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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended:
SEPTEMBER 30, 2003
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ________ to
________.
Commission File Number 000-50093
[COMCAST LOGO OMITTED]
COMCAST CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 27-0000798
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Market Street, Philadelphia, PA 19102-2148
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
__________________________
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 X No ___
As of September 30, 2003, there were 1,356,652,544 shares of Class A Common
Stock, 884,835,241 shares of Class A Special Common Stock and 9,444,375 shares
of Class B Common Stock outstanding.
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
TABLE OF CONTENTS
Page Number
-----------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 2003
and December 31, 2002 (Unaudited)......................................................3
Condensed Consolidated Statement of Operations for the Three and Nine Months
Ended September 30, 2003 and 2002 (Unaudited)..........................................4
Condensed Consolidated Statement of Cash Flows for the Nine Months
Ended September 30, 2003 and 2002 (Unaudited)..........................................5
Notes to Condensed Consolidated Financial Statements (Unaudited).......................6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................................34
ITEM 4. Controls and Procedures...............................................................43
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.....................................................................43
ITEM 6. Exhibits and Reports on Form 8-K......................................................44
SIGNATURES.......................................................................................45
___________________________________
This Quarterly Report on Form 10-Q is for the three and nine months ended
September 30, 2003. This Quarterly Report modifies and supersedes documents
filed prior to this Quarterly Report. Information that we file with the SEC in
the future will automatically update and supersede information contained in this
Quarterly Report. In this Quarterly Report, "Comcast," "we," "us" and "our"
refer to Comcast Corporation and its subsidiaries.
You should carefully review the information contained in this Quarterly
Report and in other reports or documents that we file from time to time with the
SEC. In this Quarterly Report, we state our beliefs of future events and of our
future financial performance. In some cases, you can identify those so-called
"forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
Factors Affecting Future Operations
On November 18, 2002, we acquired AT&T Corp.'s broadband business, which we
refer to as "Broadband" and we refer to this acquisition as the "Broadband
acquisition." In this Quarterly Report, we refer to cable operations owned prior
to the Broadband acquisition as "historical," and those we acquired in the
Broadband acquisition as "newly acquired."
As a result of the Broadband acquisition, we have newly acquired cable
operations in communities in which we do not have established relationships with
the subscribers, franchising authority and community leaders. Further, a
substantial number of new employees are being and must continue to be integrated
into our business practices and operations. Our results of operations may be
significantly affected by our ability to efficiently and effectively manage
these changes.
Factors that may cause our actual results to differ materially from any of
our forward-looking statements presented in this Quarterly Report include, but
are not limited to:
o we may not successfully integrate Broadband or the integration may be more
difficult, time-consuming or costly than we expect,
o we may not realize the combination benefits we expect from the Broadband
acquisition or these benefits may take longer to achieve, and
o we may incur greater-than-expected operating costs, financing costs,
subscriber loss and business disruption, including, without limitation,
difficulties in maintaining relationships with employees, subscribers,
suppliers or franchising authorities.
As more fully described elsewhere in this Quarterly
Report and in our Annual Report on Form 10-K for the year ended December 31,
2002, the Broadband acquisition substantially increased the size of our cable
operations and caused significant changes in our capital structure. As a result,
direct comparisons of our results of operations for periods prior to November
18, 2002 to subsequent periods are not meaningful.
As more fully described elsewhere in this Quarterly Report, on September
17, 2003 we sold our approximate 57% interest in QVC, Inc., our electronic
retailing subsidiary, to Liberty Media Corporation. The results of QVC have been
reported as discontinued operations for all periods presented in the
accompanying condensed consolidated financial statements.
In addition, our businesses may be affected by, among other things:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o industry consolidation and mergers,
o franchise related matters,
o market conditions that may adversely affect the availability of debt
and equity financing for working capital, capital expenditures or
other purposes,
o demand for the programming content we distribute or the willingness of
other video program distributors to carry our content, and
o general economic conditions.
2
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
PART I. FINANCIAL INFORMATION
- ------- ---------------------
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in millions, except share data)
September 30, December 31,
2003 2002
------------ -----------
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents.................................................. $3,245 $505
Investments................................................................ 2,982 3,258
Accounts receivable, less allowance for doubtful accounts of $166 and $172. 850 862
Other current assets....................................................... 537 380
Current assets of discontinued operations.................................. 1,481
Current assets held for sale............................................... 613
------------ -----------
Total current assets................................................... 7,614 7,099
------------ -----------
INVESTMENTS................................................................... 15,463 15,174
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $5,890 and $3,855.. 18,194 18,381
FRANCHISE RIGHTS.............................................................. 46,023 48,222
GOODWILL...................................................................... 17,563 16,562
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $2,008 and $735... 4,216 5,429
OTHER NONCURRENT ASSETS, net.................................................. 743 666
NONCURRENT ASSETS OF DISCONTINUED OPERATIONS.................................. 1,595
------------ -----------
$109,816 $113,128
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable........................................................... $1,188 $1,296
Accrued expenses and other current liabilities............................. 5,352 5,236
Deferred income taxes...................................................... 510 1,105
Short-term debt............................................................ 3,750
Current portion of long-term debt.......................................... 3,065 3,203
Current liabilities of discontinued operations............................. 816
------------ -----------
Total current liabilities.............................................. 10,115 15,406
------------ -----------
LONG-TERM DEBT, less current portion.......................................... 27,316 27,956
------------ -----------
DEFERRED INCOME TAXES......................................................... 24,654 23,104
------------ -----------
OTHER NONCURRENT LIABILITIES.................................................. 6,214 7,161
------------ -----------
MINORITY INTEREST............................................................. 279 249
------------ -----------
NONCURRENT LIABILITIES AND MINORITY INTEREST OF
DISCONTINUED OPERATIONS.................................................... 923
------------ -----------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY
Preferred stock - authorized 20,000,000 shares; issued, zero...............
Class A common stock, $0.01 par value - authorized,
7,500,000,000 shares; issued, 1,600,293,044 and 1,599,014,148;
outstanding, 1,356,652,544 and 1,355,373,648............................. 16 16
Class A special common stock, $0.01 par value - authorized,
7,500,000,000 shares; issued 932,125,084 and 930,633,433;
outstanding, 884,835,241 and 883,343,590................................. 9 9
Class B common stock, $0.01 par value - authorized, 75,000,000
shares; issued, 9,444,375................................................
Additional capital......................................................... 44,709 44,620
Retained earnings.......................................................... 4,181 1,340
Treasury stock, 243,640,500 Class A common shares and 47,289,843
Class A special common shares............................................ (7,517) (7,517)
Accumulated other comprehensive loss....................................... (160) (139)
------------ -----------
Total stockholders' equity............................................. 41,238 38,329
------------ -----------
$109,816 $113,128
============ ===========
See notes to condensed consolidated financial statements.
3
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(Dollars in millions, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
--------- --------- --------- ---------
SERVICE REVENUES........................................................... $4,546 $1,698 $13,606 $5,102
COSTS AND EXPENSES
Operating (excluding depreciation)..................................... 1,703 597 5,267 1,831
Selling, general and administrative.................................... 1,211 459 3,667 1,340
Depreciation........................................................... 774 321 2,370 957
Amortization........................................................... 365 50 1,090 134
--------- --------- --------- ---------
4,053 1,427 12,394 4,262
--------- --------- --------- ---------
OPERATING INCOME........................................................... 493 271 1,212 840
OTHER INCOME (EXPENSE)
Interest expense....................................................... (565) (172) (1,579) (535)
Investment loss, net................................................... (182) (47) (418) (702)
Equity in net losses of affiliates..................................... (16) (9) (33) (55)
Other income (expense)................................................. 28 5 71 (12)
--------- --------- --------- ---------
(735) (223) (1,959) (1,304)
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
MINORITY INTEREST...................................................... (242) 48 (747) (464)
INCOME TAX (EXPENSE) BENEFIT............................................... 103 (27) 231 123
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST......... (139) 21 (516) (341)
MINORITY INTEREST.......................................................... (14) 3 (85) (23)
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS................................... (153) 24 (601) (364)
INCOME FROM DISCONTINUED OPERATIONS, net of tax............................ 39 52 168 141
GAIN ON DISCONTINUED OPERATIONS, net of tax................................ 3,290 3,290
--------- --------- --------- ---------
NET INCOME (LOSS).......................................................... $3,176 $76 $2,857 ($223)
========= ========= ========= =========
BASIC EARNINGS (LOSS) FOR COMMON STOCKHOLDERS PER COMMON SHARE
Income (loss) from continuing operations............................... ($0.07) $0.03 ($0.27) ($0.38)
Income from discontinued operations.................................... 0.02 0.05 0.08 0.15
Gain on discontinued operations........................................ 1.46 1.46
--------- --------- --------- ---------
Net income (loss)...................................................... $1.41 $0.08 $1.27 ($0.23)
========= ========= ========= =========
DILUTED EARNINGS (LOSS) FOR COMMON STOCKHOLDERS PER COMMON SHARE
Income (loss) from continuing operations............................... ($0.07) $0.03 ($0.27) ($0.38)
Income from discontinued operations.................................... 0.02 0.05 0.08 0.15
Gain on discontinued operations........................................ 1.46 1.46
--------- --------- --------- ---------
Net income (loss)...................................................... $1.41 $0.08 $1.27 ($0.23)
========= ========= ========= =========
See notes to condensed consolidated financial statements.
4
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in millions)
Nine Months Ended September 30,
2003 2002
----------- ----------
OPERATING ACTIVITIES
Net income (loss).................................................................. $2,857 ($223)
Income from discontinued operations................................................ (168) (141)
Gain on discontinued operations.................................................... (3,290)
----------- ----------
Loss from continuing operations.................................................... (601) (364)
Adjustments to reconcile net loss from continuing operations to net cash
provided by operating activities from continuing operations:
Depreciation..................................................................... 2,370 957
Amortization..................................................................... 1,090 134
Non-cash interest (income) expense, net.......................................... (85) 32
Equity in net losses of affiliates............................................... 33 55
Losses (gains) on investments and other (income) expense, net.................... 423 733
Minority interest................................................................ 34 23
Deferred income taxes............................................................ (289) (60)
Proceeds from sales of trading securities........................................ 85
Other............................................................................ 105 (56)
----------- ----------
3,165 1,454
Changes in working capital, net of effects of acquisitions and divestitures:
Decrease in accounts receivable, net........................................... 12 11
Increase in other current assets............................................... (157) (5)
(Decrease) increase in accounts payable, accrued expenses and
other current liabilities................................................... (501) 183
----------- ----------
(646) 189
Net cash provided by operating activities from continuing operations....... 2,519 1,643
----------- ----------
FINANCING ACTIVITIES
Proceeds from borrowings........................................................... 9,377 876
Retirements and repayments of debt................................................. (13,675) (1,801)
Other.............................................................................. (3) 70
----------- ----------
Net cash used in financing activities from continuing operations........... (4,301) (855)
----------- ----------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired................................................. (39) (16)
Proceeds from sales of (purchases of) short-term investments, net.................. (8) 4
Proceeds from restructuring of TWE investment...................................... 2,100
Proceeds from sales of discontinued operations and assets held for sale............ 1,875
Proceeds from sales of Liberty Notes............................................... 3,000
Proceeds from sales of investments................................................. 977 734
Purchases of investments........................................................... (151) (48)
Capital expenditures............................................................... (3,093) (1,035)
Additions to intangible and other noncurrent assets................................ (139) (231)
----------- ----------
Net cash provided by (used in) investing activities from
continuing operations.................................................. 4,522 (592)
----------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS................................................. 2,740 196
CASH AND CASH EQUIVALENTS, beginning of period........................................ 505 214
----------- ----------
CASH AND CASH EQUIVALENTS, end of period.............................................. $3,245 $410
=========== ==========
See notes to condensed consolidated financial statements.
5
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
Comcast Corporation and its subsidiaries ("Comcast" or the "Company") has
prepared these unaudited condensed consolidated financial statements based
upon Securities and Exchange Commission ("SEC") rules that permit reduced
disclosure for interim periods.
These financial statements include all adjustments that are necessary for a
fair presentation of the Company's results of operations and financial
condition for the interim periods shown including normal recurring accruals
and other items. The results of operations for the interim periods
presented are not necessarily indicative of results for the full year.
For a more complete discussion of the Company's accounting policies and
certain other information, refer to the financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31,
2002.
On November 18, 2002, the Company completed the acquisition (the "Broadband
acquisition") of AT&T Corp.'s ("AT&T") broadband business ("Broadband").
Accordingly, the accompanying financial statements include the results of
Broadband from the date of the Broadband acquisition (see Note 4). The
Broadband acquisition substantially increased the size of the Company's
cable operations and caused significant changes in the Company's capital
structure, including a substantially higher amount of debt. As a result,
direct comparisons of the Company's results of operations and financial
condition for periods prior to November 18, 2002 to subsequent periods are
not meaningful.
On September 17, 2003, the Company completed the sale of its approximate
57% interest in QVC, Inc. ("QVC"). Accordingly, QVC has been presented as a
discontinued operation pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" (see Note 4).
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to those classifications used in 2003.
2. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 143
The Financial Accounting Standards Board ("FASB") issued SFAS No. 143,
"Accounting for Asset Retirement Obligations," in June 2001. SFAS No. 143
addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. The Company adopted SFAS No. 143 on January 1, 2003, in
accordance with the new statement. The adoption of SFAS No. 143 had no
impact on the Company's financial condition or results of operations.
SFAS No. 148
The FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure," in December 2002. SFAS No. 148 amends SFAS No.
123 to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for
stock-based employee compensation. SFAS No. 148 also amends the disclosure
provisions of SFAS No. 123 to require disclosure about the effects on
reported net income of an entity's stock-based employee compensation in
interim financial statements. SFAS No. 148 is effective for fiscal years
beginning after December 31, 2002. The Company adopted SFAS No. 148 on
January 1, 2003. The Company did not change to the fair value based method
of accounting for stock-based employee compensation. Accordingly, the
adoption of SFAS No. 148 would only affect the Company's financial
condition or results of operations if the Company elects to change to the
fair value method specified in SFAS No. 123. The adoption of SFAS No. 148
requires the Company to disclose the effects of its stock-based employee
compensation in interim financial statements beginning with the first
quarter of 2003 (see Note 8).
6
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
SFAS No. 149
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." The Statement amends and
clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003, for hedging relationships
designated after June 30, 2003, and to certain preexisting contracts. The
Company adopted SFAS No. 149 on July 1, 2003 on a prospective basis in
accordance with the new statement. The adoption of SFAS No. 149 had no
material impact on the Company's financial condition or results of
operations.
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, in 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 was effective July 1, 2003. In connection with the adoption of
SFAS No. 150, the Company reclassified its subsidiary preferred shares
totaling approximately $1.6 billion previously included in minority
interest to other noncurrent liabilities in the Company's consolidated
balance sheets.
The FASB is addressing certain implementation issues associated with the
application of SFAS No. 150. On October 29, 2003, the FASB decided to defer
certain provisions of SFAS No. 150 related to mandatorily redeemable
financial instruments representing noncontrolling interests in subsidiaries
included in consolidated financial statements. The Company will monitor the
actions of the FASB and assess the impact, if any, that these actions may
have on its financial statements.
FIN 45
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 expands on the
accounting guidance of SFAS No.'s 5, 57, and 107 and supercedes FIN 34. FIN
45 clarifies that a guarantor is required to disclose in its interim and
annual financial statements its obligations under certain guarantees that
it has issued, including the nature and terms of the guarantee, the maximum
potential amount of future payments under the guarantee, the carrying
amount, if any, for the guarantor's obligations under the guarantee, and
the nature and extent of any recourse provisions or available collateral
that would enable the guarantor to recover the amounts paid under the
guarantee. FIN 45 also clarifies that, for certain guarantees, a guarantor
is required to recognize, at the inception of a guarantee, a liability for
the fair value of the obligation undertaken in issuing the guarantee. FIN
45 does not prescribe a specific approach for subsequently measuring the
guarantor's recognized liability over the term of the related guarantee.
The initial recognition and initial measurement provisions of FIN 45 apply
on a prospective basis to certain guarantees issued or modified after
December 31, 2002. The disclosure requirements in FIN 45 are effective for
financial statements of interim or annual periods ending after December 15,
2002. The Company adopted the disclosure provisions of FIN 45 in the fourth
quarter of 2002 and adopted the initial recognition and measurement
provisions of FIN 45 on January 1, 2003, as required by the Interpretation.
The impact of the adoption of FIN 45 will depend on the nature and terms of
guarantees entered into or modified by the Company in the future. The
adoption of FIN 45 in the first quarter of 2003 did not have a material
impact on the Company's financial condition or results of operations (see
Note 10).
FIN 46
The Company adopted the provisions of FASB Interpretation No. 46
"Consolidation of Variable Interest Entities" ("FIN 46") effective January
1, 2002. FIN 46 clarifies the application of Accounting Research Bulletin
51 to certain entities, defined as variable interest entities ("VIEs"), in
which equity investors do not have characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated support from
other parties. At the time of the initial application, FIN 46 had no impact
on
7
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
the Company's financial condition or results of operations because the
Company previously consolidated all VIEs in which it was the primary
beneficiary. Since the Company's initial application, the FASB has been
addressing various implementation issues that could potentially broaden the
application of FIN 46 to entities outside its originally interpreted scope
and has issued and proposed several FASB Staff Positions. The Company does
not expect that these FASB Staff Positions will have a material impact on
its financial statements.
3. EARNINGS PER SHARE
Earnings (loss) per common share is computed by dividing net income (loss)
for common stockholders by the weighted average number of common shares
outstanding during the period on a basic and diluted basis.
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"), stock options and restricted stock. Diluted
earnings for common stockholders per common share ("Diluted EPS") considers
the impact of potentially dilutive securities except in periods in which
there is a loss as the inclusion of the potential common shares would have
an antidilutive effect. Diluted EPS excludes the impact of potential common
shares related to the Company's Zero Coupon Debentures in periods in which
the weighted average closing sale price of the Company's Class A Special
common stock during the period is not greater than 110% of the accreted
conversion price. Diluted EPS excludes the impact of potential common
shares related to the Company's stock options in periods in which the
option exercise price is greater than the average market price of the
Company's common stock for the period. Diluted EPS excludes the impact of
potential common shares related to the Company's Class A Special common
stock held in treasury because it is the Company's intent to settle the
related Comcast exchangeable notes using cash (see Note 7).
Diluted EPS for the three and nine months ended September 30, 2003 and the
nine months ended September 30, 2002 excludes approximately 148.7 million,
144.4 million and 83.0 million potential common shares, respectively,
related to the Company's stock option plans, restricted stock plans and
Zero Coupon Debentures because the assumed issuance of such potential
common shares is antidilutive in periods in which there is a loss from
continuing operations.
Diluted EPS for the three months ended September 30, 2002 excludes
approximately 58.5 million potential common shares related to both the
Company's stock option plans because the option exercise price was greater
than the average market price of the Company's Class A Special common stock
for the period and also to the Zero Coupon Debentures.
8
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following table reconciles the numerator and denominator of the
computations of Diluted EPS for income (loss) from continuing operations
for the interim periods presented.
(Amounts in millions, except per share data)
Three Months Ended Three Months Ended
September 30, 2003 September 30, 2002
--------------------------------- --------------------------------
Per Share Per Share
Loss Shares Amount Income Shares Amount
--------- --------- ------------ --------- --------- -----------
Basic EPS................................ ($153) 2,257 ($0.07) $24 953 $0.03
Effect of Dilutive Securities
Assumed exercise of stock option
and restricted stock plans.......... 6
--------- --------- ---------- --------- --------- ----------
Diluted EPS.............................. ($153) 2,257 ($0.07) $24 959 $0.03
========= ========= ========== ========= ========= ==========
Nine Months Ended Nine Months Ended
September 30, 2003 September 30, 2002
--------------------------------- --------------------------------
Per Share Per Share
Loss Shares Amount Loss Shares Amount
--------- --------- ------------ --------- --------- -----------
Basic and Diluted EPS.................... ($601) 2,256 ($0.27) ($364) 952 ($0.38)
========= ========= ========== ========= ========= ==========
4. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Acquisition of Broadband
On November 18, 2002, the Company completed the acquisition of Broadband.
The allocation of the purchase price for the Broadband acquisition is
preliminary. The values of certain assets and liabilities are based on
preliminary valuations and are subject to adjustment as additional
information is obtained. Such additional information includes: final
reports from valuation specialists; information related to the cost of
terminating or meeting contractual obligations; and information related to
preacquisition contingencies.
As of the acquisition date, the Company initiated certain integration
activities based on a preliminary plan to terminate employees and exit
certain contractual obligations. Under the guidance in Emerging Issues Task
Force ("EITF") 95-3, "Recognition of Liabilities in Connection with a
Purchase Business Combination," the plan must be finalized within one year
of the acquisition date and must identify all significant actions to be
taken to complete the plan. Therefore, costs related to terminating
employees and exiting contractual obligations of the acquired entity are
included in the purchase price allocation. Changes to these estimated
termination or exit costs are reflected as adjustments to the purchase
price allocation to the extent they occur within one year of the
acquisition date or if there are reductions in the amount of estimated
termination or exit costs accrued. Otherwise, changes will affect future
results of operations.
Liabilities associated with exit activities recorded in the purchase price
allocation consist of accrued employee termination and related costs of
$602 million and $929 million associated with either the cost of
terminating contracts or the present value of remaining amounts payable
under non-cancelable contracts. Amounts paid, adjustments made against
these accruals and interest accretion during the nine months ended
September 30, 2003 were as follows (in millions):
9
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Employee Contract
Termination and Exit
Related Costs Costs
-------------------- ------------------
Balance, December 31, 2002.................................... $492 $913
Payments...................................................... (184) (40)
Adjustments................................................... (100) (524)
Interest accretion............................................ 29
------------------ ----------------
Balance, September 30, 2003................................... $208 $378
================== ================
The adjustments reflected in the preceding table are the result of
reductions in the estimated payments related to employee and contractual
termination costs.
Unaudited Pro Forma Information
The following unaudited pro forma information has been presented as if the
Broadband acquisition occurred on January 1, 2002. This information is
based on historical results of operations, adjusted for acquisition costs,
and, in the opinion of management, is not indicative of what the results
would have been had the Company operated Broadband since January 1, 2002.
(Amounts in millions,
except per share data)
Nine Months Ended
September 30, 2002
------------------------
Revenues........................................................ $12,410
Net loss........................................................ ($14,444)
Diluted EPS..................................................... ($6.41)
The unaudited pro forma information for the nine months ended September 30,
2002 includes $11.781 billion, net of tax, of goodwill and franchise
impairment charges recorded by Broadband prior to the closing of the
Broadband acquisition.
Bresnan Transaction
On March 20, 2003, the Company completed the previously announced
transaction with Bresnan Broadband Holdings, LLC and Bresnan
Communications, LLC (together, "Bresnan") pursuant to which the Company
transferred cable systems serving approximately 314,000 subscribers in
Montana, Wyoming and Colorado to Bresnan that the Company had acquired in
connection with the Broadband acquisition. The Company received $525
million in cash, plus preferred and common equity interests in Bresnan in
exchange for these cable systems. The assets of $613 million (which consist
primarily of cable franchise rights, other intangible assets and property
and equipment) were reported as current assets held for sale in accordance
with SFAS No. 144 in the Company's consolidated balance sheet as of
December 31, 2002. The transfer of these cable systems was accounted for at
fair value with no gain or loss recognized. The results of operations for
these cable systems for the first quarter of 2003 were not significant and
were included in equity in net losses of affiliates in the Company's
consolidated statement of operations.
TWE Restructuring
On March 31, 2003, the Company announced the successful completion of the
previously announced restructuring of Time Warner Entertainment Company
L.P. ("TWE"). As a result of the restructuring, Time Warner, Inc. ("Time
Warner") assumed complete control over TWE's content assets, including Home
Box Office, Warner Bros., and stakes in The WB Network, Comedy Central and
Court TV. All of Time Warner's interests in cable, including those held
through TWE, are now held through or for the benefit of a new subsidiary of
Time Warner called Time Warner Cable, Inc. ("TWC"). In exchange for its
27.6% interest in TWE, the Company received common-equivalent
10
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
preferred stock of Time Warner, which will be converted into $1.5 billion
of Time Warner common stock valued upon completion of an effective
registration statement filing with the SEC, and the Company received a 21%
economic stake in the business of TWC. In addition, the Company received
$2.1 billion in cash which was used immediately to repay amounts
outstanding under certain of the Company's credit facilities (see Notes 5
and 7). The TWE restructuring was accounted for as a fair value exchange
with no gain or loss recognized. Under the restructuring agreement, the
Company has registration rights that should facilitate the disposal or
monetization of its shares in TWC and in Time Warner.
As part of the process of obtaining approval of the Broadband acquisition
from the Federal Communications Commission ("FCC"), at the closing of the
Broadband acquisition, the Company placed its entire interest in TWE in
trust for orderly disposition. Any non-cash consideration received in
respect of such interest as a result of the TWE restructuring, including
the Time Warner and TWC stock, will remain in trust until disposed of or
FCC approval is obtained to remove such interests from the trust.
Under the trust, the trustee has exclusive authority to exercise any
management or governance rights associated with the securities in trust.
The trustee also has the obligation, subject to the rights of the Company
as described in the last sentence of this paragraph, to exercise available
registration rights to effect the sale of such interests in a manner
intended to maximize the value received consistent with the goal of
disposing such securities in their entirety by November 2007. Following
this time, if any securities remain in trust, the trustee will be obligated
to dispose of the remaining interests as quickly as possible, and in any
event by May 2008. The trustee is also obligated, through November 2007, to
effect certain specified types of sale or monetization transactions with
respect to the securities as may be proposed by the Company from time to
time.
As a condition of the closing of the TWE restructuring, the Company entered
into a three-year nonexclusive agreement with Time Warner under which AOL
High-Speed Broadband service will be made available over a three- year
period on certain of the Company's cable systems which pass approximately
10 million homes.
Sale of QVC
On September 17, 2003, the Company completed the sale to Liberty Media
Corporation ("Liberty") of all shares of QVC common stock held by a number
of direct wholly-owned subsidiaries of the Company for an aggregate amount
of approximately $7.7 billion, consisting of $4 billion principal amount of
Liberty's Floating Rate Senior Notes due 2006 (the "Liberty Notes"), $1.35
billion in cash and approximately 218 million shares of Liberty Series A
common stock. The shares had a fair value on the closing date of $10.73 per
share. The consideration received, net of transaction costs, over the
Company's carrying value of the net assets of QVC resulted in a gain of
approximately $3.290 billion, net of approximately $2.865 billion of
related income taxes.
The Liberty Notes and shares of Liberty Series A common stock received in
the transaction have been registered with the SEC pursuant to the
Agreement. On September 24, 2003, the Company, through its wholly-owned
indirect subsidiaries, sold an aggregate of $3.0 billion principal amount
of the Liberty Notes for net proceeds of approximately $3.0 billion. The
remaining Liberty Notes held by the Company, which bear interest at LIBOR
plus 1.5%, are classified as available for sale and the shares of Liberty
Series A common stock received by the Company in connection with the sale
of QVC are classified as trading securities (see Note 5).
11
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The current and noncurrent assets and liabilities of QVC included within
the related discontinued operations captions are as follows (in millions):
December 31,
2002
-----------
Cash................................................................. $276
Accounts receivable, less allowance for doubtful accounts............ 569
Inventories, net..................................................... 479
Other current assets................................................. 157
-----------
Total current assets of discontinued operations................. $1,481
===========
Property and equipment, net of accumulated depreciation.............. $485
Goodwill............................................................. 835
Other intangible assets, net of accumulated amortization............. 170
Other noncurrent assets, net......................................... 105
-----------
Total noncurrent assets of discontinued operations.............. $1,595
===========
Accounts payable..................................................... $367
Accrued expenses and other current liabilities....................... 449
-----------
Total current liabilities of discontinued operations............ $816
===========
Minority interest.................................................... $867
Other noncurrent liabilities......................................... 56
-----------
Total noncurrent liabilities and minority interest
of discontinued operations.................................... $923
===========
The results of operations of QVC prior to its disposition are included
within income from discontinued operations, net of tax in the following
periods (in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
--------- --------- --------- ---------
Revenues................................................... $752 $1,012 $2,915 $3,000
Income before income taxes and minority interest........... $123 $146 $496 $419
The 2003 periods include QVC operations through August 31, 2003 as reported
to the Company by QVC. The amount of income from discontinued operations
and gain on discontinued operations is subject to reallocation as
additional information is obtained from QVC, which will have no effect on
net income.
12
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
5. INVESTMENTS
September 30, December 31,
2003 2002
-------------- --------------
(in millions)
Fair value method (see Note 7)
AT&T Corp.................................................... $ $287
Cablevision.................................................. 750 694
Liberty...................................................... 3,212 43
Microsoft.................................................... 1,998 1,967
Sprint Corp. PCS Group....................................... 354 369
Vodafone..................................................... 1,392 1,759
Other ....................................................... 27 30
-------------- --------------
7,733 5,149
-------------- --------------
Equity Method
Cable related................................................ 2,170 2,094
Other........................................................ 232 204
-------------- --------------
2,402 2,298
-------------- --------------
Cost method, principally TWC and Time Warner at
September 30, 2003 and TWE at December 31, 2002
(see Note 4)................................................. 8,310 10,985
-------------- --------------
Total investments............................................ 18,445 18,432
Less, current investments......................................... 2,982 3,258
-------------- --------------
Non-current investments........................................... $15,463 $15,174
============== ==============
Fair Value Method
The Company holds unrestricted equity investments in certain publicly
traded companies, which it accounts for as available for sale or trading
securities. The net unrealized pre-tax gains on investments accounted for
as available for sale securities as of September 30, 2003 and December 31,
2002 of $38 million and $72 million, respectively, have been reported in
the Company's consolidated balance sheet principally as a component of
accumulated other comprehensive loss, net of related deferred income taxes
of $13 million and $25 million, respectively.
The cost, fair value and unrealized gains and losses related to the
Company's available for sale securities are as follows (in millions):
September 30, December 31,
2003 2002
----------- -----------
Cost............................................................. $1,072 $322
Unrealized gains................................................. 43 73
Unrealized losses................................................ (5) (1)
----------- -----------
Fair value....................................................... $1,110 $394
=========== ===========
Cost Method
In connection with the Broadband acquisition, the Company acquired an
indirect interest in CC VIII, LLC ("CC VIII"), a cable joint venture with
Charter Communications, Inc. ("Charter"). In April 2002, AT&T exercised its
rights to cause Paul G. Allen ("Allen"), Charter's Chairman, or his
designee to purchase this indirect interest. In June 2003, Allen purchased
the Company's interest in CC VIII for $728 million in cash. The Company
accounted
13
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
for the sale of its interest in CC VIII at fair value with no gain or loss
recognized. The Company used the proceeds from the sale to repay a portion
of the amounts outstanding under its revolving credit facilities.
Investment Loss, Net
Investment loss, net for the interim periods includes the following (in
millions):
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
--------- --------- --------- ---------
Interest and dividend income............................... $27 $6 $103 $19
Gains (losses) on sales and exchanges of investments, net.. 4 26 (101)
Investment impairment losses............................... (6) (70) (227)
Unrealized (losses) gains on trading securities............ (110) (181) 182 (1,621)
Mark to market adjustments on derivatives related to
trading securities.................................... (62) 139 (367) 1,310
Mark to market adjustments on derivatives and
hedged items.......................................... (41) (5) (292) (82)
--------- --------- --------- ---------
Investment loss, net.................................. ($182) ($47) ($418) ($702)
========= ========= ========= =========
6. GOODWILL
The changes in the carrying amount of goodwill by business segment (see
Note 11) for the periods presented are as follows (in millions):
Corporate
Cable and Other Total
------------ ------------ ------------
Balance, December 31, 2002...................... $15,644 $918 $16,562
Purchase price allocation adjustments....... 1,001 1,001
Intersegment transfers...................... 20 (20)
------------ ------------ ------------
Balance, September 30, 2003..................... $16,665 $898 $17,563
============ ============ ============
During the nine months ended September 30, 2003, the Company adjusted its
preliminary purchase price allocation of the Broadband acquisition. The net
increase to goodwill primarily relates to the reduction in values assigned
to property and equipment, franchise rights and other intangible assets as
a result of obtaining updated valuation reports. This increase to goodwill
was partially offset by the reduction in the Company's estimated
liabilities associated with employee termination costs, estimated
contractual obligations assumed in the acquisition and the impact of the
adjustments on deferred taxes.
7. LONG-TERM DEBT
September 30, December 31,
2003 2002
----------- -----------
(in millions)
Notes exchangeable into common stock............................. $5,406 $5,459
Bank and public debt............................................. 24,617 28,702
Other, including capital lease obligations....................... 358 748
----------- -----------
Total debt.................................................. $30,381 $34,909
=========== ===========
14
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The Cross-Guarantee Structure
To simplify the Company's capital structure, effective with the acquisition
of Broadband, the Company and four of its cable holding company
subsidiaries fully and unconditionally guaranteed each other's debt
securities (the "Cross-Guarantee Structure"). Comcast Holdings Corporation
("Comcast Holdings") is not a guarantor, and none of its debt is
guaranteed. Comcast MO of Delaware, Inc. (formerly, MediaOne of Delaware,
Inc. and Continental Cablevision, Inc.) was not originally a part of the
Cross-Guarantee Structure. On March 12, 2003, the Company announced the
successful completion of a bondholder consent solicitation related to
Comcast MO of Delaware, Inc.'s $1.7 billion aggregate principal amount in
debt securities to permit it to become part of the Cross-Guarantee
Structure. As of September 30, 2003, $22.568 billion of the Company's debt
securities were entitled to the benefits of the Cross-Guarantee Structure
(see Note 12).
Senior Notes Offerings
In January, March and May 2003, the Company sold an aggregate of $4.0
billion of public debt consisting of $600 million of 5.85% senior notes due
2010, $900 million of 6.50% senior notes due 2015, $750 million of 5.50%
senior notes due 2011, $750 million of 7.05% senior notes due 2033 and $1.0
billion of 5.30% senior notes due 2014. The Company used all of the net
proceeds from the offerings to repay a portion of its short-term debt
outstanding and to repay a portion of amounts outstanding under its
revolving credit facilities due in 2005 and 2007.
Repayments of Debt with Proceeds from TWE Restructuring
On March 31, 2003, in connection with the closing of the TWE restructuring,
the Company received $2.1 billion in cash which was used to repay debt,
including the remaining outstanding balance of the Company's short-term
debt (see Note 4).
Redemptions and Refinancings of Debt
In May 2003, the Company redeemed at their respective scheduled redemption
price $433 million aggregate principal amount of certain of its senior
notes and senior subordinated notes with maturities ranging from 2003 to
2023 and interest rates ranging from 8 1/4% to 9.65%. The Company financed
the redemptions with amounts available under its existing credit
facilities.
In May 2003, the Company borrowed an aggregate of $2.75 billion,
representing all amounts available under two new credit agreements.
Borrowings under the new credit agreements, which bear interest at LIBOR
plus 1.125% and LIBOR plus 0.875%, respectively, and are due in 2006, were
used to repay a portion of the $3.18 billion that was outstanding under the
Company's term loan due 2004. The new credit agreements replaced the
Company's 364-day credit facility, which expired in May 2003.
Repayments of Debt with Proceeds from Sale of QVC and Liberty Notes
In September 2003, in connection with the sale of QVC and the sale of the
Liberty Notes, the Company received an aggregate of approximately $4.35
billion in cash. In September 2003, the Company used a portion of the cash
proceeds to repay all amounts outstanding on certain of its bank credit
facilities, including $430 million on the Comcast term loan due 2004, $700
million on the Comcast revolving credit facilities due 2006 and 2007, and
$550 million on the Comcast Cable revolving credit facility due 2005 (see
Note 4).
Notes Exchangeable into Common Stock
As a result of the Broadband acquisition, the Company assumed exchangeable
notes (the "Exchangeable Notes"), which are mandatorily redeemable at the
Company's option into shares of Cablevision NY Group ("Cablevision") Class
A common stock or its cash equivalent, Microsoft Corporation ("Microsoft")
common stock or its cash equivalent, (i) Vodafone ADRs, (ii) the cash
equivalent, or (iii) a combination of cash and Vodafone ADRs, and Comcast
Class A Special common stock or its cash equivalent. The maturity value of
the Exchangeable Notes varies based upon the fair market value of the
security to which it is indexed. The Company's Exchangeable Notes are
collateralized by the Company's investments in Cablevision, Microsoft and
Vodafone, respectively, and the Comcast Class A Special common stock held
in treasury. The Exchangeable Notes mature in tranches from 2003 through
2007 (see Note 3).
15
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
During the nine months ended September 30, 2003, the Company settled an
aggregate of $352 million of its obligations relating to Vodafone
exchangeable notes by delivering the underlying shares of Vodafone common
stock to the counterparty upon maturity of the instruments, and the equity
collar agreements related to the underlying Vodafone shares expired. The
transactions, which represented non-cash financing and investing
activities, had no effect on the Company's statement of cash flows due to
their non-cash nature. As of September 30, 2003, the securities held by the
Company collateralizing the Exchangeable Notes were sufficient to satisfy
the debt obligations associated with the outstanding Exchangeable Notes
(see Notes 5 and 9).
ZONES
At maturity, holders of the Company's 2.0% Exchangeable Subordinated
Debentures due 2029 (the "ZONES") are entitled to receive in cash an amount
equal to the higher of the principal amount of the ZONES or the market
value of Sprint PCS common stock. Prior to maturity, each ZONES is
exchangeable at the holders' option for an amount of cash equal to 95% of
the market value of Sprint PCS Stock. As of September 30, 2003, the number
of Sprint PCS shares held by the Company exceeded the number of ZONES
outstanding.
The Company split the accounting for the Exchangeable Notes and the ZONES
into derivative and debt components. The Company records the change in the
fair value of the derivative component of the Exchangeable Notes and the
ZONES (see Note 5) and the change in the carrying value of the debt
component of the Exchangeable Notes and the ZONES as follows (in millions):
Exchangeable Notes ZONES
---------------------- --------------------------
Nine Months Nine Months
Ended Ended
September 30, September 30,
2003 2003 2002
-------------- ----------- -----------
Balance at Beginning of Period:
Debt component..................................... $6,981 $491 $468
Derivative component............................... (1,522) 208 1,145
-------------- ----------- -----------
Total........................................... 5,459 699 1,613
Decrease in debt component due to maturities......... (352)
(Decrease) increase in debt
component to interest expense...................... (80) 18 17
Increase (decrease) in derivative
component to investment income (loss), net......... 379 64 (1,053)
Balance at End of Period:
Debt component....................................... 6,549 509 485
Derivative component................................. (1,143) 272 92
-------------- ----------- -----------
Total............................................. $5,406 $781 $577
============== =========== ===========
Interest Rates
Excluding the derivative component of the Exchangeable Notes and the ZONES
whose changes in fair value are recorded to investment income (loss), net,
the Company's effective weighted average interest rate on its total debt
outstanding was 6.71% and 6.00% as of September 30, 2003 and December 31,
2002, respectively.
Derivatives
The Company uses derivative financial instruments to manage its exposure to
fluctuations in interest rates and securities prices. The Company has
issued indexed debt instruments and prepaid forward sale agreements whose
value, in part, is derived from the market value of certain publicly traded
common stock.
16
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Lines and Letters of Credit
As of September 30, 2003, certain subsidiaries of the Company had unused
lines of credit of $5.896 billion under their respective credit facilities.
As of September 30, 2003, the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totaling $399 million to cover
potential fundings under various agreements.
8. STOCKHOLDERS' EQUITY
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 permitted by SFAS No. 123,
"Accounting for Stock-Based Compensation," as amended. Compensation expense
for stock options is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock. The Company records compensation
expense for restricted stock awards based on the quoted market price of the
Company's stock at the date of the grant and the vesting period. The
Company records compensation expense for stock appreciation rights based on
the changes in quoted market prices of the Company's stock or other
determinants of fair value.
17
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following table illustrates the effect on net income (loss) and net
income (loss) per share if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based compensation (dollars
in millions, except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
---------- ---------- ---------- ---------
Net income (loss), as reported.................................. $3,176 $76 $2,857 ($223)
Deduct: Total stock-based compensation
expense determined under fair value based method
for all awards relating to continuing operations,
net of related tax effects.............................. (45) (33) (121) (94)
Total stock-based compensation expense determined
under fair value based method for all awards relating
to discontinued operations, net of related tax effects.. (5) (4) (12) (12)
---------- ---------- ---------- ---------
Pro forma, net income (loss).................................... $3,126 $39 $2,724 ($329)
========== ========== ========== =========
Basic earnings (loss) from continuing operations for common
stockholders per common share:
As reported................................................ ($0.07) $0.03 ($0.27) ($0.38)
Pro forma.................................................. ($0.09) ($0.01) ($0.32) ($0.48)
Diluted earnings (loss) from continuing operations for common
stockholders per common share:
As reported................................................ ($0.07) $0.03 ($0.27) ($0.38)
Pro forma.................................................. ($0.09) ($0.01) ($0.32) ($0.48)
Basic earnings (loss) for common stockholders per common share:
As reported................................................ $1.41 $0.08 $1.27 ($0.23)
Pro forma.................................................. $1.39 $0.04 $1.21 ($0.35)
Diluted earnings (loss) for common stockholders per common share:
As reported................................................ $1.41 $0.08 $1.27 ($0.23)
Pro forma.................................................. $1.39 $0.04 $1.21 ($0.35)
Total stock-based compensation expense was determined under the fair value
method for all awards using the accelerated recognition method as permitted
under SFAS No. 123. Had the Company applied the fair value recognition
provisions of SFAS No. 123 using the straight-line rather than the
accelerated recognition method of its stock options, total stock-based
compensation expense relating to continuing operations, net of related tax
effects, would have been $39 million and $26 million for the three months
ended September 30, 2003 and 2002, respectively, and $103 million and $75
million for the nine months ended September 30, 2003 and 2002,
respectively.
The weighted-average fair value at date of grant of a Class A common stock
option granted under the Company's option plan during the three and nine
months ended September 30, 2003 was $12.93 and $10.48, respectively. The
weighted-average fair value at date of grant of a Class A Special common
stock option granted under the
18
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Company's option plan during the three and nine months ended September 30,
2002 was $10.33 and $15.50, 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 Nine Months Ended
September 30, September 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................ 28.2% 31.5% 29.4% 29.5%
Risk-free interest rate............ 4.1% 4.6% 3.3% 5.2%
Expected option lives (in years)... 8.0 8.0 6.7 8.0
Forfeiture rate.................... 3.0% 3.0% 3.0% 3.0%
The pro forma effect on net income (loss) and net income (loss) per share
for the interim periods by applying SFAS No. 123 may not be indicative of
the effect on net income or loss in future years since SFAS No. 123 does
not take into consideration pro forma compensation expense related to
awards made prior to January 1, 1995 and since additional awards in future
years are anticipated.
Comcast Option Plans
The Company maintains stock option plans for certain employees, directors
and other persons (collectively, the "Comcast Option Plans"). The following
table summarizes the activity of the Comcast Option Plans during the nine
months ended September 30, 2003 (options in thousands):
Class A Class A Special
Common Stock Common Stock
---------------------- ----------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
--------- ------------ --------- ------------
Outstanding at beginning of period.... 63,575 $43.31 64,890 $28.57
Granted............................... 24,108 28.70
Exercised............................. (596) 15.97 (2,618) 8.73
Canceled.............................. (1,787) 48.84 (1,334) 30.79
--------- ---------
Outstanding at end of period.......... 85,300 39.28 60,938 29.37
--------- ---------
Exercisable at end of period.......... 58,514 44.36 28,903 24.82
========= =========
19
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 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 Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
--------- ---------- --------- ----------
Net income (loss).................................... $3,176 $76 $2,857 ($223)
Unrealized (losses) gains on marketable securities... (25) 25 (40) (339)
Reclassification adjustments for (gains) losses
included in net income (loss)...................... (14) 13 203
Unrealized losses (gains) on the effective portion
of cash flow hedges................................ 1 (198) 1 (198)
Foreign currency translation gains (losses).......... 3 (1) 5 (8)
--------- ---------- --------- ----------
Comprehensive income (loss).......................... $3,141 ($98) $2,836 ($565)
========= ========== ========= ==========
9. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest and income taxes related to
continuing operations during the interim periods as follows (in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Interest............................................ $637 $101 $1,653 $441
Income taxes........................................ $14 $2 $67 $11
During the nine months ended September 30, 2003, the Company entered into
non-cash financing and investing activities related to certain of its
Exchangeable Notes (see Note 7). The Liberty shares and Liberty Notes
received in connection with the sale of QVC are non-cash investing
activities (see Note 4).
10. COMMITMENTS AND CONTINGENCIES
Commitments
Certain subsidiaries of the Company support debt compliance with respect to
obligations of certain cable television partnerships and investments in
which the Company holds an ownership interest (see Note 5). The obligations
expire between May 2008 and September 2010. Although there can be no
assurance, management believes that it will not be required to meet its
obligations under such commitments. The total notional amount of
commitments for the Company was $1.021 billion as of September 30, 2003, at
which time there were no quoted market prices for similar agreements.
Contingencies
At Home.
-------
Litigation has been filed against the Company as a result of alleged
conduct of the Company with respect to its investment in and distribution
relationship with At Home Corporation. At Home was a provider of high-speed
Internet 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
20
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
transactions agreed to in March 2000 among At Home, the Company, AT&T and
Cox Communications, Inc. (Cox is also an investor in At Home and a former
distributor of the At Home service); (ii) class action lawsuits against
Comcast Cable Communications, Inc., AT&T and others in the United States
District Court for the Southern District of New York, alleging securities
law violations and common law fraud in connection with disclosures made by
At Home in 2001; (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; and (iv) a
lawsuit brought in the United States Bankruptcy Court for the Northern
District of California by certain At Home bondholders against Comcast Cable
Holdings, LLC and Comcast Communications Holdings, Inc., as well as AT&T,
AT&T Credit Holdings, Inc. and AT&T Wireless Services, Inc., seeking to
avoid and recover certain alleged "preference" payments in excess of $89
million allegedly made to the defendants prior to the At Home bankruptcy
filing. The actions in San Mateo County, California have been stayed by the
United States Bankruptcy Court for the Northern District of California, the
court in which At Home filed for bankruptcy, as violating the automatic
bankruptcy stay. In the Southern District of New York actions, the court
ordered the actions consolidated into a single action. All of the
defendants served motions to dismiss on February 11, 2003. The court
dismissed the common law claims against the Company and Mr. Roberts,
leaving only a claim against them for "control person" liability under the
Securities Exchange Act of 1934. The Delaware case has been transferred to
the United States District Court for the Southern District of New York.
Under the terms of the Broadband acquisition, the Company is generally
contractually liable for 50% of any liabilities of AT&T relating to At
Home, including most liabilities resulting from any pending or threatened
litigation, with the exception, among other things, of liabilities arising
out of contracts between At Home and AT&T (or its affiliates) for the
benefit of the businesses retained by AT&T following the divestiture of
Broadband. In those situations where the Company is contractually liable
for 50% of any liabilities, AT&T will be liable for the other 50% of these
liabilities. In addition to the actions against AT&T described above, where
the Company is also a defendant, there are two additional actions brought
by At Home's bondholders' liquidating trust against AT&T, not naming the
Company: (i) a lawsuit filed against AT&T and certain of its senior
officers in Santa Clara, California state court alleging various breaches
of fiduciary duties, misappropriation of trade secrets and other causes of
action in connection with the transactions in March 2000 described above,
and prior and subsequent alleged conduct on the part of the defendants, and
(ii) an action filed against AT&T in the District Court for the Northern
District of California, alleging that AT&T infringes an At Home patent by
using its broadband distribution and high-speed Internet backbone networks
and equipment. Both of these actions are in the discovery stage.
The Company denies any wrongdoing in connection with the claims which have
been made directly against the Company, its subsidiaries and Brian L.
Roberts, and intends to defend all of these claims vigorously. In
management's opinion, the final disposition of these claims is not expected
to have a material adverse effect on the Company's consolidated financial
position, but could possibly be material to the Company's consolidated
results of operations of any one period. Further, no assurance can be given
that any adverse outcome would not be material to such consolidated
financial position.
Management is currently unable to determine what impact, if any, the final
resolution of the Company's share of these AT&T At Home potential
liabilities would have on the Company's consolidated financial position or
results of operations. No assurance can be given that any adverse outcome
would not be material.
Starz Encore.
------------
Some of the entities formerly attributed to Broadband which are now
subsidiaries of the Company were parties to a 1997 affiliation term sheet
with Starz Encore Group LLC ("Starz Encore"), an affiliate of Liberty,
which was the subject of a lawsuit by Starz Encore against Broadband in
Colorado state court that preceded the Company's
21
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
acquisition of Broadband. In November 2002, the Company and Comcast
Holdings filed suit against Starz Encore in the United States District
Court for the Eastern District of Pennsylvania relating to that term sheet.
In January 2003, Starz Encore filed an amended complaint in its lawsuit
against Broadband in Colorado state court. The amended complaint added the
Company and Comcast Holdings as defendants and added new claims against the
Company, Comcast Holdings and Broadband asserting alleged breaches of, and
interference with, a standstill agreement relating to the lawsuit filed by
the Company and Comcast Holdings in federal District Court in Pennsylvania.
On September 19, 2003, the Company, Starz Encore and certain of their
affiliates entered into a confidential settlement agreement that provided
for the dismissal with prejudice of both the Colorado lawsuit and the
Pennsylvania lawsuit, subject to the execution of a contemporaneous
amendment to an existing affiliation agreement between Comcast and Starz
Encore that originally applied only to the cable systems of Comcast
Holdings. The amended affiliation agreement now applies to all Comcast
owned and operated systems, including the former Broadband systems, and
provides for: (i) payment on a per-subscriber basis rather than the flat
fee arrangement that formerly existed under the 1997 term sheet between
Broadband and Starz Encore; (ii) elimination of the pass-through of any of
Starz Encore's incremental programming costs, such as there had been under
the 1997 term sheet between Broadband and Starz Encore; and (iii) enhanced
joint marketing efforts promoting Starz Encore products. The parties have
filed stipulations of dismissal of both the Colorado and Pennsylvania
lawsuits with prejudice.
CSG Systems.
-----------
An entity formerly attributed to Broadband, which is now a subsidiary of
the Company, is party to a master agreement under which it purchases
certain billing services from CSG Systems, Inc.
On May 10, 2002, Broadband filed a demand for arbitration against CSG
before the American Arbitration Association asserting, among other things,
the right to terminate the master agreement and seeking damages under the
most favored nation provision or otherwise. On May 31, 2002, CSG answered
Broadband's arbitration demand and asserted various counterclaims,
including for (i) breach of the master agreement; (ii) a declaration that
the Company is now bound by the master agreement to use CSG as its
exclusive provider for certain billing and customer care services; (iii)
tortious interference with prospective contractual relations; and (iv)
civil conspiracy.
On October 7, 2003, the arbitrator issued his award which provided for the
following relief: (i) that CSG pay Broadband approximately $120 million
plus 8% interest for violations of a most favored nations provision; (ii)
that the charges and fees in the master agreement are deemed amended to
conform to those in a CSG agreement with another customer containing more
favorable pricing going forward; (iii) that Broadband has the right to
unilaterally terminate the master agreement without cause but in such event
shall be liable for contract damages not to exceed $44 million; (iv) that
CSG shall furnish Broadband's customer data in deconversion format upon
receipt of a statement of work requesting the same; (v) that if Broadband
terminates the master agreement, CSG shall provide seven months of
termination assistance; and (vi) that CSG is awarded no relief on its
counterclaims. On October 9, 2003, CSG filed an application with the
arbitrator to have the amount awarded for CSG's most favored nation
violations reduced. Broadband filed an opposition to this application, and
CSG paid Broadband the approximate $65 million undisputed amount of such
award. On October 23, 2003, the arbitrator denied CSG's application. As a
result, CSG now owes Broadband the balance of such award.
On November 15, 2002, the Company initiated a lawsuit against CSG in
federal court in Philadelphia, Pennsylvania asserting that the former
Broadband cable systems owned by the Company may be added to the billing
service agreement between the Company and CSG. CSG moved to dismiss or stay
the lawsuit on the ground that the issues raised by the complaint could be
wholly or substantially determined by the above-mentioned arbitration. By
order dated February 10, 2003, the Court stayed the lawsuit until further
notice. Certain of the Company's claims in this lawsuit are not the subject
of the arbitration described above and remain outstanding.
22
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
AT&T.
----
The Company, in connection with its acquisition of Broadband, is
potentially responsible for up to 15% of the liabilities arising from two
purported securities class action lawsuits brought against AT&T and others
and consolidated for pre-trial purposes in the United States District Court
for the District of New Jersey. These lawsuits assert claims under Section
11, Section 12(a)(2) and Section 15 of the Securities Act of 1933, as
amended, and Section 10(b) and Section 20(a) of the Securities Exchange Act
of 1934, as amended, and allege, among other things, that AT&T made
material misstatements and omissions in the Registration Statement and
Prospectus for the AT&T Wireless initial public offering and knowingly
provided false projections relating to AT&T common stock. The complaints
seek damages in an unspecified amount, but because the trading activity
during the purported class periods was extensive the amounts ultimately
demanded may be significant. The Company and AT&T believe that the lawsuits
are without merit and these actions are being vigorously defended. The
parties are currently engaged in discovery.
On June 24, 1998, the first of a number of purported class action lawsuits
was filed by then-shareholders of Tele- Communications, Inc. ("TCI") Series
A TCI Group Common Stock ("Common A") against AT&T and the directors of TCI
relating to the acquisition of TCI by AT&T. A consolidated amended
complaint combining the various different actions was filed on February 10,
1999 in the Delaware Court of Chancery. The consolidated amended complaint
alleges that former members of the TCI board of directors breached their
fiduciary duties to Common A shareholders by agreeing to transaction terms
whereby holders of the Series B TCI Group Common Stock received a 10%
premium over what Common A shareholders received in connection with the
transaction. The complaint further alleges that AT&T aided and abetted the
TCI directors' breach.
In connection with the TCI acquisition, which was completed in early 1999,
AT&T agreed under certain circumstances to indemnify TCI's former directors
for certain losses, expenses, claims or liabilities, potentially including
those incurred in connection with this action. In connection with the
Broadband acquisition, Broadband agreed to indemnify AT&T for certain
losses, expenses, claims or liabilities. Those losses and expenses
potentially include those incurred by AT&T in connection with this action,
both as a defendant and in connection with any obligation that AT&T may
have to indemnify the former TCI directors for liabilities incurred as a
result of the claims against them in this action.
On September 8, 1999, AT&T moved to dismiss the amended complaint for
failure to state a cause of action against AT&T. On July 7, 2003, the
Delaware Court of Chancery granted AT&T's motion to dismiss on the ground
that the complaint failed to adequately plead AT&T's "knowing
participation," as required to state a claim for aiding and abetting a
breach of fiduciary duty. The other claims made in the complaint remain
outstanding. Discovery in this matter is ongoing.
Management is currently unable to determine what impact, if any, the final
resolution of the Company's share of these AT&T potential liabilities would
have on the Company's consolidated financial position or results of
operations. No assurance can be given that any adverse outcome would not be
material.
Other.
-----
The Company is subject to other legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to such actions is not expected
to materially affect the financial condition, results of operations or
liquidity of the Company.
In connection with a license awarded to an affiliate, the Company is
contingently liable in the event of nonperformance by the affiliate to
reimburse a bank which has provided a performance guarantee. The amount of
the performance guarantee is approximately $165 million; however the
Company's current estimate of the amount of expenditures (principally in
the form of capital expenditures) that will be made by the affiliate
necessary to comply with the performance requirements will not exceed $50
million.
23
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
11. FINANCIAL DATA BY BUSINESS SEGMENT
As a result of the sale of QVC, the Company's only reportable segment is
"Cable." The Company's other business segments, including the Company's
content operations, do not meet the quantitative guidelines for segment
reporting. The components of net income (loss) below operating income
before depreciation and amortization are not separately evaluated by the
Company's management on a segment basis (in millions).
Corporate and
Cable Other (1) Total
------ ------------- -----
Three Months Ended September 30, 2003
- -------------------------------------
Revenues (2)......................................... $4,374 $172 $4,546
Operating income before depreciation
and amortization (3)............................ 1,620 12 1,632
Depreciation and amortization........................ 1,086 53 1,139
Operating income (loss).............................. 534 (41) 493
Interest expense..................................... 437 128 565
Capital expenditures................................. 1,045 36 1,081
Three Months Ended September 30, 2002
- -------------------------------------
Revenues (2)......................................... $1,548 $150 $1,698
Operating income before depreciation
and amortization (3)............................ 645 (3) 642
Depreciation and amortization........................ 309 62 371
Operating income (loss).............................. 336 (65) 271
Interest expense..................................... 140 32 172
Capital expenditures................................. 322 7 329
Nine Months Ended September 30, 2003
- -------------------------------------
Revenues (2)......................................... $12,985 $621 $13,606
Operating income before depreciation and
amortization (3)................................ 4,638 34 4,672
Depreciation and amortization........................ 3,299 161 3,460
Operating income (loss).............................. 1,339 (127) 1,212
Interest expense..................................... 1,264 315 1,579
Capital expenditures................................. 3,045 48 3,093
Nine Months Ended September 30, 2002
- -------------------------------------
Revenues (2)......................................... $4,558 $544 $5,102
Operating income before depreciation
and amortization (3)............................ 1,896 35 1,931
Depreciation and amortization........................ 900 191 1,091
Operating income (loss).............................. 996 (156) 840
Interest expense..................................... 428 107 535
Capital expenditures................................. 1,011 24 1,035
As of September 30, 2003
- ------------------------
Assets............................................... $93,482 $16,334 $109,816
Long-term debt, less current portion................. 20,364 6,952 27,316
As of December 31, 2002
- ------------------------
Assets............................................... $106,314 $6,814 $113,128
Long-term debt, less current portion................. 26,033 1,923 27,956
_______________
24
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(1) Other includes segments not meeting certain quantitative guidelines for
reporting and elimination entries related to the segment presented.
Corporate and other assets consist primarily of the Company's investments
and intangible assets related to the Company's content operations and, as
of December 31, 2002, $3.689 billion of assets associated with
discontinued operations and assets held for sale (see Notes 4, 5 and 6).
(2) 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.
25
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In November 2002, in order to simplify the Company's capital structure, the
Company and four of its cable holding company subsidiaries, Comcast Cable
Communications, Inc. (Comcast Cable or "CCCI"), Comcast Cable
Communications Holdings, Inc. (Comcast Cable Communications Holdings or
"CCCH"), Comcast MO Group, Inc. ("Comcast MO Group"), and Comcast Cable
Holdings, LLC (Comcast Cable Holdings or "CCH"), fully and unconditionally
guaranteed each other's debt securities. Comcast MO of Delaware, Inc.
("Comcast MO of Delaware") was not originally a part of the Cross-Guarantee
Structure. On March 12, 2003, the Company announced the successful
completion of a bondholder consent solicitation related to Comcast MO of
Delaware's $1.7 billion aggregate principal amount in debt securities to
permit it to become part of the Cross-Guarantee Structure (see Note 7).
Comcast MO Group and CCH (as of December 31, 2002) and Comcast MO Group,
CCH and Comcast MO of Delaware (as of September 30, 2003 and for the three
and nine months ended September 30, 2003) are collectively referred to as
the "Combined CCHMO Parents." Condensed consolidating financial information
of the Company is as follows (in millions):
Comcast Corporation
Condensed Consolidating Balance Sheet
As of September 30, 2003
Elimination
Combined Non- and Consolidated
Comcast CCCI CCCH CCHMO Guarantor Consolidation Comcast
Parent Parent Parent Parents Subsidiaries Adjustments Corporation
--------------------------------------------------------------------------
ASSETS
- ------
Cash and cash equivalents................ $ $ $ $ $3,245 $ $3,245
Investments.............................. 43 2,939 2,982
Accounts receivable, net................. 850 850
Other current assets..................... 10 527 537
-------- -------- -------- --------- -------- --------- -----------
Total current assets................... 53 7,561 7,614
-------- -------- -------- --------- -------- --------- -----------
INVESTMENTS.............................. 15,463 15,463
INVESTMENTS IN AND AMOUNTS DUE FROM
SUBSIDIARIES ELIMINATED UPON
CONSOLIDATION.......................... 47,347 21,436 26,880 33,667 14,376 (143,706)
PROPERTY AND EQUIPMENT, net.............. 18,194 18,194
FRANCHISE RIGHTS......................... 46,023 46,023
GOODWILL................................. 17,563 17,563
OTHER INTANGIBLE ASSETS, net............. 4,216 4,216
OTHER NONCURRENT ASSETS, net............. 89 46 31 577 743
-------- -------- -------- --------- -------- --------- -----------
Total Assets........................... $47,489 $21,482 $26,911 $33,667 $123,973 ($143,706) $109,816
======== ======== ======== ========= ======== ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable......................... $ $ $ $ $1,188 $ $1,188
Accrued expenses and other current
liabilities............................ 271 174 50 293 4,564 5,352
Deferred income taxes.................... 510 510
Current portion of long-term debt........ 305 319 2,441 3,065
-------- -------- -------- --------- -------- --------- -----------
Total current liabilities.............. 271 479 50 612 8,703 10,115
-------- -------- -------- --------- -------- --------- -----------
LONG-TERM DEBT, less current portion..... 5,644 6,627 3,498 6,175 5,372 27,316
DEFERRED INCOME TAXES.................... 24,654 24,654
OTHER NONCURRENT LIABILITIES............. 336 5,878 6,214
MINORITY INTEREST........................ 279 279
STOCKHOLDERS' EQUITY
Common stock............................. 25 25
Other stockholders' equity............... 41,213 14,376 23,363 26,880 79,087 (143,706) 41,213
-------- -------- -------- --------- -------- --------- -----------
Total Stockholders' Equity............. 41,238 14,376 23,363 26,880 79,087 (143,706) 41,238
-------- -------- -------- --------- -------- --------- -----------
Total Liabilities and Stockholders'
Equity................................ $47,489 $21,482 $26,911 $33,667 $123,973 ($143,706) $109,816
======== ======== ======== ========= ======== ========= ===========
26
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Comcast Corporation
Condensed Consolidating Balance Sheet
As of December 31, 2002
Elimination
Combined Non- and Consolidated
Comcast CCCI CCCH CCHMO Guarantor Consolidation Comcast
Parent Parent Parent Parents Subsidiaries Adjustments Corporation
--------------------------------------------------------------------------
ASSETS
- ------
Cash and cash equivalents................ $ $ $ $ $505 $ $505
Investments.............................. 30 3,228 3,258
Accounts receivable, net................. 862 862
Other current assets..................... 22 358 380
Current assets of discontinued operations 1,481 1,481
Current assets held for sale............. 613 613
-------- -------- -------- --------- -------- --------- -----------
Total current assets................... 52 7,047 7,099
-------- -------- -------- --------- -------- --------- -----------
INVESTMENTS.............................. 15,174 15,174
INVESTMENTS IN AND AMOUNTS DUE FROM
SUBSIDIARIES ELIMINATED UPON
CONSOLIDATION.......................... 39,356 21,818 33,683 40,749 13,913 (149,519)
PROPERTY AND EQUIPMENT, net.............. 18,381 18,381
FRANCHISE RIGHTS......................... 48,222 48,222
GOODWILL................................. 16,562 16,562
OTHER INTANGIBLE ASSETS, net............. 5,429 5,429
OTHER NONCURRENT ASSETS, net............ 74 99 121 372 666
NON-CURRENT ASSETS OF DISCONTINUED
OPERATIONS............................. 1,595 1,595
-------- -------- -------- --------- -------- --------- -----------
Total Assets........................... $39,482 $21,917 $33,804 $40,749 $126,695 ($149,519) $113,128
======== ======== ======== ========= ======== ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable......................... $1 $ $ $ $1,295 $ $1,296
Accrued expenses and other current
liabilities............................ 208 107 46 469 4,406 5,236
Deferred income taxes.................... 1,105 1,105
Short-term debt.......................... 3,750 3,750
Current portion of long-term debt........ 1,465 1,738 3,203
Current liabilities of discontinued
operations............................. 816 816
-------- -------- -------- --------- -------- --------- -----------
Total current liabilities.............. 209 107 3,796 1,934 9,360 15,406
-------- -------- -------- --------- -------- --------- -----------
LONG-TERM DEBT, less current portion..... 680 7,897 6,005 4,932 8,442 27,956
DEFERRED INCOME TAXES.................... 23,104 23,104
OTHER NONCURRENT LIABILITIES............. 264 200 6,697 7,161
MINORITY INTEREST........................ 249 249
NON-CURRENT LIABILITIES AND MINORITY
INTEREST OF DISCONTINUED OPERATIONS.... 923 923
STOCKHOLDERS' EQUITY
Common stock............................. 25 25
Other stockholders' equity............... 38,304 13,913 24,003 33,683 77,920 (149,519) 38,304
-------- -------- -------- --------- -------- --------- -----------
Total Stockholders' Equity............. 38,329 13,913 24,003 33,683 77,920 (149,519) 38,329
-------- -------- -------- --------- -------- --------- -----------
Total Liabilities and Stockholders'
Equity............................... $39,482 $21,917 $33,804 $40,749 $126,695 ($149,519) $113,128
======== ======== ======== ========= ======== ========= ===========
27
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Comcast Corporation
Condensed Consolidating Statement of Operations
For the Three Months Ended September 30, 2003
Elimination
Combined Non- and Consolidated
Comcast CCCI CCCH CCHMO Guarantor Consolidation Comcast
Parent Parent Parent Parents Subsidiaries Adjustments Corporation
--------------------------------------------------------------------------
REVENUES
Service revenues......................... $ $ $ $ $4,546 $ $4,546
Management fee revenue................... 94 38 56 56 (244)
-------- ------- --------- -------- -------- ---------- ----------
94 38 56 56 4,546 (244) 4,546
-------- ------- --------- -------- -------- ---------- ----------
COSTS AND EXPENSES
Operating (excluding depreciation)....... 1,703 1,703
Selling, general and administrative...... 34 38 56 56 1,271 (244) 1,211
Depreciation............................. 774 774
Amortization............................. 365 365
-------- ------- --------- -------- -------- ---------- ----------
34 38 56 56 4,113 (244) 4,053
-------- ------- --------- -------- -------- ---------- ----------
OPERATING INCOME............................ 60 433 493
OTHER INCOME (EXPENSE)
Interest expense......................... (98) (131) (83) (130) (123) (565)
Investment loss, net..................... (182) (182)
Equity in net (losses) income of
affiliates............................. 3,199 227 (48) 36 126 (3,556) (16)
Other income............................. 28 28
-------- ------- --------- -------- -------- ---------- ----------
3,101 96 (131) (94) (151) (3,556) (735)
-------- ------- --------- -------- -------- ---------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES AND
MINORITY INTEREST........................ 3,161 96 (131) (94) 282 (3,556) (242)
INCOME TAX (EXPENSE) BENEFIT................ 15 46 29 46 (33) 103
-------- ------- --------- -------- -------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST................. 3,176 142 (102) (48) 249 (3,556) (139)
MINORITY INTEREST........................... (14) (14)
-------- ------- --------- -------- -------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS.... 3,176 142 (102) (48) 235 (3,556) (153)
INCOME FROM DISCONTINUED OPERATIONS,
net of tax.............................. 39 39
GAIN ON DISCONTINUED OPERATIONS, net of tax. 3,290 3,290
-------- ------- --------- -------- -------- ---------- ----------
NET INCOME (LOSS)........................... $3,176 $142 ($102) ($48) $3,564 ($3,556) $3,176
======== ======= ========= ======== ======== ========== ==========
28
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Comcast Corporation
Condensed Consolidating Statement of Operations
For the Three Months Ended September 30, 2002
Elimination
Combined Non- and Consolidated
Comcast CCCI CCCH CCHMO Guarantor Consolidation Comcast
Parent Parent Parent Parents Subsidiaries Adjustments Corporation
----------------------------------- ---------------------------------------
SERVICE REVENUES............................ $ $ $ $ $1,698 $ $1,698
COSTS AND EXPENSES
Operating (excluding depreciation)....... 597 597
Selling, general and administrative...... 459 459
Depreciation............................. 321 321
Amortization............................. 50 50
-------- ------- --------- -------- -------- ---------- ----------
1,427 1,427
-------- ------- --------- -------- -------- ---------- ----------
OPERATING INCOME............................ 271 271
OTHER INCOME (EXPENSE)
Interest expense......................... (141) (31) (172)
Investment loss, net..................... (47) (47)
Equity in net income (losses) of
affiliates............................. 215 114 (338) (9)
Other income............................. 5 5
-------- ------- --------- -------- -------- ---------- ----------
74 41 (338) (223)
-------- ------- --------- -------- -------- ---------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND MINORITY INTEREST.................... 74 312 (338) 48
INCOME TAX (EXPENSE) BENEFIT................ 49 (76) (27)
-------- ------- --------- -------- -------- ---------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE MINORITY INTEREST...... 123 236 (338) 21
MINORITY INTEREST........................... 3 3
-------- ------- --------- -------- -------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS........... 123 239 (338) 24
INCOME FROM DISCONTINUED OPERATIONS,
net of tax............................. 52 52
-------- ------- --------- -------- -------- ---------- ----------
NET INCOME (LOSS)........................... $ $123 $ $ $291 ($338) $76
======== ======= ========= ======== ======== ========== ==========
29
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Comcast Corporation
Condensed Consolidating Statement of Operations
For the Nine Months Ended September 30, 2003
Elimination
Combined Non- and Consolidated
Comcast CCCI CCCH CCHMO Guarantor Consolidation Comcast
Parent Parent Parent Parents Subsidiaries Adjustments Corporation
----------------------------------- ---------------------------------------
REVENUES
Service revenues.......................... $ $ $ $ $13,606 $ $13,606
Management fee revenue.................... 281 109 172 172 (734)
------ ------- --------- -------- -------- ---------- ----------
281 109 172 172 13,606 (734) 13,606
------ ------- --------- -------- -------- ---------- ----------
COSTS AND EXPENSES
Operating (excluding depreciation)........ 5,267 5,267
Selling, general and administrative....... 110 109 172 172 3,838 (734) 3,667
Depreciation.............................. 2,370 2,370
Amortization.............................. 1,090 1,090
------ ------- --------- -------- -------- ---------- ----------
110 109 172 172 12,565 (734) 12,394
------ ------- --------- -------- -------- ---------- ----------
OPERATING INCOME............................. 171 1,041 1,212
OTHER INCOME (EXPENSE)
Interest expense.......................... (221) (405) (289) (322) (342) (1,579)
Investment loss, net...................... (418) (418)
Equity in net income (losses) of
affiliates.............................. 2,889 728 (455) (246) 432 (3,381) (33)
Other income.............................. 71 71
------ ------- --------- -------- -------- ---------- ----------
2,668 323 (744) (568) (257) (3,381) (1,959)
------ ------- --------- -------- -------- ---------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES AND
MINORITY INTEREST........................ 2,839 323 (744) (568) 784 (3,381) (747)
INCOME TAX (EXPENSE) BENEFIT................. 18 142 101 113 (143) 231
------ ------- --------- -------- -------- ---------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE MINORITY INTEREST....... 2,857 465 (643) (455) 641 (3,381) (516)
MINORITY INTEREST............................ (85) (85)
------ ------- --------- -------- -------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS..... 2,857 465 (643) (455) 556 (3,381) (601)
INCOME FROM DISCONTINUED OPERATIONS,
net of tax............................... 168 168
GAIN ON DISCONTINUED OPERATIONS, net of tax.. 3,290 3,290
------ ------- --------- -------- -------- ---------- ----------
NET INCOME (LOSS)............................ $2,857 $465 ($643) ($455) $4,014 ($3,381) $2,857
====== ======= ========= ======== ======== ========== ==========
30
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Comcast Corporation
Condensed Consolidating Statement of Operations
For the Nine Months Ended September 30, 2002
Elimination
Combined Non- and Consolidated
Comcast CCCI CCCH CCHMO Guarantor Consolidation Comcast
Parent Parent Parent Parents Subsidiaries Adjustments Corporation
--------------------------------------------------------------------------
SERVICE REVENUES............................ $ $ $ $ $5,102 $ $5,102
COSTS AND EXPENSES
Operating (excluding depreciation)....... 1,831 1,831
Selling, general and administrative...... 1,340 1,340
Depreciation............................. 957 957
Amortization............................. 134 134
-------- ------- --------- -------- -------- ---------- ----------
4,262 4,262
-------- ------- --------- -------- -------- ---------- ----------
OPERATING INCOME............................ 840 840
OTHER INCOME (EXPENSE)
Interest expense......................... (421) (114) (535)
Investment loss, net..................... (702) (702)
Equity in net income (losses) of
affiliates............................. 634 305 (994) (55)
Other expense............................ (12) (12)
-------- ------- --------- -------- -------- ---------- ----------
213 (523) (994) (1,304)
-------- ------- --------- -------- -------- ---------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND MINORITY INTEREST.................... 213 317 (994) (464)
INCOME TAX (EXPENSE) BENEFIT................ 147 (24) 123
-------- ------- --------- -------- -------- ---------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE MINORITY INTEREST...... 360 293 (994) (341)
MINORITY INTEREST........................... (23) (23)
-------- ------- --------- -------- -------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS.... 360 270 (994) (364)
INCOME FROM DISCONTINUED OPERATIONS,
net of tax.............................. 141 141
-------- ------- --------- -------- -------- ---------- ----------
NET INCOME (LOSS)........................... $ $360 $ $ $411 ($994) ($223)
======== ======= ========= ======== ======== ========== ==========
31
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Comcast Corporation
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2003
Elimination
Combined Non- and Consolidated
Comcast CCCI CCCH CCHMO Guarantor Consolidation Comcast
Parent Parent Parent Parents Subsidiaries Adjustments Corporation
--------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss)............................. $2,857 $465 ($643) ($455) $4,014 ($3,381) $2,857
Income from discontinued operations........... (168) (168)
Gain on discontinued operations............... (3,290) (3,290)
------ ------- --------- -------- --------- ---------- ----------
Loss from continuing operations............... 2,857 465 (643) (455) 556 (3,381) (601)
Adjustments to reconcile net loss from
continuing operations to net cash
provided by (used in) operating
activities from continuing operations:
Depreciation............................... 2,370 2,370
Amortization............................... 1,090 1,090
Non-cash interest (income) expense, net.... 31 (2) (114) (85)
Equity in net (income) losses of
affiliates............................... (2,889) (728) 455 246 (432) 3,381 33
Losses (gains) on investments and
other (income) expense, net.............. 423 423
Minority interest.......................... 34 34
Deferred income taxes...................... (289) (289)
Proceeds from sales of trading securities.. 85 85
Other...................................... 105 105
------ ------- --------- -------- --------- ---------- ----------
(1) (265) (188) (323) 3,942 3,165
Changes in working capital
Decrease in accounts receivable, net..... 12 12
Increase in other current assets......... (157) (157)
Increase (decrease) in accounts payable,
accrued expenses and other current
liabilities............................ 62 67 4 (276) (358) (501)
------ ------- --------- -------- --------- ---------- ----------
62 67 4 (276) (503) (646)
Net cash provided by operating
activities from continuing
operations............................. 61 (198) (184) (599) 3,439 2,519
------ ------- --------- -------- --------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from borrowings................... 8,138 1,150 89 9,377
Retirements and repayments of debt......... (3,180) (2,104) (6,250) (1,907) (234) (13,675)
Other...................................... (3) (3)
------ ------- --------- -------- --------- ---------- ----------
Net cash used in financing activities
from continuing operations............. 4,958 (954) (6,250) (1,907) (148) (4,301)
------ ------- --------- -------- --------- ---------- ----------
INVESTING ACTIVITIES
Net transactions with affiliates.............. (5,019) 1,152 6,434 2,506 (5,073)
Acquisitions, net of cash acquired............ (39) (39)
Proceeds from sales of (purchases of)
short-term investments, net................ (8) (8)
Proceeds from restructuring of TWE investment. 2,100 2,100
Proceeds from sale of discontinued operations.
and assets held for sale................... 1,875 1,875
Proceeds from sales of Liberty Notes.......... 3,000 3,000
Proceeds from sales of investments............ 977 977
Purchases of investments...................... (151) (151)
Capital expenditures.......................... (3,093) (3,093)
Additions to intangible and other noncurrent
assets..................................... (139) (139)
------ ------- --------- -------- --------- ---------- ----------
Net cash provided by (used in) investing
activities from continuing operations.... (5,019) 1,152 6,434 2,506 (551) 4,522
------ ------- --------- -------- --------- ---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS......... 2,740 2,740
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 505 505
------ ------- --------- -------- --------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period...... $ $ $ $ $3,245 $ $3,245
====== ======= ========= ======== ========= ========== ==========
32
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
Comcast Corporation
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2002
Elimination
Combined Non- and Consolidated
Comcast CCCI CCCH CCHMO Guarantor Consolidation Comcast
Parent Parent Parent Parents Subsidiaries Adjustments Corporation
--------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss)............................ $ $360 $ $ $411 ($994) ($223)
Income from discontinued operations.......... (141) (141)
-------- ------- --------- ------- -------- ---------- ----------
Loss from continuing operations.............. 360 270 (994) (364)
Adjustments to reconcile net loss from
continuing operations to net cash
provided by (used in) operating
activities from continuing operations:
Depreciation.............................. 957 957
Amortization.............................. 134 134
Non-cash interest (income) expense, net... (2) 34 32
Equity in net (income) losses of
affiliates.............................. (634) (305) 994 55
Losses (gains) on investments and other
(income) expense, net................... 733 733
Minority interest......................... 23 23
Deferred income taxes..................... (60) (60)
Proceeds from sales of trading securities.
Other..................................... (56) (56)
-------- ------- --------- ------- -------- ---------- ----------
(276) 1,730 1,454
Changes in working capital
Decrease in accounts receivable, net.... 11 11
Increase in other current assets........ (5) (5)
Increase (decrease) in accounts
payable, accrued expenses and other
current liabilities.................... 183 183
-------- ------- --------- ------- -------- ---------- ----------
189 189
Net cash provided by operating activities
from continuing operations.............. (276) 1,919 1,643
-------- ------- --------- ------- -------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from borrowings.................. 856 20 876
Retirements and repayments of debt........ (1,619) (182) (1,801)
Other..................................... 70 70
-------- ------- --------- ------- -------- ---------- ----------
Net cash used in financing activities from
continuing operations..................... (763) (92) (855)
-------- ------- --------- ------- -------- ---------- ----------
INVESTING ACTIVITIES
Net transactions with affiliates.......... 1,039 (1,039)
Acquisitions, net of cash required........ (16) (16)
Proceeds from sales of (purchase of)
short-term investments, net.............. 4 4
Proceeds from sales of investments........ 734 734
Purchases of investments.................. (48) (48)
Capital expenditures...................... (1,035) (1,035)
Additions to intangible and other
noncurrent assets........................ (231) (231)
-------- ------- --------- ------- -------- ---------- ----------
Net cash provided by (used in) investing
activities from continuing operations... 1,039 (1,631) (592)
-------- ------- --------- ------- -------- ---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS........ 196 196
CASH AND CASH EQUIVALENTS, beginning of
period................................... 214 214
-------- ------- --------- ------- -------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period..... $ $ $ $ $410 $ $410
======== ======= ========= ======= ======== ========== ==========
33
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Business Developments
We have grown significantly in recent years through both strategic
acquisitions and growth in our existing businesses. On November 18, 2002, we
completed the acquisition of AT&T Corp.'s broadband business (the "Broadband
acquisition"). The Broadband acquisition substantially increased the size of our
cable operations and caused significant changes in our capital structure,
including a substantially higher amount of debt. As a result, direct comparisons
of our results of operations for periods prior to November 18, 2002 to
subsequent periods are not meaningful. See "Results of Operations" for a
discussion of the effects of the Broadband acquisition on our results of
operations.
On September 17, 2003, we completed the sale to Liberty Media Corporation
("Liberty") of all shares of QVC, Inc. ("QVC") common stock held by our
subsidiaries and by us. In accordance with Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), QVC's operations are presented as a discontinued
operation in our financial statements.
Refer to Note 4 to our financial statements included in Item 1 for further
discussion of our acquisitions and other significant events.
Liquidity and Capital Resources
We believe that we will be able to meet our current and long-term liquidity
and capital requirements, including fixed charges, through our cash flows from
operating activities, existing cash, cash equivalents and investments, and
through available borrowings under our existing credit facilities.
Available sources of financing to fund these requirements include our
existing cash and cash equivalents, amounts available under our lines of credit,
which total $5.896 billion, and through the future sales or monetizations of our
investments.
As more fully described in Note 4 to our financial statements included in
Item 1 (see Sale of QVC), on September 17, 2003 we sold our approximate 57%
interest in QVC to Liberty for approximately $7.7 billion under a stock purchase
agreement. We received from Liberty three-year senior unsecured notes (the
"Liberty Notes") bearing interest at LIBOR plus 1.5%, approximately 218 million
shares of Liberty Series A common stock and cash. The values of the note, shares
and cash received were approximately $4.0 billion, $2.339 billion and $1.35
billion, respectively.
Cash and Cash Equivalents
We have traditionally maintained significant levels of cash and cash
equivalents to meet our short-term liquidity requirements. Our cash equivalents
are recorded at fair value. Cash and cash equivalents as of September 30, 2003
were $3.245 billion, substantially all of which is unrestricted.
Investments
A significant portion of our investments are in publicly traded companies
and are reflected at fair value which fluctuates with market changes.
We do not have any significant contractual funding commitments with respect
to any of our investments. Our ownership interests in these investments may,
however, be diluted if we do not fund our investees' non-binding capital calls.
We continually evaluate our existing investments, as well as new investment
opportunities.
Refer to Note 5 to our financial statements included in Item 1 for a
discussion of our investments.
Financing
As of September 30, 2003 and December 31, 2002, our debt, including capital
lease obligations, was $30.381 billion and $34.909 billion, respectively.
The $4.528 billion decrease from December 31, 2002 to September 30, 2003
results principally from the effects of our net repayments during 2003. Included
in our debt as of September 30, 2003 and December 31, 2002 was short-term debt
and current portion of long-term debt of $3.065 billion and $6.953 billion,
respectively.
In January, March and May 2003, we sold an aggregate of $4.0 billion of
public debt consisting of $600 million of 5.85% senior notes due 2010, $900
million of 6.50% senior notes due 2015, $750 million of 5.50% senior notes due
2011, $750 million of 7.05% senior notes due 2033 and $1.0 billion of 5.30%
senior notes due 2014. We used all of the net proceeds from the offerings to
repay a portion of our short-term debt
34
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
outstanding and to repay a portion of amounts outstanding under our revolving
credit facilities due in 2005 and 2007.
On March 31, 2003, in connection with the closing of the TWE restructuring,
we received $2.1 billion in cash which was used to repay debt, including the
remaining outstanding balance of our short-term debt.
In May 2003, we redeemed at their respective scheduled redemption price
$433 million aggregate principal amount of certain of our senior notes and
senior subordinated notes with maturities ranging from 2003 to 2023 and interest
rates ranging from 8 1/4% to 9.65%. We financed the redemptions with amounts
available under our existing credit facilities.
In May 2003, we borrowed an aggregate of $2.75 billion, representing all
amounts available under two new credit agreements. Borrowings under the new
credit agreements, which bear interest at LIBOR plus 1.125% and LIBOR plus
0.875%, respectively, and are due in 2006, were used to repay a portion of the
$3.18 billion that was outstanding under our term loan due 2004. The new credit
agreements replaced our 364-day credit facility, which expired in May 2003.
In June 2003, we sold our interest in CC VIII, LLC, a cable joint venture
with Charter Communications, Inc. ("Charter") to Paul G. Allen, Charter's
Chairman, for $728 million in cash. We used the proceeds from the sale to repay
a portion of the amounts outstanding under our revolving credit facilities.
In addition to the $1.35 billion in cash proceeds received in the QVC sale,
in September 2003, we sold an aggregate of $3.0 billion principal amount of the
Liberty Notes for net proceeds of approximately $3.0 billion. A portion of the
cash proceeds from these sales was used to repay all amounts outstanding on
certain of our bank credit facilities. The remaining portion will be used
primarily to pay certain income taxes associated with the sale of QVC and
further reduce debt outstanding.
During 2003, we settled our obligations relating to certain of our
Exchangeable Notes by delivering the underlying shares of common stock to the
counterparty upon maturity of the instruments, and the equity collar agreements
related to the underlying shares expired. The transactions, which represented
non-cash financing and investing activities, had no effect on our statement of
cash flows due to their non-cash nature. As of September 30, 2003, the
securities held by us collateralizing the Exchangeable Notes were sufficient to
satisfy the debt obligations associated with the outstanding Exchangeable Notes.
Excluding the effects of interest rate risk management instruments, 14.8%
and 31.8% of our long- term debt, including short-term debt and current portion,
as of September 30, 2003 and December 31, 2002, 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 Management
We have entered into cashless collar agreements (the "Equity Collars") and
prepaid forward sales agreements ("Prepaid Forward Sales") which we account for
at fair value. The Equity Collars and Prepaid Forward Sales limit our exposure
to and benefits from price fluctuations in the common stock of certain of our
investments accounted for as trading securities.
The change in the fair value of certain of our investments accounted for as
trading securities, with the exception of the Liberty shares we received from
the sale of QVC, was substantially offset by the changes in the fair values of
the Equity Collars and the derivative components of the ZONES, Exchangeable
Notes and Prepaid Forward Sales. See "Results of Operations - Investment Loss,
Net" below.
_______________________
Cash Flows from Continuing Operations
Cash and cash equivalents increased $2.740 billion as of September 30, 2003
from December 31, 2002. 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, which amounted to $2.519 billion
for the nine months ended
35
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
September 30, 2003, is comprised of operating income before depreciation and
amortization (see "Results of Operations"), the effects of interest payments,
and changes in working capital as a result of the timing of receipts and
disbursements, including income tax payments.
Net cash used in financing activities consists primarily of borrowings and
repayments of debt. Net cash used in financing activities was $4.301 billion for
the nine months ended September 30, 2003. During the nine months ended September
30, 2003, we borrowed $9.377 billion, consisting of:
o $3.988 billion of senior notes,
o $3.650 billion under revolving credit facilities,
o $1.650 billion under a term loan due 2006, and
o $89 million under capital leases and other.
During the nine months ended September 30, 2003, we repaid $13.675 billion
of our debt, consisting of:
o $4.496 billion of our revolving credit facilities,
o $3.750 billion of our short-term debt,
o $3.180 billion of our term loans,
o $2.088 billion of our senior notes, and
o $161 million under capital leases and other.
Net cash provided by investing activities was $4.522 billion for the nine
months ended September 30, 2003. Proceeds from investing activities include the
restructuring of our TWE investment of $2.100 billion, sales of Liberty Notes of
$3.000 billion, sales of discontinued operations and assets held for sale of
$1.875 billion, and sales of other investments of $977 million. Capital
expenditures were $3.093 billion for the nine months ended September 30, 2003.
_______________________
Results of Continuing Operations
The following represents our consolidated operating results as well as the
operating results of our Cable business segment. The remaining components of our
operations are not independently significant to our consolidated financial
condition or results of operations.
The effects of the Broadband acquisition were to increase our revenues and
expenses, resulting in increases in our operating income. The increases in our
depreciation expense from the 2002 to 2003 interim periods are primarily due to
the effects of the Broadband acquisition and our increased levels of capital
expenditures. The increases in our amortization expense and interest expense
from the 2002 to 2003 interim periods are primarily due to the effects of the
Broadband acquisition.
As the effect of the Broadband acquisition was to substantially increase
the size of our cable operations, direct comparisons of our results of
operations for periods prior to November 18, 2002 to subsequent periods are not
meaningful. Refer to "Pro Forma Results" below for additional information
relating to our cable segment operating results as if the Broadband acquisition
occurred on January 1, 2002.
36
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
Our summarized financial information for the interim periods is as follows
(dollars in millions, "NM" denotes percentage is not meaningful):
Three Months Ended
September 30, Increase / (Decrease)
2003 2002 $ %
--------- --------- --------- ---------
Service revenues............................................... $4,546 $1,698 $2,848 167.7%
Operating, selling, general and administrative expenses........ 2,914 1,056 1,858 175.9
Depreciation................................................... 774 321 453 141.1
Amortization................................................... 365 50 315 630.0
--------- --------- --------- ---------
Operating income............................................... 493 271 222 81.9
--------- --------- --------- ---------
Interest expense............................................... (565) (172) 393 228.5
Investment loss, net........................................... (182) (47) 135 287.2
Equity in net losses of affiliates............................. (16) (9) 7 77.8
Other income................................................... 28 5 23 460.0
Income tax benefit (expense)................................... 103 (27) 130 NM
Minority interest.............................................. (14) 3 (17) NM
--------- --------- --------- ---------
Income (loss) from continuing operations....................... ($153) $24 ($177) NM%
========= ========= ========= =========
Nine Months Ended
September 30, Increase / (Decrease)
2003 2002 $ %
--------- --------- --------- ---------
Service revenues............................................... $13,606 $5,102 $8,504 166.7%
Operating, selling, general and administrative expenses........ 8,934 3,171 5,763 181.7
Depreciation................................................... 2,370 957 1,413 147.6
Amortization................................................... 1,090 134 956 713.4
--------- --------- --------- ---------
Operating income............................................... 1,212 840 372 44.3
--------- --------- --------- ---------
Interest expense............................................... (1,579) (535) 1,044 195.1
Investment loss, net........................................... (418) (702) (284) (40.5)
Equity in net losses of affiliates............................. (33) (55) (22) (40.0)
Other income (expense)......................................... 71 (12) 83 NM
Income tax benefit............................................. 231 123 108 87.8
Minority interest.............................................. (85) (23) 62 269.6
--------- --------- --------- ---------
Loss from continuing operations................................ ($601) ($364) $237 65.1%
========= ========= ========= =========
____________
37
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
Consolidated Operating Results
Revenues
Consolidated revenues for the three and nine month interim periods
increased $2.848 billion and $8.504 billion, respectively. Of these increases,
$2.826 billion and $8.427 billion, respectively, relate to our cable segment,
which is discussed separately below. The remaining increases are primarily the
result of our content businesses, which achieved combined revenue growth of
17.5% and 16.2%, respectively, for the three and nine month interim periods.
Such increases were primarily the result of increases in distribution revenues
and in advertising.
Operating, selling, general and administrative expenses
Consolidated operating, selling, general and administrative expenses for
the three and nine month interim periods increased $1.858 billion and $5.763
billion, respectively. Of these increases, $1.851 billion and $5.685 billion,
respectively, relate to our cable segment, which is discussed separately below.
The remaining increases are primarily the result of growth in our content
businesses and increases in corporate overhead.
Depreciation and Amortization
The increases in depreciation and amortization expense for the interim
periods from 2002 to 2003 are primarily attributable to our Cable segment and
are principally due to the effects of the Broadband acquisition, as well as our
increased levels of capital expenditures. As a result of the Broadband
acquisition, we recorded approximately $4 billion of franchise related customer
relationship intangible assets which we are amortizing over their average
estimated useful life of approximately four years.
_______________________
Cable
The discussion of our cable segment operating results is presented as an
historical comparison of the 2003 interim periods and the 2002 interim periods,
which do not include the Broadband results. In order to provide additional
information relating to our cable segment operating results, we also present a
discussion comparing our cable segment operating results on a pro forma basis.
Pro forma data is used by management to evaluate performance when significant
acquisitions or dispositions occur. Historical data reflects results of acquired
businesses only after the acquisition dates while pro forma data enhances
comparability of financial information between periods by adjusting the data as
if the acquisitions (or dispositions) occurred at the beginning of the prior
year. Our pro forma data is only adjusted for the timing of acquisitions and
does not include adjustments for costs related to integration activities, cost
savings or synergies that have or may be achieved by the combined businesses. In
the opinion of management, this information is not indicative of what our
results would have been had we operated Broadband since January 1, 2002, nor of
our future results.
38
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
Pro Forma Results
As previously described, the following discussion includes the pro forma
results of our cable segment operations as if the Broadband acquisition had
occurred on January 1, 2002 (dollars in millions).
Three Months Ended
September 30, Increase/(Decrease)
2003 2002 $ %
--------- --------- --------- --------
Video........................................................ $3,020 $2,865 $155 5.4%
High-speed Internet.......................................... 586 391 195 49.9
Phone........................................................ 189 211 (22) (10.4)
Advertising sales............................................ 276 258 18 7.2
Other........................................................ 152 169 (17) (10.1)
Franchise fees............................................... 151 141 10 7.1
--------- --------- --------- --------
Revenues................................................ 4,374 4,035 339 8.4
Operating, selling, general and administrative expenses...... 2,754 2,837 (83) (2.9)
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $1,620 $1,198 $422 35.3%
--------- --------- --------- --------
Nine Months Ended
September 30, Increase/(Decrease)
2003 2002 $ %
--------- --------- --------- --------
Video........................................................ $9,038 $8,580 $458 5.3%
High-speed Internet.......................................... 1,626 1,052 574 54.6
Phone........................................................ 618 594 24 4.0
Advertising sales............................................ 797 739 58 7.8
Other........................................................ 452 495 (43) (8.7)
Franchise fees............................................... 453 428 25 5.8
--------- --------- --------- --------
Revenues................................................ 12,984 11,888 1,096 9.2
Operating, selling, general and administrative expenses...... 8,346 8,467 (121) (1.4)
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $4,638 $3,421 $1,217 35.6%
========= ========= ========= ========
_______________
(a) 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 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 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 cable services. The increases in video revenue for the
interim periods from 2002 to 2003 are primarily due to the effects of increases
in average monthly revenue per basic subscriber as a result of rate increases in
our traditional analog video service, growth in digital subscribers, and
repricing and repackaging of the digital products in the newly acquired systems.
These increases were offset by the continuing impact of pre-acquisition basic
subscriber
39
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
losses in the newly acquired cable systems. From September 30, 2002 to September
30, 2003, we added approximately 1,036,000 digital subscribers, or a 16.6%
increase in digital subscribers.
The increases in high-speed Internet revenue for the interim periods from
2002 to 2003 are primarily due to the addition of approximately 1,608,000
high-speed Internet subscribers from September 30, 2002 to September 30, 2003,
or a 49.4% 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.
The decrease in phone revenue for the three-month interim period from 2002
to 2003 is primarily due to our reduced marketing efforts during 2003. The
slight increase in phone revenue for the nine-month interim period from 2002 to
2003 is primarily due to an increase in the number of phone subscribers during
2002 offset, to some extent, by the effects of our reduced marketing efforts
during 2003. During the three months ended September 30, 2003, our phone
subscribers decreased by approximately 55,000 subscribers primarily as a result
of our reduced marketing efforts. We anticipate that our phone subscribers may
decrease by up to a total of 175,000 subscribers for all of 2003.
The increases in advertising sales revenue for the interim periods from
2002 to 2003 are primarily due to the effects of growth in regional/national
advertising as a result of the continuing success of our regional interconnects,
and growth in a soft local advertising market.
Other revenue includes installation revenues, guide revenues, commissions
from electronic retailing, revenues of our digital media center, revenues of our
regional sports programming networks and revenue from other product offerings.
The increases in franchise fees collected from our cable subscribers for
the interim periods from 2002 to 2003 are primarily attributable to the
increases in our revenues upon which the fees apply.
The decreases in operating, selling, general and administrative expense for
the interim periods from 2002 to 2003 are primarily due to the effects of
approximately $107 million and $295 million of acquisition and employee
termination related costs recorded by Broadband during the three and nine months
ended September 30, 2002, respectively. These decreases were offset by the
effects of increases in the costs related to high-speed Internet subscriber
growth, increases in labor costs and other volume related expenses, and the
costs of cable programming occurring in 2003.
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.
40
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
Historical Results
Three Months Ended
September 30, Increase
2003 2002 $ %
--------- --------- --------- --------
Video........................................................ $3,020 $1,180 $1,840 155.9%
High-speed Internet.......................................... 586 156 430 275.6
Phone........................................................ 189 6 183 NM
Advertising sales............................................ 276 93 183 196.8
Other........................................................ 152 64 88 137.5
Franchise fees............................................... 151 49 102 208.2
--------- --------- --------- --------
Revenues................................................ 4,374 1,548 2,826 182.6
Operating, selling, general and administrative expenses...... 2,754 903 1,851 205.0
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $1,620 $645 $975 151.2%
========= ========= ========= =========
Nine Months Ended
September 30, Increase
2003 2002 $ %
--------- --------- --------- --------
Video........................................................ $9,038 $3,516 $5,522 157.1%
High-speed Internet.......................................... 1,626 415 1,211 291.8
Phone........................................................ 618 18 600 NM
Advertising sales............................................ 797 274 523 190.9
Other........................................................ 453 184 269 146.2
Franchise fees............................................... 453 151 302 200.0
--------- --------- --------- --------
Revenues................................................ 12,985 4,558 8,427 184.9
Operating, selling, general and administrative expenses...... 8,347 2,662 5,685 213.6
--------- --------- --------- --------
Operating income before depreciation
and amortization (a).................................... $4,638 $1,896 $2,742 144.6%
========= ========= ========= =========
_______________
(a) See footnote (a) on page 39.
Of the $1.840 billion and $5.522 billion increases in video revenues for
the interim periods from 2002 to 2003, $1.771 billion and $5.303 billion,
respectively, is attributable to the effects of our acquisition of Broadband and
$69 million and $219 million, respectively, relates to changes in rates and
subscriber growth in our historical operations, driven principally by growth in
digital subscribers. From September 30, 2002 to September 30, 2003, we added
approximately 437,000 digital subscribers in our historical operations, or a
20.7% increase in digital subscribers. During the three and nine months ended
September 30, 2003, we added approximately 318,000 and 649,000 digital
subscribers, respectively, in our consolidated cable operations.
The increases in high-speed Internet revenue for the interim periods from
2002 to 2003 are primarily due to the effects of the Broadband acquisition and
growth in high-speed Internet subscribers. From September 30, 2002 to September
30, 2003, we added approximately 733,000 high-speed Internet subscribers in our
historical operations, or a 54.8% increase in high-speed Internet subscribers.
During the three and nine months ended September 30, 2003, we added
approximately 473,000 and 1,241,000 high-speed Internet subscribers,
respectively, in our consolidated cable operations.
The increases in phone revenue are attributable to the effects of our
acquisition of Broadband.
The increases in advertising sales revenue for the interim periods from
2002 to 2003 are primarily due to the acquisition of Broadband and growth in
regional/national advertising as a result of the continuing success of our
regional interconnects, and growth in a soft local advertising market.
The increases in other revenue for the interim periods from 2002 to 2003
are primarily attributable to the effects of the Broadband acquisition.
The increases in franchise fees collected from our
41
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
cable subscribers for the interim periods from 2002 to 2003 are primarily
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 2002 to 2003 are primarily due to the effects of the
Broadband acquisition, as well as to the effects of increases in the costs of
cable programming, high-speed Internet subscriber growth, and, to a lesser
extent, increases in labor costs and other volume related expenses in our
historical operations.
Consolidated Analysis
Interest Expense
The increases in interest expense for the interim periods from 2002 to 2003
are due to the effects of our increased amount of debt outstanding as a result
of the Broadband acquisition.
We anticipate that, for the foreseeable future, interest expense will be
significant. We believe we will continue to be able to meet our obligations
through our ability both to generate cash flow from operations and to obtain
external financing.
_______________________
Investment Loss, Net
Investment loss, net for the interim periods includes the following (in
millions):
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
--------- --------- --------- ----------
Interest and dividend income.................................. $27 $6 $103 $19
Gains (losses) on sales and exchanges of investments, net..... 4 26 (101)
Investment impairment losses.................................. (6) (70) (227)
Unrealized (losses) gains on trading securities............... (110) (181) 182 (1,621)
Mark to market adjustments on derivatives
related to trading securities............................ (62) 139 (367) 1,310
Mark to market adjustments on derivatives and
hedged items............................................. (41) (5) (292) (82)
--------- --------- --------- ----------
Investment loss, net..................................... ($182) ($47) ($418) ($702)
========= ========= ========= ==========
We have entered into derivative financial instruments which we account for
at fair value and which limit our exposure to and benefits from price
fluctuations in the common stock of certain of our investments accounted for as
trading securities. Investment loss, net includes the fair value adjustments
related to our trading securities and derivative financial instruments. The
change in the fair value of our investments accounted for as trading securities,
with the exception of the Liberty Series A common shares, was substantially
offset by the changes in the fair values of the related derivatives. The Liberty
Series A common shares we received in the sale of QVC have been classified as
trading securities; however, currently there is no corresponding derivative to
hedge this market exposure. As such, the decline in value in these shares during
the quarter is included in investment loss, net. Investment loss, net for the
2003 interim periods also includes the fair value adjustments for the derivative
component of the Comcast Exchangeable Notes. There is no corresponding offset to
these adjustments in our statement of operations since the underlying Comcast
common stock held in treasury will continue to be carried at our historical cost
and not adjusted for changes in the fair value. Accordingly, our future results
of operations may be affected by fluctuations in the fair value of both the
Liberty Series A common stock and the derivative component of the Comcast
Exchangeable Notes in future periods.
Equity in Net Losses of Affiliates
The increase in equity in net losses of affiliates for the three month
interim period from 2002 to 2003 is primarily attributable to losses of
investees acquired in connection with the Broadband acquisition. The decrease in
equity in net losses of affiliates for the nine month interim period from 2002
to 2003 is primarily attributable to decreases in the net losses of certain of
our
42
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
international equity method investees.
Other Income (Expense)
The changes in other income (expense) for the interim periods from 2002 to
2003 are primarily attributable to lease rental income related to certain assets
acquired in connection with the Broadband acquisition.
Income Tax (Expense) Benefit
The changes in income tax (expense) benefit for the interim periods from
2002 to 2003 are primarily the result of the effects of changes in our income
(loss) before taxes and minority interest.
Minority Interest
The changes in minority interest for the interim periods from 2002 to 2003
are attributable to the effects of changes in the net income or loss of our less
than wholly owned consolidated subsidiaries, as well as to the minority
interests in certain subsidiaries acquired in connection with the Broadband
acquisition.
Discontinued operations
The decrease in income from discontinued operations for the three month
interim period from 2002 to 2003 is primarily attributable to the 2003 period
including results through August 31, while the 2002 period includes results for
the full three month interim period. The increase in income from discontinued
operations for the nine month interim period from 2002 to 2003 is primarily
attributable to a decrease in investment loss, net, offset in part by the 2003
period including results through August 31, while the 2002 period includes
results for the full nine month interim period. As a result of the sale, we
recognized a $3.290 billion gain, net of approximately $2.865 billion of related
income taxes.
We believe that our operations are not materially
affected by inflation.
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
Our chief executive officer and our co-chief financial officers, after
evaluating the effectiveness of our disclosure controls and procedures (as
defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or
15d-15(e)) as of the end of the period covered by this quarterly report,
have concluded, based on the evaluation of 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.
Changes in internal control over financial reporting. There were no changes
in our internal control 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 materially affect, our internal
control over financial reporting.
PART II. OTHER INFORMATION
- -------- -----------------
ITEM 1. LEGAL PROCEEDINGS
Refer to Note 10 to our condensed financial statements included in Item 1
of this Quarterly Report on Form 10-Q for a discussion of recent
developments related to our legal proceedings.
43
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
10.1 Amended and Restated Stock Purchase Agreement dated as of June
30, 2003 among Comcast QVC, Inc., Comcast Corporation, Liberty
Media Corporation, and QVC, Inc. (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed on October
1, 2003).
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 3, 2003 announcing that we had agreed to sell our ownership
interest in QVC, Inc., formerly a consolidated subsidiary, to
Liberty Media Corporation.
(ii) We filed a Current Report on Form 8-K under Items 5 and 7 (c) on
September 17, 2003 announcing the disposition of our indirect
ownership interest in QVC, Inc.
44
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
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 CORPORATION
----------------------------------------
/S/ LAWRENCE J. SALVA
----------------------------------------
Lawrence J. Salva
Senior Vice President and Controller
(Principal Accounting Officer)
Date: October 31, 2003
45
Exhibit 31
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 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986.]
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: October 31, 2003
/s/ BRIAN L. ROBERTS
- --------------------------------------------
Name: Brian L. Roberts
Chief Executive Officer
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 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986.]
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: October 31, 2003
/s/ LAWRENCE S. SMITH
- --------------------------------------------
Name: Lawrence S. Smith
Co-Chief Financial Officer
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 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986.]
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: October 31, 2003
/s/ JOHN R. ALCHIN
- --------------------------------------------
Name: John R. Alchin
Co-Chief Financial Officer
Exhibit 32
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
October 31, 2003
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
The certification set forth below is being submitted in connection with the
quarterly report on Form 10-Q of Comcast Corporation (the "Report") for the
purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") and Section 1350 of Chapter 63 of
Title 18 of the United States Code.
Brian L. Roberts, the Chief Executive Officer, Lawrence S. Smith, the Co-Chief
Financial Officer and John R. Alchin, the Co-Chief Financial Officer of Comcast
Corporation, each certifies that, to the best of his knowledge:
1. the Report fully complies with the requirements of Section 13(a) or
15(d) of the Exchange Act; and
2. the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of Comcast Corporation.
/s/ BRIAN L. ROBERTS
- --------------------------------------
Name: Brian L. Roberts
Chief Executive Officer
/s/ LAWRENCE S. SMITH
- --------------------------------------
Name: Lawrence S. Smith
Co-Chief Financial Officer
/s/ JOHN R. ALCHIN
- --------------------------------------
Name: John R. Alchin
Co-Chief Financial Officer