August
24, 2009
Mr. Larry
Spirgel
Assistant
Director
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, N.E.
Washington,
DC 20549
Re:
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Comcast
Corporation
Form
10-K for the year ended December 31, 2008
File
No. 001-32871
Response
to Staff Comment Letter Dated July 23, 2009
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Dear Mr.
Spirgel:
We are
writing this letter to respond to the comment letter of the Staff (the “Staff”)
of the Securities and Exchange Commission dated July 23, 2009, with respect to
the Form 10-K for the year ended December 31, 2008, filed by Comcast Corporation
on February 20, 2009. For your convenience, we have reproduced the
Staff’s comment preceding each response. Please let us know if you
have any questions or if we can provide additional information or otherwise be
of assistance in expediting the review process.
Form 10-K for the year ended
December 31, 2008
Item 1. Business,
page 1
Other Business, page
7
1.
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You
disclose that you own two professional sports teams. In future
filings, please disclose the names of these
teams.
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Response
In future
filings we will disclose the names of our two professional sports
teams: the Philadelphia Flyers (National Hockey League) and the
Philadelphia 76ers (National Basketball Association).
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2.
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Also,
you disclose that you own two large, multipurpose arenas. In
future filings, please disclose the names of these arenas and update your
disclosure regarding the demolition of the Wachovia Spectrum and the
construction of a new arena.
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Response
In future
filings we will disclose that our two large, multipurpose arenas are located in
Philadelphia, Pennsylvania. Supplementally, the two arenas are the Wachovia
Center and the Wachovia Spectrum. We respectfully submit, however, that neither
the names of these arenas nor the status of the demolition of the Wachovia
Spectrum, nor a potential mixed-use commercial project on the site is material
to investors in our securities.
Item 3. Legal
Proceedings, page 17
3.
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We
note that you currently are a party to certain patent
litigation. Please provide the information required under Item
103 of Regulation S-K regarding this patent litigation such
as:
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the name of the court or
agency in which the proceedings are
pending,
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the date the proceedings were
instituted,
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the parties to the
proceedings,
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a description of the factual
basis alleged to underlie the proceedings,
and
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Response
We
believe that the multiple patent cases pending against us do not, individually
or in the aggregate, constitute “material pending legal proceedings” within the
meaning of Item 103 of Regulation S-K. Rather, we believe these
matters are “ordinary routine litigation incidental to the business” of any
large corporation and are in the nature of the legal proceedings we generally
describe under the caption “Other” within Item 3, Legal
Proceedings. Although we believe the disclosure contained in
the risk factor entitled “Our
business depends on certain intellectual property rights and on not infringing
the intellectual property rights of others” would be sufficient
disclosure, for the convenience of investors we believe the reference to these
cases within Item 3 is appropriate.
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and Exchange Commission
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Note 2 – Summary of
Significant Accounting Policies
Intangible
Assets
Indefinite-Lived Intangibles
– Franchise Rights, page 46
4.
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We
note that you use a discounted cash flow methodology to estimate the fair
value of your cable franchise rights. Addressing EITF D-108,
describe the method you used to isolate the cash flows associated with the
intangible asset.
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Response
We
responded to a similar inquiry regarding our 2003 Form 10-K. Our
response, among other things, included why we believe that the method used to
estimate fair value in our impairment testing is not a residual
approach. We have included our December 8, 2003 response to the
Staff’s November 7, 2003 comment letter as Appendix A, which includes the
details of our valuation methodology (see particularly the section following the
caption “Franchise Rights and Goodwill Impairment Tests”). The
following addresses the Staff’s current comment regarding application of EITF
D-108.
We use an
Excess Earnings Cash Flow Methodology to estimate the fair value of our cable
franchise rights (hereinafter referred to as “Franchise
Rights”). The excess earnings cash flow modeling for Franchise
Rights directly identifies and isolates the economic benefits (i.e., net cash
flows) used to measure these rights.
The
modeling of revenues is completed through the analysis and multiperiod
projections of customer performance which is limited to the marketing area of
the franchise rights (i.e., homes passed within the
franchised areas). The revenue streams associated with customer
performance are directly associated with one of two assets: Customer
Relationships and Franchise Rights. Customer Relationships represent
projected revenue streams from services to existing
customers. Franchise Rights represent projected revenue streams from
future customers that the cable business is able to obtain through the marketing
of the homes passed within the franchised service area as well as projected
revenue streams from additional services to existing customers within the
franchised service area. The identification of customers to each of
the two assets is readily determinable in the Excess Earnings Cash Flow
Methodology. This methodology utilizes the number of customers as of
the valuation date and estimates future Customer Relationship and Franchise
Rights customers based on survival characteristics of each group of customers as
measured by the historical pattern of attrition rates. The
identification of customers to either Customer Relationships or Franchise Rights
provides the direct linkage of future economic benefits to each specific
asset.
Upon the
identification of revenue, expenses and capital expenditures to either Customer
Relationships customers or Franchise Rights customers, the cash flows for
Customer Relationships and Franchise Rights are calculated through the
application of contributory charges for tangible assets, trademarks and going
concern (a measurable component of goodwill). Typically for a cable
business, tangible assets, trademarks and going concern are the only other
identified assets. The application of these contributory charges
results in the isolation of economic benefits that are directly attributable to
Customer Relationships and Franchise Rights.
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and Exchange Commission
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We
believe that applying the procedures summarized above results in the direct
quantification of the future economic benefits of our Franchise
Rights. In addition, we believe the following factors further support
our conclusion that the excess earnings cash flow methodology is a direct value
method:
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The
fair values of identified non-goodwill assets (tangible assets, Customer
Relationships and Franchise Rights) do not add up to the fair value of the
business enterprise; therefore, the residual method has not been
applied.
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The
economic benefits of all business assets (non-goodwill and goodwill) are
measured and their respective rates of return are reconciled to the
business enterprise discount rate.
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We
also corroborate the estimated fair value derived from the Excess Earnings
Cash Flow Methodology for our Franchise Rights by valuing them using a
Greenfield methodology, which is an alternative direct valuation
methodology that models the economic benefits of the Franchise Rights in
the absence of goodwill assets. The Greenfield methodology has
produced fair value indications that were consistent with the excess
earnings cash flow methodology.
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Note 5 – Acquisition and
Other Significant Events
2008
Acquisitions
Insight Transaction, page
51
5.
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Please
provide us with additional details about this transaction, including but
not limited to the nature of the assets you contributed at formation and
the assets you received at dissolution of the joint venture. It
is unclear what you mean by “we recorded
our 50% interest in the Comcast asset pool as a step acquisition.” Please
explain the basis for your
accounting.
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Response
In
responding to the Staff’s inquiry, we first note that the accounting treatment
is consistent with the accounting for the dissolution of a similar cable joint
venture between Comcast and Time Warner (the “Texas and Kansas City Cable
Partnership”). The dissolution of the Texas and Kansas City
Partnership also involved the dividing of cable systems owned by the partnership
into asset pools that were ultimately distributed to the
partners. The accounting for the Texas and Kansas City Partnership
transaction was pre-cleared by Time Warner Inc. (as it related to Time Warner
Cable Inc.) with the Staff in 2006. This accounting treatment is also
consistent with Deloitte’s interpretive guidance on the dissolution of a joint
venture where the businesses are divided and distributed to the
partners.
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and Exchange Commission
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Background
on Insight Midwest
Insight
Midwest LP (“Insight Midwest”) was formed in September 1999 to serve as the
holding company and a financing vehicle for a cable television system joint
venture between Insight Communications (“Insight”) and AT&T
Broadband. At inception, Insight Midwest was owned 50% by Insight and
50% by AT&T Broadband. The partnership was capitalized through a
series of transactions, including the contribution of cable systems by both
Insight and AT&T Broadband. For more information on the
formation, asset contributions and other activities of Insight Midwest, see
Footnote 3 of Insight’s 2006 Form 10-K (the last 10-K filed prior to it going
private).
The
Insight Midwest partnership agreement provided that at any time after
December 31, 2005 either partner had the right to cause a split-up of
Insight Midwest. The mechanics for the dissolution of Insight
Midwest, the operation during the dissolution period, the governance, and the
division of economics were provided for in the partnership
agreement. The partnership agreement also provided a methodology for
the allocation of net assets between the partners.
As a
result of our acquisition of AT&T Broadband in 2002, we acquired AT&T
Broadband’s 50% interest in Insight Midwest. In allocating the
purchase price of AT&T Broadband, we recorded our 50% interest in Insight
Midwest at its estimated fair value in accordance with Accounting Principles
Board Opinion No. 18, “The
Equity Method of Accounting for Investments in Common
Stock.” We accounted for our 50% interest in Insight Midwest
under the equity method.
Transaction
In
accordance with the partnership agreement, on April 1, 2007 (“selection date”),
we and Insight agreed to split up the assets and liabilities of Insight
Midwest. Pursuant to the partnership agreement’s distribution
methodology, Insight Midwest’s net assets were split into two pools: the Comcast
Pool and the Insight Pool. Each of the Comcast Pool and Insight Pool
consisted of tangible and real property and intangible
assets. Tangible and real property included cable transmission
equipment, distribution facilities and customer premises’
equipment. Intangible assets included customer relationships, cable
franchise rights and goodwill.
On
January 1, 2008, the distribution of the assets of Insight Midwest was
completed. Under the terms of the agreement, we received cable
systems serving approximately 696,000 video customers in Rockford/Dixon,
Quincy/Macomb, Springfield, Peoria and Champaign/Urbana, Illinois, and in
Bloomington, Anderson and Lafayette/Kokomo, Indiana, together with approximately
$1.3 billion of debt allocated to those cable systems. Insight
received cable systems serving approximately 652,000 video customers in
Louisville, Lexington, Bowling Green and Covington, Kentucky, in Evansville,
Indiana, and in Columbus, Ohio, together with approximately $1.24 billion of
debt allocated to those cable systems.
Basis
for Accounting
Prior to
the closing of the transaction on January 1, 2008, we had accounted for our 50%
interest in Insight Midwest under the equity method of
accounting. Prior to the dissolution of
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and Exchange Commission
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Insight
Midwest, we effectively owned a 50% interest in each of the Comcast Pool and the
Insight Pool.
We
concluded that this transaction should be accounted for as a fair value exchange
of our 50% interest in the Insight Pool for Insight’s 50% interest in the
Comcast Pool in accordance with Accounting Principles Board Opinion No. 29,
“Accounting for Nonmonetary
Transactions, as amended by Statement of Financial Standard No. 153, Exchanges
of Nonmonetary Assets – and amendment of APB Opinion No.
29.” Specifically, we viewed this transaction as the purchase
of the 50% interest in the Comcast Pool that we did not already own using as
consideration our 50% interest in the Insight Pool. In other words,
we acquired from Insight its 50% interest in the Comcast Pool, and we sold to
Insight our 50% interest in the Insight Pool.
We
accounted for our acquisition of Insight’s 50% interest in the Comcast Pool as a
step acquisition (moving from an equity method investment to acquiring control)
in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations”
(“SFAS No.
141”). In accordance with SFAS No. 141 and related
interpretative guidance, an entity that acquired another entity in a series of
purchases (a step acquisition) should identify the cost of each investment, the
fair value of the underlying identifiable net assets acquired, and the goodwill
on each step. Therefore, the 50% interest in the Comcast Pool we had
acquired in 2002 continued to be accounted for at its historical
cost. This step acquisition accounting is consistent with the
accounting for the Texas and Kansas City Partnership dissolution which, as
stated above, Time Warner pre-cleared with the Staff in 2006. The
purchase price consideration for the 50% interest in the Comcast Pool acquired
on January 1, 2008 of approximately $1.2 billion was recorded at fair value
based on an appraisal prepared by a third party valuation expert.
Note 6 –
Investments
Equity
Method
Clearwire, page
55-56
6.
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We
note that you recorded the $600 million other-than-temporary-impairment in
your Clearwire equity investment in other income (loss). Since
this impairment is related to one of your equity investees, it appears to
us that you should include it within the line item “Equity in net income
(losses) of affiliates, net.”
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Response
We
believe that the caption “Equity in net income (losses) of affiliates, net” is
more reflective of the income and/or losses of the underlying
investee. Given the amount was significant and unique (in that we had
not recognized any share of Clearwire losses because we are on a one quarter
lag, see “Background on Impairment” below), we believed that it was important
that it be clear to a reader of the financial statements that the amount was
non-operating (below operating income) and not based on the underlying losses of
Clearwire. We researched the relevant accounting literature,
specifically APB 18 – The
Accounting for Equity Method of Accounting for Investments in Common
Stock (“APB18”). The literature states that
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the
investor’s share of earnings or losses of an investee should ordinarily be
included in the income statement as a single amount except for extraordinary
items (paragraph 19c of APB 18). The literature also addresses other
than temporary impairments (the guidance that we used as a basis for recording
the Clearwire impairment), but does not address the location of such an
impairment loss in the income statement (paragraph 19h of APB 18).
After
careful consideration of these various factors, we concluded that it would be
appropriate and more transparent to recognize the impairment in other income
(expense), coupled with disclosure of the location and nature of the impairment
in the financial statements and Management’s Discussion and
Analysis. While other than temporary impairment adjustments are
technically not yet realized, they are treated as realized losses for accounting
purposes. This classification is also consistent with our accounting
for realized gains (losses) on the sale of equity method
investments. Such gains (losses) are based upon the carrying value or
“outside basis” of investments. We disclose this policy in Note 2 –
Summary of Significant Accounting Policies.
Background
on Impairment
The $600
million impairment related to the write-down of the “outside basis” of our
investment in Clearwire. The “outside basis” was deemed to be
impaired due to the severe decline in the quoted market value of the Clearwire
publicly traded shares from the date of the initial agreement in May 2008, to
its closing date November 28, 2008 and through December 31, 2008. As
a result, the impairment was recorded almost immediately after the closing of
the transaction and prior to the recognition of any share of the net income or
loss of Clearwire, as we record our share of net income or loss one quarter in
arrears.
Because
of the unusual circumstances of the timing of the loss, we discussed various
issues during an informal consultation with Mr. Wayne Carnall, Chief Accountant
of the Division of Corporation Finance, prior to filing our 2008 Form
10-K. For your convenience, we have attached a copy of the
correspondence of this informal consultation as Appendix B. During
our informal consultation we (i) discussed the application of Regulation S-X
4-08(g) and, specifically, the need, if any, to include summary financial data
for our equity method investees in the 2008 Form 10-K because of the significant
impairment charge recorded with respect to the Clearwire investment; (ii)
provided disclosure alternatives we considered in lieu of summary financial
data; (iii) explained why we believed that summary financial data for all of our
equity method investees would not be meaningful given the unusual circumstances;
and (iv) provided excerpts from a preliminary draft of our 2008 Form 10-K as it
related to the Clearwire Transaction. While the presentation within
operating income (expense) was not the purpose of the informal consultation, as
previously mentioned we provided our draft Clearwire footnote, including the
disclosure that we recognized the impairment in other income
(expense). The final footnote did not change substantively from the
version we provided to Mr. Carnall during the informal
consultation.
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and Exchange Commission
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Definitive Proxy Statement
incorporated by reference into Part III of the Form 10-K
Executive Compensation, page
37
Overview of Our Compensation
Program Philosophy and Process, page 37
7.
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We
note that you hired a compensation consultant to review the work of your
compensation consultant in November 2008. In next year’s
report, explain why the Compensation Committee chose a second compensation
consultant to review the work of its compensation consultant (instead of
just hiring a new compensation consultant) and how the Committee
considered the views of both
consultants.
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Response
We
believe Mercer to be an excellent compensation consultant; however, from time to
time the Compensation Committee may engage a second compensation consultant to
have the benefit of another independent view. In fiscal year 2008,
the Compensation Committee chose to engage a second compensation consultant;
however, we do not expect that the Compensation Committee will do so in fiscal
year 2009. We currently expect to maintain our retention of Mercer in
order to benefit from its historical knowledge of our industry and our
compensation programs, as well as its extensive resources. In future
filings that discuss our compensation consultants, we will discuss, if
applicable, the reasons for hiring a second compensation consultant to review
the work of Mercer.
For
fiscal year 2008, our Compensation Committee considered the views of both
compensation consultants. Our Compensation Committee believes that
the work of Mercer is sound and considers the views of Mercer in making
compensation decisions; however, as we state on page 15 of our 2009 proxy
statement, Mercer “does not recommend or determine compensation levels or
elements.” The second consultant did not replicate the work of the
first consultant, nor did the second consultant provide an “opposing”
opinion. Rather, the second consultant provided a methodological and
strategic review of the work recommended by and completed by
Mercer. The Compensation Committee considered this second
compensation consultant’s review in making compensation decisions. In
future filings that discuss our compensation consultants, we will discuss, if
applicable, how the Compensation Committee considered the views of both
compensation consultants.
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and Exchange Commission
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8.
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In
the first paragraph on page 40, you disclose that the Compensation
Committee reviewed a Mercer compensation survey to benchmark the base
salary, total cash compensation, and total compensation for your named
executive officers. This survey contained companies of a
similar size to yourself. In future filings, please disclose
all of the companies that are part of any survey that you use for
benchmarking purposes. See Item
402(b)(2)(xiv).
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Response
Our
Compensation Committee reviewed a Mercer compensation survey analysis, which was
an analysis prepared by Mercer of seven individual widely-available published
surveys conducted by seven different compensation consultant firms: Croner
Company, Hay, Hewitt, Mercer, Radford, Towers Perrin and Watson
Wyatt. Our disclosure on page 40 of our 2009 proxy statement did not
intend to indicate that our Compensation Committee reviewed a compensation
survey prepared by Mercer for our proprietary use.
Question
118.05 of the Compliance & Disclosure Interpretations that comprise the
Commission’s Corporate Finance Division’s interpretations of Regulation S-K
indicates that while “Item 402(b)(xiv) provides, as an example of material
information to be disclosed in the Compensation Discussion and Analysis,
depending on the facts and circumstances, ‘[w]hether the registrant engaged in
any benchmarking of total compensation, or any material element of compensation,
identifying the benchmark and, if applicable, its components (including
component companies),’ . . . in this context, benchmarking . . . would not
include a situation in which a company reviews or considers a broad-based
third-party survey for a more general purpose, such as to obtain a general
understanding of current compensation practices.”
We did
not use the Mercer analysis or any of the surveys included in the Mercer
analysis to benchmark our NEO compensation, but instead we used the Mercer
analysis as a tool for making comparative measurements to understand the current
compensation practices at companies with revenue sizes that are within a range
close to ours. The seven surveys analyzed by Mercer included in the
aggregate thousands of participant companies and, in the case of some surveys,
the names of the participant companies were not made available. We do
not believe that the names of the companies participating in the surveys are
material to our compensation decision making process. We do not
believe that these companies are component companies participating in a survey
used for benchmarking.
In future
filings, as we have done in the past, we will disclose all of the companies that
are part of any survey that we use for benchmarking purposes.
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and Exchange Commission
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Base Salary, page
41
9.
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In
the third paragraph on page 41, you state that all of your NEOs other than
Mr. Block chose not to receive a salary increase for 2009. In
future filings, if any of your NEOs decide not to receive a salary
increase, please disclose the reasons for his or her
decision.
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Response
In any
future filing that discusses that NEOs decided not to receive salary increases,
we will disclose the reasons for this decision.
Cash Bonus Incentive
Compensation, page 41
10.
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In
the sixth paragraph on page 41, you disclose the target bonus of each NEO
under the cash bonus plan as a percentage of the salary of each
NEO. For instance, you disclose that Mr. Roberts’ target
bonus is 300% of his salary. We also note that you disclose the
target bonus of each NEO in the Grants of Plan-Based Awards Table on page
52. However, to help readers readily understand the bonus
amounts, please consider disclosing the actual target dollar amounts in
the text of your discussion or referring the reader to the appropriate
table.
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Response
In future
filings we will add a cross-reference in our discussion of NEO target bonuses
referring the reader to the Grants of Plan Based Awards Table.
11.
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You
disclose on the bottom of page 45 and the top of page 46 that the annual
cash bonus is based on achieving certain levels of consolidated operating
cash flow and free cash flow. We note, in the first full
paragraph on page 42, that you disclose the actual numbers for free cash
flow but you only disclose the percentage increases from the prior year
for operating cash flow. In future filings, for all performance
targets, please disclose the actual target numbers that you use (further,
please disclose the actual operating cash flow target numbers for the
vesting of RSUs as well). For instance, where you state that an
increase of 4.2% or less in operating cash flows would not lead to any
cash bonus, please disclose the numbers that constitute the range between
a 0% increase to a 4.2% increase.
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Response
In
setting the actual performance targets for our annual cash bonus program for
NEOs, the Compensation Committee used targets denominated in dollars for our
consolidated free cash flow targets and targets denominated in percentages for
our consolidated operating cash flow target. Therefore, we disclosed
these targets as shown on page 42 of our 2009 proxy
statement. Likewise, our consolidated operating cash flow targets set
by the Compensation Committee for
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the
vesting of our performance-based RSUs were denominated in percentages and were
disclosed as such on page 43 of our 2009 proxy statement.
12.
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Similarly,
you state that the NEOs achieved 90% of the target bonus for operating
cash flows and 130% of the target bonus for free cash flows. In
future filings, please disclose the actual achieved measures that
correspond to these bonus amounts.
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Response
Although
we believe that we provided investors with the material information they needed
to understand our 2008 performance target achievement, in future filings where
performance target achievement is disclosed, we will calculate and disclose the
dollar equivalent of the percentage achievement of our performance
targets.
13.
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Further,
in future filings, to help investors readily understand how your cash
bonus plan works in tiers (that increases in certain amounts of your
performance measures, lead to certain amounts of bonuses), please consider
using a chart to show investors where the range of increases correlates to
certain bonus amounts.
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Response
As we use
straight-line interpolation to determine the amounts granted under our cash
bonus plans based on performance measure achievement, we do not believe that a
chart showing where the range of increases correlates to certain bonus amounts
would provide additional helpful information to investors. However,
in future filings where performance targets are disclosed, we will consider
whether any changes in our practices would make a chart showing where the range
of increases correlates to certain bonus amounts helpful to
investors.
14.
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Also,
in future filings, please explain how the range of performance measures
correlates to certain bonus amounts. You state that an increase
of between 4.2% to 9.2% or less in year-over-year increases in operating
cash flows means that a NEO will receive between 50% to 90% of his target
bonus. Here, for instance, please explain how a 6.7% increase
in operating cash flows corresponds to a certain bonus amount; i.e. does
an increase in operating cash flows correspond pro rata to an increase in
bonus amounts.
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Response
We use
straight-line interpolation to determine the amounts granted under our cash
bonus plans based on performance measure achievement. In future
filings where performance targets are disclosed, we will indicate how the range
of performance measures correlates to certain bonus amounts.
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and Exchange Commission
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15.
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On
the bottom of page 41, you disclose that the cash bonus is based 80% on
operating cash flow and 20% on free cash flow. You disclose
that you achieved 90% of the target bonus for operating cash flow and 130%
of the target bonus for free cash flow. We assume that your
NEOs are entitled to receive 98% of their target amounts because you took
80% of 90%, which is 72%, and added it to 130% of 20%, which is
26%. In future filings, please show your calculations of how
you determined the total percentage amount of the target bonuses that the
NEOs are entitled to receive.
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Response
Although
we believe that we provided investors with the material information they needed
to understand our 2008 performance target achievement, in future filings where
performance target achievement is disclosed, we will show our calculations as to
how we determined the total percentage amount of the target bonuses that the
NEOs are entitled to receive.
16.
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We
note your response to comment 12 in your letter dated September 21, 2007
and that the format of your disclosure under “Potential Payments upon
Termination or Change in Control” on page 63 has not changed substantially
since the letter. Please explain what consideration you gave to
presenting this disclosure in a tabular format so that it is easier for
investors to understand and follow.
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Response
We
seriously considered presenting this information in tabular format, including
drafting the disclosure in tabular format as a comparison to the narrative
format we currently use; however, due to the extensive explanation regarding the
potential payments upon termination or change of control that we believe is
necessary for investors to understand our practices and the varying potential
payment structures of our NEOs, we found the tabular disclosure to be lengthier,
more unwieldy and less understandable than the narrative disclosure we currently
provide. Although we believe that narrative disclosure is the best
method of presenting the potential payments upon termination or change of
control under our current practices, we will consider whether any changes in our
practices would make tabular disclosure of this information helpful to
investors’ understanding of the potential payments upon termination or change of
control. Should we make such a determination, we will use such
tabular format in future filings that disclose this information.
17.
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Please
provide the disclosure required by Item 407(e)(4) of Regulation
S-K.
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Response
We did
not provide this disclosure because we believe we do not have any compensation
committee interlocks or insider participation called for by this
disclosure. In future filings, if this remains the case, we will make
an affirmative statement indicating that we have no compensation committee
interlocks or insider participation called for by this disclosure.
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and Exchange Commission
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* * *
In
connection with our responses to the Staff’s comments, I acknowledge, on behalf
of Comcast Corporation, that:
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Comcast
Corporation is responsible for the adequacy and accuracy of the disclosure
in its filings;
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Staff
comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the
filing; and
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Comcast
Corporation may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
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We hope
the foregoing responses fully address the Staff’s concerns. Please do
not hesitate to call me at (215) 286-7564 with any questions you may have with
respect to the foregoing.
/s/
Arthur Block
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Senior
Vice President, General Counsel and Secretary
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Brian
L. Roberts, Chairman of the Board and Chief Executive Officer
Bruce
K. Dallas, Davis Polk & Wardwell LLP
Greg
Seelagy, Deloitte & Touche LLP
|
Appendix
A
Response
to Comment #7 of
2003
SEC Comment Letter
(Franchise
Rights Fair Value)
Note
5 – Acquisitions and other significant events, page 52
7. For
each significant acquisition you made, provide us with a schedule showing how
you determined the allocation of the purchase price under APB 16 and/or SFAS
141. Specifically, tell us the methodology you used in determining
the fair value of each identifiable intangible asset and goodwill. In
that regard, we have noticed the use of the “residual method” throughout the
industry. The “residual method” results when the purchase price in a
purchase business combination that is in excess of the net identifiable tangible
and intangible assets of the entity, is allocated to an intangible asset, for
example cable franchise operating rights, in its entirety. If you
used the residual approach, we question an assertion that it is not possible to
separately value each identifiable asset acquired, such as the cable
franchises. We continue to evaluate the appropriateness of the use of
the “residual method” and we are concerned that this approach prevents
appropriate recognition and impairment testing of goodwill separate and apart
from intangible assets, consistent with paragraph 5.a. of EITF
02-7. With that said, we will not presently object to the use of the
“residual method” to measure the fair value of the intangible
asset. If you use the “residual method” we believe that you should
follow, by analogy, the guidance provided in paragraph 20 of SFAS 142 to
recognize and measure impairment losses of your indefinite-lived intangible
assets resulting from the use of the “residual method.” Specifically,
we note that by analogy to the guidance under paragraph 21 of SFAS 142, you
should determine the implied fair value of your cable franchise operating
rights, at the appropriate unit of accounting, as addressed by EITF
02-7. The implied fair value would be determined by removing the fair
value of the previously unrecognized intangible assets, including internally
generated intangible assets and customer relationship intangible assets
discussed in EITF 02-17, with the excess amount representing the implied fair
value of the FCC licenses. The implied fair value of the cable
franchises would then be compared to the carrying value of the cable franchises
to determine whether there was any impairment. Please advise or
revise.
It
is important to note that the application of the “residual method” precludes the
recognition of two residual intangible assets, for example, cable franchises
valued using the “residual method” described above and goodwill. This
is a result of the fact that it is not possible under GAAP to perform the
required impairment testing, since, consistent with paragraph 5.a of EITF 02-7,
indefinite-lived intangible assets cannot be tested for impairment in
combination with goodwill or another finite-lived asset. We have
noticed situations throughout the industry of companies that have two residual
intangible assets as a result of their application of the “residual method” and
the recognition of goodwill representing the deferred tax effects of the
recognition of the indefinite-lived intangible asset. In these cases,
we would likely not object to a company’s proposal to eliminate any distinction
between the goodwill and the intangible asset, since the amount recorded as
goodwill is reflective only of the “debit” associated with the provision of the
deferred income taxes on the intangible asset, most commonly cable
franchises. However, we believe that such a reclassification
represents the correction of an error and should be made
Appendix
A
retroactive
to the date of adoption of SFAS 142. Also, note that in cases where
goodwill was re-characterized as an indefinite-lived intangible asset, you would
need to consider providing for the tax-on-tax effects resulting from having
stepped-up the acquired intangible asset.
Your
response to the above should address the following, as applicable:
a.
If you believe you do not use the “residual method,” tell us why;
b.
|
Whether
you have two residual intangible assets as a result of the 1) use of the
“residual method” to value an intangible asset other than goodwill, and 2)
the deferred tax effects of the recognition of the indefinite-lived
intangible asset that is assigned to or labeled as goodwill, the “going
concern value” or “replacement cost” approach of goodwill or goodwill
calculated utilizing some other methodology. If you have two
residual intangible assets recorded, tell us your proposal on an approach
to perform the required impairment testing based on the guidance noted
above;
|
c.
|
The
reporting units used to test the recorded goodwill for
impairment. Note that if the residual method is used, and
goodwill is reclassified to the other residual intangible asset, most
commonly cable franchise operating rights, as a result of the guidance
above, the impairment test is not performed at the reporting unit
level. Rather, the impairment test will be performed on the
indefinite-lived intangible asset at the appropriate unit of
accounting. Refer to EITF 02-7 for guidance on the
determination of the appropriate unit of
accounting;
|
d.
|
The
unit of accounting used to perform the required impairment testing of your
indefinite-lived intangible assets, regardless of whether the “residual
method” is used; and
|
e.
|
If
the “residual method” is used, tell us the previously unrecognized
intangible assets you considered in performing the required impairment
test on your indefinite-lived intangible assets discussed
above.
|
Response: As
the Staff was not specific in the meaning of “significant acquisition” for
purposes of our response, we consider our significant acquisitions to be those
where the consideration was in excess of $1 billion. We have attached
as exhibit 4 a description of these significant acquisitions.
Following
is an overview of the methods used to allocate purchase price to our significant
acquisitions and our responses to the Staff’s specific questions.
Overview
Our
overall approach in allocating purchase price in a purchase business combination
is to allocate first to identifiable tangible and intangibles assets, including
franchise rights, based on their fair values. To assist in this
process, third party valuation specialists are engaged to value certain of these
assets and the liabilities assumed. Any excess consideration paid
over the fair value of such identifiable net assets results in
goodwill. In our analysis of the methods used in determining fair
value of each identifiable intangible, we have distinguished between
Appendix
A
acquisitions
accounted for under the provisions of SFAS 141 and those accounted for under the
provisions of APB 16.
Acquisitions
Post Adoption of SFAS 141:
Overview
of Methodology
The
Broadband acquisition is the only significant acquisition accounted for
subsequent to the adoption of SFAS 141. The material intangible
assets, apart from goodwill, identified in the Broadband acquisition are
franchise rights and customer relationships. As illustrated below, in
valuing these intangibles, we did not use a residual method.
Customer
relationships represent the monthly “at will” contracts between our existing
customers and us. While these contracts are on a month-to-month
basis, these relationships provide us with the right to service the existing
customers.
The
franchise rights are the contractual rights between a governmental franchising
authority and us, which define the rights and responsibilities of each in the
construction and operation of a cable business within a specified geographic
area.
In
determining the fair value of identifiable tangible and intangible assets, the
first step was to establish a business enterprise value, which is developed
independent of the cost of acquisition. The customer relationships
and franchise rights were valued using a discounted cash flow (DCF)
methodology. The DCF model for these two intangible assets has been
developed using assumptions consistent with assumptions used in developing
business enterprise value. Additionally, a separate valuation of
going concern was calculated independently using a DCF model to allow for an
asset charge to be applied in the valuation of customer relationships and
franchise rights. Going concern was not separately recorded in the
purchase price allocation since it fails the recognition criteria of paragraph
39 of SFAS 141. Goodwill represents the residual or excess of cost
over fair value acquired. The following illustrates our methodology
for determining goodwill:
|
Total
Consideration Paid
|
|
Plus:
|
|
|
|
Liabilities
Assumed and Deferred Taxes
|
|
|
Transaction
Costs
|
|
Less:
|
|
|
|
Working
Capital
|
|
|
Tangible
Property
|
|
|
Customer
Relationships
|
|
|
Franchise
Rights
|
|
|
Goodwill
|
|
In
applying the above methodology to the Broadband acquisition, the fair value of
identifiable assets exceeded the consideration paid and liabilities assumed
(prior to recording deferred taxes).
Appendix
A
Accordingly,
we initially reduced the value of the identifiable tangible and intangible
assets proportionately as required under paragraph 44 of SFAS 141. In
the process of recording deferred taxes, we reinstated such fair values to those
identifiable assets and the excess resulted in goodwill.
As stated
on page 52 of our 2002 Form 10-K, a new measurement date was established in the
determination of the fair value of the shares issued in the Broadband
acquisition. The difference comparing the new and old measurement
dates resulted in an approximate $23 billion reduction in the value of the
consideration. Thus, if a new measurement date was not established,
this additional value would have likely resulted in additional goodwill of
approximately $23 billion because the consideration exchanged would have greatly
exceeded the business enterprise value used in determining the fair value of the
customer relationships and franchise rights. This point further
supports our position that we did not apply a residual methodology in the
Broadband purchase price allocation.
Detailed
Methodology to Determine Fair Value of Customer Relationships and Franchise
Rights
To
identify the separate cash flows associated with customer relationships and
franchise rights, the business enterprise DCF model parameters (customers,
revenue per customer and operating margins) are specifically identified for
customer relationships and franchise rights. Customer relationships
represent the business relationships between the cable company and its existing
customers as of the date of acquisition. By identifying the revenues
and expenses attributable to the future expectations from these existing
customers, the customer relationships’ cash flow is identified and separated
from the business enterprise cash flow. The value of franchise rights
is represented by rights to solicit and service potential customers and to
deploy, market and sell new services to existing customers. By
identifying the revenues and expenses attributable to the future expectations
from new customers and new service offerings to existing customers, the
franchises’ cash flow is identified and separated from the business enterprise
cash flow. The customer relationships’ cash flows and the franchises’
cash flows are independent and are not contributory to each
other. Consequently, a contributory charge (a concept that is
discussed further below) to each of these cash flows for the other asset (i.e.
contributory charge to the customer relationships’ cash flow for the value of
the franchise rights) has not been made.
Both the
customer relationships’ cash flows and the franchise rights’ cash flows need to
be adjusted for the contribution of other identified assets in generating the
respective cash flows. Typically for a cable business, the only other
identified assets are the tangible assets and going concern. After
adjusting the customer relationships’ cash flows and the franchise rights’ cash
flows for contributory charges of the tangible assets and going concern, the
cash flows attributable to the customer relationships and franchise rights are
independently identified. The present value of these cash flows
represents the fair value assigned to the customer relationships and franchise
rights.
Appendix
A
APB
16 Appraisal Methodology for Valuing Intangibles and Goodwill
For the
2001 and 2000 significant acquisitions which all occurred prior to July 1, 2001
(the effective date of SFAS 141), the appraised value of franchise rights
(inclusive of customer relationships) was based on a residual
methodology. The residual method consisted of the subtraction of the
fair market value of the tangible assets from the purchase
price. However, the residual method was only applied if the purchase
price approximated the business enterprise valuation. If the purchase
price materially exceeded the business enterprise value, then this would be an
indication that “excess purchase price goodwill” was present in the
transaction. In the case of the 2001 and 2000 transactions, our
valuation experts and we believe that business enterprise valuations indicated
that excess purchase price was not a component of these
transactions. The goodwill, if any, that resulted from these 2001 and
2000 transactions was primarily the result of the deferred taxes recorded in the
purchase price allocation.
With the
effective date of SFAS 141 and issuance of EITF 02-17 relating to valuing
customer relationships, these customer relationship and franchise right
intangibles are now required to be more rigorously identified and recorded apart
from goodwill. Accordingly, the valuation methodology was changed to
that described above in connection with the Broadband acquisition.
Franchise
Rights and Goodwill Impairment Tests:
We
disclosed in our 2002 Form 10-K that the impairment testing of our franchise
rights intangible is a critical accounting judgment and estimate. In
testing for impairment of our franchise rights intangible, we do not use the
residual approach. The estimated fair value used in this test is
based on the methodology used in valuing the franchise right intangible in the
Broadband acquisition. In testing for impairment of our franchise
rights intangible as of April 1, 2003 (our annual testing date), we utilized our
preliminary valuation related to the Broadband acquisition. Our
analysis included estimating the fair value of all of our franchise rights
excluding the fair value of all customer relationships. This
estimated fair value was then compared to the carrying value of our franchise
rights intangible, which indicated there was no impairment.
In our
goodwill impairment test, we determined the total value of the reporting unit,
which, as discussed in Note 2 of our financial statements, was the cable segment
level. In estimating the value of the cable segment we considered
multiples of operating income before depreciation and amortization, the market
capitalization of Comcast, analysts’ valuations, and the business enterprise
value determined through DCF models. Such value determinants were then adjusted,
as appropriate, for non-cable segment operations, investments and other
variables. Our goodwill impairment testing as of April 1, 2003 also
did not indicate impairment.
We
believe that these methods provide for a robust method of testing for impairment
of our franchise rights intangible and goodwill.
Below are
answers to the Staff’s specific questions based on our preceding
analysis:
Appendix
A
a. If
you believe you do not use the “residual method,” tell us why;
Because
of SFAS 141’s requirement for explicit recognition of intangible assets apart
from goodwill, we do not believe the residual method provides results that are
consistent with the requirements of SFAS 141. Accordingly, we used
the method of valuation described above for the Broadband acquisition, which we
do not believe is the residual method. We believe this method allows
us to separately test goodwill and franchise rights for impairment as required
by SFAS 142 and paragraph 5.a of EITF 02-7 even though goodwill,
franchise rights and customer relationship intangibles were not recognized under
that methodology prior to SFAS 141.
In our
response above, we discussed the methodology of separately valuing the franchise
intangible in our SFAS 141 acquisition and application of the residual method to
our APB 16 acquisitions. However, as stated above and based on
discussion with our valuation experts, we do not believe that there was a
significant difference between the cost of acquisition and the fair value
related to the APB 16 acquisitions and, as such, they would not result in a
significant amount of additional goodwill if the methodology used in the
Broadband acquisition had been used in the APB 16 acquisitions.
b.
|
Whether
you have two residual intangible assets as a result of the 1) use of the
“residual method” to value an intangible asset other than goodwill, and 2)
the deferred tax effects of the recognition of the indefinite-lived
intangible asset that is assigned to or labeled as goodwill, the “going
concern value” or “replacement cost” approach of goodwill or goodwill
calculated utilizing some other methodology. If you have two
residual intangible assets recorded, tell us your proposal on an approach
to perform the required impairment testing based on the guidance noted
above;
|
For the
reasons stated above, we do not believe that there are two residual assets and
that goodwill represents the only residual asset.
c.
|
The
reporting units used to test the recorded goodwill for
impairment. Note that if the residual method is used, and
goodwill is reclassified to the other residual intangible asset, most
commonly cable franchise operating rights, as a result of the guidance
above, the impairment test is not performed at the reporting unit
level. Rather, the impairment test will be performed on the
indefinite-lived intangible asset at the appropriate unit of
accounting. Refer to EITF 02-7 for guidance on the
determination of the appropriate unit of
accounting;
|
As
indicated in Comment No. 6, for purposes of goodwill impairment testing, we
determined our reporting units in accordance with SFAS 131, paragraph 30 of SFAS
142 and EITF D-101. In our cable business, we have one operating
segment whose components are comprised of geographically organized
divisions. These divisions are aggregated and deemed a single
reporting unit as we have determined that they have similar economic
characteristics as outlined in paragraph 17 of SFAS 131 and EITF
D-101
Appendix
A
d.
|
The
unit of accounting used to perform the required impairment testing of your
indefinite-lived intangible assets, regardless of whether the “residual
method” is used;
|
As stated
above, in our response to Comment No. 6, the franchise rights intangible is
aggregated at the cable segment level, which is the unit of accounting used for
purposes of testing for impairment under SFAS 142.
e.
|
If
the “residual method” is used, tell us the previously unrecognized
intangible assets you considered in performing the required impairment
test on your indefinite-lived intangible assets discussed
above.
|
As stated
above, we do not believe that we use a residual method.
Appendix
B
Informal
Consultation with Wayne Carnall
Wayne,
We would
like to discuss an issue with you regarding the application of Regulation S-X
4-08(g). Specifically, we are assessing the need, if any, to include
summary financial data for our equity method investees in Comcast Corporation’s
December 31, 2008 Form 10-K. Regulation S-X 4-08(g) is triggered by a
significant impairment charge recorded on our recent investment in Clearwire
Corporation (“Clearwire”). Absent this impairment charge, Comcast
would not meet the requirements for disclosure under Regulation S-X
4-08(g). Below we provide (i) excerpts from a preliminary draft of
our 2008 Form 10-K as background on the Clearwire Transaction (as defined
below), (ii) additional background bullet points, (iii) disclosure alternatives
for summary financial data we considered and (iv) our preference that the
summary financial data for all of our equity method investees not be provided
due to our belief that the information would not be meaningful in this unique
circumstance. Upon your review of the information we would like to
coordinate a convenient time for you in the near future to discuss this
matter.
Excerpts
from our draft 2008 Form 10-K
In
November 2008, Sprint Nextel (“Sprint”) closed on a series of transactions
(collectively, the “Clearwire Transaction”) with the legal predecessor of
Clearwire Corporation (“Old Clearwire”) and an investor group made up of us,
Intel, Google, Time Warner Cable and Bright House Networks. As a
result of the Clearwire Transaction, Sprint and Old Clearwire combined their
next-generation wireless broadband businesses and formed a new independent
holding company, Clearwire Corporation, and its operating subsidiary, Clearwire
Communications LLC (“Clearwire LLC”), that will focus on the deployment of a
nationwide 4G wireless network. We, together with the other members
of the investment group, have invested $3.2 billion in Clearwire
LLC. Our portion of the investment was $1.05 billion. As a
result of our investment, we received ownership units (“ownership units”) of
Clearwire LLC and Class B stock (“voting stock”) of Clearwire Corporation, the
publicly traded holding company that controls Clearwire LLC. The
voting stock has voting rights equal to those of the publicly traded Class A
stock of Clearwire Corporation, but has only minimal economic
rights. We hold our economic rights through the ownership units,
which have limited voting rights. One ownership unit combined with
one share of voting stock is exchangeable into one share of Clearwire
Corporation’s publicly traded Class A stock. At closing, we received
52.5 million ownership units and 52.5 million shares of voting stock, which
represents an approximate 7% ownership interest on a fully diluted
basis. During the first quarter of 2009, the purchase price per share
is expected to be adjusted based on the trading prices of Clearwire
Corporation’s publicly traded Class A stock. After the post-closing
adjustment, we anticipate that we will have an approximate 8% ownership interest
on a fully diluted basis.
In
connection with our investment, we entered into a wholesale agreement with
Sprint that allows us to offer wireless services utilizing certain of Sprint’s
existing wireless networks and a wholesale agreement with Clearwire LLC that
allows us to offer wireless services utilizing
Appendix
B
Clearwire’s
next generation wireless broadband network. We allocated a portion of
our $1.05 billion investment to the related wholesale agreements.
We will
account for our investment under the equity method and record our share of net
income or loss one quarter in arrears. Clearwire LLC is expected to
incur losses in the early years of operation, which under the equity method of
accounting, will be reflected in our future operating results and reduce the
cost basis of our investment. We evaluated the initial investment to
determine if an other than temporary decline in fair value below our cost basis
had occurred. The primary input in estimating the fair value of our
investment was the quoted market value of Clearwire publicly traded Class A
shares at December 31, 2008, which declined significantly from the date of our
initial agreement in May 2008. As a result of the severe decline in
the quoted market value, we recognized an impairment charge to other income
(expense) of $XXX million to adjust our cost basis in our investment to its
estimated fair value. In the future, our evaluation of other than
temporary declines in fair value of our investment will include a comparison of
actual operating results and updated forecasts to the projected discounted cash
flows that were used in making our initial investment decision, other impairment
indicators, such as changes in competition or technology, as well as a
comparison to the value that would be obtained by exchanging our investment into
Clearwire Corporation’s publicly traded Class A shares.
Additional
Background
|
-
|
The
transactions between Sprint and Old Clearwire will be accounted for as a
reverse acquisition with the Sprint 4G business considered the accounting
acquirer and accounting predecessor. As a result the
predecessor financial statements of Clearwire will be those of the Sprint
4G business.
|
|
-
|
Due
to the timing of the receipt of financial information we will record our
share on Clearwire LLC’s results on a one quarter lag; as such no results
of the equity method investment will be included in Comcast’s December 31,
2008 financial statements.
|
|
-
|
The
$XXX million impairment charge causes us to “trigger” the “income test”
(approximately 13%) when testing for significance of our Clearwire
investment under S-X 4-08(g). This would require us to provide
summarized financial data for all equity method investees (not just
Clearwire in this case) for all periods presented in our financial
statements (e.g. 2006-2008), as interpreted by Section 2420.3 of the
Division of Corporation Finance’s Financial Reporting
Manual.
|
|
-
|
Excluding
the effects of the Clearwire impairment charge, the S-X 4-08(g) tests for
significance of our other 27 equity method investees are less than 3% in
the aggregate for each of the criteria (1.9% - investment test, 2.6% -
asset test and 2.1% - income test) and de minimis
individually.
|
Appendix
B
Disclosure
Alternatives
The
following are the disclosure alternatives we considered as it relates to the
summary financial data of our equity method investees:
|
-
|
Alternative 1 -
Do not disclose any summary financial data for any of our equity method
investees. This is supported on the basis that our share of
Clearwire LLC’s net income or loss will be recorded one quarter in arrears
and no results of operations are reflected in equity in net (losses)
income of affiliates in 2008 and our other equity method investees are not
material.
|
|
-
|
Alternative 2 -
Exclude financial data for Clearwire LLC; include summarized financial
data for all other equity method investees and disclose that the
summarized financial information does not include Clearwire
LLC. This is supported on the basis that the inclusion of
Clearwire LLC’s summary financial data as of September 30, 2008 would not
be meaningful since the Clearwire Transaction closed on November 28, 2008
and this financial information would represent the predecessor’s financial
information (i.e., Sprint’s 4G business), not the new Clearwire financial
information.
|
|
-
|
Alternative 3 -
Disclose summary financial data for all equity method investees; include
the summary financial data as of September 30, 2008 for Clearwire’s
predecessor (i.e., Sprint’s 4G
business).
|
Preferred
Alternative
Given the
unique circumstances, our preferred alternative is Alternative 1 as we do not
believe (i) that the inclusion of the historical financial information of the
predecessor company (i.e., Sprint’s 4G business) on the one quarter lag basis
would be meaningful, (ii) the financial information of the new Clearwire is not
relevant to any reported results included in our financial statements, and (iii)
our other equity method investments financial data may arguably be considered de
minimis but certainly are not material to our financial
statements.
B-3