 2003 Agreement") which superceded and replaced the exit rights
process of the stockholders agreement, and pursuant to which Liberty had to
deliver to Comcast, no later than June 30, 2003, a notice setting forth
Liberty's determination of the aggregate fair value of the Company's consolidated subsidiary,and
Liberty's interests in QVC. On June 30, 2003, Liberty delivered notice to
Comcast setting the aggregate fair value of the Company's and Liberty's
interests in QVC Inc. ("QVC") asat $13.75 billion. Under the counterpartiesterms of the June 2003
Agreement, Comcast had to QVC's
distribution agreements do not make revenue paymentselect either to QVC. Amortization
expense includes $5.7purchase Liberty's interest in
QVC or sell the Company's approximate 57% interest in QVC to Liberty, based
on the value determined by Liberty.
On July 3, 2003, Comcast elected to sell its interest in QVC under a stock
purchase agreement with Liberty for approximately $7.9 billion. Liberty
will purchase the Company's interest in QVC in part with shares of
Liberty's Series A common stock (valued at $11.71 per share) representing
7.5% of the shares of Liberty common stock outstanding (after giving effect
to that issuance), or approximately 218 million $5.3 million, $15.3 millionshares based on the number
of
6
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBERJUNE 30, 20022003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
and $19.4 million during the three months ended September 30, 2002 and 2001
and during the nine months ended September 30, 2002 and 2001, respectively,
related to QVC distribution fees.
EITF 01-14
In November 2001, the FASB staff announced EITF Topic D-103, "Income
Statement Characterization of Reimbursements Received for 'Out-of-Pocket'
Expenses Incurred," which has subsequently been recharacterized as EITF
01-14. EITF 01-14 requires that reimbursements received for out-of-pocket
expenses incurred be characterized as revenue in the statement of
operations.
Under the terms of its franchise agreements, the Company is required to pay
up to 5% of its gross revenues derived from providing cable services to the
local franchising authority.Liberty shares currently outstanding. The Company normally passes these fees through
to its cable subscribers. The Company previously classified cable franchise
fees collected from its cable subscribers as a reductionremainder of the related
franchise fee expense included within selling, general and administrative
expenses in its statement of operations.
EITF 01-14, by analogy, applies to franchise fees. Upon adoption of EITF
01-14 on January 1, 2002, the Company reclassified franchise fees collected
from cable subscribers from a reduction of selling, general and
administrative expenses to a component of service revenues for all periods
presented in its statement of operations. The change in classification had
no impact on the Company's reported operating income (loss) or financial
condition.
3. EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the
period on a basic and diluted basis.
The Company's potentially dilutive securities include potential common
shares related to the Company's Zero Coupon Convertible Debentures due 2020
(the "Zero Coupon Debentures" - see Note 7), stock options, restricted
stock and, in 2001, Series B convertible preferred stock. Diluted EPS
considers the impact of potentially dilutive securities except in periods
in which there is a loss as the inclusion of the potential common shares
would have an antidilutive effect. Diluted EPS excludes the impact of
potential common shares related to the Company's Zero Coupon Debentures in
periods in which the weighted average closing salepurchase price
of the Company's
Class A Special Common Stock during the period is not greater than 110% of
the accreted conversion price. Diluted EPS excludes the impact of potential
common shares related to the Company's stock options in periods in which
the option exercise price is greater than the average market price of the
Company's common stock for the period.
Diluted EPS for the three months ended September 30, 2002 and 2001 and for
the nine months ended September 30, 2002 and 2001, respectively, excludes
approximately 16.9 million, 21.1 million, 18.8 million and 21.1 million
potential common shares related to the Zero Coupon Debentures,
respectively, as the weighted average closing sale price of the Company's
Class A Special Common Stock was not greater than 110% of the accreted
conversion price.
Diluted EPS for the three months ended September 30, 2001 and the nine
months ended September 30, 2002 excludes approximately 54.2 million and
64.1 million potential common shares related to the Company's stock option
and restricted stock plans, respectively, because the assumed issuance of
such potential common shares is antidilutive in periods in which there is a
loss.
Diluted EPS for the three months ended September 30, 2002 and the nine
months ended September 30, 2001 excludes approximately 41.6 million and 4.5
million potential common shares, respectively, related to the Company's
stock option plans because the option exercise price was greater than the
average market price of the Company's common stock for the period.
7
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following table reconciles the numerator and denominator of the
computations of diluted earnings (loss) per common share ("Diluted EPS")
for income (loss) before cumulative effect of accounting change for the
interim periods presented.
(Amounts in millions, except per share data)
Three Months Ended Three Months Ended
September 30, 2002 September 30, 2001
--------------------------------- --------------------------------
Per Share Per Share
Income Shares Amount Loss Shares Amount
--------- --------- ------------ --------- --------- -----------
Basic EPS................................ $75.6 952.9 $0.08 ($106.8) 951.5 ($0.11)
Effect of Dilutive Securities
Assumed exercise of stock option
and restricted stock plans.......... 6.3
--------- --------- ---------- --------- --------- ----------
Diluted EPS.............................. $75.6 959.2 $0.08 ($106.8) 951.5 ($0.11)
========= ========= ========== ========= ========= ==========
Nine Months Ended Nine Months Ended
September 30, 2002 September 30, 2001
--------------------------------- --------------------------------
Per Share Per Share
Loss Shares Amount Income Shares Amount
--------- --------- ------------ --------- --------- -----------
Basic EPS................................ ($222.9) 952.2 ($0.23) $545.1 949.3 $0.58
Effect of Dilutive Securities
Assumed conversion of Series B
convertible preferred stock......... 1.4
Assumed exercise of stock option
and restricted stock plans......... 14.0
--------- --------- ---------- --------- --------- ----------
Diluted EPS.............................. ($222.9) 952.2 ($0.23) $545.1 964.7 $0.56
========= ========= ========== ========= ========= ==========
4. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Agreement and Plan of Merger with AT&T Broadband
On December 19, 2001, the Company entered into an Agreement and Plan of
Merger with AT&T Corp. ("AT&T") pursuant to which the Company agreed to a
transaction which will result in the combination of the Company and AT&T
Broadband Corp. ("Broadband"), a holding company of AT&T's broadband
business ("AT&T Broadband") that AT&T will spin off to its shareholders
immediately prior to the combination. On July 10, 2002, shareholders of
both the Company and AT&T approved the transaction. As of September 30,
2002, AT&T Broadband served approximately 13.1 million subscribers.
The consideration to complete the AT&T Broadband transaction will consist
of shares of the combined company's common stock, assumed debt of
Broadband's subsidiaries, intercompany indebtedness Broadband must pay AT&T
upon closing, the Company's transaction costs directly related to the AT&T
Broadband transaction, and, pursuant to an amendment to the original
agreement as discussed below, the assumption of certain AT&T indebtedness.
Under the terms of the AT&T Broadband transaction, each Comcast shareholder
will receive one share of a corresponding class of stock of the combined
company for each share of a class of common stock of Comcast held at the
time of the transaction. The combined company will issue approximately
1.235 billion shares of its voting common stock to AT&T Broadband
shareholders in exchange for all of AT&T's interests in AT&T Broadband, and
approximately 115 million shares of its common stock to Microsoft
Corporation ("Microsoft") in exchange for
8
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
AT&T Broadband shares that Microsoft will receive immediately prior to the
completion of the transaction for settlement of their $5 billion aggregate
principal amount in quarterly income preferred securities.
Excluding AT&T Broadband's exchangeable notes, which are mandatorily
redeemable at AT&T Broadband's option into shares of certain publicly
traded companies held by AT&T Broadband, the Company currently estimates
that the combined company will require approximately $20 billion of
assumed, refinanced and new indebtedness upon completion of the AT&T
Broadband transaction.
Subsequent to the original merger agreement, economic and business factors
led the Company and AT&T to agree to change the form of consideration to be paid in the AT&T Broadband transaction. On August 12, 2002, AT&T filedform of a three-year senior unsecured note bearing
interest at LIBOR plus 1.5%. The values of the shares and the note to be
delivered to the Company are approximately $2.6 billion and $5.3 billion,
respectively. Under the stock purchase agreement, the Company will have
registration statement withrights that should facilitate the SEC for a proposed exchange offer relating
to $11.8 billion aggregate principal amountdisposal or monetization of
AT&T's existing debt
securities. The exchange offer, if successful, would resultits shares in Liberty and in the assumption of a portion of AT&T's indebtedness by AT&T Broadband (and a
corresponding decrease in the amount of intercompany indebtedness Broadband
must pay AT&T upon closing). The exchange offer is subject to market
conditions and is expected to close in November 2002.note.
The Company will account forexpects to record a pre-tax gain on the transaction as an acquisition under the
purchase methodsale of accounting, with the Company as the acquiring entity.
Consideration of facts and circumstances leading to the identification of
the Company as the acquiring entity is described in Note 5 to the financial
statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001.
Modification of the original merger agreement to provide for the assumption
of a portion of AT&T's debt securities by Broadband and the related
reduction in the intercompany indebtedness represents a substantive change
in the non-equity, or "other," consideration being paid in the AT&T
Broadband transaction, resulting in a new measurement date for determining
the value of the Comcast common stock used to value the combined company
securities to be issued in the AT&T Broadband transaction. Absent the
modification of the original merger agreement, the measurement date would
have been the date the terms of the merger agreement were agreed to and
announced. The new measurement date is established as of the date of the
substantive modification of the original merger agreement and applies
irrespective of whether the exchange offer is completed.approximately
$6.5 billion. The fair value of the sharesconsideration to be issued for AT&T Broadbandreceived from
Liberty upon consummation of the transaction will be based on a price per
share of $18.80 which reflects the weighted average market price of Comcast
common stock during the period beginning two days before and ending two
days after the new measurement date.
In limited circumstances, the number of shares of combined company stock to
be issued to certain AT&T security holders in connection with the AT&T
Broadband transaction is subject to adjustment. If this occurs, the fair
value of all of the shares to be issued would be based on the market price
of Comcast common stock ondetermined at the
closing date ofand will affect the AT&T Broadband
transaction.
The Company expects thatactual pre-tax gain to be recorded by the
AT&T Broadband transaction will qualify as
tax-free to both the Company and to AT&T.Company. The transaction is subject to customary closing conditions and
regulatory and other approvals. The Company expects to close the AT&T Broadband transaction by the
end of November 2002.
AT&T Broadband holds an approximate 27.6% interest in Time Warner
Entertainment Company L.P. ("TWE"). On August 21, 2002, AT&T and the
Company announced that they had entered into an agreement with AOL Time
Warner providing for the restructuring of TWE. The restructuring agreement
is intended to provide for a more orderly and timely disposition of AT&T
Broadband's ownership interest in TWE than would likely be available under
the registration rights provisions of the existing TWE partnership
agreement. As part of the restructuring, TWE will distribute to AOL Time
Warner all of TWE's major content assets, which include Home Box Office,
Warner Bros., and stakes in The WB Network, Comedy Central and Court TV,
and receive in exchange therefor AOL Time Warner's cable assets not
currently held through TWE. Upon closing of the restructuring agreement,
AT&T Broadband will receive $1.5 billion in common stock of AOL Time Warner
(valued at the time of the closing and subject to certain limitations), and
an approximate 21% equity interest2003.
Effective in the successor entity to TWE
9
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
("Time Warner Cable", which will then hold all of AOL Time Warner's cable
properties), in exchange for its approximate 27.6% interest in TWE. AT&T
Broadband will also receive $2.1 billion in cash. Upon consummation of the
AT&T Broadband transaction, the combined company will assume all of AT&T
Broadband's interest in TWE. Time Warner Cable is expected to conduct an
initial public offering of common stock following closing under the
restructuring agreement. Also, under the restructuring agreement, the
combined company will have registration rights enabling it to dispose of
its shares in Time Warner Cable and in AOL Time Warner.
As part of the process of obtaining approval of the AT&T Broadband
transaction from the Federal Communications Commission ("FCC"), AT&T andthird quarter, the Company will atclassify QVC as an asset
held for sale and will report the closing of the AT&T Broadband transaction, place
AT&T's entire interest in TWE in trust for orderly disposition. Any
non-cash consideration received in respect of such interest as a result of
the TWE restructuring, including the AOL Time Warner and Time Warner Cable
common stock, will remain in trust until disposed of or FCC approval is
obtained to remove such interests from the trust.
As a condition of the closing of the TWE restructuring, the combined
company will enter into a three-year nonexclusive agreement with AOL Time
Warner under which the AOL High-Speed Broadband service would be made
available over a three-year period on certain of the combined company's
cable systems which pass approximately 10 million homes.
The TWE restructuring is subject to receipt of certain regulatory approvals
and other closing conditions, and is expected to close during the first
quarter of 2003. If the restructuring agreement is terminated without the
restructuring being consummated, the parties will return to the
registration rights process under the TWE partnership agreement.
Unaudited Pro Forma Information
The following unaudited pro forma information has been presented as if the
acquisitions made by the Company in 2001 each occurred on January 1, 2001.
For a discussion of the Company's 2001 acquisitions, refer to the financial
statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001. This information is based on historical results of operations and has been adjusted for acquisition costs. This
information is not necessarily indicative of what the results would have
been had the Company operated the entities acquired since January 1, 2001.QVC in
discontinued operations for all periods presented in accordance with SFAS
No. 144.
(Amounts in millions,
except per share data)
Nine Months Ended
September 30, 2001
------------------------
Revenues................................................ $7,222.8
Income before cumulative effect of accounting change.... $487.9
Net income.............................................. $872.4
Diluted EPS............................................. $0.90
Other Income (Expense)
On January 1, 2001, the Company completed its cable systems exchange with
Adelphia Communications Corporation ("Adelphia"). The Company received
cable systems serving approximately 445,000 subscribers from Adelphia and
Adelphia received certain of the Company's cable systems serving
approximately 441,000 subscribers. The Company recorded to other income
(expense) a pre-tax gain of $1.199 billion, representing the difference
between the estimated fair value of $1.799 billion as of the closing date
of the transaction and the Company's cost basis in the systems exchanged
(see Note 9).
10
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
5.4. INVESTMENTS
SeptemberJune 30, December 31,
2003 2002
2001
--------------- --------------
(Dollars in----------- ------------
(in millions)
Fair value method
AT&T Corp............................................ $498.6 $1,514.9Corp.................................................... $ $287
Sprint Corp. PCS Group............................... 439.7 2,109.5
Other................................................ 71.7 227.2
---------------Group....................................... 357 369
Other ....................................................... 97 74
----------- ------------
1,010.0 3,851.6454 730
Equity method..................................................... 306 317
Cost method................................................. 124.2 143.6
Equity method............................................... 357.3 307.2
---------------method....................................................... 113 105
----------- ------------
Total investments.................................... 1,491.5 4,302.4investments............................................ 873 1,152
Less, current investments................................... 905.9 2,623.2
---------------investments......................................... 179 525
----------- ------------
Non-current investments..................................... $585.6 $1,679.2
===============investments........................................... $694 $627
=========== ============
Fair Value Method
The Company holds unrestricted equity investments in certain publicly
traded companies, which it accounts for as available for sale or trading
securities. The net unrealized pre-tax gains on investments accounted for
as available for sale investmentssecurities as of SeptemberJune 30, 20022003 and December 31, 20012002
of $71.1$43 million and $280.3$70 million, respectively, have been reported in the
Company's consolidated balance sheet principally as a component of
accumulated other comprehensive income, (loss), net of related deferred income
taxes of $24.9$15 million and $95.3$25 million, respectively.
The cost, fair value and gross unrealized gains and losses related to the
Company's available for sale securities are as follows:follows (in millions):
SeptemberJune 30, December 31,
2003 2002 2001
----------- -----------
(Dollars in millions)
Cost............................................................. $470.8 $1,355.0$25 $269
Gross unrealized gains........................................... 73.9 283.243 71
Gross unrealized losses.......................................... (2.8) (2.9)(1)
----------- -----------
Fair value....................................................... $541.9 $1,635.3$68 $339
=========== ===========
Derivatives
The Company uses derivative financial instruments to manage its exposure to
fluctuations in interest rates, securities prices and certain foreign
currencies. The Company also invests in businesses, to some degree, through
the purchase of equity call option or call warrant agreements. The Company
has issued indexed debt instruments and prepaid forward sale agreements
whose value, in part, is derived from the market value of Sprint PCS common
stock.
The unrealized pre-tax losses on cash flow hedges as of September 30, 2002
and December 31, 2001 of $305.4 million and $0.9 million have been reported
in the Company's balance sheet as a component of accumulated other
comprehensive7
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Investment Income (Loss), Net
Investment income (loss), net of related deferred income taxes of $106.9
million and $0.3 million, respectively. The unrealized pre-tax losses on
cash flow hedges as of September 30, 2002 consist primarily of the
unrealized pre-tax loss of $297.6 million related to the Company's
interest rate lock agreements ("Rate Locks") which has been
11
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
reported as a component of accumulated other comprehensive income (loss),
net of related deferred income taxes of $104.2 million (see Note 7).
Investment Income (Expense)
Investment income (expense) for the interim periods includes the
following (in millions):
Three Months Ended NineSix Months Ended
SeptemberJune 30, SeptemberJune 30,
2003 2002 20012003 2002
2001
--------- --------- ----------------- -------- -------- ---------
Interest and dividend income................................ $8.6 $25.6 $26.1 $60.6income.................................... $21 $11 $26 $18
Gains (losses) on sales and exchanges of investments, net... 0.3 17.2 (100.6) 476.8net....... (103) 22 (101)
Investment impairment losses................................ (5.9) (15.7) (227.2) (954.8)
Reclassification of unrealized gains........................ 237.9 1,330.3losses.................................... (14) (208) (69) (221)
Unrealized (loss) gaingains (losses) on Sprint PCS common stock........... (181.2) 154.5 (1,620.9) 420.1trading securities................. 71 (420) 69 (1,440)
Mark to market adjustments on derivatives related
to Sprint PCS common stock............................. 138.7 (120.2) 1,309.8 (311.7)trading securities...................................... (68) 324 (65) 1,171
Mark to market adjustments on derivatives and hedged items........................................... (13.8) 29.0 (147.6) 24.4items...... 19 (63) 11 (134)
-------- --------- --------- --------- ----------------- --------
Investment income (expense)............................(loss), net................................... $29 ($53.3) $328.3459) ($760.4) $1,045.76) ($707)
======== ========= ========= ========= =========
The investment impairment losses for the nine months ended September 30,
2002 and 2001 relate principally to other than temporary declines in the
Company's investment in AT&T.
During the three months ended September 30, 2001, the Company wrote-off its
investment in Excite@Home common stock based upon a decline in the
investment that was considered other than temporary. In connection with the
realization of this impairment loss, the Company reclassified to investment
income the accumulated unrealized gain of $237.9 million on the Company's
investment in Excite@Home common stock which was previously recorded as a
component of accumulated other comprehensive income (loss). The Company
recorded this accumulated unrealized gain prior to the Company's
designation of its right under a stockholders agreement as a hedge of the
Company's investment in the Excite@Home common stock.
The Company reclassified its investment in Sprint PCS from an available for
sale security to a trading security in connection with the adoption of SFAS
No. 133 on January 1, 2001. In connection with this reclassification, the
Company recorded to investment income (expense) the accumulated unrealized
gain of $1.092 billion on the Company's investment in Sprint PCS which was
previously recorded as a component of accumulated other comprehensive
income (loss).
6. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill by business segment (see
Note 11)======== ========
5. GOODWILL
The changes in the carrying amount of goodwill by business segment (see
Note 10) for the periods presented are as follows (in millions):
Corporate
Cable Commerce and Other Total
------------ ------------ ------------ ------------
Balance, December 31, 2001...................... $4,688.4 $834.8 $766.2 $6,289.4
Purchase price allocation adjustments....... 5.1 151.8 156.92002...................... $4,693 $835 $918 $6,446
Intersegment transfers...................... 20 (20)
------------ ------------ ------------ ------------
Balance, SeptemberJune 30, 2002..................... $4,693.5 $834.8 $918.0 $6,446.32003.......................... $4,713 $835 $898 $6,446
============ ============ ============ ============
126. LONG-TERM DEBT
The Cross-Guarantee Structure
To simplify Comcast's capital structure, effective with its acquisition of
AT&T Corp.'s broadband business ("Broadband") on November 18, 2002, Comcast
and certain of its cable holding company subsidiaries, including the
Company's wholly owned subsidiary Comcast Cable Communications, Inc.
("Comcast Cable"), fully and unconditionally guaranteed each other's debt
securities (the "Cross-Guarantee Structure"). Comcast Holdings is not a
guarantor, and none of its debt is guaranteed. As of June 30, 2003, $23.766
billion of Comcast's debt securities were entitled to the benefits of the
Cross-Guarantee Structure, including $6.936 billion of Comcast Cable's debt
securities.
Repayments and Redemptions of Debt
On March 31, 2003, in connection with the closing of the restructuring of
Time Warner Entertainment Company L.P., an investment accounted for under
the cost method by Comcast, Comcast received $2.1 billion in cash which was
used to repay debt, including $800 million of amounts outstanding under
Comcast Cable's revolving credit facility.
In May 2003, the Company redeemed, at its scheduled redemption price, the
$154 million outstanding principal amount of its 8 1/4% senior subordinated
notes due 2008. The Company financed the redemption with amounts available
under its existing credit facilities.
8
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBERJUNE 30, 20022003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
During the nine months ended September 30, 2002, the Company recorded the
final purchase price allocation related to the Company's acquisition, on
October 30, 2001, of Outdoor Life Network, which resulted in an increase in
goodwill and a corresponding decrease in cable and satellite television
distribution rights. In addition, during the nine months ended September
30, 2002, the Company recorded the final purchase price allocation related
to certain of its cable system acquisitions, which resulted in an increase
in goodwill and a corresponding decrease in franchise rights.
As of September 30, 2002, the weighted average amortization period for the
Company's intangible assets subject to amortization is 8.1 years and
estimated related amortization expense for each of the five years ended
December 31 is as follows (in millions):
2002............................ $208.2
2003............................ $202.3
2004............................ $181.8
2005............................ $162.4
2006............................ $138.0
The following pro forma financial information for the three and nine months
ended September 30, 2001 is presented as if SFAS No. 142 was adopted as of
January 1, 2001 (amounts in millions, except per share data):
Three Months Nine Months
Ended Ended
September 30, September 30,
2001 2001
----------------- -----------------
Net Income (Loss)
As reported......................................... ($106.8) $929.6
Amortization of goodwill.......................... 79.4 233.8
Amortization of equity method goodwill............ 1.9 13.0
Amortization of franchise rights.................. 283.9 813.3
-------------- -------------
As adjusted......................................... $258.4 $1,989.7
============== =============
Income before cumulative effect of
accounting change, as adjusted.................... $258.4 $1,605.2
============== =============
Basic EPS
As reported......................................... ($0.11) $0.98
Amortization of goodwill.......................... 0.08 0.25
Amortization of equity method goodwill............ 0.01
Amortization of franchise rights.................. 0.30 0.86
-------------- -------------
As adjusted......................................... $0.27 $2.10
============== =============
Diluted EPS
As reported......................................... ($0.11) $0.96
Amortization of goodwill.......................... 0.08 0.24
Amortization of equity method goodwill............ 0.01
Amortization of franchise rights.................. 0.30 0.85
-------------- -------------
As adjusted......................................... $0.27 $2.06
============== =============
13
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
7. LONG-TERM DEBT
Commercial Paper
The Company's senior bank credit facility consists of a $2.25 billion,
five-year revolving credit facility and a $1.925 billion, 364-day revolving
credit facility (together, the "Comcast Cable Revolver"). The 364-day
revolving credit facility supports the commercial paper program of Comcast
Cable Communications, Inc., a wholly owned subsidiary of the Company.
Amounts outstanding under the commercial paper program are classified as
long-term in the Company's balance sheet as of September 30, 2002 and
December 31, 2001 as the Company has both the ability and the intent to
refinance these obligations, if necessary, on a long-term basis with
amounts available under the Comcast Cable Revolver.
Zero Coupon Convertible Debentures
The Company's Zero Coupon Debentures have a yield to maturity of 1.25%,
computed on a semi-annual bond equivalent basis. The Zero Coupon Debentures
may be converted, subject to certain restrictions, into shares of the
Company's Class A Special Common Stock at the option of the holder at a
conversion rate of 14.2566 shares per $1,000 principal amount at maturity,
representing an initial conversion price of $54.67 per share. The Zero
Coupon Debentures are senior unsecured obligations. The Company may redeem
for cash all or part of the Zero Coupon Debentures on or after December 19,
2005.
Holders may require the Company to repurchase the Zero Coupon Debentures on
December 19, 2002, 2003, 2005, 2010 and 2015. Holders may surrender the
Zero Coupon Debentures for conversion at any time prior to maturity if the
closing price of the Company's Class A Special Common Stock is greater than
110% of the accreted conversion price for at least 20 trading days of the
30 trading days prior to conversion. During the three months ended
September 30, 2002, the Company repurchased from holders an aggregate of
$167.1 million accreted value of Zero Coupon Debentures for cash. The
Company financed the redemption with available cash. As of September 30,
2002, $939.2 million of Zero Coupon Debentures remain outstanding.
Amounts outstanding under the Zero Coupon Debentures are classified as
long-term in the Company's balance sheet as of September 30, 2002 and
December 31, 2001 as the Company has both the ability and the intent to
refinance the Zero Coupon Debentures on a long-term basis with amounts
available under the Comcast Cable Revolver in the event holders of the Zero
Coupon Debentures exercise their rights to require the Company to
repurchase the Zero Coupon Debentures in December 2002.
ZONES
At maturity, holders of the Company's 2.0% Exchangeable Subordinated
Debentures due 2029 (the "ZONES") are entitled to receive in cash an amount
equal to the higher of the principal amount of the ZONES or the market
value of Sprint PCS common stock. Prior to maturity, each ZONES is
exchangeable at the holders' option for an amount of cash equal to 95% of
the market value of Sprint PCS Stock. As of SeptemberJune 30, 2002,2003, the number of
Sprint PCS shares held by the Company exceeded the number of ZONES
outstanding.
As of September 30, 2002 and December 31, 2001, long-term debt includes
$577.2 million and $1.613 billion, respectively, of ZONES. Upon adoption of
SFAS No. 133, theThe Company split the accounting for the ZONES into derivative and debt
components. The Company records the change in the fair value of the
derivative component of the ZONES (see Note 5)4) and the increasechange in the
carrying value of the debt component of the ZONES as follows (in millions):
14
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
ThreeSix Months Ended
Nine Months Ended
SeptemberJune 30,
September 30,2003 2002 2001 2002 2001
----------- -----------
---------- -----------
Balance at Beginning of Period:
Debt component............................ $478.9 $456.2 $467.4 $445.2component................................ $491 $468
Derivative component...................... 210.2 1,136.9 1,145.2 961.3component.......................... 208 1,145
----------- -----------
---------- -----------
Total .............................. 689.1 1,593.1 1,612.6 1,406.5699 1,613
Increase in debt component
to interest expense....................... 5.9 5.6 17.4 16.6expense........................... 12 11
Increase (decrease) in derivative component
to investment income/expense.............. (117.8) 98.5 (1,052.8) 274.1income (loss), net.............. 65 (935)
Balance at End of Period:
Debt component............................ 484.8 461.8 484.8 461.8component................................ 503 479
Derivative component...................... 92.4 1,235.4 92.4 1,235.4component.......................... 273 210
----------- -----------
---------- -----------
Total .............................. $577.2 $1,697.2 $577.2 $1,697.2$776 $689
=========== =========== ========== ===========
New Credit Facilities
On May 3, 2002, Broadband and AT&T Comcast Corporation, a company owned 50%
each by AT&T and the Company ("AT&T Comcast"), entered into definitive
credit agreements with a syndicate of lenders for an aggregate of $12.825
billion of financing to complete the AT&T Broadband transaction (see Note
4) and to provide for the combined company's financing needs after the
transaction. Under the terms of the new credit facilities, the obligation
of the lenders to provide the financing upon completion of the AT&T
Broadband transaction is subject to a number of conditions, including a
condition that the combined company holds investment-grade credit ratings
from both Standard & Poor's ("S&P") and Moody's Investor Services
("Moody's") ratings agencies at the time of closing. On September 30, 2002,
the Company announced that AT&T Comcast had received investment-grade
credit ratings from each of S&P and Moody's allowing AT&T Comcast to access
all amounts under the credit facilities upon closing of the AT&T Broadband
transaction.
Interest Rates
Excluding the derivative component of the ZONES whose changes in fair value
are recorded to investment income (expense)(loss), net, the Company's effective
weighted average interest rate on its long-termtotal debt outstanding was 6.58%7.45% and
6.03%7.07% as of SeptemberJune 30, 20022003 and December 31, 2001,2002, respectively.
Interest Rate Risk Management
During the nine months ended September 30, 2002, theDerivatives
The Company settled $950.0
million aggregate notional amount of fixeduses derivative financial instruments to variablemanage its exposure to
fluctuations in interest rate
exchange agreements ("Swaps")rates and received proceeds of $56.8 million. This
amount is being recognized as an adjustment to interest expense over the
term of the related debt. During the nine months ended September 30, 2002,
variable to fixed Swaps with an aggregate notional amount of $106.9 million
expired. As of September 30, 2002, thesecurities prices. The Company has
variable to fixed Swaps
with an aggregate notional amount of $143.4 million with an average pay
rate of 4.8%issued indexed debt instruments and an average receive rate of 1.8%. The Swaps mature between
2002 and 2003.
In June and July 2002,prepaid forward sale agreements whose
value, in part, is derived from the Company entered into Rate Locks to hedge the
risk that the cash flows related to the interest payments on an anticipated
issuance or assumptionmarket value of certain fixed rate debt in connection with the
AT&T Broadband transaction may be adversely affected by interest rate
fluctuations (see Note 4). The Rate Locks mature in the fourth quarter of
2002, the timing of the anticipated issuance or assumption of the fixed
rate debt. To the extent the Rate Locks are effective in offsetting the
variability of the hedged cash flows, changes in the fair value of the Rate
Locks are not included in earnings but are reported as a component of
accumulated other comprehensive
15
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
income (loss) (see Note 5). Upon the issuance or assumption of the debt,
the value of the Rate Locks will be recognized as an adjustment to interest
expense over the same period in which the related interest costs on the
debt are recognized in earnings.publicly traded
common stock.
Lines and Letters of Credit
As of SeptemberJune 30, 2002,2003, certain subsidiaries of the Company had unused lines
of credit of $3.722$2.472 billion under their respective credit facilities.
As of SeptemberJune 30, 2002,2003, the Company and certain of its subsidiaries had unused
irrevocable standby letters of credit totaling $88.1$43 million to cover
potential fundings under various agreements.
8.7. STOCKHOLDERS' EQUITY
Retirement of Shares
In March 2002,Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations, as a resultpermitted by SFAS No. 123,
9
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
"Accounting for Stock-Based Compensation," as amended. Compensation expense
for stock options is measured as the excess, if any, of the mergerquoted market
price of the stock at the date of the grant over the amount an employee
must pay to acquire the stock. The Company records compensation expense for
restricted stock awards based on the quoted market price of the stock at
the date of the grant and the vesting period. The Company records
compensation expense for stock appreciation rights based on the changes in
quoted market prices of the stock or other determinants of fair value.
The following table illustrates the effect on net income (loss) if the
Company had applied the fair value recognition provisions of SFAS No. 123
to stock-based compensation (dollars in millions):
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
-------- -------- -------- ---------
Net income (loss), as reported.................................. $203 ($210) $318 ($299)
Deduct: Total stock-based compensation
expense determined under fair value based method
for all awards, net of related tax effects................. (25) (36) (46) (69)
-------- -------- -------- ---------
Pro forma, net income (loss).................................... $178 ($246) $272 ($368)
======== ======== ======== ========
Total stock-based compensation expense was determined under the fair value
method for all awards assuming accelerated vesting of stock options as
permitted under SFAS No. 123. Had the Company applied the fair value
recognition provisions of SFAS No. 123 assuming straight-line rather than
accelerated vesting of stock options, total stock-based compensation
expense, net of related tax effects, would have been $21 million and $28
million for the three months ended June 30, 2003 and 2002, respectively,
and $40 million and $55 million for the six months ended June 30, 2003 and
2002, respectively.
The weighted-average fair value at date of grant of a wholly owned subsidiary intoClass A common stock
option granted under Comcast's option plans during the Company, approximately 23.3 million sharesthree and six months
ended June 30, 2003 was $7.67 and $10.53, respectively. The weighted-
average fair value at date of the Company'sgrant of a Class A Special Common Stock heldcommon stock
option granted under the option plans during the three and six months ended
June 30, 2002 was $12.98 and $16.30, respectively. The fair value of each
option granted during the interim periods in 2003 and 2002 was estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
Three Months Ended June 30, Six Months Ended June 30,
2003 2002 2003 2002
--------------- ---------------- ---------------- ----------------
Class A Class A Special Class A Class A Special
Common Stock Common Stock Common Stock Common Stock
--------------- ---------------- ---------------- ----------------
Dividend yield..................... 0% 0% 0% 0%
Expected volatility................ 29.8% 30.0% 29.4% 29.2%
Risk-free interest rate............ 2.1% 5.3% 3.3% 5.3%
Expected option lives (in years)... 3.5 8.0 6.7 8.0
Forfeiture rate.................... 3.0% 3.0% 3.0% 3.0%
The pro forma effect on net income (loss) for the interim periods by
applying SFAS No. 123 may not be indicative of the subsidiary were retiredeffect on net income or
loss in future years since SFAS No. 123 does not take into consideration
pro forma compensation expense related to awards made prior to January 1,
1995 and returned to
authorized but unissued status.since additional awards in future years are anticipated.
10
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Comprehensive Income (Loss)
The Company's total comprehensive income (loss) for the interim periods was
as follows (in millions):
Three Months Ended NineSix Months Ended
SeptemberJune 30, SeptemberJune 30,
2003 2002 20012003 2002 2001
--------- ---------- --------- ----------
Net income (loss).................................... $75.6$203 ($106.8)210) $318 ($222.9) $929.6299)
Unrealized gains (losses)losses on marketable securities... 24.7 69.0 (339.6) 265.9securities........... (1) (223) (38) (364)
Reclassification adjustments for losses (gains)
included in net income (loss)...................... 0.2 (157.4) 203.3 (486.5)(1) 198 21 203
Unrealized lossesgains on the effective portion
of cash flow hedges................................... (197.5) (1.4) (198.0) (3.1)hedges................................ 4
Foreign currency translation losses.................. (1.4) (2.7) (7.8) (9.4)gains (losses).......... 9 5 15 (7)
--------- ---------- --------- ----------
Comprehensive income (loss).......................... $210 ($98.4)226) $316 ($199.3) ($565.0) $696.5467)
========= ========== ========= ==========
9.8. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The fair values of the assets and liabilities acquired by the Company
through noncash transactions during the nine months ended September 30,
2001 are as follows (in millions):
Current assets.............................. $56.6
Property, plant & equipment................. 686.1
Intangible assets........................... 2,755.8
Current liabilities......................... (37.0)
-----------
Net assets acquired.................... $3,461.5
===========
16
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The Company made cash payments for interest and income taxes during the
interim periods as follows (in millions):
Three Months NineEnded Six Months Ended
Ended
SeptemberJune 30, SeptemberJune 30,
2003 2002 20012003 2002
2001
-------- -------- -------- ----------------- ---------- --------- ----------
Interest................................................... $103.8 $129.8 $451.1 $426.5Interest............................................. $228 $237 $334 $347
Income taxes............................................... $53.4 $10.4 $211.9 $136.8taxes......................................... $152 $129 $188 $159
10.9. COMMITMENTS AND CONTINGENCIES
Certain litigationContingencies
Litigation has been filed against the Company as a result of alleged
conduct of the Company with respect to its investment in and distribution
relationship with At Home Corporation ("At Home").Corporation. At Home was a provider of high-speed
Internet access and content services which filed for bankruptcy protection
in September 2001. Filed actions are: (i) class action lawsuits against the
Company, Brian L. Roberts (the Company's President and Chief Executive
Officer and a director), AT&T (the former controlling shareholder of At
Home and also a former distributor of the At Home service) and other
corporate and individual defendants in the Superior Court of San Mateo
County, California, alleging breaches of fiduciary duty on the part of the
Company and the other defendants in connection with transactions agreed to
in March 2000 among At Home, the Company, AT&T and Cox Communications, Inc.
("Cox,"(Cox is also an investor in At Home and a former distributor of the At Home
service); (ii) class action lawsuits against the Company,Comcast Cable Communications,
Inc., AT&T and others in the United States District Court for the Southern
District of New York, alleging securities law violations and common law
fraud in connection with disclosures made by At Home in 2001; and (iii) a
lawsuit brought in the United States District Court for the District of
Delaware in the name of At Home by certain At Home bondholders against the
Company, Brian L. Roberts, Cox and others, alleging breaches of fiduciary
duty relating to the March 2000 transactions and seeking recovery of
alleged short-swingshort- swing profits of at least $600 million pursuant to Section
16(b) of the Securities Exchange Act of 1934 purported to have arisen in
connection with certain transactions relating to At Home stock effected
pursuant to the March 2000 agreements. The actions in San Mateo County,
California have been stayed by the United States Bankruptcy Court for the
Northern District of California, the court in which At Home filed for
bankruptcy, as violating the automatic bankruptcy stay. In the Southern
District of New York actions, the court has ordered the actions consolidated
into a single action; anaction. An amended consolidated class action complaint is required to be served by October 31,was
filed on November 8, 2002. Since September 2001, certain creditors of At Home have threatened to
commence litigation against AT&T relating to the conduct of AT&T or its
designees on the At Home Board in connection with At Home's declaration of
bankruptcy and At Home's subsequent aborted efforts to dispose of some of
its businesses or assets in the bankruptcy court-supervised auction, as
well as in connection with other aspects of AT&T's relationship with At
Home. No such lawsuits have been filed to date. The plan of liquidation in
the At Home bankruptcy, approved in October 2002, implements a creditor
settlement and provides that all claimsAll of the bankrupt estate of At Home
against AT&T and other shareholders will be transferreddefendants served motions to a liquidating
trust funded with at least $12 million, and as much as $17 million, to
finance the litigation of those claims.
Following closing of the AT&T Broadband transaction, the Company will be
contractually liable for 50% of any liabilities of AT&T relating to At
Home, including any resulting from any such pending or threatened
litigation (the "AT&T At Home Potential Liabilities"). AT&T will be liable
for the other 50% of such liabilities.dismiss
on February 11, 2003.
11
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The Company denies any wrongdoing in connection with the claims which have
been made directly against the Company, its subsidiaries and Brian L.
Roberts, and intends to defend all suchof these claims vigorously. In
management's opinion, the final disposition of suchthese claims is not expected
to have a material adverse effect on the Company's or, following the closing of the
AT&T Broadband transaction, the combined company's, consolidated financial
position, but could possibly be material to the Company's consolidated
results of operations of any one period. Further, no assurance can be given
that any adverse outcome would not be material to such consolidated
financial position.
Some of the entities formerly attributed to Broadband which are now
subsidiaries of Comcast are parties to an affiliation term sheet with Starz
Encore Group LLC, an affiliate of Liberty Media Corporation, which extends
to 2022. The term sheet purports to require annual fixed price payments,
subject to adjustment for various factors, including inflation. The term
sheet also purports to require Comcast to pay two-thirds of Starz Encore's
programming costs above levels designated in the term sheet. Excess
programming costs that may be payable by Comcast in future years are not
presently estimable, and could be significant.
By letter dated May 29, 2001, Broadband disputed the enforceability of the
excess programming pass-through provisions of the Starz Encore term sheet
and questioned the validity of the term sheet as a whole. Broadband also
has raised certain issues concerning the uncertainty of the provisions of
the term sheet and the contractual interpretation and application of
certain of its provisions to, among other things, the acquisition and
disposition of cable systems. In July 2001, Starz Encore filed a lawsuit in
Colorado state court seeking payment of the 2001 excess programming costs
and a declaration that the term sheet is a binding and enforceable
contract. In October 2001, Broadband and Starz Encore agreed to delay any
further proceedings in the litigation until August 31, 2002 to allow the
parties time to continue negotiations toward a potential business
resolution of this dispute. As part of this standstill agreement, Broadband
and Starz Encore settled Starz Encore's claim for the 2001 excess
programming costs, and Broadband agreed to continue to make the standard
monthly payments due under the term sheet, with a full reservation of
rights with respect to these payments. Broadband and Starz Encore agreed to
extend the standstill agreement to and including January 31, 2003, with a
requirement that the parties attempt to mediate the dispute. A mediation
session held in January 2003 did not result in any resolution of the
matter.
On November 18, 2002, the Company and Comcast filed suit against Starz
Encore in the United States District Court for the Eastern District of
Pennsylvania. The Company and Comcast seek a declaratory judgment that,
pursuant to their rights under a March 17, 1999 contract with a predecessor
of Starz Encore, upon the completion of the Broadband acquisition that
contract now provides the terms under which Starz Encore programming is
acquired and transmitted by Comcast's cable systems. On January 8, 2003,
Starz Encore filed a motion to dismiss the lawsuit on the grounds that
claims asserted by the Company and Comcast raised issues of state law that
the United States District Court should decline to decide. The Company and
Comcast have responded contesting these assertions. That motion has been
submitted to the Court for decision.
On January 31, 2003, Starz Encore filed an amended complaint in its lawsuit
against Broadband in Colorado state court. The amended complaint adds the
Company and Comcast as defendants and adds new claims against the Company,
Comcast and Broadband asserting alleged breaches of, and interference with,
the standstill agreement relating to the lawsuit filed by the Company and
Comcast in federal District Court in Pennsylvania and to the defendants'
position that since the completion of the Broadband acquisition, the March
17, 1999 contract now provides the terms under which Starz Encore
programming is acquired and transmitted by the Company's cable systems.
On March 3, 2003, Starz Encore filed a motion for leave to file a second
amended complaint that would add allegations that Broadband has breached
certain purported joint-marketing obligations under the term sheet and that
the Company and Comcast have breached certain joint-marketing obligations
under the March 17, 1999 contract and other agreements. The Company,
Comcast and Broadband opposed Starz Encore's motion for leave to file a
second amended complaint and, in light of Starz Encore's pending motion for
leave to amend, sought an extension of time from the Court to respond to
Starz Encore's amended complaint. Both Starz Encore's motion to amend and
Comcast's motion to extend time are fully briefed and have been submitted
to the Court for decision.
12
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBERJUNE 30, 20022003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
ManagementOn April 3, 2003, the Company and Comcast filed a motion for summary
judgment in the federal action in Pennsylvania. On April 16, 2003, Starz
Encore filed a motion seeking (i) to strike the affidavit supporting the
summary judgment motion or, in the alternative, (ii) a general postponement
of Starz Encore's response date (or at a minimum a three week extension).
On April 29, 2003, the Company and Comcast filed an opposition to Starz
Encore's motion. The Court has no basisnot yet ruled on either motion.
An entity formerly attributed to Broadband, which is now Comcast's
subsidiary, is party to a master agreement that may not expire until
December 31, 2012, under which it purchases certain billing services from
CSG Systems, Inc. The master agreement requires monthly payments, subject
to adjustment for any expectationinflation. The master agreement also contains a most
favored nation provision that may affect the amounts paid thereunder.
On May 10, 2002, Broadband filed a demand for arbitration against CSG
before the American Arbitration Association asserting, among other things,
the right to terminate the master agreement and seeking damages under the
most favored nation provision or otherwise. On May 31, 2002, CSG answered
Broadband's arbitration demand and asserted various counterclaims,
including for (i) breach of the master agreement; (ii) a declaration that
Comcast is now bound by the master agreement to use CSG as its exclusive
provider for certain billing and customer care services; (iii) tortious
interference with prospective contractual relations; and (iv) civil
conspiracy. The evidentiary hearing commenced on May 9, 2003 and concluded
on June 17, 2003. The parties filed and exchanged opening post-hearing
briefs on July 25, 2003 and are scheduled to file and exchange reply briefs
on August 8, 2003. Final oral arguments are currently scheduled for
September 10 and 11, 2003.
On June 21, 2002, CSG filed a lawsuit against the Company in federal court
in Denver, Colorado asserting claims related to the master agreement and
the pending arbitration. On November 4, 2002, CSG withdrew its complaint
against the Company without prejudice. On November 15, 2002, Comcast
initiated a lawsuit against CSG in federal court in Philadelphia,
Pennsylvania asserting that cable systems owned by the Company are not
required to use CSG as a billing service or customer care provider pursuant
to the master agreement, and that the Company's 50% shareformer Broadband cable systems owned
by Comcast may be added to a billing service agreement between Comcast and
CSG. CSG moved to dismiss or stay the lawsuit on the ground that the issues
raised by the complaint could be wholly or substantially determined by the
above-mentioned arbitration. By Order dated February 10, 2003, the Court
stayed the lawsuit until further notice.
In management's opinion, the final disposition of the AT&T At Home Potential Liabilities wouldStarz Encore and CSG
contractual disputes is not expected to have a material adverse effect on
the combined company'sCompany's consolidated financial position or results of operations, althoughoperations.
However, no assurance can be given that any adverse outcome would not be
material.material to such consolidated financial position or results of operations.
The Company is subject to other legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to such actions is not expected
to have
a material adverse effect onmaterially affect the financial position orcondition, results of operations or
liquidity of the Company.
In connection with a license awarded to an affiliate, the Company is
contingently liable in the event of nonperformance by the affiliate to
reimburse a bank which has provided a performance guarantee. The amount of
the performance guarantee is approximately $225$165 million; however the
Company's current estimate of the amount of future expenditures (principally in
the form of capital expenditures) that will be made by the affiliate
necessary to comply with the performance requirements will not exceed $75$50
million.
1813
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
11. FINANCIAL DATA BY BUSINESS SEGMENT
The following represents the Company's significant business segments,
"Cable" and "Commerce." The components of net income (loss) below operating
income (loss) are not separately evaluated by the Company's management on a
segment basis (dollars in
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
10. FINANCIAL DATA BY BUSINESS SEGMENT
The following represents the Company's significant business segments,
"Cable" and "Commerce." The components of net income (loss) below operating
income (loss) before depreciation and amortization are not separately
evaluated by the Company's management on a segment basis (in millions).
Corporate and
Cable Commerce Other (1) Total
----- -------- --------- -----
Three Months Ended SeptemberJune 30, 20022003
- ---------------------------------------------------------------------
Revenues (2)......................................... $1,548.0 $1,011.8 $144.9 $2,704.7
Operating income (loss) before depreciation
and amortization (3)............................ 645.2 185.4 (4.8) 825.8
Depreciation and amortization........................ 309.1 27.1 59.1 395.3
Operating income (loss).............................. 336.1 158.3 (63.9) 430.5
Interest expense..................................... 140.1 2.6 31.5 174.2
Capital expenditures................................. 322.0 28.1 6.8 356.9
Three Months Ended September 30, 2001
- -------------------------------------
Revenues (2)......................................... $1,378.5 $895.1 $127.2 $2,400.8
Operating income (loss) before depreciation
and amortization (3)............................ 574.7 153.7 (27.8) 700.6
Depreciation and amortization........................ 770.1 35.2 73.5 878.8
Operating income (loss).............................. (195.4) 118.5 (101.3) (178.2)
Interest expense..................................... 143.9 6.7 40.1 190.7
Capital expenditures................................. 450.0 39.4 48.1 537.5
Nine Months Ended September 30, 2002
- ------------------------------------
Revenues (2)......................................... $4,558.2 $2,999.8 $528.1 $8,086.1$1,716 $1,101 $211 $3,028
Operating income before depreciation
and amortization (3)................................ 1,895.9 572.2 32.5 2,500.6............................ 738 219 30 987
Depreciation and amortization........................ 899.8 82.6 188.2 1,170.6325 34 47 406
Operating income (loss).............................. 996.1 489.6 (155.7) 1,330.0413 185 (17) 581
Interest expense..................................... 427.4 9.0 107.1 543.5136 2 32 170
Capital expenditures................................. 1,010.7 110.5 24.6 1,145.8
Nine350 16 4 370
Three Months Ended SeptemberJune 30, 20012002
- --------------------------------------------------------------------
Revenues (2)......................................... $3,898.8 $2,655.1 $417.6 $6,971.5$1,541 $990 $173 $2,704
Operating income (loss) before depreciation
and amortization (3)............................ 1,610.4 486.2 (68.9) 2,027.7654 194 18 866
Depreciation and amortization........................ 2,194.9 106.6 138.2 2,439.7298 29 61 388
Operating income (loss).............................. (584.5) 379.6 (207.1) (412.0)356 165 (43) 478
Interest expense..................................... 405.6 21.8 124.1 551.5141 3 38 182
Capital expenditures................................. 1,400.9 107.4 172.9 1,681.2
As of September331 51 8 390
Six Months Ended June 30, 2003
- --------------------------------
Revenues (2)......................................... $3,361 $2,163 $441 $5,965
Operating income before depreciation
and amortization (3)............................ 1,413 430 36 1,879
Depreciation and amortization........................ 624 65 97 786
Operating income (loss).............................. 789 365 (61) 1,093
Interest expense..................................... 275 3 64 342
Capital expenditures................................. 685 29 10 724
Six Months Ended June 30, 2002
- --------------------------------------------------------
Revenues (2)......................................... $3,010 $1,978 $383 $5,371
Operating income before depreciation
and amortization (3)............................ 1,251 386 37 1,674
Depreciation and amortization........................ 591 56 128 775
Operating income (loss).............................. 660 330 (91) 899
Interest expense..................................... 287 6 76 369
Capital expenditures................................. 689 83 17 789
As of June 30, 2003
- -------------------
Assets............................................... $28,768.4 $2,891.7 $4,117.2 $35,777.3$29,384 $3,237 $3,572 $36,193
Long-term debt, less current portion................. 7,811.0 1.4 2,115.5 9,927.96,635 1,473 8,108
As of December 31, 20012002
- -----------------------
Assets............................................... $29,084.6 $2,809.2 $6,366.7 $38,260.5$29,844 $3,000 $2,845 $35,689
Long-term debt, less current portion................. 8,363.2 62.7 3,315.7 11,741.6
_______________
19
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS7,908 1 1,348 9,257
- CONCLUDED
(Unaudited)
(1) Other includes segments not meeting certain quantitative guidelines for
reporting including the Company's content and business communications
operations as well as elimination entries related to the segments
presented. Corporate and other assets consist primarily of the
Company's investments, and cable and satellite television distribution
rights and goodwill of the Company's content operations (see Notes 5
and 6).
(2) Revenues include $162.6 million, $114.0 million, $459.2 million and
$348.4 million during the three months ended September 30, 2002 and
2001 and during the nine months ended September 30, 2002 and 2001,
respectively, of non-US revenues, principally related to the Company's
commerce segment. No single customer accounted for a significant amount
of the Company's revenues in any period.
(3) Operating income (loss) before depreciation and amortization is
commonly referred to in the Company's businesses as "operating cash
flow (deficit)." Operating cash flow is a measure of a company's
ability to generate cash to service its obligations, including debt
service obligations, and to finance capital and other expenditures. In
part due to the capital intensive nature of the Company's businesses
and the resulting significant level of non-cash depreciation and
amortization expense, operating cash flow is frequently used as one of
the bases for comparing businesses in the Company's industries,
although the Company's measure of operating cash flow may not be
comparable to similarly titled measures of other companies. Operating
cash flow is the primary basis used by the Company's management to
measure the operating performance of its businesses. Operating cash
flow does not purport to represent net income or net cash provided by
operating activities, as those terms are defined under generally
accepted accounting principles, and should not be considered as an
alternative to such measurements as an indicator of the Company's
performance.
---------------
2014
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBERJUNE 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(1) Other includes segments not meeting certain quantitative guidelines for
reporting including the Company's content operations and elimination
entries related to the segments presented. Corporate and other assets
consist primarily of the Company's investments and intangible assets
related to the Company's content operations (see Notes 4 and 5).
(2) Revenues include $241 million, $146 million, $456 million and $286 million
during the three months ended June 30, 2003 and 2002 and during the six
months ended June 30, 2003 and 2002, respectively, of non-US revenues,
principally related to the Company's commerce segment. No single customer
accounted for a significant amount of the Company's revenues in any period.
(3) Operating income before depreciation and amortization is defined as
operating income before depreciation and amortization and impairment
charges, if any, related to fixed and intangible assets. As such, it
eliminates the significant level of non-cash depreciation and amortization
expense that results from the capital intensive nature of the Company's
businesses and intangible assets recognized in business combinations, and
is unaffected by the Company's capital structure or investment activities.
The Company's management and Board of Directors use this measure in
evaluating the Company's consolidated operating performance and the
operating performance of all of its operating segments. This metric is used
to allocate resources and capital to the Company's operating segments and
is a significant component of the Company's annual incentive compensation
programs. This measure is also useful to investors as it is one of the
bases for comparing the Company's operating performance with other
companies in its industries, although the Company's measure may not be
directly comparable to similar measures used by other companies. This
measure should not be considered as a substitute for operating income
(loss), net income (loss), net cash provided by operating activities or
other measures of performance or liquidity reported in accordance with
generally accepted accounting principles.
15
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
11. RELATED PARTY TRANSACTIONS
QVC has an affiliation agreement with Comcast Cable Communications
Holdings, Inc. ("CCCH"), a wholly owned subsidiary of Comcast, to carry
QVC's programming. In return for carrying QVC programming, QVC pays CCCH an
allocated portion, based upon market share, of a percentage of net sales of
merchandise sold to QVC customers located in CCCH's service area. These
amounts, which are included in selling, general and administrative expenses
in the Company's consolidated statement of operations, totaled $4 million
and $8 million during the three and six months ended June 30, 2003,
respectively. Amounts related to a similar affiliation agreement between
QVC and Comcast Cable are eliminated in the Company's consolidated
financial statements.
The Company's content businesses generate a portion of their revenues
through the sale of subscriber services to CCCH under affiliation
agreements. These amounts, which are included in service revenues in the
Company's consolidated statement of operations, totaled $8 million and $17
million during the three and six months ended June 30, 2003, respectively.
Amounts related to similar affiliation agreements between the Company's
content businesses and Comcast Cable are eliminated in the Company's
consolidated financial statements.
Effective January 1, 2003, Comcast has entered into management agreements
with the Company's cable subsidiaries. The management agreements generally
provide that Comcast supervise the management and operations of the cable
systems and arrange for and supervise certain administrative functions. As
compensation for such services, the agreements provide for Comcast to
charge management fees based on a percentage of gross revenues. These
charges, which are included in selling, general and administrative expenses
in the Company's consolidated statement of operations, totaled $34 million
and $71 million during the three and six months ended June 30, 2003,
respectively. During the 2002 interim period, similar management agreements
existed between Comcast Cable and its subsidiaries. Accordingly, amounts
related to those agreements were eliminated in the Company's consolidated
financial statements during the 2002 interim period.
Effective January 1, 2003, Comcast Cable reimburses Comcast Cable
Communications Management, LLC ("CCCM"), a wholly owned subsidiary of
Comcast but not of the Company, for certain costs under a cost sharing
agreement. These charges, which are included in selling, general and
administrative expenses in the Company's consolidated statement of
operations, totaled $42 million and $82 million during the three and six
months ended June 30, 2003, respectively. During the 2002 interim period,
similar costs were included in selling, general and administrative expenses
in the Company's consolidated statement of operations.
Effective upon the closing of Comcast's acquisition of Broadband on
November 18, 2002, the Company purchases certain other services, including
insurance and employee benefits, from Comcast under cost sharing
arrangements on terms that reflect Comcast's actual cost. These charges,
which are included in selling, general and administrative expenses in the
Company's consolidated statement of operations, totaled $38 million and $76
million during the three and six months ended June 30, 2003, respectively.
During the 2002 interim period, similar cost sharing agreements existed
between Comcast Holdings and Comcast Cable. Accordingly, amounts related to
those agreements were eliminated in the Company's consolidated financial
statements during the 2002 interim period.
Comcast Financial Agency Corporation ("CFAC"), an indirect wholly owned
subsidiary of the Company, provides cash management services to Comcast and
CCCH. Under this arrangement, Comcast's and CCCH's cash receipts are
deposited with and held by CFAC, as custodian and agent, which invests and
disburses such funds at the direction of the Company. Interest income
related to cash deposited by Comcast and CCCH in CFAC was not significant
during the 2003 interim periods.
Current due from affiliates in the Company's consolidated balance sheet as
of June 30, 2003 primarily consists of amounts due from Comcast, CCCH and
CCCM for advances made by the Company for working capital and capital
expenditures in the ordinary course of business. Current due to affiliates
in the Company's consolidated balance sheet as of December 31, 2002
primarily consists of amounts due to Comcast and its affiliates under the
cost
16
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
sharing arrangements described above and amounts payable to Comcast and its
affiliates as reimbursements for costs incurred, in the ordinary course of
business, by such affiliates on behalf of the Company.
As of June 30, 2003 and December 31, 2002, note receivable from affiliate
consists of a $191 million principal amount note receivable from Comcast.
The note receivable bears interest at a rate of 7.5% and is due in 2012.
Investment income (loss), net includes $3 million and $7 million for the
three and six months ended June 30, 2003, respectively, of interest income
related to the note. As of June 30, 2003, note receivable from affiliate
includes $7 million of interest receivable related to the note.
As of June 30, 2003 and December 31, 2002, notes payable to affiliates
consist of an aggregate of $561 million and $22 million principal amount,
respectively, of notes payable to Comcast and a subsidiary of CCCH. The
notes payable bear interest at rates ranging from 5.25% to 7.5% and are due
between 2012 and 2013. Investment income (loss), net includes $2 million
and $4 million for the three and six months ended June 30, 2003,
respectively, of interest expense related to the notes. As of June 30,
2003, notes payable to affiliates includes $4 million of interest payable
related to the notes.
17
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2003
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information for this item is omitted pursuant to SEC General Instruction H
to Form 10-Q, except as noted below.
We are an indirect wholly owned subsidiary of Comcast Corporation
("Comcast").
Overview
We have grown significantly in recent years through both strategic
acquisitions and growth in our existing businesses. We have historically met our
cash needs for operations through our cash flows from operating activities. We
have generally financed our cash requirements for acquisitions and capital expenditures through
issuances of our common stock, borrowings of long-term debt, sales of
investments and from existing cash, cash equivalents and short-term investments.
Except where specifically indicated, the following management's discussion
and analysis of financial condition and results of operations does not include
the anticipated effects of the AT&T Broadband transaction.
General Developments of Business
Refer toAs more fully described in Note 43 to our financial statements included in
Item 1, in July 2003, we, Comcast and Note 5Liberty Media Corporation ("Liberty")
entered into a stock purchase agreement pursuant to which Liberty will purchase
our financial statements includedapproximate 57% interest in our Annual Report on Form 10-KQVC for the
year ended December 31, 2001 forapproximately $7.9 billion in a
discussion of our acquisitions and other
significant events.
Liquidity and Capital Resources
The cable communications and the electronic retailing industries are
experiencing increasing competition and rapid technological changes. Our future
results of operations will be affected by our ability to react to changes in the
competitive environment and by our ability to implement new technologies. We
believe that competition and technological changes will not significantly affect
our ability to obtain financing.
We believe that we will be able to meet our current and long-term liquidity
and capital requirements, including fixed charges, through our cash flows from
operating activities, existing cash, cash equivalents and investments, and
through available borrowings under our existing credit facilities.
We have both the ability and intent to redeem the $939.2 million
outstanding Zero Coupon Debentures with amounts available under subsidiary
credit facilities if holders exercise their rights to require us to repurchase
the Zero Coupon Debentures in December 2002. As of September 30, 2002, certain
of our subsidiaries had unused lines of credit of $3.722 billion under their
respective credit facilities.
Refer to Note 7 to our financial statements included in Item 1 for a
discussion of our Zero Coupon Debentures. Refer to Note 10 to our financial
statements included in Item 1 for a discussion of our commitments and
contingencies.
AT&T Broadband Transaction
Excluding AT&T Broadband's exchangeable notes, which are mandatorily
redeemable at AT&T Broadband's option into shares of certain publicly traded
companies held by AT&T Broadband, we currently estimate that the combined
company will require approximately $20 billion of assumed, refinanced and new
indebtedness upon completion of the AT&T Broadband transaction. Of this $20
billion of indebtedness, approximately $7 billion to $8 billion will be assumed
indebtedness of AT&T Broadband's subsidiaries, $9 billion to $10 billion will
retire amountstransaction we expect AT&T Broadband Corp. ("Broadband") will owe AT&T Corp.
("AT&T") at, and will be required to pay, uponclose by the end of 2003. Upon closing of the
AT&T Broadband
transaction, (subjectwe expect to offset for amountsreceive from Liberty shares of AT&T indebtedness assumed at
closing as describedLiberty Series A common
stock and a three-year senior unsecured note bearing interest in the following paragraph), and $2 billion to $4 billion
will be needed to refinance AT&T Broadband debt that will become due on or
shortly after the closingLIBOR plus
1.5%. The values of the AT&T Broadband transactionshares and to provide
appropriate cash reserves to fund AT&T Broadband's operations and capital
expenditures. We cannot provide assurances that the actual amount of this
indebtedness will not exceed $20 billion.
Subsequent to the original merger agreement, economic and business factors
led us and AT&T to agree to change the form of considerationnote to be paid in the
AT&T Broadband transaction. On August 12, 2002, AT&T Comcast Corporation ("AT&T
Comcast"), along with AT&T, Broadband, two of AT&T's cable subsidiariesdelivered to us are
approximately $2.6 billion and our
wholly owned cable subsidiary, Comcast Cable Communications, Inc. ("Comcast
Cable") filed a registration statement with the Securities and Exchange
Commission for a proposed exchange offer relating to $11.8$5.3 billion, aggregate
principal amount of AT&T's existing debt securities. The exchange offer, if
successful, would result in the assumption of a portion of AT&T's indebtedness
by AT&T Broadband (and a corresponding decrease in the amount of intercompany
indebtedness Broadband must pay AT&T upon closing). The exchange offer is
subject to market conditions and is expected to close in November 2002.
21
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
On May 3, 2002, Broadband and AT&T Comcast entered into definitive credit
agreements with a syndicate of lenders for an aggregate of $12.825 billion of
financing to complete the AT&T Broadband transaction and to provide for the
combined company's financing needs after the transaction.respectively. Under the terms of the
new credit facilities, the obligation of the lenders to provide the financing
upon completion of the AT&T Broadband transaction is subject to a number of
conditions, including a condition that the combined company holds investment-
grade credit ratings from both Standard & Poor's ("S&P") and Moody's Investor
Services ("Moody's") ratings agencies at the time of closing. On September 30,
2002, we announced that AT&T Comcast had received investment-grade credit
ratings from each of S&P and Moody's allowing AT&T Comcast to access all amounts
under the credit facilities upon closing of the AT&T Broadband transaction. We
therefore expect that we will be able to obtain the necessary financing to
complete the AT&T Broadband transaction.
We may also use other immediately available sources of financing to fund
these requirements, including:
o our existing cash, cash equivalents and short- term investments,
o amounts available under our subsidiaries' lines of credit, which
totaled $3.722 billion as of September 30, 2002, and
o proceeds from the sales of our and AT&T Broadband's investments.
In addition, as more fully described in Note 4 to our financial statements
included in Item 1 (see "Agreement and Plan of Merger with AT&T Broadband"),
upon closing of the Time Warner Entertainment L.P. ("TWE") restructuringstock
purchase agreement, AT&T Broadband will receive $1.5 billion in common stock of AOL Time
Warner, an approximate 21% equity interest in Time Warner Cable and $2.1 billion
in cash.
Subsequent to closing of the AT&T Broadband transaction, we will have a
substantially higher amount of debt, interest expense and capital expenditures
atregistration rights that should facilitate the
combined company. If the credit rating agencies determine that the
combined company is less creditworthy, on a combined basis, than that of Comcast
on an historical basis, it is possible that our cost of and access to capital
could be negatively affected.
Cash, Cash Equivalents and Short-term Investments
We have traditionally maintained significant levels of cash, cash
equivalents and short-term investments to meet our short-term liquidity
requirements. Our cash equivalents and short-term investments are recorded at
fair value. Cash, cash equivalents and short-term investments as of September
30, 2002 were $1.476 billion, substantially all of which is unrestricted.
Investments
A significant portiondisposal or monetization of our investments areshares in publicly traded companiesLiberty and are reflected at fair value which fluctuates with market changes.
We do not have any significant contractual funding commitments with respect
to any of our investments. Our ownership interests in these investments may,
however, be diluted if we do not fund our investees' non-binding capital calls.
We continually evaluate our existing investments, as well as new investment
opportunities.
Refer to Note 5 to our financial statements included in Item 1 for a
discussion of our investments.
Financing
As of September 30, 2002 and December 31, 2001, our long-term debt,
including current portion, was $10.042 billion and $12.202 billion,
respectively.
The $2.160 billion decrease from December 31, 2001 to September 30, 2002
results principally from the $1.035 billion aggregate reduction to the carrying
value of our ZONES during 2002, and the effects of our net repayments during
2002.
Excluding the effects of interest rate risk management instruments, 8.7%
and 13.4% of our long- term debt as of September 30, 2002 and December 31, 2001,
respectively, was at variable rates.
We have and may in the future, depending on certain factors including
market conditions, make optional repayments on our debt obligations, which may
include open market repurchases of our outstanding public notes and debentures.
Refer to Note 7 to our financial statements included in Item 1 for a
discussion of our long-term debt.
Equity Price Risk
We have entered into cashless collar agreements (the "Equity Collars") and
prepaid forward sales agreements
22
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
("Prepaid Forward Sales") which we account for at fair value. The Equity Collars
and Prepaid Forward Sales limit our exposure to and benefits from price
fluctuations in Sprint PCS common stock.
During the 2002 and 2001 interim periods, the change in the fair value of
our investment in Sprint PCS common stock, classified as a trading security,
were substantially offset by the changes in the fair values of the Equity
Collars, the derivative components of the ZONES, and the Prepaid Forward Sales.
See "Results of Operations - Investment Income (Expense)" below.
Interest Rate Risk
During the nine months ended September 30, 2002, we settled $950.0 million
aggregate notional amount of our fixed to variable interest rate exchange
agreements ("Swaps") and received proceeds of $56.8 million. This amount is
being recognized as an adjustment to interest expense over the term of the
related debt. During the nine months ended September 30, 2002, variable to fixed
Swaps with an aggregate notional amount of $106.9 million expired. As of
September 30, 2002, we have $143.4 million aggregate notional amount of variable
to fixed Swaps with an average pay rate of 4.8% and an average receive rate of
1.8%. The Swaps mature between 2002 and 2003.
In June and July 2002, we entered into interest rate lock agreements ("Rate
Locks") to hedge the risk that the cash flows related to the interest payments
on an anticipated issuance or assumption of certain fixed rate debt in
connection with the AT&T Broadband transaction may be adversely affected by
interest rate fluctuations. The Rate Locks mature in the fourth quarter of 2002,
the timing of the anticipated issuance or assumption of the fixed rate debt.
Accumulated Other Comprehensive Income (Loss)
The change in accumulated other comprehensive income (loss) from December
31, 2001 to September 30, 2002 is principally attributable to the unrealized
loss on our Rate Locks classified as cash flow hedges entered into in 2002, to
declines in unrealized gains on our investments classified as available for sale
held throughout the period, and to realized losses on sales of investments and
investment impairment losses on investments classified as available for sale
during the nine months ended September 30, 2002. Refer to Note 5 to our
financial statements included in Item 1.
_________________________
Statement of Cash Flows
Cash and cash equivalents increased $219.8 million as of September 30, 2002
from December 31, 2001. The increase in cash and cash equivalents resulted from
cash flows from operating, financing and investing activities which are
explained below.
Net cash provided by operating activities amounted to $2.0 billion for the
nine months ended September 30, 2002, due principally to our operating income
before depreciation and amortization (see "Results of Operations"), and by
changes in working capital as a result of the timing of receipts and
disbursements and the effects of net interest and current income tax expense.
Net cash used in financing activities consists primarily of borrowings and
repayments of debt, proceeds from settlement of Swaps, and proceeds from the
issuances of our common stock. Net cash used in financing activities was $1.052
billion for the nine months ended September 30, 2002. During the nine months
ended September 30, 2002, we borrowed $876.2 million, consisting of:
o $443.1 million under Comcast Cable's commercial paper program, and
o $433.1 million under revolving credit facilities.
During the nine months ended September 30, 2002, we repaid $2.009 billion
of our long-term debt, consisting of:
o $441.3 million under Comcast Cable's commercial paper program,
o $200.0 million of our 9.625% Senior Notes due 2002,
o $1.201 billion on certain of our revolving credit facilities, and
o $167.1 million of our Zero Coupon Debentures.
In addition, during the nine months ended September 30, 2002, we received
proceeds of $56.8 million from settlement of certain of our Swaps and proceeds
of $15.0 million from issuances of our common stock.
Net cash used in investing activities includes the effects of acquisitions,
net of cash acquired, purchases of investments, capital expenditures, and
additions to
23
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
intangible and other noncurrent assets, offset by proceeds from sales of
investments. Net cash used in investing activities was $728.0 million for the
nine months ended September 30, 2002, consisting primarily of capital
expenditures of $1.146 billion and additions to intangible and other noncurrent
assets of $255.6 million, including $55.5 million related to the satellite and
cable television affiliation agreements of QVC and our content subsidiaries.
Such amounts were offset, in part, by proceeds from sales of investments of
$733.5 million.
_______________________
Results of Operations
The effects of our recent acquisitions were to increase our revenues and
expenses, resulting in increases in our operating income before depreciation and
amortization.
We adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets," on January 1, 2002, as required by the
new statement. Refer to Notes 2 and 6 to our financial statements included in
Item 1 for a discussion of the impact the adoption of the new statement had on
our consolidated financial condition and results of operations.
24
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002note.
Our summarized financial information for the interim periods is as follows
(dollars in millions, "NM" denotes percentage is not meaningful):
Three Months Ended
SeptemberJune 30, Increase / (Decrease)
2003 2002 2001 $ %
--------- --------- ---------- ---------
Revenues..................................................... $2,704.7 $2,400.8 $303.9 12.7%$3,028 $2,704 $324 12.0%
Cost of goods sold from electronic retailing................. 643.1 573.8 69.3 12.1697 626 71 11.3
Operating, selling, general and administrative expenses...... 1,235.8 1,126.4 109.4 9.7
Depreciation................................................. 338.9 314.7 24.2 7.7
Amortization................................................. 56.4 564.1 (507.7) (90.0)1,344 1,212 132 10.9
Depreciation and amortization................................ 406 388 18 4.6
--------- --------- ---------- ---------
Operating income (loss)...................................... 430.5 (178.2) 608.7 NMincome............................................. 581 478 103 21.5
--------- --------- ---------- ---------
Interest expense............................................. (174.2) (190.7) (16.5) (8.7)(170) (182) (12) (6.6)
Investment income (expense).................................. (53.3) 328.3 (381.6)(loss), net................................ 29 (459) 488 NM
Equity in net losses of affiliates........................... (11.5) (19.5) (8.0) (41.0)(21) (44) (23) (52.3)
Other income (expense)....................................... 3.2 (7.0) 10.2 NMincome................................................. 3 9 (6) (66.7)
Income tax expense........................................... (82.5) (13.5) 69.0 511.1(expense) benefit................................. (148) 33 (181) NM
Minority interest............................................ (36.6) (26.2) 10.4 39.7(71) (45) 26 57.8
--------- --------- ---------- ---------
IncomeNet income (loss) before cumulative effect of accounting change.. $75.6............................................ $203 ($106.8) $182.4210) $413 NM
========= ========= ========= ========== =========
Operating income before depreciation and amortization (1).... $825.8 $700.6 $125.2 17.9%
========= ========= ========== =========
Nine========== =========
18
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2003
Six Months Ended
SeptemberJune 30, Increase / (Decrease)
2003 2002 2001 $ %
--------- --------- ---------- ---------
---------
Revenues..................................................... $8,086.1 $6,971.5 $1,114.6 16.0%$5,965 $5,371 $594 11.1%
Cost of goods sold from electronic retailing................. 1,903.1 1,685.6 217.5 12.91,370 1,255 115 9.2
Operating, selling, general and administrative expenses...... 3,682.4 3,258.2 424.2 13.0
Depreciation................................................. 1,015.5 829.4 186.1 22.4
Amortization................................................. 155.1 1,610.3 (1,455.2) (90.4)2,716 2,442 274 11.2
Depreciation and amortization................................ 786 775 11 1.4
--------- --------- ---------- ---------
Operating income............................................. 1,093 899 194 21.6
--------- --------- Operating income (loss)...................................... 1,330.0 (412.0) 1,742.0 NM
--------- --------- ------------------- ---------
Interest expense............................................. (543.5) (551.5) (8.0) (1.5)(342) (369) (27) (7.3)
Investment income (expense).................................. (760.4) 1,045.7 (1,806.1) NMloss, net......................................... (6) (707) (701) (99.2)
Equity in net losses of affiliates........................... (59.9) (26.1) 33.8 129.5(34) (49) (15) (30.6)
Other income (expense)....................................... (10.8) 1,180.9 (1,191.7)2 (14) 16 NM
Income tax expense........................................... (52.3) (602.1) (549.8) (91.3)(expense) benefit................................. (269) 30 (299) NM
Minority interest............................................ (126.0) (89.8) 36.2 40.3(126) (89) 37 41.6
--------- --------- ---------- ---------
---------
IncomeNet income (loss) before cumulative effect of accounting
change.................................................................................................. $318 ($222.9) $545.1 ($768.0)299) $617 NM
========= ========= ========= ========== =========
Operating income before depreciation and amortization (1).... $2,500.6 $2,027.7 $472.9 23.3%
========= ========= ========== =========
____________
(1) Operating income before depreciation and amortization is commonly referred
to in our businesses as "operating cash flow." Operating cash flow is a
measure of a company's ability to generate cash to service its obligations,
including debt service obligations, and to finance capital and other
expenditures. In part due to the capital intensive nature of our businesses
and the resulting significant level of non-cash depreciation expense and
amortization expense, operating cash flow is frequently used as one of the
bases for comparing businesses in our industries, although our measure of
operating cash flow may not be comparable to similarly titled measures of
other companies. Operating cash flow is the primary basis used by our
management to measure the operating performance of our businesses.
Operating cash flow does not purport to represent net income or net cash
provided by operating activities, as those terms are defined under
generally accepted accounting principles, and should not be considered as
an alternative to such measurements as an indicator of our performance. See
"Statement of Cash Flows" above for a discussion of net cash provided by
operating activities.
25
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
Consolidated Operating Results
Revenues
The increases in consolidated revenues for the interim periods from 20012002 to
20022003 are primarily attributable to increases in service revenues in our Cable
segment and, to a lesser extent, to increases in net sales in our Commerce
segment (see "Operating Results by Business Segment" below). The remaining
increases are primarily the result of increases in revenues from our content
operations, principally due to the effectsincreases in distribution and advertising
revenues of our acquisitions and growth in our historical operations.
On January 1, 2002, we adopted Emerging Issues Task Force ("EITF") 01-9,
"Accounting for Consideration Given to a Customer (Including a Reseller of the
Vendor's Products)" and EITF 01-14, "Income Statement Characterization of
Reimbursements Received for 'Out-of-Pocket' Expenses Incurred."
EITF 01-9 requires, among other things, that consideration paid to
customers should be classified as a reduction of revenue unless certain criteria
are met. Certain of our content subsidiaries have paid or may pay distribution
fees to cable television and satellite broadcast systems for carriage of their
programming. Upon adoption of EITF 01-9, we reclassified certain of these
distribution fees from expense to a revenue reduction for all periods presented
in our statement of operations. This change does not apply to distribution fees
paid by our consolidated subsidiary, QVC, Inc. ("QVC") as the counterparties to
QVC's distribution agreements do not make revenue payments to QVC.
EITF 01-14 requires that reimbursements received for out-of-pocket expenses
incurred be characterized as revenue in the statement of operations. Under the
terms of our franchise agreements, we are required to pay up to 5% of our gross
revenues derived from providing cable services to the local franchising
authority. We normally pass these fees through to our cable subscribers. Upon
adoption of EITF 01-14, we reclassified franchise fees collected from cable
subscribers from a reduction of selling, general and administrative expenses to
a component of service revenues for all periods presented in our statement of
operations.
The changes in classification had no impact on our reported operating
income (loss) or financial condition. Refer to Note 2 to our financial
statements included in Item 1 for a discussion of the adoption of EITF 01-9 and
EITF 01-14.channels.
Cost of goods sold from electronic retailing
Refer to the "Commerce" section of "Operating Results by Business Segment"
below for a discussion of the increaseincreases in cost of goods sold from electronic
retailing.
Operating, selling, general and administrative expenses
The increases in consolidated operating, selling, general and
administrative expenses for the interim periods from 20012002 to 20022003 are primarily
attributable to increases in expenses in our Cable segment, costs associated
with management agreements between Comcast and the Company's cable subsidiaries
during the 2003 interim periods that had been eliminated in consolidation in
2002, and, to a lesser extent, to increases in expenses in our Commerce segment
(see "Operating Results by Business Segment" below). The remaining changesincreases are
primarily the result of increased expenses in our content operations, principally due tooperations. These
increases were offset, in part, by the effects of our acquisitionsreduced corporate overhead
which, upon closing of Comcast's acquisition of Broadband on November 18, 2002,
are recorded by the Comcast parent rather than by the Comcast Holdings parent.
Depreciation and growth in our historical operations, and to decreased
expenses in our international operations principally due to the deconsolidation
of certain of our investees.
DepreciationAmortization
The increases in depreciation expenseand amortization for the interim periods from
20012002 to 20022003 are primarily attributable to our Cable segment and are primarily due to
the effects of our recent acquisitions and our capital expenditures.
Amortization
Of the $507.7 million and $1.455 billion decreases in amortization expense
for the interim periods from 2001 and 2002, $516.1 million and $1.485 billion
are attributable to the adoption of SFAS No. 142 on January 1, 2002. The
remaining changes are primarily the result of increases in amortization expense in
our content operations, principally due to the effectscommerce segment as a result of our acquisitions.
Refer to Note 6 to our financial statements included in Item 1 for the pro forma
impact of adoption of SFAS No. 142 on amortization expense.additional distribution fees paid by QVC
under multi-year affiliation agreements with cable and satellite system
operators.
Operating Results by Business Segment
The following represent the operating results of our significant business
segments, "Cable" and "Commerce." The remaining components of our operations are
not 26
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
independently significant to our consolidated financial condition or results
of operations. Refer to Note 1110 to our financial statements included in Item 1
for a summary of our financial data by business segment.
19
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2003
Cable
The following table presents financial information for our Cable segment
(dollars in millions).
Cable Three Months Ended
SeptemberJune 30, Increase
/ (Decrease)2003 2002 2001 $ %
--------- --------- --------- --------
Video....................................................... $1,180.5 $1,110.2 $70.3 6.3%$1,257 $1,186 $71 6.0%
High-speed Internet......................................... 155.5 83.4 72.1 86.5229 140 89 63.6
Advertising sales........................................... 93.2 83.3 9.9 11.9109 100 9 10.0
Other....................................................... 69.4 50.4 19.0 37.768 64 4 6.3
Franchise fees.............................................. 49.4 51.2 (1.8) (3.5)53 51 2 3.9
--------- --------- --------- --------
Revenues............................................... $1,716 1,541 175 11.4
Operating, selling, general and administrative expenses..... 978 887 91 10.3
--------- --------- --------- --------
Operating income before depreciation
and amortization (a)................................... $738 $654 $84 13.0%
========= ========= ========= =========
Six Months Ended
June 30, Increase
2003 2002 $ %
--------- --------- --------- --------
Video....................................................... $2,486 $2,336 $150 6.5%
High-speed Internet......................................... 433 259 174 67.2
Advertising sales........................................... 202 181 21 11.6
Other....................................................... 136 132 4 3.0
Franchise fees.............................................. 104 102 2 2.0
--------- --------- --------- --------
Revenues................................................ 1,548.0 1,378.5 169.5 12.3$3,361 3,010 351 11.7
Operating, selling, general and administrative expenses...... 902.8 803.8 99.0 12.31,948 1,759 189 10.7
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $645.2 $574.7 $70.5 12.2%$1,413 $1,251 $162 13.0%
========= ========= ========= ========
Nine Months Ended
September 30, Increase
2002 2001 $ %
--------- --------- --------- --------
Video....................................................... $3,516.7 $3,154.5 $362.2 11.5%
High-speed Internet......................................... 414.7 202.7 212.0 104.6
Advertising sales........................................... 274.2 235.2 39.0 16.6
Other....................................................... 201.7 163.8 37.9 23.1
Franchise fees.............................................. 150.9 142.6 8.3 5.8
--------- --------- --------- --------
Revenues................................................ 4,558.2 3,898.8 659.4 16.9
Operating, selling, general and administrative expenses...... 2,662.3 2,288.4 373.9 16.3
--------- --------- --------- --------=========
- ------------
(a) Operating income before depreciation and amortization (a).................................... $1,895.9 $1,610.4 $285.5 17.7%
========= ========= ========= ========
_______________
(a) Seeis defined as
operating income before depreciation and amortization and impairment
charges, if any, related to fixed and intangible assets. As such, it
eliminates the significant level of non-cash depreciation and amortization
expense that results from the capital intensive nature of our businesses
and intangible assets recognized in business combinations, and is
unaffected by our capital structure or investment activities. Our
management and Board of Directors use this measure in evaluating our
consolidated operating performance and the operating performance of all of
our operating segments. This metric is used to allocate resources and
capital to our operating segments and is a significant component of our
annual incentive compensation programs. We believe that this measure is
also useful to investors as it is one of the bases for comparing our
operating performance with other companies in our industries, although our
measure may not be directly comparable to similar measures used by other
companies. Because we use this measure as the measure of our segment profit
or loss, we reconcile it to operating income, the most directly comparable
financial measure calculated and presented in accordance with Generally
Accepted Accounting Principles (GAAP), in the business segment footnote (1) on page 25.to
our financial statements. This measure should not be considered as a
substitute for operating income (loss), net income (loss), net cash
provided by operating activities or other measures of performance or
liquidity reported in accordance with GAAP.
Video revenue consists of our basic, expanded basic, premium, pay-per-view,
equipment and digital subscriptions. Of the $70.3 million and $362.2 millioncable services. The increases in video revenuesrevenue for the
interim periods from 20012002 to 2002, zero and
$138.7 million2003 are attributableprimarily due to the effects of our acquisitionsincreases
in average monthly revenue per basic subscriber as a result of cable
systems and $70.3 million and $223.5 million relate to increased rates and
subscriber growthrate increases in
our historical operations, driven principally bytraditional analog video service and growth in digital boxes.subscribers. These
increases were offset by lower pay-per-view revenue due to the absence of major
boxing events in the second quarter of 2003. From June 30, 2002 to June 30,
2003, we added approximately 435,000 digital subscribers or a 22.0% increase in
digital subscribers. During the three and ninesix months ended SeptemberJune 30, 2002,2003, we
added approximately 205,40095,000 and 607,000171,000 digital boxes.subscribers, respectively.
The increases in high-speed Internet revenue for the interim periods from
20012002 to 20022003 are primarily due to
20
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2003
the addition of approximately 169,800 and
390,600713,000 high-speed Internet subscribers during the three and nine months ended
Septemberfrom June
30, 2002 andto June 30, 2003, or a 61.0% increase in high-speed Internet
subscribers, as well as to the effects of increases in average monthly revenue
per subscriber as a result of rate increases. During the three and six months
ended June 30, 2003, we added approximately 164,000 and 356,000 high-speed
Internet subscribers, respectively.
The increases in advertising sales revenue for the interim periods from
20012002 to 20022003 are primarily attributabledue to the effects of growth in regional/national
advertising as a stronger advertising
market andresult of the continued leveragingcontinuing success of our market-wide fiber interconnects.regional interconnects,
and growth in a soft local advertising market.
Other revenue includes phone revenues, installation revenues, guide
revenues, commissions from electronic retailing, revenues of our regional sports
programming networks and revenue from other product offerings.
The increases for the interim periods
from 2001 to 2002 are primarily attributable to the effects of our acquisitions,
to increases in commissions from electronic retailing and to growth in our
regional sports programming networks.
The decrease in franchise fees collected from our cable subscribers for the
three month period from 2001 to 2002 is primarily attributable to the effects of
franchise fees related to high-speed Internet revenue during the three months
ended September 30, 2001. We no longer collect franchise fees for high-speed
Internet service. The
27
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
increase for the nine month period from 2001 to 2002 is attributable to the
increases in our revenues upon which the fees apply.
The increases in operating, selling, general and administrative expense for
the interim periods from 20012002 to 20022003 are primarily due to the effects of
increases in the costs of cable programming, high-speed Internet subscriber
growth, and, to a lesser extent, increases in labor costs and other volume
related expenses in our historical operations. The increase for the nine month
period from 2001 to 2002 is also attributable to the effects of our acquisitions
of cable systems.expenses.
Our cost of programming increases as a result of changes in rates,
subscriber growth, additional channel offerings and our acquisitions. We
anticipate the cost of cable programming will increase in the future as cable
programming rates increase and additional sources of cable programming become
available.
Commerce (QVC, Inc. and Subsidiaries)
Three Months Ended
SeptemberJune 30, Increase
2003 2002 2001 $ %
--------- --------- --------- --------
Net sales from electronic retailing.......................... $1,011.8 $895.1 $116.7 13.0%$1,101 $990 $111 11.3%
Cost of goods sold from electronic retailing................. 643.1 573.8 69.3 12.1697 626 71 11.3
Operating, selling, general and administrative
expenses................................................ 183.3 167.6 15.7 9.4185 170 15 8.8
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $185.4 $153.7 $31.7 20.6%$219 $194 $25 13.2%
========= ========== ========= =========
========= ========
Gross margin................................................. 36.4% 35.9%36.7 % 36.7 %
========= =========
Nine==========
Six Months Ended
SeptemberJune 30, Increase
2003 2002 2001 $ %
--------- --------- --------- --------
Net sales from electronic retailing.......................... $2,999.8 $2,655.1 $344.7 13.0%$2,163 $1,978 $185 9.4%
Cost of goods sold from electronic retailing................. 1,903.1 1,685.6 217.5 12.91,370 1,255 115 9.2
Operating, selling, general and administrative
expenses................................................ 524.5 483.3 41.2 8.5363 337 26 7.7
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... 572.2 $486.2 $86.0 17.7%$430 $386 $44 11.5%
========= ========== ========= =========
========= ========
Gross margin................................................. 36.6% 36.5%36.7 % 36.5 %
========= ===================
_______________- ---------------
(a) See footnote (1)(a) on page 25.20.
Of the $116.7$111 million and $344.7$185 million increases in net sales from electronic
retailing for the interim periods from 20012002 to 2002, $68.52003, $93 million and $235.1$167
million, respectively, are attributable to increases in net sales in Germany,
Japan, and the United States. ThisKingdom, and to the effects of fluctuations in foreign
currency exchange rates during the interim periods. The remaining increases in
net sales from electronic retailing are attributable to growth is principally the result of increases over the prior year
interim periodin QVC's U.S.
operations. Changes in the average number of homes receiving QVC services and
net sales per home in the United States as compared to the prior year interim
periods are as follows:
21
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2003
Three Months Six Months
Ended Ended
June 30, 2003 June 30, 2003
------------- -------------
Increase in average number of homes............. 2.4% 2.7%
Increase (decrease) in net sales per home as follows:
Three Months Nine Months
Ended Ended
September 30, 2002 September 30, 2002
--------------------- --------------------
Increase in average number of homes.......................... 3.6% 3.6%
Increase in net sales per home............................... 4.9% 6.4%
home....... 0.4% (1.1%)
It is unlikely that the number of homes receiving the QVC service
domestically will continue to grow at rates comparable to prior periods given
that the QVC service is already received by approximately 97% of all U.S. cable
television homes and substantially all satellite television homes in the U.S.
Future growth in domestic sales will depend increasingly on continued additions
of new customers from homes already receiving the QVC service 28
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
and continued growth in
repeat sales to existing customers.
The remaining increases of $48.2 million and $109.6 million in net sales
from electronic retailing for the interim periods from 2001 to 2002 are
primarily attributable to increases in net sales in Germany, Japan, and the
United Kingdom, and to the effects of fluctuations in foreign currency exchange
rates during the periods.
The increases in cost of goods sold are primarily related to the growth in
net sales. The increasesincrease in gross margin arefor the six month interim period from
2002 to 2003 is primarily due to the effects of shiftsa shift in sales mix.
The increases in operating, selling, general and administrative expenses
are primarily attributable to higher variable costs and personnel costs
associated with the increases in sales volume.
Consolidated Analysis
Interest Expense
The decreases in interest expense for the interim periods from 20012002 to 20022003
are primarily dueattributable to the effects of our lower amount of outstanding
debt as a result of our net debt repayments during the nine
months ended September 30, 2002.repayments.
We anticipate that, for the foreseeable future, interest expense will be
a
significant cost to us.significant. We believe we will continue to be able to meet our obligations
through our ability both to generate operating income before
depreciation and amortizationcash flow from operations and to obtain
external financing.
_______________________-----------------------
Investment Income (Expense)(Loss), Net
Investment income (expense)(loss), net for the interim periods includes the
following (in millions):
Three Months Ended NineSix Months Ended
SeptemberJune 30, SeptemberJune 30,
2003 2002 20012003 2002 2001
--------- ---------- --------- ---------
Interest and dividend income................................. $8.6 $25.6 $26.1 $60.6income................................... $21 $11 $26 $18
Gains (losses) on sales and exchanges of investments, net.... 0.3 17.2 (100.6) 476.8net...... (103) 22 (101)
Investment impairment losses................................. (5.9) (15.7) (227.2) (954.8)
Reclassification of unrealized gains......................... 237.9 1,330.3losses................................... (14) (208) (69) (221)
Unrealized (loss) gaingains (losses) on Sprint PCS common stock............ (181.2) 154.5 (1,620.9) 420.1trading securities................ 71 (420) 69 (1,440)
Mark to market adjustments on derivatives
related to Sprint PCS common stock...................... 138.7 (120.2) 1,309.8 (311.7)trading securities............................. (68) 324 (65) 1,171
Mark to market adjustments on derivatives and hedged items............................................ (13.8) 29.0 (147.6) 24.4items..... 19 (63) 11 (134)
--------- ---------- --------- ---------
Investment income (expense).............................(loss), net............................. $29 ($53.3) $328.3459) ($760.4) $1,045.76) ($707)
========= ========== ========= =========
29
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
The investment impairment losses for the nine months ended September 30,
2002 and 2001 relate principally to other than temporary declines in our
investment in AT&T.
During the three months ended September 30, 2001, we wrote-off our
investment in Excite@Home common stock based upon a decline in the investment
that was considered other than temporary. In connection with the realization of
this impairment loss, we reclassified to investment income the accumulated
unrealized gain of $237.9 million on our investment in Excite@Home common stock
which was previously recorded as a component of accumulated other comprehensive
income (loss). We recorded this accumulated unrealized gain prior to our
designation of our right under a stockholders agreement as a hedge of our
investment in the Excite@Home common stock.
In connection with the reclassification of our investment in Sprint PCS
from an available for sale security to a trading security, we recorded to
investment income (expense) the accumulated unrealized gain of $1.092 billion on
our investment in Sprint PCS which was previously recorded as a component of
accumulated other comprehensive income (loss).
Equity in Net Losses of Affiliates
The decreasedecreases in equity in net losses of affiliates for the three month
periodinterim periods
from 20012002 to 2002 is2003 are primarily attributable to the effects of changesdecreases in the net losses of
certain of our international equity method investees.
Other Income (Expense)
The change in other income or(expense) for the six month interim period from
2002 to 2003 is attributable to the loss on the sale of one of our equity method
investees and to the effects of the
decrease in the amortizationfirst quarter of equity method goodwill as a result of the
adoption of SFAS No. 142 on January 1, 2002.
The increase for the nine month
period from 2001 to 2002 is primarily attributable to the effects of the
operations of our international investees and to the effects of the
consolidation of The Golf Channel in June 2001, offset, in part, by decreases in
the amortization of equity method goodwill.
Other Income (Expense)
On January 1, 2001, we completed our cable systems exchange with Adelphia
Communications Corporation ("Adelphia"). We received cable systems serving
approximately 445,000 subscribers from Adelphia and Adelphia received certain of
our cable systems serving approximately 441,000 subscribers. We recorded to
other income (expense) a pre-tax gain of $1.199 billion, representing the
difference between the estimated fair value of $1.799 billion as of the closing
date of the transaction and our cost basis in the systems exchanged.22
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2003
Income Tax Expense(Expense) Benefit
The changes in income tax expense(expense) benefit for the interim periods from
20012002 to 20022003 are primarily the result of the effects of changes in our income
(loss) before taxes and minority interest and cumulative effect of accounting change.interest.
Minority Interest
The increases in minority interest for the interim periods from 20012002 to
20022003 are attributable to the effects of changes in the net income or loss of our
less than wholly owned consolidated subsidiaries.
Cumulative Effect of Accounting Change
In connection with the adoption of SFAS No. 142, we completed an initial
transitional impairment assessment of goodwill and other indefinite lived
intangible assets, which consist of our cable and sports franchise rights, and
we determined that no cumulative effect results from adopting this change in
accounting principle.
In connection with the adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, we recognized as income a
cumulative effect of accounting change, net of related income taxes, of $384.5
million during the nine months ended September 30, 2001. The income consisted of
a $400.2 million adjustment to record the debt component of our ZONES at a
discount from its value at maturity and $191.3 million principally related to
the reclassification of gains previously recognized as a component of
accumulated other comprehensive income (loss) on our equity derivative
instruments, net of related deferred income taxes of $207.0 million.
We believe that our operations are not materially affected by inflation.
3023
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBERJUNE 30, 20022003
ITEM 4. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Our chief executive officer and our co-chief financial officers, after
evaluating the effectiveness of our "disclosuredisclosure controls and procedures"procedures (as
defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)13a-15(e) or
15d-15(e)) as of a date (the "Evaluation Date") within 90 days before the filing
dateend of the period covered by this quarterly report,
have concluded, that asbased on the evaluation of the
Evaluation Date,these controls and procedures
required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, that our
disclosure controls and procedures were adequate and designed to ensure
that material information relating to us and our consolidated subsidiaries
would be made known to them by others within those entities.
(b) Changes in internal controls.control over financial reporting. There were no significant changes
in our internal controlscontrol over financial reporting identified in connection
with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15
or 15d-15 that occurred during our last fiscal quarter that have materially
affected, or is reasonably likely to our knowledge, in other factors that could
significantlymaterially affect, our internal
controls and procedures subsequent
to the Evaluation Date.control over financial reporting.
PART II. OTHER INFORMATION
- --------------- -----------------
ITEM 1. LEGAL PROCEEDINGS
Certain litigation has been filed against the Company asRefer to Note 9 to our condensed financial statements included in Item 1
for a resultdiscussion of alleged conduct of the Company with respectrecent developments related to its investment in and
distribution relationship with At Home Corporation ("At Home"). At Home was
a provider of high-speed Internet access and content services, which filed
for bankruptcy protection in September 2001. Filed actions are: (i) class
action lawsuits against the Company, Brian L. Roberts (the Company's
President and a director), AT&T (the former controlling shareholder of At
Home and also a former distributor of the At Home service) and other
corporate and individual defendants in the Superior Court of San Mateo
County, California, alleging breaches of fiduciary duty on the part of the
Company and the other defendants in connection with transactions agreed to
in March 2000 among At Home, the Company, AT&T and Cox Communications, Inc.
("Cox," also an investor in At Home and a former distributor of the At Home
service); (ii) class action lawsuits against the Company, AT&T and others
in the United States District Court for the Southern District of New York,
alleging securities law violations and common law fraud in connection with
disclosures made by At Home in 2001; and (iii) a lawsuit brought in the
United States District Court for the District of Delaware in the name of At
Home by certain At Home bondholders against the Company, Brian L. Roberts,
Cox and others, alleging breaches of fiduciary duty relating to the March
2000 transactions and seeking recovery of alleged short-swing profits of at
least $600 million pursuant to Section 16(b) of the Securities Exchange Act
of 1934 purported to have arisen in connection with certain transactions
relating to At Home stock effected pursuant to the March 2000 agreements.
The actions in San Mateo County, California have been stayed by the United
States Bankruptcy Court for the Northern District of California, the court
in which At Home filed for bankruptcy, as violating the automatic
bankruptcy stay. In the Southern District of New York actions, the court
has ordered the actions consolidated into a single action; an amended
consolidated complaint is required to be served by October 31, 2002.
Since September 2001, certain creditors of At Home have threatened to
commence litigation against AT&T relating to the conduct of AT&T or its
designees on the At Home Board in connection with At Home's declaration of
bankruptcy and At Home's subsequent aborted efforts to dispose of some of
its businesses or assets in the bankruptcy court-supervised auction, as
well as in connection with other aspects of AT&T's relationship with At
Home. No such lawsuits have been filed to date. The plan of liquidation in
the At Home bankruptcy, approved in October 2002, implements a creditor
settlement and provides that all claims of the bankrupt estate of At Home
against AT&T and other shareholders will be transferred to a liquidating
trust funded with at least $12 million, and as much as $17 million, to
finance the litigation of those claims.
Following closing of the AT&T Broadband transaction, the Company will be
contractually liable for 50% of any liabilities of AT&T relating to At
Home, including any resulting from any such pending or threatened
litigation (the "AT&T At Home Potential Liabilities"). AT&T will be liable
for the other 50% of such liabilities.
The Company denies any wrongdoing in connection with the claims which have
been made directly against the Company, its subsidiaries and Brian L.
Roberts, and intends to defend all such claims vigorously. In management's
31
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
opinion, the final disposition of such claims is not expected to have a
material adverse effect on the Company's or, following the closing of the
AT&T Broadband transaction, the combined company's, consolidated financial
position, but could possibly be material to the consolidated results of
operations of any one period. Further, no assurance can be given that any
adverse outcome would not be material to such consolidated financial
position.
Management has no basis for any expectation that the Company's 50% share of
the AT&T At Home Potential Liabilities would have a material adverse effect
on the combined company's consolidated financial position or results of
operations, although no assurance can be given that any adverse outcome
would not be material.
The Company is subject toour legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to such actions is not expected to have
a material adverse effect on the financial position or results of
operations of the Company.proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
None.31 Certifications of Chief Executive Officer and Co-Chief Financial
Officers pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32 Certification of Chief Executive Officer and Co-Chief Financial
Officers pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K:
(i) We filed a Current Report on Form 8-K under Items 5 and 7(c) on
July 10, 2002 announcing shareholder approval of the AT&T
Broadband transaction.
(ii) We filed a Current Report on Form 8-K under Items 7(c) and 9 on
August 1, 2002 submitting to the Securities and Exchange
Commission the Statements Under Oath of the Principal Executive
Officer and the Principal Financial Officers of Comcast Regarding
Facts and Circumstances Relating to Exchange Act Filings.
(iii)We filed a Current Report on Form 8-K under Items 5 and 7(b) on
September 26, 2002 announcing a change in the measurement date
for the AT&T Broadband transaction.
(iv) We filed a Current Report on Form 8-K under Items 5 and 7(b) on
October 4, 2002 announcing the new measurement date for the AT&T
Broadband transaction is established as of the date of the
substantive modification of the merger agreement related to the
change in the "other" consideration being paid.
32None.
24
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBERJUNE 30, 2002
SIGNATURE2003
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMCAST HOLDINGS CORPORATION
---------------------------------------
/S/ LAWRENCE J. SALVA
---------------------------------------
Lawrence J. Salva
Senior Vice President and Controller
(Principal Accounting Officer)
Date: October 30, 2002
33August 7, 2003
25
CERTIFICATIONS
I, Brian L. Roberts, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Comcast Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: October 30, 2002
/s/ BRIAN L. ROBERTS
- --------------------------------------------
Name: Brian L. Roberts
Chief Executive Officer
34
I, Lawrence S. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Comcast Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: October 30, 2002
/s/ LAWRENCE S. SMITH
- -------------------------------------------
Name: Lawrence S. Smith
Co-Chief Financial Officer
35
I, John R. Alchin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Comcast Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: October 30, 2002
/s/ JOHN R. ALCHIN
- --------------------------------------------
Name: John R. Alchin
Co-Chief Financial Officer
36