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FORM 10-K
______________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ____________
Commission file number 001-15471
COMCAST HOLDINGS CORPORATION
(formerly Comcast Corporation)
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1709202
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Market Street, Philadelphia, PA 19102-2148
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
________________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
2.0% Exchangeable Subordinated Debentures due 2029
_________________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
____________________________
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 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
__________________________
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K.
[ Not Applicable ]
__________________________
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
As of the end of its fiscal year, all of the Registrant's voting and non-voting
common equity securities were held either directly or indirectly by its
affiliate, Comcast Corporation.
__________________________
As of December 31, 2002, there were 21,591,115 shares of Class A Common Stock,
916,198,519 shares of Class A Special Common Stock and 9,444,375 shares of Class
B Common Stock outstanding.
__________________________
The Registrant meets the conditions set forth in General Instructions I (1)(a)
and (b) of Form 10-K and is therefore filing this form with the reduced
disclosure format.
__________________________
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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COMCAST HOLDINGS CORPORATION
2002 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business........................................................................................... 2
Item 2 Properties.........................................................................................14
Item 3 Legal Proceedings..................................................................................15
Item 4 Submission of Matters to a Vote of Security Holders................................................17
PART II
Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters..........................17
Item 6 Selected Financial Data............................................................................17
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations..............18
Item 7A Quantitative and Qualitative Disclosures About Market Risk.........................................26
Item 8 Financial Statements and Supplementary Data........................................................27
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...............64
PART III
Item 10 Directors and Executive Officers of the Registrant.................................................64
Item 11 Executive Compensation.............................................................................64
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.....64
Item 13 Certain Relationships and Related Transactions.....................................................64
PART IV
Item 14 Controls and Procedures ...........................................................................64
Item 15 Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................................64
SIGNATURES..................................................................................................67
CERTIFICATIONS..............................................................................................70
This Annual Report on Form 10-K is for the year ended December 31, 2002.
This Annual Report modifies and supersedes documents filed prior to this Annual
Report. Information that we file with the SEC in the future will automatically
update and supersede information contained in this Annual Report. In this Annual
Report, "Comcast Holdings," "we," "us," "our" and the "Company" refer to Comcast
Holdings Corporation and its subsidiaries, and "Comcast" refers to Comcast
Corporation.
You should carefully review the information contained in this Annual
Report, and should particularly consider any risk factors that we set forth in
this Annual Report and in other reports or documents that we file from time to
time with the SEC. In this Annual 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
Factors that may cause our actual results to differ materially from any of
our forward-looking statements presented in this Annual Report include, but are
not limited to:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o industry consolidation and mergers,
o franchise related matters,
o market conditions that may adversely affect the availability of debt
and equity financing for working capital, capital expenditures or
other purposes,
o demand for the programming content we distribute or the willingness of
other video program distributors to carry our content, and
o general economic conditions.
PART I
ITEM 1 BUSINESS
We are a Pennsylvania corporation that was organized in 1969.
We are involved in three principal lines of business:
o Cable-through the development, management and operation of broadband
communications networks, including video, high-speed Internet and
phone service,
o Commerce-through QVC, our electronic retail- ing subsidiary, and
o Content-through our consolidated programming investments, including
Comcast Spectacor, Comcast SportsNet, Comcast SportsNet Mid-Atlantic,
Cable Sports Southeast, E! Entertainment Television, Style, The Golf
Channel, Outdoor Life Network, G4, and through our other programming
investments.
We are an indirect, wholly-owned subsidiary of Comcast Corporation, the
largest cable operator in the United States, and have deployed digital cable and
high- speed Internet service to the substantial majority of our cable systems.
Our consolidated cable operations served approximately 8.5 million
subscribers, passed approximately 14.2 million homes, and provided digital cable
to more than 2.2 million subscribers and high-speed Internet to more than 1.5
million subscribers in the United States as of December 31, 2002.
Through QVC, we market a wide variety of products directly to consumers
primarily on merchandise-focused television programs. As of December 31, 2002,
QVC was available, on a full and part-time basis, to 85.9 million homes in the
United States, 11.4 million homes in the United Kingdom, 25.8 million homes in
Germany and 8.4 million homes in Japan.
We have our principal executive offices at 1500 Market Street,
Philadelphia, PA 19102-2148. Our telephone number is (215) 665-1700. Comcast has
a world wide web site at http://www.comcast.com. Copies of the annual, quarterly
and current reports we file with the SEC, and any amendments to those reports,
are available on Comcast's web site. The information posted on Comcast's web
site is not incorporated into this Annual Report.
FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
Refer to Note 12 to our consolidated financial statements included in Item
8 for information about our operations by business segment.
GENERAL DEVELOPMENTS OF OUR BUSINESS
Comcast's Acquisition of Broadband
On November 18, 2002, Comcast consummated the acquisition of AT&T Corp.'s
broadband business, which we refer to as the Broadband acquisition. In
connection with the closing of the Broadband acquisition, our shareholders
received shares of Comcast Class A common stock, Class A Special common stock
and Class B common stock in exchange for shares of our Class A common stock,
Class A Special common stock and Class B common stock, respectively, based on an
exchange ratio of 1 to 1. Comcast also issued stock options to purchase shares
of Comcast common stock in exchange for all of our outstanding stock options,
based on an exchange ratio of 1 to 1. As a result of Comcast's acquisition of
Broadband, we are now an indirect, wholly owned subsidiary of Comcast. On
November 18, 2002, Comcast changed its name from AT&T Comcast Corporation to
Comcast Corporation and we changed our name from Comcast Corporation to Comcast
Holdings Corporation.
The Cross-Guarantee Structure
To simplify Comcast's capital structure, effective with the acquisition of
Broadband, Comcast and four of its cable holding company subsidiaries, including
our wholly owned subsidiary Comcast Cable Communications, Inc., fully and
unconditionally guaranteed each other's debt securities and other indebtedness
for borrowed money. Comcast Holdings is not a guarantor, and none of its debt is
guaranteed. As of December 31, 2002, $24.729 billion of Comcast's and Comcast's
subsidiaries' debt securities were entitled to the benefits of the
cross-guarantee structure, including $7.897 billion of Comcast Cable's debt.
Comcast MO of Delaware, Inc. (formerly, MediaOne of Delaware, Inc. and
Continental Cablevision, Inc.) was not originally part of the cross-guarantee
structure. On March 12, 2003, Comcast 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.
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DESCRIPTION OF OUR BUSINESSES
We are involved in three principal lines of business: Cable, Commerce and
Content. The following section describes each of these lines of business.
Cable
The table below summarizes certain information for our cable systems as of
December 31 (homes and subscribers in thousands):
2002 2001(1) 2000(1) 1999(1) 1998
---------- --------- ------------------- ----------
Cable
Homes Passed (2)....................... 14,189 13,929 12,679 9,522 7,382
Subscribers (3)........................ 8,539 8,471 7,607 5,720 4,511
Penetration............................ 60.2% 60.8% 60.0% 60.1% 61.1%
Digital Cable
"Digital Ready" Subscribers (4)........ 8,539 8,375 7,258 4,637 1,570
Subscribers (5)........................ 2,246 1,741 1,207 454 72
Penetration............................ 26.3% 20.8% 16.6% 9.8% 4.6%
High-Speed Internet
"Available" Homes (6).................. 12,611 10,400 6,360 3,259 1,804
Subscribers............................ 1,526 948 400 142 51
Penetration............................ 12.1% 9.1% 6.3% 4.4% 2.8%
Phone (7)
"Available" Homes (6).................. 274
Subscribers............................ 40
Penetration............................ 14.4%
(1) In April 1999, we acquired a controlling interest in Jones Intercable,
Inc. In January 2000, we acquired Lenfest Communications, Inc. and began
consolidating the results of Comcast Cablevision of Garden State, L.P. In
August 2000, we acquired Prime Communications LLC. On December 31, 2000
and January 1, 2001, we completed our cable systems exchanges with AT&T
and Adelphia Communications, respectively. In April and June 2001, we
acquired cable systems serving an aggregate of approximately 697,000
subscribers from AT&T. The subscriber information as of December 31, 2000
excludes the effects of our exchange with AT&T.
(2) A home is "passed" if we can connect it to our distribution system without
further extending the transmission lines. As described in Note 3 below, in
the case of certain multiple dwelling units, or MDUs, homes "passed" are
counted on an adjusted basis.
(3) Generally, a dwelling or commercial unit with one or more television sets
connected to a system counts as one cable subscriber. In the case of
certain MDUs, we count cable subscribers on an FCC equivalent basis.
(4) A subscriber is "digital ready" if the subscriber is in a market where we
have launched our digital cable service.
(5) A dwelling with one or more digital converter boxes counts as one digital
cable subscriber. On average, as of December 31, 2002, each digital cable
subscriber had 1.4 digital set-top boxes.
(6) A home is "available" if we can connect it to our distribution system
without further upgrading the transmission lines and we offer the service
in that area.
(7) Prior to 2002, the number of phone "available" homes and subscribers was
not material.
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Cable Services
We offer a variety of services over our cable networks, including
traditional analog video, digital cable, high-speed Internet and phone service.
Available service offerings depend on the bandwidth capacity of the cable
system. The greater the bandwidth, the greater the information carrying capacity
of the system. As of December 31, 2002, 86% of our cable subscribers were served
by a system with a capacity of at least 750-MHz and 95% with a capacity of at
least 550-MHz and capable of handling two-way communications. By deploying fiber
optic cable and upgrading the technical quality of our cable networks, we can
increase the reliability and capacity of our systems and we can deliver
additional video programming and other services such as enhanced digital video,
high-speed Internet and phone.
Traditional Analog Video Services
We receive the majority of our revenues from subscription services.
Subscribers typically pay us on a monthly basis and generally may discontinue
services at any time. Monthly subscription rates and related charges vary
according to the type of service selected and the type of equipment used by
subscribers.
We offer a full range of traditional analog video services. We tailor both
our basic channel line-up and our additional channel offerings to each system
according to demographics, programming preferences and local regulation. Our
analog service offerings include the following:
Basic programming. Our basic cable service typically consists of between
10-20 channels of programming. This service generally consists of programming
provided by national television networks, local broadcast television stations,
locally-originated programming, including governmental and public access, and
limited satellite-delivered programming.
Expanded basic programming. Our expanded basic cable service, which may
vary in size depending on the system's channel capacity, generally includes a
group of satellite-delivered or non-broadcast channels in addition to the basic
channel line-up.
Premium services. Our premium services generally offer, without commercial
interruption, feature motion pictures, live and taped sporting events, concerts
and other special features. The charge for premium services depends upon the
type and number of premium channels selected by the subscriber.
Pay-per-view programming. Our pay-per-view service permits our subscribers
to order, for a separate fee, individual feature motion pictures and special
event programs, such as professional boxing, professional wrestling and concerts
on an unedited, commercial-free basis.
Digital Cable Services
Digital compression technology enables us to substantially increase the
number of channels our cable systems can carry, thereby providing a significant
number of additional programming choices to our subscribers. Digital compression
technology can convert up to twelve analog signals into a digital format and
compress these signals into the bandwidth normally occupied by one analog
signal. At the home, a set-top video terminal, often referred to as a "digital
set-top box," converts the digital signal into analog signals that can be viewed
on a television set.
Subscribers typically pay us on a monthly basis for digital cable services
and generally may discontinue services at any time. Monthly rates vary generally
according to the level of service and the number of digital set-top boxes
selected by the subscriber.
Subscribers to our digital cable service receive one or more of the
following:
o an interactive program guide,
o multiple channels of digital music,
o basic and expanded basic programming,
o "multiplexes" of premium channels which are varied as to time of
broadcast or programming content theme,
o additional pay-per-view programming, such as more pay-per-view options
and/or frequent showings of the most popular films,
o video-on-demand service, commonly known as VOD, including popular
television programs at no additional charge, and
o high-definition television.
We have and will continue to upgrade our cable systems so that we are able
to provide these and other new services such as interactive television to our
subscribers.
High-Speed Internet Services
Residential subscribers can connect their personal computers via cable
modems to access online information, including the Internet, at faster speeds
than that of conventional modems. Prior to March 2002, in areas served by our
cable systems we marketed high-
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speed Internet services operated by a third-party Internet service provider. By
March 2002, we had moved all of our high-speed Internet subscribers to our own
high- speed Internet gateway. In addition to offering our own high-speed
Internet service, we have agreements with a number of third-party Internet
service providers, or ISPs under which we make available access to our
facilities and the ISP markets a high-speed Internet service that is provided
over our cable systems. We also provide businesses with Internet connectivity
solutions and networked business applications.
Phone Services
In some of the areas where cable plant has been upgraded, we use our cable
network to provide local telephone services and to resell third-party long
distance services to our phone subscribers.
Advertising Sales
We generate revenues from the sale of advertising time to local, regional
and national advertisers on non- broadcast channels we carry over our cable
systems.
Other Revenue Sources
We also generate revenues from installation services, commissions from
third-party electronic retailing and from other services.
Sales and Marketing
Our sales efforts are primarily directed toward generating incremental
revenues in our franchise areas and increasing the number of subscribers we
serve. We sell our products and services through:
o telemarketing,
o direct mail advertising,
o door-to-door selling,
o cable television advertising,
o local media advertising, and
o retail outlets.
Programming
We generally acquire a license for the programming we sell to our
subscribers by paying a monthly fee to the licensor on a per subscriber per
channel basis. Our programming costs are increased by:
o growth in the number of subscribers,
o expansion of the number of channels provided to subscribers, and
o increases in contract rates from programming suppliers.
We attempt to secure long-term programming contracts with volume discounts
and/or marketing support and incentives from programming suppliers. Our
programming contracts are generally for a fixed period of time and are subject
to negotiated renewal. We expect our programming costs to remain our largest
single expense item for the foreseeable future. In recent years, the cable and
satellite video industries have experienced a substantial increase in the cost
of programming, particularly sports programming. We expect this increase to
continue, and we may not be able to pass programming cost increases on to our
subscribers. The inability to pass these programming cost increases on to our
subscribers would have a material adverse impact on our operating results. In
addition, as we upgrade the channel capacity of our systems and add programming
to our basic, expanded basic and digital programming tiers, we may face
increased programming costs.
We also expect to be subject to increasing financial and other demands by
broadcasters to obtain the required consent for the retransmission of broadcast
programming to our subscribers. We cannot predict the financial impact of these
negotiations or the effect on our subscribers should we be required to stop
offering this programming.
Customer Service
We have organized most of our cable systems into geographic clusters.
Clustering improves our ability to sell advertising, enhances our ability to
efficiently introduce and market new products, and allows us to more efficiently
and effectively provide customer service and support. As part of our clustering
strategy, we have consolidated our local customer service operations of our
historical operations into large regional call centers. These regional call
centers have technologically advanced telephone systems that provide 24-hour per
day, 7-day per week call answering capability, telemarketing and other services.
Competition
Analog Video and Digital Cable Services
Our cable systems compete with a number of different sources which provide
news, information and entertainment programming to consumers, including:
o program distributors that use direct broadcast satellite, or DBS,
systems that transmit satellite signals containing video programming,
data and
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other information to receiving dishes of varying sizes located on the
subscriber's premises,
o local television broadcast stations that provide off-air programming
which can be received using an antenna and a television set,
o satellite master antenna television systems, commonly known as SMATVs,
which generally serve condominiums, apartment and office complexes and
residential developments,
o other operators who build and operate wireline communications systems
in the same communities that we serve, including those operating as
franchised cable operations or under an alternative regulatory scheme
known as Open Video Systems, or OVS,
o interactive online computer services, including Internet distribution
of movies,
o newspapers, magazines and book stores,
o movie theaters,
o live concerts and sporting events, and
o video stores and home video products.
In recent years, Congress has enacted legislation and the FCC has adopted
regulatory policies intended to provide a favorable operating environment for
existing competitors and for potential new competitors to our cable systems.
These competitors include DBS, wireline communications providers, also known as
overbuilders, SMATVs and Multichannel Multipoint Distribution Service, or MMDS.
The FCC has recently created a new wireless service, known as Multichannel Video
Distribution and Data Service, or MVDDS, that we also expect to compete with our
cable systems. In order to compete effectively, our cable systems strive to
provide, at a reasonable price to subscribers, new products and services,
superior technical performance, superior customer service and a greater variety
of video programming.
DBS Systems. According to recent government and industry reports,
conventional, medium and high-power satellites currently provide video
programming to over 20 million customers in the United States. DBS providers
with high-power satellites typically offer to their subscribers more than 300
channels of programming, including programming services substantially similar to
those provided by our cable systems. Two companies, DIRECTV and EchoStar,
provide service to substantially all of these DBS subscribers.
DBS service can be received throughout the continental United States
through the installation of a small roof top or side-mounted antenna. DBS
systems use video compression technology to increase channel capacity and
digital technology to improve the quality and quantity of the signals
transmitted to their subscribers. Our digital cable service is competitive with
the programming, channel capacity and the digital quality of signals delivered
to subscribers by DBS systems.
Federal legislation establishes, among other things, a permanent compulsory
copyright license that permits satellite carriers to retransmit local broadcast
television signals to subscribers who reside in the local television station's
market. These companies are transmitting local broadcast signals in most markets
which we serve. As a result, satellite carriers are competitive to cable system
operators like us because they offer programming which closely resembles what we
offer. These satellite carriers are attempting to expand their service offerings
to include, among other things, high-speed Internet service.
SMATV. Our cable systems also compete for subscribers with SMATV systems.
SMATV system operators typically are not subject to regulation like local
franchised cable system operators. SMATV systems offer subscribers both improved
reception of local television stations and many of the same satellite- delivered
programming services offered by franchised cable systems. In addition, some
SMATV operators are developing and/or offering packages of telephony, data and
video services to private residential and commercial developments. SMATV system
operators often enter into exclusive service agreements with building owners or
homeowners' associations, although some states have enacted laws to provide
cable systems access to these complexes.
Overbuilds. We operate our cable systems pursuant to a non-exclusive
franchise that is issued by the community's governing body such as a city
council, a county board of supervisors or a state regulatory agency. Federal law
prohibits franchising authorities from unreasonably denying requests for
additional franchises, and it permits franchising authorities to operate cable
systems. Companies that traditionally have not provided cable services and that
have substantial financial resources (such as public utilities that own certain
of the poles to which our cables are attached) may also obtain cable franchises
and may provide competing communications services. Certain facilities-based
competitors offer cable and other communications services in various areas where
we hold franchises. We anticipate that facilities-based competitors will develop
in other franchise areas that we serve.
Local telephone companies. Federal law allows local telephone companies to
provide, directly to subscribers, a wide variety of services that are
competitive with our cable services, including video and Internet services
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within and outside their telephone service areas. Telephone companies and other
businesses construct and operate communications facilities that provide access
to the Internet and distribute interactive computer-based services, data and
other non-video services to homes and businesses.
High-Speed Internet Services
Most of our cable systems are currently offering high-speed Internet
services to subscribers. These systems compete with a number of other companies,
many of whom have substantial resources, such as:
o existing ISPs,
o local telephone companies, and
o long distance telephone companies.
The deployment of digital subscriber line, or DSL, technology allows
Internet access to be provided to subscribers over telephone lines at data
transmission speeds substantially greater than that of conventional analog
modems. Numerous companies, including telephone companies, have introduced DSL
service, and certain telephone companies are seeking to provide high- speed
Internet services without regard to present service boundaries and other
regulatory restrictions. The FCC recently adopted an order that will reduce the
obligations of local telephone companies to offer their broadband facilities on
a wholesale basis to competitors, and the FCC is considering further measures to
deregulate the retail broadband offerings of local telephone companies, as well.
Congress may also consider measures to deregulate such broadband offerings.
A number of cable operators have reached agreements to provide unaffiliated
ISPs access to their cable systems in the absence of regulatory requirements. We
reached "access" agreements with several national and regional third-party ISPs.
In addition, in connection with the restructuring of Time Warner Entertainment
Company, L.P., or TWE, in which Comcast owns a 27.6% interest as a result of the
Broadband acquisition, Comcast will enter into a three-year non-exclusive access
agreement with AOL Time Warner. The Company also has agreed to offer Microsoft
an access agreement on terms no less favorable than those provided to other ISPs
with respect to specified cable systems. We cannot provide any assurance,
however, that regulatory authorities will not impose "open access" or similar
requirements on us as part of an industry-wide requirement. These requirements
could adversely affect our results of operations.
Phone Services
Our phone service competes against incumbent local exchange carriers,
cellular telephone service providers and competitive local exchange carriers
(including established long distance companies) in the provision of local voice
services. Many of these carriers are expanding their offerings to include
high-speed Internet service, such as DSL. The incumbent local exchange carriers
have substantial capital and other resources, longstanding customer
relationships and extensive existing facilities and network rights-of-way. A few
competitive local exchange carriers also have existing local networks and
significant financial resources.
We expect advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment to occur in the
future. We refer you to page 10 for a detailed discussion of legislative and
regulatory factors. Other new technologies and services may develop and may
compete with services that our cable systems offer. Consequently, we are unable
to predict the effect that ongoing or future developments might have on our
business and operations.
Commerce
QVC is a domestic and international electronic media general merchandise
retailer which produces and distributes merchandise-focused television programs,
via satellite, to affiliated video program distributors for retransmission to
subscribers. At QVC, program hosts and guests describe and demonstrate the
products and viewers place orders directly with QVC. As of December 31, 2002,
QVC was available, on a full and part-time basis, to 85.9 million homes in the
United States, 11.4 million homes in the United Kingdom ("UK"), 25.8 million
homes in Germany and 8.4 million homes in Japan. We estimate that 13.3 million
homes in Germany have programmed their television sets to receive this service.
We own approximately 57% of QVC.
On March 3, 2003, Comcast announced that Liberty Media Corporation
delivered a notice to us, pursuant to the stockholders agreement between us and
Liberty, that triggers an exit rights process with respect to Liberty's
approximate 42% interest in QVC. We and Liberty will attempt to negotiate the
fair market value of QVC prior to March 31, 2003. If we and Liberty cannot
agree, an appraisal process will determine the value of QVC. We will then have
the right to purchase Liberty's interest in QVC at the determined value. We may
pay Liberty for the QVC stock in cash, in a promissory note maturing not more
than three years after issuance, in Comcast's equity securities or in a
combination of these, subject to Liberty's right to request payment in all
equity securities and the parties' obligation to use reasonable efforts to
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consummate the purchase in the most tax efficient method available (provided
that Comcast is not required to issue securities representing more than 4.9% of
the outstanding equity or vote of its common stock). If we elect not to purchase
Liberty's interest in QVC, Liberty then will have a similar right to purchase
our approximate 57% interest in QVC. If neither we nor Liberty elect to purchase
the interest of the other, then we and Liberty are required to use our best
efforts to sell QVC; either company is permitted to be a purchaser in any such
sale. We and Liberty may agree not to enter into a transaction, or may agree to
a transaction other than that specified in the stockholders agreement. Under the
current terms of the stockholders agreement between us and Liberty, we would no
longer control QVC if we elect not to purchase Liberty's interest in QVC.
Revenue Sources
QVC sells a variety of consumer products and accessories including jewelry,
housewares, electronics, apparel and accessories, collectibles, toys and
cosmetics. QVC purchases, or obtains on consignment, products from domestic and
foreign manufacturers and wholesalers, often on favorable terms based on the
volume of the transactions. QVC intends to continue introducing new products and
product lines. QVC does not depend upon any one particular supplier for any
significant portion of its inventory. QVC's business is seasonal, with the
highest amount of net sales occurring in the fourth quarter.
Viewers place orders to purchase QVC merchandise by either calling a
toll-free telephone number to speak to a telemarketing operator, by using their
touch-tone telephone to call QVC's integrated automated ordering system which
gives customers the ability to place orders without speaking to a telemarketing
operator, or by using their personal computer to place orders on QVC.com. QVC
uses automatic call distributing equipment to distribute calls to its operators.
The majority of all payments for purchases are made with a major credit card or
QVC's private label credit card. QVC's private label credit card program is
serviced by an unrelated third party. QVC ships merchandise from its
distribution centers, typically within 24 hours after receipt of an order. QVC's
return policy permits customers to return, within 30 days, any merchandise
purchased for a full refund of the purchase price and original shipping charges.
Distribution Channels
In the United States, QVC is transmitted live 24 hours a day, 7 days a
week, to 65.5 million cable television homes. An additional 0.4 million cable
television homes receive QVC on a less than full time basis and 20.0 million
home satellite dish users receive QVC programming. The QVC program schedule
consists of one-hour and multi-hour program segments. Each program theme is
devoted to a particular category of product or lifestyle. From time to time,
special program segments are devoted to merchandise associated with a particular
celebrity, event, geographical region or seasonal interest.
QVC also offers an interactive shopping service, QVC.com, on the Internet.
QVC.com offers a diverse array of merchandise, on-line, 24 hours a day, 7 days a
week. QVC.com also maintains a mailing list which e- mails product news to
customers who choose to receive it.
QVC Transmission
A transponder on a communications satellite transmits the QVC domestic
signal. QVC subleases transponders for the transmission of its signals to the
UK, Germany and Japan. QVC has made arrangements in the U.S. for redundant
coverage through other satellites in case of a failure. To date, QVC has never
had an interruption in programming due to transponder failure. We cannot offer
assurances that there will not be an interruption or termination of satellite
transmission due to transponder failure. Interruption or termination could have
a material adverse effect on QVC's results of operations.
Program Distributors
QVC has entered into affiliation agreements with video program distributors
to carry QVC programming. There are no charges to the programming distributors
for the distribution of QVC. In return for carrying QVC, each programming
distributor receives an allocated portion, based upon market share, of up to
five percent of the net sales of merchandise sold to customers located in the
programming distributor's service area. QVC has entered into multi-year
affiliation agreements with various cable and satellite system operators for
carriage of QVC programming. The terms of most affiliation agreements are
automatically renewable for one-year terms unless terminated by either party on
at least 90 days notice prior to the end of the term. Most of the affiliation
agreements provide for the programming distributor to broadcast commercials
regarding QVC on other channels and to distribute QVC's advertising material to
subscribers.
QVC's business depends on its affiliation with programming distributors for
the transmission of QVC programming. If a significant number of homes were no
longer served because of termination or non-renewal of affiliation agreements,
our financial results could be adversely affected. QVC has incentive programs to
induce programming distributors to enter into or extend
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affiliation agreements, to increase the number of homes under existing
affiliation agreements, or to enhance channel placement of the QVC programming.
These incentives include various forms of marketing, carriage and launch
support. QVC will continue to recruit additional programming distributors and
seek to enlarge its audience.
Competition
QVC operates in a highly competitive environment. As a general merchandise
retailer, QVC competes for consumer expenditures with the entire retail
industry, including department, discount, warehouse and specialty stores, mail
order and other direct sellers, Internet retailers, shopping center and mall
tenants and conventional retail stores. On television, QVC competes with other
programs for channel space and viewer loyalty against similar electronic
retailing programming, as well as against alternative programming supplied by
other sources, including news, public affairs, entertainment and sports
programmers. The use of digital compression provides programming distributors
with greater channel capacity. While greater channel capacity increases the
opportunity for QVC to be distributed, it also may adversely impact QVC's
ability to compete for television viewers to the extent it results in higher
channel position, placement of QVC in separate programming tiers, or the
addition of competitive channels.
Content
We have made investments in cable television networks and other
programming-related enterprises as a means of generating additional revenues and
subscriber interest. Our consolidated programming investments as of December 31,
2002 include:
Economic
Ownership
Investment Percentage Description
---------------------------------------------------------------------------------------------------------------
Comcast Spectacor 66.3% Live sporting events, concerts and other events
Comcast SportsNet 78.3 Regional sports programming and events
Comcast SportsNet Mid-Atlantic 100.0 Regional sports programming and events
Cable Sports Southeast 62.2 Regional sports programming and events
E! Entertainment 39.7 Entertainment-related news and original programming
Style 39.7 Lifestyle-related programming
The Golf Channel 91.3 Golf-related programming
Outdoor Life Network 100.0 Outdoor sports and leisure programming
CN8-The Comcast Network 100.0 Regional and local programming
G4 93.6 Programming focused on video and computer games
---------------------------
Consolidated Programming Investments
Comcast Spectacor. Comcast Spectacor is our group of businesses that
perform live sporting events and that own or manage facilities and venues for
sports activities, sports events, concerts and other special events. Comcast
Spectacor consists principally of the Philadelphia Flyers NHL hockey team, the
Philadelphia 76ers NBA basketball team and two large multi-purpose arenas in
Philadelphia.
We and the minority owner group in Comcast Spectacor each have the right to
initiate an "exit" process under which the fair market value of Comcast
Spectacor would be determined by appraisal. Following such determination, we
would have the option to acquire the interests in Comcast Spectacor owned by the
minority owner group based on the appraised fair market value. If we do not
exercise this option, we and the minority owner group would then be required to
use our best efforts to sell Comcast Spectacor.
Comcast SportsNet. Comcast SportsNet, or CSN, is our 24-hour
terrestrially-delivered network which provides sports-related programming,
including the Philadelphia Flyers NHL hockey team, the Philadelphia 76ers NBA
basketball team and the Philadelphia Phillies MLB baseball team to approximately
2.9 million subscribers in the Philadelphia region. The exit process described
in the previous paragraph includes the minority owner group's interest in CSN.
Comcast SportsNet Mid-Atlantic. Comcast SportsNet Mid-Atlantic, or CSN
Mid-Atlantic, is our 24-hour satellite-delivered network which provides
sports-related programming, including the Baltimore Orioles MLB baseball team,
the Washington Wizards NBA basketball team and the Washington Capitals NHL
hockey team. CSN Mid-Atlantic serves approximately 4.3 million subscribers
primarily in Delaware, Maryland, Pennsylvania, Virginia, Washington, D.C. and
West Virginia.
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Cable Sports Southeast. Cable Sports Southeast, or CSS, is a
satellite-delivered network which provides sports-related programming and sports
news geared toward college athletics to approximately 3.9 million subscribers
primarily in Alabama, Arkansas, Florida, Georgia, Kentucky, Mississippi, North
Carolina, South Carolina and Tennessee.
E! Entertainment. E! Entertainment is our 24-hour network with programming
dedicated to the world of entertainment. Programming formats include behind-the-
scenes specials, original movies and series, news, talk shows and comprehensive
coverage of entertainment industry awards shows and film festivals worldwide.
The network has distribution to approximately 71 million subscribers in the
United States.
We hold the majority of our interest in E! Entertainment through Comcast
Entertainment Holdings, LLC, which is owned 50.1% by us and 49.9% by The Walt
Disney Company. Under a limited liability company agreement between Disney and
us, we control E! Entertainment's operations. As a result of the Broadband
acquisition and in certain other circumstances, under the agreement Disney is
entitled to trigger a potential exit process in which Entertainment Holdings
would have the right to purchase Disney's entire interest in Entertainment
Holdings at its then fair market value (as determined by an appraisal process).
If Disney exercises this right within a specified time period, and Entertainment
Holdings elects not to purchase Disney's interest, Disney then has the right to
purchase, at appraised fair market value, either our entire interest in
Entertainment Holdings or all of the shares of stock of E! Entertainment held by
Entertainment Holdings. In the event that Disney exercises its right and neither
Disney's nor our interest is purchased, Entertainment Holdings will continue to
be owned as it is today, as if the exit process had not been triggered.
Style. Style, a division of E! Entertainment, is our 24- hour network
dedicated to fashion, home design, beauty, health, fitness and more, with
distribution to approximately 24 million subscribers in the United States.
The Golf Channel. The Golf Channel is our 24-hour network devoted
exclusively to golf programming with distribution to approximately 47 million
subscribers in the United States. The programming schedule includes live
tournaments, golf instruction programs and golf news.
Outdoor Life Network. Outdoor Life Network is our 24-hour network devoted
exclusively to outdoor adventure sports and outdoor leisure recreation with
distribution to approximately 43 million subscribers in the United States. Its
programming features the premiere events and series in a wide range of outdoor
activities including biking, sailing, skiing, snowboarding, professional
bullriding and fishing.
CN8-The Comcast Network. CN8-The Comcast Network is our regional
programming network delivered to approximately 6 million cable subscribers in
Maryland, Delaware, Pennsylvania, New Jersey, Connecticut, Massachusetts and New
Hampshire. CN8 provides exclusive original programs, including news, talk, high
school, college and professional sports, cooking, music, comedy and other
family-oriented entertainment.
G4. G4 is our 24-hour network dedicated to the world of video games.
Targeted to young viewers 12-34, G4 is committed to creating a lifestyle brand
that is the source of entertainment, news and information about electronic
games, including video, computer, online and wireless platforms. We launched G4
in April 2002. G4 has distribution to approximately 9 million subscribers.
Other Programming Interests. We also own other non-controlling interests in
programming investments including iN DEMAND, a pay-per-view and video-on- demand
service, and the Discovery Health Channel.
---------------------------
LEGISLATION AND REGULATION
Our cable and phone businesses are subject to numerous regulatory
requirements, prohibitions and limitations imposed by various federal and state
laws, local ordinances and our franchise agreements. Our commerce and content
businesses are generally not subject to direct governmental regulation. Our
high-speed Internet business, while not currently regulated, may be subject to
regulation in the future. Laws and regulations affect the prices we can charge
for some services, such as basic cable service and associated customer-premises
equipment, the costs we incur - for example, for attaching our wires to poles
owned by utility companies, the relationships we establish with our suppliers,
subscribers and competitors, and many other aspects of our business.
The most significant federal law affecting our cable businesses is the
Communications Act of 1934, as amended. The provisions of the Communications Act
and the manner in which the FCC, state and local authorities, and the courts
implement and interpret those provisions, affect our ability to develop and
execute business plans, our ability to raise capital and the competitive
dynamics between and among different sectors of the
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communications and entertainment industries in which we operate. The FCC also
has the authority to enforce its regulations through the imposition of
substantial fines, the issuance of cease and desist orders and the imposition of
other administrative sanctions, such as the revocation of FCC licenses needed to
operate some of the transmission facilities we use in connection with our cable
businesses.
We believe we are currently in substantial compliance with all applicable
statutory and regulatory requirements imposed by, or under, the Communications
Act, but caution that the precise requirements of the law are not always clear.
Moreover, many laws and regulations can be interpreted in after-the-fact
enforcement proceedings or private party litigation in a manner that is
inconsistent with the judgments we have made. We also note that regulators at
all levels of government frequently consider changing, and sometimes do change,
existing rules or interpretations of existing rules, or prescribe new ones.
Judicial decisions often alter the regulatory framework in ways that are
inconsistent with regulator, business and investor expectations. In addition,
our cable business can be significantly affected by the enactment of new
legislation. Owing in part to the "public interest" ramifications traditionally
associated with ownership of electronic media, Congress seriously considers the
enactment of new legislative requirements virtually every year. Even though new
laws infrequently result, we always face the risk that Congress will approve
legislation significantly affecting the cable industry.
A major objective of Congress and the FCC is to increase competition in all
communications services, including those central to our business. For example,
over the last ten years, Congress removed barriers to local telephone companies
offering video services in their local service areas, and the FCC has authorized
MVDDS, a new wireless service for providing multichannel video programming, and
may soon consider a proposal that could allow utility power lines to be used to
provide video and high-speed Internet services. Our cable business could be
affected by any new competitors that enter the video marketplace as a result of
these and similar efforts by Congress or the FCC. In particular, we could be
materially disadvantaged if we are subject to new regulations that do not
equally affect our satellite, wireline and wireless competitors.
There are potential risks associated with various proceedings that are
currently pending at the FCC, in the courts, and before federal and state
legislatures and local franchise authorities. We believe few of these
proceedings hold the potential to materially affect our ability to conduct our
cable business. Among the more substantial areas of exposure are the following:
Broadband Acquisition. The FCC approved the Broadband acquisition in
November 2002 subject to various conditions. The most significant are a
requirement for the divestiture of Comcast's interest in TWE, a requirement that
the TWE interest be placed in trust pending divesture, and safeguards that limit
Comcast's involvement in the programming-related activities of TWE and two
partnerships held jointly by Comcast and TWE. Complying with these conditions
will limit Comcast's flexibility as to the timing and nature of a sale of the
TWE interest and, in the interim, will constrain our business dealings with TWE
and AOL Time Warner. Comcast has fully complied with those conditions, and is
committed to meeting its obligations under the FCC's merger order going-forward.
Ownership Limits. The FCC is considering imposing "horizontal ownership
limits" that would limit the percentage of multichannel video subscribers -
those that subscribe to cable, DBS, MMDS and other multichannel distributors -
that any single provider could serve nationwide. A federal appellate court
struck down the previous 30% limit, and the FCC is now considering this issue
anew. As Comcast already serves nearly 29% of multichannel video subscribers,
limits similar to those originally imposed would restrict our ability to take
advantage of future growth opportunities. The FCC is also assessing whether it
should reinstate "vertical ownership limits" on the number of affiliated
programming services a cable operator may carry on its cable systems (the
previous limit of 40% of the first 75 channels had also been invalidated by the
federal appellate court). While our video programming interests are modest, new
vertical limits could affect our content- related business plans. Finally, the
FCC is considering revisions to its ownership attribution rules that would
affect which cable subscribers are counted under any horizontal ownership limit
and which programming interests are counted for purposes of a vertical ownership
limit.
Pricing. The Communications Act and the FCC's regulations and policies
limit the prices that cable systems may charge for basic services and equipment
in communities that are not subject to effective competition, as defined by
federal law. Failure to comply with these rate rules could result in rate
reductions and refunds for subscribers. In addition, various advocacy groups are
urging Congress to impose new rate regulations on the cable industry. We cannot
now predict whether or when Congress may agree to these or similar proposals.
Also, various competitors are trying to persuade the FCC and the Justice
Department to limit our ability to respond to increased competition by offering
promotions or other discounts in an effort to retain existing subscribers or
regain those we have lost. We believe our competitive pricing practices are
lawful and pro-competitive. If we
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cannot make individualized offers to subscribers that would otherwise choose a
different provider, our subscriber attrition may increase, or our overall prices
may need to be reduced, or both.
High-Speed Internet Service. Ever since high-speed cable Internet service
was introduced, some local governments and various competitors sought to impose
regulatory requirements on how we deal with third-party ISPs. Thus far, only a
few local governments have imposed such requirements, and the courts have
invalidated all of them. Likewise, the FCC has refused to treat our service as a
common carrier "telecommunications service," but has instead classified it as an
"interstate information service," which has historically meant that no
regulations apply. Nonetheless, the FCC's decision remains subject to judicial
review - a decision by a federal appellate court is expected later this year. In
addition, the FCC itself is still considering whether it should impose any
regulatory requirements and also whether local franchising authorities should be
permitted to impose fees or other requirements, such as service quality or
customer service standards. A few franchising authorities have sued us seeking
payment of franchise fees on high-speed Internet service revenues. Further, a
number of software and content providers and electronic retailers are now urging
the FCC to adopt certain "nondiscrimination principles" that purport to be
intended to allow Internet customers access to the Internet content of their
choosing (something we already provide). We cannot now predict whether these or
similar regulations will be adopted and, if so, what effects, if any, they would
have on our business.
Internet Regulation. Congress and federal regulators have adopted a wide
range of measures affecting Internet use, including, for example, consumer
privacy, copyright protection, defamation liability, taxation and obscenity, and
state and local governmental organizations have adopted Internet-related
regulations, as well. These various governmental jurisdictions are also
considering additional regulations in these and other areas, such as service
pricing, service and product quality, and intellectual property ownership. The
adoption of new laws or the adaptation of existing laws to the Internet could
have a material adverse effect on our Internet business.
Must-Carry/Retransmission Consent. Cable companies are currently subject to
a requirement that they carry, without compensation, the programming transmitted
by most commercial and non-commercial local television stations. Alternatively,
local television stations may negotiate for "retransmission consent," that is,
terms and conditions to govern our ability to transmit the TV broadcast signals
that cable subscribers expect to receive. As broadcasters transition from analog
to digital transmission technologies, the FCC is considering whether to require
cable companies to simultaneously carry both analog and digital signals of a
single broadcaster, and once digital carriage is required, whether cable
companies may be required to carry multiple digital program streams that each
broadcaster may transmit. If either of those questions is answered in the
affirmative, we would have less freedom to allocate the usable spectrum of our
cable plant to provide the services that we believe will be of greatest interest
to our subscribers. This could diminish our ability to attract and retain
subscribers. We cannot now predict whether the FCC will impose these or similar
carriage obligations on us.
Program Access. The Communications Act and the FCC's "program access" rules
prevent satellite video programmers affiliated with cable operators from
favoring cable operators over competing multichannel video distributors, such as
DBS, and limit the ability of such programmers to offer exclusive programming
arrangements to cable operators. The FCC recently extended the exclusivity
restrictions through October 2007. The FCC has concluded that the program access
rules do not apply to programming services, such as Comcast SportsNet, that are
delivered terrestrially. However, the FCC has indicated that it may reconsider
how it regulates cable operators with regional sports programming interests in
its cable ownership rulemaking. Any decision by the FCC or Congress to single
out for new regulation cable operators like us, who have regional sports
programming interests, could have an adverse impact on our cable and programming
businesses. Some initiatives are underway to enact program access-type
regulations at the state or local level. We believe any such regulations would
be preempted by federal law or otherwise unlawful, but we cannot predict at this
time whether such regulations will be enacted or enforceable.
Consumer Electronics Equipment Compatibility. The FCC has launched a
rulemaking to implement a recent agreement between the cable and consumer
electronics industries aimed at promoting the manufacture of "plug- and-play" TV
sets that can connect directly to the cable network without the need for a
set-top box. The FCC is considering adopting a number of proposed rules that
would, among other things: direct cable operators to implement technical
standards in their networks to support these digital television sets; require
operators to provide a sufficient supply of conditional access devices to
subscribers who want to receive scrambled programming services on their digital
television sets; and require operators to support basic home recording rights
and copy protection rules for digital programming content. Failure by the FCC to
implement the agreement could adversely affect our relationships with consumer
electronics retail outlets (where DBS has traditionally
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enjoyed an advantage) and slow the growth of subscribership to our digital cable
service.
Phone Service. Our phone business is subject to federal, state and local
regulation. In general, the Communications Act imposes interconnection
requirements and universal service obligations on all telecommunications service
providers, including those that provide traditional circuit-switched phone
service over cable facilities, and more significant regulations on incumbent
local exchange carriers, such as Verizon and SBC. The FCC has initiated several
rulemakings which, in the aggregate, could significantly change the rules that
apply to telephone competition, including the relationship between wireless and
wireline providers, long distance and local providers, and incumbents and new
entrants, and it is unclear how those proceedings will affect our phone
business. We are also conducting trials of Internet Protocol phone service on
our cable network, and will begin a limited commercial offering in 2003. While
the FCC and most state public utility commissions have thus far refrained from
regulating Internet Protocol phone service, it is uncertain whether regulators
will continue to follow that approach.
Franchise Matters. Cable operators generally operate their cable systems
pursuant to non-exclusive franchises granted by a franchising authority or other
state or local governmental entity. While the terms and conditions of franchises
vary materially from jurisdiction to jurisdiction, these franchises typically
last for a fixed term, obligate the franchisee to pay franchise fees and meet
service quality, customer service, and other requirements, and are terminable if
the franchisee fails to comply with material provisions. The Communications Act
includes provisions governing the franchising process, including, among other
things, renewal procedures designed to protect incumbent franchisees against
arbitrary denials of renewal. We anticipate that our future franchise renewal
prospects generally will be favorable.
State Taxes. Some states are considering imposing new taxes, including
sales taxes, on cable service. We cannot predict at this time whether such taxes
will be enacted or what impact they might have on our business.
Other Regulatory Issues. There are a number of other regulatory matters
under review by Congress, the FCC, and other federal agencies that could affect
our cable business. We briefly highlight those issues below:
o Cable/Broadcast Cross-Ownership: The FCC eliminated regulations
precluding the cross- ownership of a national broadcasting network and
a cable system and, pursuant to a federal court order, the FCC
recently repealed its regulations prohibiting the common ownership of
other broadcasting interests and cable systems in the same
geographical areas.
o Tier Buy Through: The Communications Act requires cable operators to
allow subscribers to purchase premium or pay-per-view services without
the necessity of subscribing to any tier of service, other than the
basic service tier. The applicability of this rule in certain
situations remains unclear, and adverse decisions by the FCC on this
issue could affect our pricing and packaging of such services.
o Leased Access/PEG: The Communications Act permits franchising
authorities to require cable operators to set aside channels for
public, educational and governmental access programming, and requires
a cable system with 36 or more activated channels to designate a
significant portion of its channel capacity for commercial leased
access by third parties to provide programming that may compete with
services offered by the cable operator. Neither Congress nor the FCC
is considering changes to these requirements, but it is always
possible that revisions could be made that would place further burdens
on the channel capacity of our cable systems.
o Obscenity: The Communications Act prohibits the transmission of
obscene programming over cable systems. Some members of Congress and
the FCC and some consumers have expressed concerns about the
distribution of certain adult programming over cable systems.
o Set-Top Box Regulation: Current FCC rules bar cable operators from
leasing subscribers integrated digital set-top boxes effective January
1, 2005. We have urged elimination of the ban on the grounds that it
will limit consumer choice, increase the cost of set-top box
equipment, and slow the deployment of digital cable services, but
there is no assurance that the FCC will accept our position.
o MDU Access: The FCC has adopted rules to promote competitive entry
into the MDU market. These rules are intended to make it easier for
new multichannel video service providers to compete with established
cable operators. Although the FCC has declined to prohibit exclusive
MDU service agreements held by incumbent cable operators including us,
that decision could be appealed and possibly changed.
- 13 -
o Pole Attachments: The Communications Act requires that utilities
provide cable systems with nondiscriminatory access to any pole,
conduit or right-of-way controlled by the utility, and the FCC has
adopted rules, upheld by the courts, that regulate the rates utilities
may charge for such access. The utilities continue to litigate various
aspects of the FCC's pole attachment rulemakings, and recent court
decisions leave open the possibility that the FCC could alter the pole
attachment rate levels paid by cable operators that provide high-speed
Internet and cable television offerings over those attachments,
although the FCC has given no indication that it will do so. Adverse
decisions in these proceedings could potentially increase our pole
attachment costs.
o Privacy Regulation: The Communications Act generally restricts the
nonconsensual collection and disclosure of subscribers' personal
information by cable operators. A strict interpretation of the
Communications Act could severely limit the ability of service
providers to collect and use personal information for commercial
purposes. In addition, the Federal Trade Commission has adopted rules
that will place sharp limits on the telemarketing practices of cable
operators, and the FCC is considering adopting similar rules, as well.
o Copyright Regulation. In exchange for filing certain reports and
contributing a percentage of their revenue to a U.S. federal copyright
royalty pool, cable operators can obtain blanket permission to
retransmit copyrighted material on broadcast signals. The U.S.
Copyright Office has recommended that Congress revise this compulsory
licensing scheme, although Congress has thus far declined to do so.
The elimination or substantial modification of the cable compulsory
license could adversely affect our ability to obtain certain
programming and substantially increase our programming costs. In
addition, we pay standard industry licensing fees to use music in the
programs we provide to subscribers, including local advertising, local
origination programming and pay-per-view events. These licensing fees
have been the source of litigation between the cable industry and
music performance rights organizations in the past, and we cannot
predict with certainty whether license fee disputes may arise in the
future.
o Other Areas: The FCC actively regulates other aspects of our cable
business, including, among other things: (1) the blackout of
syndicated, network, and sports programming; (2) customer service
standards; (3) advertising in children's programming; (4) political
advertising; (5) origination cablecasting; (6) sponsorship
identification; (7) closed captioning of video programming; (8) equal
employment opportunity; (9) lottery programming; (10) emergency alert
systems; and (11) technical standards relating to operation of the
cable network. The FCC is not considering any significant revisions to
these rules at this time, but we are unable to predict how these
regulations might be changed in the future and how any such changes
might affect our business.
In all these areas and a variety of others, we face the potential of
increased regulation. Given the intensely competitive nature of every aspect of
our business, we believe that increased regulation is not warranted. We can not
provide any assurance, however, that regulation of our business will not
increase.
EMPLOYEES
As of December 31, 2002, we had approximately 42,000 employees. Of these
employees, approximately 20,000 were associated with cable, approximately 15,000
were associated with commerce and approximately 7,000 were associated with our
other divisions. Approximately 1,000 of our employees are covered by collective
bargaining agreements or have organized but are not covered by collective
bargaining agreements. We believe that our relationships with our employees are
good.
ITEM 2 PROPERTIES
Cable
A central receiving apparatus, distribution cables, servers, analog and
digital converters, cable modems, customer service call centers and local
business offices are the principal physical assets of a cable system. We own or
lease the receiving and distribution equipment of each system and own or lease
parcels of real property for the receiving sites, customer service call centers
and local business offices.
- 14 -
Commerce
Television studios, customer service call centers, business offices,
product warehouses and distribution centers are the principal physical assets of
our commerce operations. These assets include QVC's studios and offices, Studio
Park, located in West Chester, Pennsylvania, and office, customer service call
centers and warehouses in the US, UK, Germany and Japan. QVC owns the majority
of these assets. In order to keep pace with technological advances, QVC is
maintaining, periodically upgrading and rebuilding the physical components of
our commerce operations.
Content
Two large multi-purpose arenas, television studios and business offices are
the principal physical assets of our content operations. We own the arenas and
own or lease the television studios and business offices of our content
operations.
We believe that substantially all of our physical assets are in good
operating condition.
ITEM 3 LEGAL PROCEEDINGS
Litigation has been filed against us as a result of our alleged conduct
with respect to our investment in and distribution relationship with At Home
Corporation. At Home was a provider of high-speed Internet access and content
services which filed for bankruptcy protection in September 2001. Filed actions
are: (i) class action lawsuits against us, Brian L. Roberts (our 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 us and
the other defendants in connection with transactions agreed to in March 2000
among At Home, us, 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; and (iii) a lawsuit brought in the United States
District Court for the District of Delaware in the name of At Home by certain At
Home bondholders against us, Brian L. Roberts, Cox and others, alleging breaches
of fiduciary duty relating to the March 2000 transactions and seeking recovery
of alleged short- swing profits of at least $600 million pursuant to Section
16(b) of the Securities Exchange Act of 1934 purported to have arisen in
connection with certain transactions relating to At Home stock effected pursuant
to the March 2000 agreements. The actions in San Mateo County, California have
been stayed by the United States Bankruptcy Court for the Northern District of
California, the court in which At Home filed for bankruptcy, as violating the
automatic bankruptcy stay. In the Southern District of New York actions, the
court ordered the actions consolidated into a single action. An amended
consolidated class action complaint was filed on November 8, 2002. All of the
defendants served motions to dismiss on February 11, 2003.
We deny any wrongdoing in connection with the claims which have been made
against us, our subsidiaries and Brian L. Roberts, and intend 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 our consolidated
financial position, but could possibly be material to our consolidated results
of operations of any one period. Further, no assurance can be given that any
adverse outcome would not be material to our consolidated financial position.
Some of the entities formerly attributed to Broadband which are now
subsidiaries of Comcast are parties to an affiliation term sheet with Starz
Encore Group LLC, an affiliate of Liberty Media Corporation, which extends to
2022. The term sheet requires annual fixed price payments, subject to adjustment
for various factors, including inflation. The term sheet also requires Comcast
to pay two-thirds of Starz Encore's programming costs above levels designated in
the term sheet.
By letter dated May 29, 2001, Broadband disputed the enforceability of the
excess programming pass- through provisions of the Starz Encore term sheet and
questioned the validity of the term sheet as a whole. Broadband also has raised
certain issues concerning the uncertainty of the provisions of the term sheet
and the contractual interpretation and application of certain of its provisions
to, among other things, the acquisition and disposition of cable systems. In
July 2001, Starz Encore filed a lawsuit in Colorado state court seeking payment
of the 2001 excess programming costs and a declaration that the term sheet is a
binding and enforceable contract. In October 2001, Broadband and Starz Encore
agreed to delay any further proceedings in the litigation until August 31, 2002
to allow the parties time to continue negotiations toward a potential business
resolution of this dispute. As part of this standstill agreement, Broadband and
Starz Encore settled Starz Encore's claim for the 2001 excess programming costs,
and Broadband agreed to continue to make the standard monthly payments due
- 15 -
under the term sheet, with a full reservation of rights with respect to these
payments. In connection with the standstill agreement, the court granted a stay
on October 30, 2001. The terms of the stay order allowed either party to
petition the court to lift the stay after April 30, 2002 and to proceed with the
litigation. Broadband and Starz Encore agreed to extend the standstill agreement
to and including January 31, 2003, with a requirement that the parties attempt
to mediate the dispute. A mediation session held in January 2003 did not result
in any resolution of the matter.
On November 18, 2002, Comcast filed suit against Starz Encore Group LLC in
the United States District Court for the Eastern District of Pennsylvania. We
seek a declaratory judgment that, pursuant to our rights under a March 17, 1999
contract with a predecessor of Starz Encore, upon the completion of the
Broadband acquisition that contract now provides the terms under which Starz
Encore programming is acquired and transmitted by Comcast's cable systems. On
January 8, 2003, Starz Encore filed a motion to dismiss the lawsuit on the
grounds that claims asserted by Comcast raised issues of state law that the
United States District Court should decline to decide. We and Comcast have
responded, contesting these assertions The motion has been submitted to the
Court for decision.
On January 31, 2003, Starz Encore filed an amended complaint in its lawsuit
against Broadband in Colorado state court. The amended complaint adds us and
Comcast as defendants and adds new claims against us, Comcast and Broadband
asserting alleged breaches of, and interference with, the standstill agreement
relating to the lawsuit filed by us and Comcast in federal District Court in
Pennsylvania and to the defendants' position that since the completion of the
Broadband acquisition the March 17, 1999 contract provides the terms under which
Starz Encore programming is acquired and transmitted by our cable systems.
On March 3, 2003, Starz Encore filed a motion for leave to file a second
amended complaint that would add allegations that Broadband has breached certain
joint-marketing obligations under the term sheet and that we and Comcast have
breached certain joint-marketing obligations under the March 17, 1999 contract
and other agreements. We, Comcast and Broadband intend to oppose Starz Encore's
motion for leave to file a second amended complaint and, in light of Starz
Encore's pending motion for leave to amend, have sought an extension of time
from the Court to respond to Starz Encore's amended complaint.
An entity formerly attributed to Broadband, which is now Comcast's
subsidiary, is party to a master agreement that may not expire until December
31, 2012, under which it purchases certain billing services from CSG Systems,
Inc. The master agreement requires monthly payments, subject to adjustment for
inflation. The master agreement also contains a most favored nation provision
that may affect the amounts paid thereunder.
On May 10, 2002, Broadband filed a demand for arbitration against CSG
before the American Arbitration Association asserting, among other things, the
right to terminate the master agreement and seeking damages under the most
favored nation provision or otherwise. On May 31, 2002, CSG answered Broadband's
arbitration demand and asserted various counterclaims, including for (i) breach
of the master agreement; (ii) a declaration that Comcast is now bound by the
master agreement to use CSG as its exclusive provider for certain billing and
customer care services; (iii) tortious interference with prospective contractual
relations; and (iv) civil conspiracy. A hearing in the arbitration is scheduled
to commence on May 5, 2003.
On June 21, 2002, CSG filed a lawsuit against us in federal court in
Denver, Colorado asserting claims related to the master agreement and the
pending arbitration. On November 4, 2002, CSG withdrew its complaint against us
without prejudice. On November 15, 2002, Comcast initiated a lawsuit against CSG
in federal court in Philadelphia, Pennsylvania asserting that cable systems
owned by us are not required to use CSG as a billing service or customer care
provider pursuant to the master agreement, and that the former Broadband cable
systems Comcast now owns may be added to a billing service agreement between
Comcast and CSG. CSG moved to dismiss or stay the lawsuit on the ground that the
issues raised by the complaint could be wholly or substantially determined by
the above-mentioned arbitration. By Order dated February 10, 2003, the Court
stayed the lawsuit until further notice.
In management's opinion, the final disposition of the Starz Encore and CSG
contractual disputes is not expected to have a material adverse effect on our
consolidated financial position or results of operations. However, no assurance
can be given that any adverse outcome would not be material to our consolidated
financial position or results of operations.
We are subject to other legal proceedings and claims which arise in the
ordinary course of our business. In the opinion of our management, the amount of
ultimate liability with respect to such actions is not expected to materially
affect our financial condition, results of operations or liquidity.
- 16 -
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information for this Item is omitted pursuant to SEC General Instruction I to
Form 10-K.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Common Stock
Absence of Trading Market
Through the closing of Comcast's acquisition of Broadband on November 18,
2002, our Class A common stock was included on Nasdaq under the symbol CMCSA and
our Class A Special common stock was included on Nasdaq under the symbol CMCSK.
There was no established public trading market for our Class B common stock.
Subsequent to the closing of the Broadband acquisition, our common stock is not
publicly traded. Therefore, there is no established public trading market for
our common stock, and none is expected to develop in the foreseeable future.
Holders
All of our shares of common stock are owned directly or indirectly by
Comcast.
Dividends
None.
ITEM 6 SELECTED FINANCIAL DATA
Information for this Item is omitted pursuant to SEC General Instruction I to
Form 10-K.
- 17 -
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information for this item is omitted pursuant to SEC General Instruction I
to Form 10-K, except as noted below.
We are an indirect, wholly owned subsidiary of Comcast Corporation
("Comcast").
Overview
We have grown significantly in recent years through both strategic
acquisitions and growth in our existing businesses. We have historically met our
cash needs for operations through our cash flows from operating activities. We
have generally financed our acquisitions and capital expenditures through
issuances of our common stock, borrowings of long-term debt, sales of
investments and from existing cash, cash equivalents and short-term investments.
General Developments of Business
Refer to "General Developments of Our Business" in Part I and Note 4 to our
financial statements included in Item 8 for a discussion of our acquisitions and
other significant events.
Significant and Subjective Estimates
The following discussion and analysis of our results of operations is based
upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. We base our judgments
on historical experience and on various other assumptions that we believe are
reasonable under the circumstances, the results of which form the basis for
making estimates about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Refer to Note 2 to our financial statements included in Item 8 for a
discussion of our accounting policies with respect to these and other items.
Results of Operations
The effects of our 2001 and 2000 acquisitions and cable systems exchanges
were to increase our revenues and expenses, resulting in increases in our
operating income before depreciation and amortization.
Refer to Notes 4 and 10 to our financial statements included in Item 8 for
a discussion of our acquisitions and cable systems exchanges, and of the effect
of these transactions on our balance sheet.
We adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Intangible Assets," on January 1, 2002, as required by the new
statement. See "Amortization" on page 20 for a discussion of the impact the
adoption of the new statement had on our consolidated results of operations.
- 18 -
Our summarized consolidated financial information for the three years ended
December 31, 2002 is as follows (dollars in millions, "NM" denotes percentage is
not meaningful):
Year Ended
December 31, Increase/(Decrease)
2002 2001 $ %
---------- --------- --------- ---------
Revenues........................................................ $11,276 $9,836 $1,440 14.6%
Cost of goods sold from electronic retailing.................... 2,793 2,514 279 11.1
Operating, selling, general and administrative expenses......... 4,933 4,652 281 6.0
Depreciation.................................................... 1,425 1,211 214 17.7
Amortization.................................................... 213 2,205 (1,992) (90.3)
---------- --------- --------- ---------
Operating income (loss)......................................... 1,912 (746) 2,658 NM
---------- --------- --------- ---------
Interest expense................................................ (725) (734) (9) (1.2)
Investment income (expense)..................................... (658) 1,062 (1,720) NM
Equity in net losses of affiliates.............................. (103) (29) 74 255.2
Other income.................................................... (4) 1,301 (1,305) (100.3)
Income tax expense.............................................. (246) (470) (224) (47.7)
Minority interest............................................... (196) (160) 36 22.5
---------- --------- --------- ---------
Income (loss) before cumulative effect of accounting change..... ($20) $224 ($244) (108.9%)
========== ========= ========= =========
Operating income before depreciation and amortization (1) ...... $3,550 $2,670 $880 33.0%
========== ========= ========= =========
Year Ended
December 31, Increase/(Decrease)
2001 2000 $ %
---------- --------- --------- ---------
Revenues........................................................ $9,836 $8,357 $1,479 17.7%
Cost of goods sold from electronic retailing.................... 2,514 2,285 229 10.0
Operating, selling, general and administrative expenses......... 4,652 3,614 1,038 28.7
Depreciation.................................................... 1,211 837 374 44.7
Amortization.................................................... 2,205 1,782 423 23.7
---------- --------- --------- ---------
Operating loss.................................................. (746) (161) 585 363.4
---------- --------- --------- ---------
Interest expense................................................ (734) (728) 6 0.8
Investment income............................................... 1,062 984 78 7.9
Income related to indexed debt.................................. 666 (666) (100.0)
Equity in net losses of affiliates.............................. (29) (22) 7 31.8
Other income.................................................... 1,301 2,826 (1,525) (54.0)
Income tax expense.............................................. (470) (1,429) (959) (67.1)
Minority interest............................................... (160) (115) 45 39.1
---------- --------- --------- ---------
Income before cumulative effect of accounting change............ $224 $2,021 ($1,797) (88.9%)
========== ========= ========= =========
Operating income before depreciation and amortization (1) ...... $2,670 $2,458 $212 8.6%
========== ========= ========= =========
____________
(1) Operating income before depreciation and amortization is commonly referred
to in our businesses as "EBITDA." EBITDA is a measure of a company's
ability to generate cash to service its obligations, including debt service
obligations, and to finance capital and other expenditures. In part due to
the capital intensive nature of our businesses and the resulting
significant level of non-cash depreciation and amortization expense, EBITDA
is frequently used as one of the bases for comparing businesses in our
industries, although our measure of EBITDA may not be comparable to
similarly titled measures of other companies. EBITDA is the primary basis
used by our management to measure the operating performance of our
businesses. EBITDA does not purport to represent net income or net cash
provided by operating activities, as those terms are defined under
generally accepted accounting principles, and should not be considered as
an alternative to such measurements as an indicator of our performance.
- 19 -
Consolidated Operating Results
Revenues
The increases in consolidated revenues from 2001 to 2002 and from 2000 to
2001 are primarily attributable to increases in service revenues in our Cable
segment and to increases in net sales in our Commerce segment (see "Operating
Results by Business Segment" below). The remaining increases are primarily the
result of increases in revenues from our content operations, principally due to
growth in our historical operations and the effects of our acquisitions in 2001.
On January 1, 2002, we adopted EITF 01-9, "Accounting for Consideration
Given to a Customer (Including a Reseller of the Vendor's Products)" and EITF
01-14, "Income Statement Characterization of Reimbursements Received for
'Out-of-Pocket' Expenses Incurred." We have reclassified our statement of
operations for all periods presented to reflect the adoption of EITF 01-9 and
EITF 01-14. The changes in classification had no impact on our reported
operating income (loss) or financial condition. Refer to Note 2 to our financial
statements included in Item 8 for a discussion of EITF 01-9 and EITF 01-14.
Cost of goods sold from electronic retailing
Refer to the "Commerce" section of "Operating Results by Business Segment"
below for a discussion of the increases in cost of goods sold from electronic
retailing.
Operating, selling, general and administrative expenses
The increases in consolidated operating, selling, general and
administrative expenses from 2001 to 2002 and from 2000 to 2001 are primarily
attributable to increases in expenses in our Cable segment and, to a lesser
extent, to increases in expenses in our Commerce segment (see "Operating Results
by Business Segment" below). The remaining increases are primarily the result of
increased expenses in our content operations, principally due to growth in our
historical operations and the effects of our acquisitions in 2001.
Depreciation
The increases in depreciation expense from 2001 to 2002 and from 2000 to
2001 are primarily attributable to our Cable segment and are principally due to
the effects of our recent acquisitions, our cable systems exchanges and our
capital expenditures. Depreciation expense in our Commerce segment was
essentially unchanged. The remaining increases in depreciation expense from 2000
to 2001 are primarily the result of increases in depreciation in our content
operations, principally due to the effects of our acquisitions and increased
levels of capital expenditures.
Amortization
Of the $1.992 billion decrease in amortization expense from 2001 to 2002,
$2.002 billion is attributable to the adoption of SFAS No. 142 on January 1,
2002. The remaining change is primarily the result of increases in amortization
expense in our content operations, principally due to the effects of our
acquisitions. The $423 million increase in amortization expense from 2000 to
2001 is primarily due to the effects of our acquisitions. Refer to Note 6 to our
financial statements included in Item 8 for the pro forma impact of adoption of
SFAS No. 142 on amortization expense.
Operating Results by Business Segment
The following represent the operating results of our significant business
segments, "Cable" and "Commerce." The remaining components of our operations are
not independently significant to our consolidated financial condition or results
of operations. Refer to Note 12 to our financial statements included in Item 8
for a summary of our financial data by business segment.
---------------------------
- 20 -
Cable
The following table presents financial information for our Cable segment
(dollars in millions).
Year Ended
December 31, Increase
2002 2001 $ %
---------- ---------- -------- -------
Video......................................................... $4,710 $4,278 $432 10.1%
High-speed Internet........................................... 590 294 296 100.7
Advertising sales............................................. 383 326 57 17.5
Other......................................................... 275 232 43 18.5
Franchise fees................................................ 201 193 8 4.1
---------- ---------- -------- -------
Revenues................................................. 6,159 5,323 836 15.7
Operating, selling, general and administrative expenses....... 3,526 3,269 257 7.9
---------- ---------- -------- -------
Operating income before depreciation and
amortization (a).............................................. $2,633 $2,054 $579 28.2%
========== ========== ======== =======
Year Ended
December 31, Increase
2001 2000 $ %
---------- ---------- -------- -------
Video......................................................... $4,278 $3,651 $627 17.2%
High-speed Internet........................................... 294 114 180 157.9
Advertising sales............................................. 326 290 36 12.4
Other......................................................... 232 153 79 51.6
Franchise fees................................................ 193 154 39 25.3
---------- ---------- -------- -------
Revenues................................................. 5,323 4,362 961 22.0
Operating, selling, general and administrative expenses....... 3,269 2,459 810 32.9
---------- ---------- -------- -------
Operating income before depreciation and
amortization (a)......................................... $2,054 $1,903 $151 7.9%
========== ========== ======== =======
_______________
(a) See footnote (1) on page 18.
Video revenue consists of our basic, expanded basic, premium, pay-per-view,
equipment and digital cable services. Of the $432 million and $627 million
increases in video revenues from 2001 to 2002 and from 2000 to 2001, $139
million and $339 million, respectively, are attributable to the effects of our
acquisitions of cable systems and $293 million and $288 million, respectively,
relate to changes in rates and subscriber growth in our historical operations,
driven principally by growth in digital subscribers, and to a lesser extent, to
the effects of a higher- priced digital service offering made in the second half
of 2000. During 2002, we added approximately 505,000 digital subscribers through
growth in our historical operations. During 2001 and 2000, through acquisitions
and growth in our historical operations, we added approximately 534,000 and
753,000 digital subscribers, respectively.
The increases in high-speed Internet revenue from 2001 to 2002 and from
2000 to 2001 are primarily due to the addition of high-speed Internet
subscribers. During 2002, we added approximately 578,000 high-speed Internet
subscribers through growth in our historical operations. During 2001 and 2000,
through acquisitions and growth in our historical operations, we added
approximately 548,000 and 258,000 high-speed Internet subscribers, respectively.
The increase in advertising sales revenue from 2001 to 2002 is due to the
effects of a stronger advertising market and the continued leveraging of our
market-wide fiber interconnects. The increase in advertising sales revenue from
2000 to 2001 was attributable to the effects of new advertising contracts,
market-wide fiber interconnects and the continued leveraging of our existing
fiber networks, helping to offset an otherwise weak advertising environment.
Other revenue includes phone revenues, installation revenues, guide
revenues, commissions from electronic retailing, revenues of our regional sports
programming networks and revenue from other product offerings. The increase from
2001 to 2002 in other revenue is primarily attributable to growth in our
historical operations. The
- 21 -
increase from 2000 to 2001 in other revenue is primarily attributable to the
effects of our acquisition of Home Team Sports (now known as CSN Mid-Atlantic).
The remaining increases from 2000 to 2001 are attributable to growth in our
historical operations.
The increase in operating, selling, general and administrative expenses
from 2001 to 2002 is primarily attributable to the effects of increases in the
costs of cable programming, increases in labor costs and other volume- related
expenses in our historical operations, and, to a lesser extent, to the effects
of high-speed Internet subscriber growth. This increase was partially offset by
the effects of management fees charged by the Company to subsidiaries of Comcast
during 2002.
On September 28, 2001, At Home Corporation ("At Home"), our former provider
of high-speed Internet services, filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. In October 2001, we amended our agreement with At Home to
continue service to our existing and new subscribers during October and November
2001. We agreed to be charged a higher rate than we had incurred under our
previous agreement. On December 3, 2001, we reached a definitive agreement,
approved by the Bankruptcy Court, with At Home pursuant to which At Home agreed
to continue to provide high-speed Internet services to our existing and new
subscribers through February 28, 2002. In December 2001, we began to transfer
our high-speed Internet subscribers from the At Home network to our new
Comcast-owned and managed network. We completed this transition in February
2002. Operating expenses in our consolidated statement of operations for the
year ended December 31, 2001 include $140 million of net incremental expenses
incurred in the fourth quarter of 2001 in the continuation of service to and
transition of our high-speed Internet subscribers from At Home's network to our
network.
The remaining increases from 2000 to 2001 in operating, selling, general
and administrative expenses are primarily due to the effects of our acquisitions
and exchanges of cable systems, 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.
Our cost of programming increases as a result of changes in rates,
subscriber growth, additional channel offerings and our acquisitions and
exchanges of cable systems. 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.
- 22 -
Commerce
The following table sets forth the operating results for our Commerce
segment, which consists of QVC, Inc. and subsidiaries (dollars in millions):
Year Ended
December 31, Increase
2002 2001 $ %
--------- -------- ------- ------
Net sales from electronic retailing........................... $4,381 $3,917 $464 11.8%
Cost of goods sold from electronic retailing.................. 2,793 2,514 279 11.1
Operating, selling, general and administrative expenses....... 730 681 49 7.2
--------- -------- ------- ------
Operating income before depreciation and
amortization (a)......................................... $858 $722 $136 18.7%
========= ======== ======= ======
Gross margin.................................................. 36.3% 35.8%
========= ========
Year Ended
December 31, Increase
2001 2000 $ %
--------- -------- ------- ------
Net sales from electronic retailing........................... $3,917 $3,536 $381 10.8%
Cost of goods sold from electronic retailing.................. 2,514 2,285 229 10.0
Operating, selling, general and administrative expenses....... 681 632 49 7.8
--------- -------- ------- ------
Operating income before depreciation and
amortization (a)......................................... $722 $619 $103 16.7%
========= ======== ======= ======
Gross margin.................................................. 35.8% 35.4%
========= ========
_______________
(a) See footnote (1) on page 18.
Of the $464 million and $381 million increases in net sales from electronic
retailing from 2001 to 2002 and from 2000 to 2001, $296 million and $332
million, respectively, is attributable to increases in net sales in the United
States. This growth is principally the result of increases in the average number
of homes receiving QVC services and in net sales per home as follows:
Year Ended December 31,
2002 2001
--------------------- ---------------------
Increase in average number of homes in U.S.................... 3.6% 3.8%
Increase in net sales per home in U.S......................... 5.3% 6.5%
It is unlikely that the number of homes receiving the QVC service
domestically will continue to grow at rates comparable to prior periods given
that the QVC service is already received by approximately 97% of all U.S. cable
television homes and substantially all satellite television homes in the U.S.
Future growth in sales will depend increasingly on continued additions of new
customers from homes already receiving the QVC service and continued growth in
repeat sales to existing customers.
The remaining increases of $168 million and $49 million in net sales from
electronic retailing from 2001 to 2002 and from 2000 to 2001 are primarily
attributable to increases in net sales in Germany, Japan and the United Kingdom,
offset, in part, by the effects of fluctuations in foreign currency exchange
rates during the periods.
The increases in cost of goods sold from 2001 to 2002 and from 2000 to 2001
are primarily related to the growth in net sales. The increases in gross margin
are primarily due to the effects of increases in product margins.
The increases in operating, selling, general and administrative expenses
from 2001 to 2002 and from 2000 to 2001 are primarily attributable to higher
variable costs and personnel costs associated with the increase in sales volume.
---------------------------
- 23 -
Consolidated Analysis
Interest Expense
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 operating income before depreciation and
amortization and to obtain external financing.
Investment Income (Expense)
Investment income (expense) includes the following (in millions):
Year Ended December 31,
2002 2001 2000
--------- --------- ---------
Interest and dividend income........................................... $45 $77 $171
(Losses) gains on sales and exchanges of investments, net.............. (48) 485 887
Investment impairment losses........................................... (247) (972) (74)
Reclassification of unrealized gains................................... 1,330
Unrealized (loss) gain on trading securities........................... (1,446) 285
Mark to market adjustments on derivatives related
to trading securities............................................. 1,182 (185)
Mark to market adjustments on derivatives and hedged items............. (144) 42
--------- --------- ---------
Investment income (expense)....................................... ($658) $1,062 $984
========= ========= =========
The investment impairment losses for the years ended December 31, 2002 and
2001 relate principally to an other than temporary decline in our investment in
AT&T Corp.
During the year ended December 31, 2001, we wrote-off our investment in At
Home common stock based upon a decline in the investment that was considered
other than temporary. In connection with the realization of this impairment
loss, we reclassified to investment income (expense) the accumulated unrealized
gain of $238 million on our investment in At Home common stock which was
previously recorded as a component of accumulated other comprehensive income
(loss). We recorded this accumulated unrealized gain prior to our designation of
our right under a stockholders' agreement as a hedge of our investment in the At
Home common stock.
In June 2001, we and AT&T entered into an Amended and Restated Share
Issuance Agreement (the "Share Issuance Agreement"). AT&T issued to us
approximately 80.3 million unregistered shares of AT&T common stock and we
agreed to settle our right under the Share Exchange Agreement to exchange an
aggregate 31.2 million At Home shares and warrants held by us for shares of AT&T
common stock. Under the terms of the Share Issuance Agreement, we retained the
At Home shares and warrants held by us. We recorded to investment income
(expense) a pre-tax gain of $296 million, representing the fair value of the
increased consideration received by us to settle our right under the Share
Exchange Agreement.
In connection with the reclassification of our investment in Sprint PCS
from an available for sale security to a trading security in 2001, we
reclassified to investment income (expense) the accumulated unrealized gain of
$1.092 billion on our investment in Sprint PCS which was previously recorded as
a component of accumulated other comprehensive income (loss).
Income Related to Indexed Debt
Prior to the adoption of SFAS No. 133 on January 1, 2001, we accounted for
the ZONES as an indexed debt instrument since the maturity value is dependent
upon the fair value of Sprint PCS common stock. During the year ended December
31, 2000, we recorded income related to indexed debt of $666 million to reflect
the fair value of the underlying Sprint PCS stock.
Equity in Net Losses of Affiliates
The increase in equity in net losses of affiliates from 2001 to 2002 is
primarily due to other than temporary declines in certain of our equity method
investees, the effects of our additional investments, changes in the net income
or loss of our equity method investees, as well as to the effects of the
discontinuance of amortization of
- 24 -
equity method goodwill as a result of the adoption of SFAS No. 142 on January 1,
2002. The increase from 2000 to 2001 is primarily attributable to the effects of
our additional investments, as well as the effects of changes in the net income
or loss of our equity method investees.
Other Income
On October 30, 2001, we acquired from Fox Entertainment Group, Inc. ("Fox
Entertainment") the approximate 83.2% interest in Outdoor Life Network ("OLN")
not previously owned by us. Upon closing of the acquisition, we exchanged our
14.5% interest in Speedvision Network ("SVN"), together with a previously made
loan, for Fox Entertainment's interest in OLN. In connection with the exchange
of our interest in SVN, we recorded a pre-tax gain of $107 million, representing
the difference between the estimated fair value of our interest in SVN as of the
closing date of the transaction and our cost basis in SVN.
On January 1, 2001, we completed our cable systems exchange with Adelphia
Communications Corporation ("Adelphia"). We received cable systems serving
approximately 445,000 subscribers from Adelphia and Adelphia received certain of
our cable systems serving approximately 441,000 subscribers. We recorded a pre-
tax gain of $1.199 billion, representing the difference between the estimated
fair value of $1.799 billion as of the closing date of the transaction and our
cost basis in the systems exchanged.
On December 31, 2000, we completed our cable systems exchange with AT&T. We
received cable systems serving approximately 770,000 subscribers from AT&T and
AT&T received certain of our cable systems serving approximately 700,000
subscribers. We recorded a pre-tax gain of $1.711 billion, representing the
difference between the estimated fair value of $2.840 billion as of the closing
date of the transaction and our cost basis in the systems exchanged.
In August 2000, we obtained the right to exchange our At Home Series A
Common Stock with AT&T and we waived certain of our At Home Board level and
shareholder rights under a stockholders' agreement. We also agreed to cause our
existing appointee to the At Home Board of Directors to resign. In connection
with the transaction, we recorded a pre-tax gain of $1.045 billion, representing
the estimated fair value of the investment as of the closing date.
In August 2000, we exchanged all of the capital stock of a wholly owned
subsidiary which held certain wireless licenses for approximately 3.2 million
shares of AT&T common stock. In connection with the exchange, we recognized a
pre-tax gain of $98 million, representing the difference between the fair value
of the AT&T shares received of $100 million and our cost basis in the
subsidiary.
Income Tax Expense
The decreases in income tax expense from 2001 to 2002 and from 2000 to 2001
are primarily the result of the effects of changes in our income before taxes
and minority interest, and non-deductible goodwill amortization.
Minority Interest
The increase in minority interest from 2001 to 2002 is attributable to
increases in the net income of our less than wholly owned consolidated
subsidiaries. The increase in minority interest from 2000 to 2001 is primarily
attributable to the effects of changes in the net income or loss of our less
than wholly owned consolidated subsidiaries.
Cumulative Effect of Accounting Change
Upon adoption of SFAS No. 133, we recognized as income a cumulative effect
of accounting change, net of related income taxes, of $385 million during the
year ended December 31, 2001. The income consisted of a $400 million adjustment
to record the debt component of our ZONES at a discount from its value at
maturity and $192 million principally related to the reclassification of gains
previously recognized as a component of accumulated other comprehensive income
(loss) on our equity derivative instruments, net of related deferred income
taxes of $207 million.
We believe that our operations are not materially affected by inflation.
---------------------------
- 25 -
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk Management
We are exposed to the market risk of adverse changes in interest rates. We
maintain a mix of fixed and variable rate debt and enter into various derivative
transactions pursuant to our policies to manage the volatility relating to these
exposures. We monitor our interest rate risk exposures using techniques
including market value and sensitivity analyses. We do not hold or issue any
derivative financial instruments for trading purposes and are not a party to
leveraged instruments. We manage the credit risks associated with our derivative
financial instruments through the evaluation and monitoring of the
creditworthiness of the counterparties. Although we may be exposed to losses in
the event of nonperformance by the counterparties, we do not expect such losses,
if any, to be significant.
We use interest rate exchange agreements ("Swaps") to exchange, at
specified intervals, the difference between fixed and variable interest amounts
calculated by reference to an agreed-upon notional principal amount. We use
interest rate lock agreements ("Rate Locks") to hedge the risk that cash flows
related to the interest payments on an anticipated issuance or assumption of
fixed rate debt may be adversely affected by interest rate fluctuations. We use
interest rate cap agreements ("Caps") to lock in a maximum interest rate should
variable rates rise, but enable us to otherwise pay lower market rates. We use
interest rate collar agreements ("Collars") to limit our exposure to and
benefits from interest rate fluctuations on variable rate debt to within a
certain range of rates.
The table set forth below summarizes the fair values and contract terms of
financial instruments subject to interest rate risk maintained by us as of
December 31, 2002 (dollars in millions):
Fair
Value at
2003 2004 2005 2006 2007 Thereafter Total 12/31/02
---- ---- ---- ---- ---- ---------- ----- --------
Debt
Fixed Rate.......................... $13 $324 $709 $650 $988 $5,749 $8,433 $8,650
Average Interest Rate............ 8.8% 7.8% 8.4% 7.1% 8.3% 7.3% 7.5%
Variable Rate....................... $10 $835 $2 $847 $847
Average Interest Rate............ 2.8% 2.9% 7.4% 2.9%
Interest Rate Instruments
Variable to Fixed Swaps............. $72 $72 ($2)
Average Pay Rate................. 4.9% 4.9%
Average Receive Rate............. 1.4% 1.4%
---------------------------
The notional amounts of interest rate instruments, as presented in the
table above, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the costs to settle the outstanding contracts. We estimate interest
rates on variable debt using the average implied forward London Interbank Offer
Rate ("LIBOR") rates for the year of maturity based on the yield curve in effect
at December 31, 2002, plus the borrowing margin in effect for each credit
facility at December 31, 2002. We estimate average receive rates on the Variable
to Fixed Swaps using the average implied forward LIBOR rates for the year of
maturity based on the yield curve in effect at December 31, 2002. While Swaps,
Rate Locks, Caps and Collars represent an integral part of our interest rate
risk management program, their incremental effect on interest expense for the
years ended December 31, 2002, 2001 and 2000 was not significant.
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 Sprint PCS common stock accounted
for as trading securities. Refer to Note 5 to our financial statements included
in Item 8 for a discussion of our Prepaid Forward Sales.
During 2002 and 2001, the change in the fair value of our investment in
Sprint PCS common stock was substantially offset by the changes in the fair
value of the Equity Collars and the derivative components of the ZONES and the
Prepaid Forward Sales. See "Results of Operations - Investment Income
(Expense)."
- 26 -
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Comcast Holdings Corporation
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheet of Comcast Holdings
Corporation (formerly known as Comcast Corporation) and its subsidiaries (the
"Company") as of December 31, 2002 and 2001, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2002. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Comcast Holdings Corporation and
its subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States of America.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended, effective January 1,
2001, and Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets," effective January 1, 2002.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 17, 2003
- 27 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions, except share data)
December 31,
2002 2001
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................. $676 $350
Investments................................................................ 525 2,623
Accounts receivable, less allowance for doubtful accounts of $160 and $154 1,015 967
Inventories, net........................................................... 479 455
Deferred income taxes...................................................... 129 129
Other current assets....................................................... 153 154
--------- ---------
Total current assets................................................... 2,977 4,678
--------- ---------
NOTE RECEIVABLE FROM AFFILIATE................................................ 191
INVESTMENTS................................................................... 627 1,679
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $3,604 and $2,726. 6,916 7,011
FRANCHISE RIGHTS.............................................................. 16,611 16,533
GOODWILL...................................................................... 6,446 6,289
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $975 and $665..... 1,481 1,687
OTHER NONCURRENT ASSETS, net.................................................. 440 384
--------- ---------
$35,689 $38,261
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable........................................................... $792 $698
Accrued expenses and other current liabilities............................. 1,874 1,661
Due to affiliates.......................................................... 76
Deferred income taxes...................................................... 46 404
Current portion of long-term debt.......................................... 23 460
--------- ---------
Total current liabilities.............................................. 2,811 3,223
--------- ---------
LONG-TERM DEBT, less current portion.......................................... 9,257 11,742
--------- ---------
NOTE PAYABLE TO AFFILIATE..................................................... 22
--------- ---------
DEFERRED INCOME TAXES......................................................... 6,836 6,376
--------- ---------
OTHER NONCURRENT LIABILITIES.................................................. 1,265 1,567
--------- ---------
MINORITY INTEREST............................................................. 1,133 880
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS' EQUITY
Preferred stock - authorized 20,000,000 shares; issued, zero...............
Class A common stock, $1.00 par value - authorized,
200,000,000 shares; issued, 21,591,115 and 21,829,422 ................... 22 22
Class A special common stock, $1.00 par value - authorized,
2,500,000,000 shares; issued 916,198,519 and 937,256,465; outstanding,
916,198,519 and 913,931,554.............................................. 916 914
Class B common stock, $1.00 par value - authorized, 50,000,000
shares; issued, 9,444,375 .......................................... 9 9
Additional capital......................................................... 11,818 11,752
Retained earnings.......................................................... 1,595 1,632
Accumulated other comprehensive income..................................... 5 144
--------- ---------
Total stockholders' equity............................................. 14,365 14,473
--------- ---------
$35,689 $38,261
========= =========
See notes to consolidated financial statements.
- 28 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in millions)
Year Ended December 31,
2002 2001 2000
-------- -------- --------
REVENUES
Service revenues...................................................................... $6,895 $5,919 $4,821
Net sales from electronic retailing................................................... 4,381 3,917 3,536
-------- -------- --------
11,276 9,836 8,357
-------- -------- --------
COSTS AND EXPENSES
Operating (excluding depreciation).................................................... 3,015 2,906 2,210
Cost of goods sold from electronic retailing (excluding depreciation)................. 2,793 2,514 2,285
Selling, general and administrative................................................... 1,918 1,746 1,404
Depreciation.......................................................................... 1,425 1,211 837
Amortization.......................................................................... 213 2,205 1,782
-------- -------- --------
9,364 10,582 8,518
-------- -------- --------
OPERATING INCOME (LOSS).................................................................. 1,912 (746) (161)
OTHER INCOME (EXPENSE)
Interest expense...................................................................... (725) (734) (728)
Investment income (expense)........................................................... (658) 1,062 984
Income related to indexed debt........................................................ 666
Equity in net losses of affiliates.................................................... (103) (29) (22)
Other income (expense)................................................................ (4) 1,301 2,826
-------- -------- --------
(1,490) 1,600 3,726
-------- -------- --------
INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE........................................................... 422 854 3,565
INCOME TAX EXPENSE....................................................................... (246) (470) (1,429)
-------- -------- --------
INCOME BEFORE MINORITY INTEREST AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE........................................................... 176 384 2,136
MINORITY INTEREST........................................................................ (196) (160) (115)
-------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE.............................. (20) 224 2,021
CUMULATIVE EFFECT OF ACCOUNTING CHANGE................................................... 385
-------- -------- --------
NET INCOME (LOSS)........................................................................ ($20) $609 $2,021
======== ======== ========
See notes to consolidated financial statements.
- 29 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
Year Ended December 31,
2002 2001 2000
--------- --------- ---------
OPERATING ACTIVITIES
Net income (loss).................................................... ($20) $609 $2,021
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation....................................................... 1,425 1,211 837
Amortization....................................................... 213 2,205 1,782
Non-cash interest expense, net..................................... 42 43 14
Non-cash income related to indexed debt............................ (666)
Equity in net losses of affiliates................................. 103 29 22
Losses (gains) on investments and other (income) expense, net...... 704 (2,303) (3,679)
Minority interest.................................................. 196 160 115
Cumulative effect of accounting change............................. (385)
Deferred income taxes.............................................. 30 (241) 1,075
Proceeds from sales of trading securities.......................... 367
Other.............................................................. 5 55 63
--------- --------- ---------
2,698 1,750 1,584
Changes in working capital, net of effects of acquisitions
and divestitures
Increase in accounts receivable, net............................. (49) (16) (196)
Increase in inventories, net..................................... (25) (16) (36)
(Increase) decrease in other current assets...................... (53) (27) 14
Increase (decrease) in accounts payable, accrued expenses and other
current liabilities............................................ 319 (114) (177)
--------- --------- ---------
192 (173) (395)
Net cash provided by operating activities........................ 2,890 1,577 1,189
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings............................................. 1,579 5,687 5,435
Retirements and repayments of debt................................... (3,594) (4,188) (5,356)
Proceeds from settlement of interest rate exchange agreements........ 57
Proceeds from note payable to affiliate.............................. 22
Capital distributions to parent...................................... (212)
Net transactions with affiliates..................................... 76
Issuances of common stock and sales of put options on common stock... 19 27 31
Repurchases of common stock.......................................... (27) (325)
Equity contributions from a minority partner to a subsidiary......... 13 19 30
Deferred financing costs............................................. (2) (23) (56)
--------- --------- ---------
Net cash (used in) provided by financing activities.............. (2,042) 1,495 (241)
--------- --------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired................................... (17) (1,329) (187)
Proceeds from sales of (purchases of) short-term investments, net.... 9 (6) 1,028
Capital contributions to and purchases of investments................ (56) (317) (1,011)
Proceeds from sales and settlements of investments................... 1,241 806 997
Capital expenditures................................................. (1,478) (2,182) (1,637)
Additions to intangible and other noncurrent assets.................. (221) (346) (409)
--------- --------- ---------
Net cash used in investing activities............................ (522) (3,374) (1,219)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................ 326 (302) (271)
CASH AND CASH EQUIVALENTS, beginning of year............................ 350 652 923
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year.................................. $676 $350 $652
========= ========= =========
See notes to consolidated financial statements.
- 30 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in millions)
Accumulated Other
Comprehensive
Income (Loss)
-------------------
Common Stock Retained Unreal-
Series B ------------------------- Earnings ized Cumulative
Preferred Class A Additional (Accumulated Gains Translation
Stock Class A Special Class B Capital Deficit) (Losses) Adjustments Total
------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 2000 ................ $570 $26 $716 $9 $3,527 ($620) $6,120 ($7) $10,341
Comprehensive loss:
Net income............................ 2,021
Unrealized losses on marketable
securities, net of deferred
taxes of $2,789..................... (5,180)
Reclassification adjustments for
gains included in net income,
net of deferred taxes of $266 (494)
Cumulative translation adjustments.... (6)
Total comprehensive loss................. (3,659)
Acquisitions.......................... 156 7,585 7,741
Stock compensation plans.............. 3 54 (28) 29
Retirement of common stock............ (3) (6) (42) (274) (325)
Conversion of Series B preferred...... (533) 38 495
Series B preferred dividends.......... 23 (23)
Share exchange........................ (1) 1 44 (44)
Temporary equity related to put
options ............................ (41) (41)
----- ----- ------ ----- ------- ------ ------ ------ -------
BALANCE, DECEMBER 31, 2000............... 60 22 908 9 11,599 1,055 446 (13) 14,086
Comprehensive income:
Net income............................ 609
Unrealized gains on marketable
securities, net of deferred
taxes of $114....................... 212
Reclassification adjustments for
gains included in net income, net
of deferred taxes of $264 .......... (491)
Unrealized losses on effective
portion of cash flow hedges, net
of deferred taxes of $0.3 (1)
Cumulative translation adjustments.... (9)
Total comprehensive income............... 320
Stock compensation plans.............. 3 52 (16) 39
Retirement of common stock............ (1) (10) (16) (27)
Conversion of Series B preferred...... (60) 4 56
Temporary equity related to put
options ............................ 55 55
----- ----- ------ ----- ------- ------ ------ ------ -------
BALANCE, DECEMBER 31, 2001............... 22 914 9 11,752 1,632 166 (22) 14,473
Comprehensive loss:
Net loss.............................. (20)
Unrealized losses on marketable
securities, net of deferred
taxes of $165....................... (307)
Reclassification adjustments for
losses included in net loss, net
of deferred taxes of $92 ........... 169
Unrealized losses on effective
portion of cash flow hedges,
net of deferred taxes of $0.3....... (1)
Cumulative translation adjustments....
Total comprehensive loss................. (159)
Stock compensation plans.............. 2 48 (17) 33
Employee stock purchase plan.......... 10 10
Net capital contribution from parent.. 8 8
----- ----- ------ ----- ------- ------ ------ ------ -------
BALANCE, DECEMBER 31, 2002............... $ $22 $916 $9 $11,818 $1,595 $27 ($22) $14,365
===== ===== ====== ===== ======= ====== ====== ====== =======
See notes to consolidated financial statements.
- 31 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
1. ORGANIZATION AND BUSINESS
On November 18, 2002, Comcast Corporation (formerly AT&T Comcast
Corporation) ("Comcast") consummated the acquisition of AT&T Corp.'s
("AT&T") broadband business (the "Broadband acquisition"). In connection
with the closing of the Broadband acquisition, shareholders of Comcast
Holdings Corporation (formerly Comcast Corporation) and its subsidiaries
(the "Company") received shares of Comcast Class A common stock, Class A
Special common stock and Class B common stock in exchange for shares of the
Company's Class A common stock, Class A Special common stock and Class B
common stock, respectively, based on an exchange ratio of 1 to 1. Comcast
also issued stock options to purchase shares of Comcast common stock in
exchange for all of the Company's outstanding stock options, based on an
exchange ratio of 1 to 1. As a result of Comcast's acquisition of
Broadband, the Company is now an indirect, wholly owned subsidiary of
Comcast. On November 18, 2002, Comcast changed its name from AT&T Comcast
Corporation to Comcast Corporation and the Company changed its name from
Comcast Corporation to Comcast Holdings Corporation.
The Company is involved in three principal lines of business: cable,
commerce and content. The Company's cable business is principally involved
in the development, management and operation of broadband communications
networks in the United States. The Company's consolidated cable operations
served approximately 8.5 million subscribers and passed approximately 14.2
million homes as of December 31, 2002.
The Company conducts its commerce business through its consolidated
subsidiary, QVC, Inc. ("QVC"). QVC, an electronic retailer, markets a wide
variety of products directly to consumers primarily on merchandise-focused
television programs. QVC was available, on a full and part-time basis, to
approximately 85.9 million homes in the US, approximately 11.4 million
homes in the United Kingdom ("UK"), approximately 25.8 million homes in
Germany and approximately 8.4 million homes in Japan as of December 31,
2002.
The Company's content business is provided through the Company's
consolidated subsidiaries, including Comcast Spectacor, E! Entertainment
Television, Inc. ("E! Entertainment"), The Golf Channel ("TGC"), Outdoor
Life Network ("OLN") and G4 Media, LLC ("G4"), and through other
programming investments (see Note 4). The Company's content business also
includes the Company's three 24-hour regional sports programming networks,
Comcast SportsNet ("CSN"), Comcast SportsNet Mid-Atlantic ("CSN
Mid-Atlantic") and Cable Sports Southeast ("CSS"). The Company's regional
sports programming networks are included in the Company's cable segment as
they derive a substantial portion of their revenues from the Company's
cable operations and are managed by cable segment management.
The Company's cable and commerce operations represent the Company's two
reportable segments under accounting principles generally accepted in the
United States. See Note 12 for a summary of the Company's financial data by
business segment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all entities that the Company directly or indirectly controls. All
significant intercompany accounts and transactions among consolidated
entities have been eliminated.
Variable Interest Entities
The Company accounts for its interests in variable interest entities in
accordance with Financial Accounting Standards Board ("FASB")
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN
46"). The Company consolidates all variable interest entities for which it
is the primary beneficiary and for which the entities do not effectively
disperse risks among parties involved. Variable interest entities that
effectively disperse risks are not consolidated unless the Company holds an
interest or combination of interests that effectively recombines risks
- 32 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
that were previously dispersed. The Company adopted the initial recognition
and measurement provisions of FIN 46 effective January 1, 2002, as
permitted by the Interpretation. The adoption of FIN 46 had no impact on
the Company's financial condition or results of operations.
Management's Use of Estimates
The Company prepares its financial statements in conformity with accounting
principles generally accepted in the United States which require management
to make estimates and assumptions that affect the reported amounts and
disclosures. Actual results could differ from those estimates. Estimates
are used when accounting for certain items such as sales returns and
allowances, allowances for doubtful accounts, reserves for inventory
obsolescence, investments and derivative financial instruments,
depreciation and amortization, asset impairment, non-monetary transactions,
certain acquisition-related liabilities, pensions and other postretirement
benefits, income taxes and contingencies.
Fair Values
The Company has determined the estimated fair value amounts presented in
these consolidated financial statements using available market information
and appropriate methodologies. However, considerable judgment is required
in interpreting market data to develop the estimates of fair value. The
estimates presented in these consolidated financial statements are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts. The Company based these fair value estimates on pertinent
information available to management as of December 31, 2002 and 2001. The
Company has not comprehensively updated these fair value estimates for
purposes of these consolidated financial statements since such dates.
Cash Equivalents
Cash equivalents consist principally of commercial paper, money market
funds, US Government obligations and certificates of deposit with
maturities of three months or less when purchased. The carrying amounts of
the Company's cash equivalents approximate their fair values.
Inventories - Electronic Retailing
Inventories are stated at the lower of cost or market. Cost is determined
by the average cost method, which approximates the first-in, first-out
method.
Investments
Investments consist principally of equity securities.
Investments in entities in which the Company has the ability to exercise
significant influence over the operating and financial policies of the
investee are accounted for under the equity method. Equity method
investments are recorded at original cost and adjusted periodically to
recognize the Company's proportionate share of the investees' net income or
losses after the date of investment, additional contributions made and
dividends received, and impairment losses resulting from adjustments to net
realizable value. Prior to the adoption of Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142") on January 1, 2002, the goodwill resulting from
differences between the Company's recorded investments and its
proportionate interests in the book value of the investees' net assets were
amortized to equity in net income or loss, primarily over a period of 20
years. Subsequent to the adoption of SFAS No. 142, the Company no longer
amortizes such equity method goodwill (see Note 6).
Unrestricted publicly traded investments are classified as available for
sale or trading securities and recorded at their fair value. Unrealized
gains or losses resulting from changes in fair value between measurement
dates for available for sale securities are recorded as a component of
other comprehensive income (loss). Unrealized gains or losses resulting
from changes in fair value between measurement dates for trading securities
are recorded as a component of investment income (expense). Cash flows from
all trading securities are classified as cash flows from operating
- 33 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
activities while cash flows from all other investment securities are
classified as cash flows from investing activities in the Company's
statement of cash flows.
Restricted publicly traded investments and investments in privately held
companies are stated at cost, adjusted for any known diminution in value
(see Note 5).
Property and Equipment
The Company records property and equipment at cost. Depreciation is
provided by the straight-line method over estimated useful lives as
follows:
Buildings and improvements.........................2-40 years
Operating facilities...............................2-12 years
Other equipment....................................2-15 years
The Company capitalizes improvements that extend asset lives and expenses
other repairs and maintenance charges as incurred. The cost and related
accumulated depreciation applicable to assets sold or retired are removed
from the accounts and the gain or loss on disposition is recognized as a
component of depreciation expense.
The Company capitalizes the costs associated with the construction of cable
transmission and distribution facilities and new cable service
installations. Costs include all direct labor and materials, as well as
certain indirect costs.
Intangible Assets
Cable franchise rights represent the value attributed to agreements with
local authorities that allow access to homes in cable service areas
acquired in connection with a business combination. The Company capitalizes
these contractual rights. Prior to the adoption of SFAS No. 142 on January
1, 2002, the Company amortized them over periods related to the term of the
related franchise agreements. Subsequent to the adoption of SFAS No. 142,
the Company no longer amortizes cable franchise rights as the Company has
determined that they have an indefinite life. Costs incurred by the Company
in negotiating and renewing cable franchise agreements are included in
other intangible assets and are amortized on a straight-line basis over the
term of the franchise renewal period, generally 10 to 15 years.
Goodwill is the excess of the acquisition cost of an acquired entity over
the fair value of the identifiable net assets acquired. Prior to the
adoption of SFAS No. 142 on January 1, 2002, the Company amortized goodwill
over estimated useful lives ranging principally from 20 to 30 years.
Subsequent to the adoption of SFAS No. 142, the Company no longer amortizes
goodwill.
Other intangible assets consist principally of cable and satellite
television distribution rights, cable franchise renewal costs, contractual
operating rights, computer software, programming costs and rights and
non-competition agreements. The Company capitalizes these costs and
amortizes them on a straight-line basis over the term of the related
agreements or estimated useful life.
Certain of the Company's content subsidiaries and QVC have entered into
multi-year affiliation agreements with various cable and satellite system
operators for carriage of their respective programming. The Company
capitalizes cable or satellite distribution rights and amortizes them on a
straight-line basis over the term of the related distribution agreements of
5 to 15 years. The Company classifies the amortization of distribution fees
paid by its content subsidiaries pursuant to Emerging Issues Task Force
("EITF") 01-9, "Accounting for Consideration Given to a Customer (Including
a Reseller of the Vendors Products"). Under EITF 01-9, the amortization of
such fees is classified as a reduction of revenue unless the content
subsidiary receives, or will receive, an identifiable benefit from the
cable or satellite system operator separate from the distribution fee, in
which case the Company recognizes the fair value of the identified benefit
as an operating expense in the period in which it is received. The Company
classifies the amortization of distribution fees paid by QVC as
amortization expense as the counterparties to QVC's
- 34 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
distribution agreements do not make revenue payments to QVC. Amortization
expense includes $23 million, $24 million and $28 million for 2002, 2001
and 2000, respectively, related to QVC distribution fees.
See Note 6 for additional information related to goodwill and intangible
assets.
Valuation of Long-Lived and Indefinite-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets, including property and equipment and intangible assets subject to
amortization, whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Such evaluations include analyses
based on the cash flows generated by the underlying assets, profitability
information, including estimated future operating results, trends or other
determinants of fair value. If the total of the expected future
undiscounted cash flows is less than the carrying amount of the asset, a
loss is recognized for the difference between the fair value and the
carrying value of the asset. Unless presented separately, the loss is
included as a component of either depreciation expense or amortization
expense, as appropriate.
The Company evaluates the recoverability of its goodwill and indefinite
life intangible assets annually or more frequently whenever events or
changes in circumstances indicate that the asset might be impaired. The
Company performs an impairment assessment of its goodwill one level below
the segment level for its businesses, except for its cable business. In its
cable business, components with similar economic characteristics are
aggregated into one reporting unit at the cable segment level. The Company
performs an impairment assessment of its cable franchise rights at the
cable segment level based on how the Company operates its cable operations.
The Company estimates the fair value of its cable franchise rights
primarily based on a multiple of operating income before depreciation and
amortization ("EBITDA") generated by the underlying assets. The EBITDA
multiple used in the Company's evaluation is determined based on the
Company's analyses of current market transactions, profitability
information, including estimated future operating results, trends or other
determinants of fair value. The Company also considers other valuation
methods such as discounted cash flow analyses. If the value of the
Company's cable franchise rights determined by these evaluations is less
than its carrying amount, an impairment charge would be recognized for the
difference between the estimated fair value and the carrying value of the
assets.
Foreign Currency Translation
The Company translates assets and liabilities of its foreign subsidiaries,
where the functional currency is the local currency, into US dollars at the
December 31 exchange rate and records the related translation adjustments
as a component of other comprehensive income (loss). The Company translates
revenues and expenses using average exchange rates prevailing during the
year. Foreign currency transaction gains and losses are included in other
income.
Revenue Recognition
The Company recognizes video, high-speed Internet, and phone revenues as
service is provided. The Company manages credit risk by disconnecting
services to customers who are delinquent. The Company recognizes
advertising sales revenue at estimated realizable values when the
advertising is aired. Installation revenues obtained from the connection of
subscribers to the broadband communications network are less than related
direct selling costs. Therefore, such revenues are recognized as
connections are completed. Revenues derived from other sources are
recognized when services are provided or events occur. Under the terms of
its franchise agreements, the Company is generally required to pay up to 5%
of its gross revenues derived from providing cable services to the local
franchising authority. The Company normally passes these fees through to
its cable subscribers. The Company classifies fees collected from cable
subscribers as a component of service revenues pursuant to EITF 01-14,
"Income Statement Characterization of Reimbursements Received for
'Out-of-Pocket' Expenses Incurred."
The Company recognizes net sales from electronic retailing at the time of
shipment to customers. The Company classifies all amounts billed to a
customer for shipping and handling within net sales from electronic
retailing. The
- 35 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Company's policy is to allow customers to return merchandise for up to
thirty days after date of shipment. An allowance for returned merchandise
is provided as a percentage of sales based on historical experience.
The Company's content businesses recognize affiliate fees from cable and
satellite system operators as programming is provided. Advertising revenue
is recognized in the period in which commercial announcements or programs
are telecast in accordance with the broadcast calendar. In certain
instances, the Company's content businesses guarantee viewer ratings for
their programming. A liability for deferred revenue is provided for
estimated shortfalls, which are primarily settled by providing additional
advertising time.
Programming Costs
The Company's cable subsidiaries have received or may receive distribution
fees from programming networks for carriage of their programming. The
Company reflects the deferred portion of these fees within noncurrent
liabilities and recognizes the fees as a reduction of programming costs
(which are included in operating expenses) over the term of the programming
contract.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board ("APB") 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 stock at the date of the grant over the amount an
employee must pay to acquire the stock. The Company records compensation
expense for restricted stock awards based on the quoted market price of the
stock at the date of the grant and the vesting period. The Company records
compensation expense for stock appreciation rights based on the changes in
quoted market prices of the stock or other determinants of fair value at
the end of the year (see Notes 3 and 8).
The following table illustrates the effect on net income (loss) if the
Company had applied the fair value recognition provisions of SFAS No. 123
to stock-based compensation (dollars in millions, except per share data):
Year Ended December 31,
2002 2001 2000
---------- ---------- ----------
Net income (loss), as reported.................................. ($20) $609 $2,021
Deduct: Total stock-based compensation
expense determined under fair value based method
for all awards, net of related tax effects................. (143) (127) (103)
---------- ---------- ----------
Pro forma, net income (loss).................................... ($163) $482 $1,918
========== ========== ==========
Total stock-based compensation expense was determined under the fair value
method for all awards assuming accelerated vesting of the stock options as
permitted under SFAS No. 123. Had the Company applied the fair value
recognition provisions of SFAS No. 123 assuming straight-line rather than
accelerated vesting of its stock options, total stock-based compensation
expense, net of related tax effects, would have been $114 million, $89
million, and $67 million for 2002, 2001 and 2000, respectively.
The weighted-average fair value at date of grant of a Class A common stock
option granted under Comcast's option plans during 2002 was $10.73. The
weighted-average fair value at date of grant of a Class A Special common
stock option granted under the option plans during 2002, 2001 and 2000 was
$14.93, $19.07 and $21.20, respectively.
- 36 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The fair value of each option granted during 2002, 2001 and 2000 was
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions:
Year Ended December 31,
2002 2001 2000
--------------------------------- ----------------- ----------------
Class A Class A Special Class A Special Class A Special
Common Stock Common Stock Common Stock Common Stock
--------------- ---------------- ----------------- ----------------
Dividend yield..................... 0% 0% 0% 0%
Expected volatility................ 29.3% 29.6% 35.7% 35.8%
Risk-free interest rate............ 4.0% 5.1% 5.1% 6.3%
Expected option lives (in years)... 8.0 8.0 8.0 8.0
Forfeiture rate.................... 3.0% 3.0% 3.0% 3.0%
The pro forma effect on net income (loss) for the years ended December 31,
2002, 2001 and 2000 by applying SFAS No. 123 may not be indicative of the
pro forma 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.
Postretirement and Postemployment Benefits
The Company charges to operations the estimated costs of retiree benefits
and benefits for former or inactive employees, after employment but before
retirement, during the years the employees provide services.
Investment Income (Expense)
Investment income (expense) includes interest income, dividend income and
gains, net of losses, on the sales and exchanges of marketable securities
and long-term investments. The Company recognizes gross realized gains and
losses using the specific identification method. Investment income (expense)
also includes unrealized gains or losses on trading securities, mark to
market adjustments on derivatives and hedged items, and impairment losses
resulting from adjustments to the net realizable value of certain of the
Company's investments (see Note 5).
Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities and expected benefits of utilizing net
operating loss carryforwards. The impact on deferred taxes of changes in tax
rates and laws, if any, applied to the years during which temporary
differences are expected to be settled, are reflected in the consolidated
financial statements in the period of enactment (see Note 9).
Derivative Financial Instruments
The Company uses derivative financial instruments for a number of purposes.
The Company manages its exposure to fluctuations in interest rates by
entering into interest rate exchange agreements ("Swaps"), interest rate
lock agreements ("Rate Locks"), interest rate cap agreements ("Caps") and
interest rate collar agreements ("Collars"). The Company managed the cost of
its share repurchases through the sale of equity put option contracts
("Comcast Put Options"). The Company manages its exposure to fluctuations in
the value of certain of its investments by entering into equity collar
agreements ("Equity Collars") and equity put option agreements ("Equity Put
Options"). The Company makes investments in businesses, to some degree,
through the purchase of equity call option or call warrant agreements
("Equity Warrants"). The Company has issued indexed debt instruments and
entered into prepaid forward sale agreements ("Prepaid Forward Sales") whose
value, in part, is derived from the market value of Sprint PCS common stock,
and has also sold call options on certain of its investments in equity
securities in order to monetize a portion of those investments.
- 37 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Prior to the adoption on January 1, 2001 of SFAS No. 133, "Accounting for
Derivatives and Hedging Activities," as amended ("SFAS No. 133"), Swaps,
Caps and Collars were matched with either fixed or variable rate debt and
periodic cash payments were accrued on a settlement basis as an adjustment
to interest expense. Any premiums associated with these instruments were
amortized over their term and realized gains or losses as a result of the
termination of the instruments were deferred and amortized over the
remaining term of the underlying debt. Unrealized gains and losses as a
result of these instruments were recognized when the underlying hedged item
was extinguished or otherwise terminated. Equity Collars, Equity Put Options
and Equity Warrants were marked to market on a current basis with the result
included in accumulated other comprehensive income (loss) in the Company's
consolidated balance sheet.
On January 1, 2001, the Company adopted SFAS No. 133. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and
hedging activities. SFAS No. 133 requires that all derivative instruments,
whether designated in hedging relationships or not, be recorded on the
balance sheet at their fair values. Upon adoption of SFAS No. 133, the
Company recognized as income a cumulative effect of accounting change, net
of related income taxes, of $385 million. The increase in income consisted
of a $400 million adjustment to record the debt component of indexed debt at
a discount from its value at maturity and $192 million principally related
to the reclassification of gains previously recognized as a component of
accumulated other comprehensive income (loss) on the Company's equity
derivative instruments, net of related income taxes of $207 million.
For derivative instruments designated and effective as fair value hedges,
such as the Company's Equity Collars, Equity Put Options and Fixed to
Variable Swaps, changes in the fair value of the derivative instrument are
substantially offset in the consolidated statement of operations by changes
in the fair value of the hedged item. For derivative instruments designated
as cash flow hedges, such as the Company's Variable to Fixed Swaps and Rate
Locks, the effective portion of any hedge is reported in other comprehensive
income (loss) until it is recognized in earnings during the same period in
which the hedged item affects earnings. The ineffective portion of all
hedges is recognized in current earnings each period. Changes in the fair
value of derivative instruments that are not designated as a hedge are
recorded each period in current earnings.
When a fair value hedge is terminated, sold, exercised or has expired, the
adjustment in the carrying amount of the fair value hedged item is deferred
and recognized into earnings when the hedged item is recognized in earnings.
When a hedged item is extinguished or sold, the adjustment in the carrying
amount of the hedged item is recognized in earnings. When hedged variable
rate debt is extinguished, the previously deferred effective portion of the
hedge is written off similar to debt extinguishment costs.
Subsequent to the adoption of SFAS No. 133, Equity Warrants and undesignated
Equity Collars are marked to market on a current basis with the result
included in investment income (expense) in the Company's consolidated
statement of operations.
Subsequent to the adoption of SFAS No. 133, derivative instruments embedded
in other contracts, such as the Company's indexed debt instruments and
Prepaid Forward Sale, are bifurcated into their host and derivative
financial instrument components. The derivative component is recorded at its
estimated fair value in the Company's consolidated balance sheet with
changes in estimated fair value recorded in investment income (expense).
Proceeds from sales of Comcast Put Options were recorded in stockholders'
equity and an amount equal to the redemption price of the common stock was
reclassified from permanent equity to temporary equity. Subsequent changes
in the market value of Comcast Put Options were not recorded.
The Company periodically examines those instruments that have been entered
into by the Company to hedge exposure to interest rate and equity price
risks to ensure that the instruments are matched with underlying assets or
liabilities, reduce the Company's risks relating to interest rates or equity
prices and, through market value and
- 38 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
sensitivity analysis, maintain a high correlation to the risk inherent in
the hedged item. For those instruments that do not meet the above criteria,
variations in their fair value are marked-to-market on a current basis in
the Company's consolidated statement of operations.
The Company does not hold or issue any derivative financial instruments for
trading purposes and is not a party to leveraged instruments (see Note 7).
The Company manages the credit risks associated with its derivative
financial instruments through the evaluation and monitoring of the
creditworthiness of the counterparties. Although the Company may be exposed
to losses in the event of nonperformance by the counterparties, the Company
does not expect such losses, if any, to be significant.
Sale of Stock by a Subsidiary or Equity Method Investee
Changes in the Company's proportionate share of the underlying equity of a
consolidated subsidiary or equity method investee which result from the
issuance of additional securities by such subsidiary or investee are
recognized as gains or losses in the Company's consolidated statement of
operations unless gain realization is not assured in the circumstances.
Gains for which realization is not assured are credited directly to
additional capital.
Securities Lending Transactions
The Company may enter into securities lending transactions pursuant to which
the Company requires the borrower to provide cash collateral equal to the
value of the loaned securities, as adjusted for any changes in the value of
the underlying loaned securities. Loaned securities for which the Company
maintains effective control are included in investments in the Company's
consolidated balance sheet.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 2002.
3. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 143
SFAS No. 143, "Accounting for Asset Retirement Obligations," addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS No. 143 is effective for fiscal years beginning after June 15,
2002. The Company adopted SFAS No. 143 on January 1, 2003. The adoption of
SFAS No. 143 will not have a material 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 Comcast elects to change to the fair value
method specified in SFAS No. 123. The adoption of SFAS No. 148 will,
however, require the Company to disclose the effects of its stock-based
employee compensation in interim financial statements beginning with the
first quarter of 2003.
- 39 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
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
(see Note 11). 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.
4. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
In 2002, the Company had no significant acquisitions.
In 2001, the Company acquired the regional sports programming network Home
Team Sports ("HTS") from Viacom, Inc. ("Viacom") and Affiliated Regional
Communications, Ltd. ("ARC"), various cable systems serving an aggregate of
697,000 subscribers from AT&T, and additional interests in programming
networks TGC and OLN from Fox Entertainment Group, Inc. ("Fox
Entertainment"). Upon closing of the OLN acquisition, the Company exchanged
its 14.5% interest in the Speedvision Network ("SVN"), together with a
previously made loan, for Fox Entertainment's interest in OLN and recorded
to other income a pre-tax gain of $107 million, representing the difference
between the estimated fair value of the Company's interest in SVN as of the
closing date of the transaction and the Company's cost basis in SVN. In
2001, the Company also completed its cable systems exchange with Adelphia
Communications Corporation ("Adelphia"). The Company recorded to other
income a pre-tax gain of $1.199 billion, representing the difference
between the estimated fair value of $1.799 billion as of the closing date
of the transaction and the Company's cost basis in the systems exchanged.
In 2000, the Company acquired cable operations consisting of Lenfest
Communications, Inc. ("Lenfest"), including Lenfest's 50% interest in
Comcast Cablevision of Garden State, L.P. ("Garden State Cable"), from AT&T
and the other Lenfest stockholders, the minority interest in Comcast MHCP
Holdings, L.L.C. ("Comcast MHCP") from the California Public Employees
Retirement System ("CalPERS"), the minority interest in Jones Intercable,
Inc. ("Jones Intercable") from the Jones Intercable shareholders, and Prime
Communications LLC ("Prime") from Prime's shareholders. In 2000, the
Company also completed its cable systems exchange with AT&T. The Company
recorded to other income a pre-tax gain of $1.711 billion, representing the
difference between the estimated fair value of $2.840 billion as of the
closing date of the transaction and the Company's cost basis in the systems
exchanged.
- 40 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The acquisitions completed by the Company during 2001 and 2000 were
accounted for under the purchase method of accounting. As such, the
Company's results include the operating results of the acquired businesses
from the dates of acquisition. A summary of the Company's acquisitions and
cable systems exchanges for 2001 and 2000 is as follows (dollars in
millions):
% Interest
Acquisition/Exchange Acquired Date Seller Consideration Value
----------------------------- ------------ --------------- ------------------- -------------------------------- --------
2001
OLN 83.2% October 30 Fox Entertainment Cash and 14.5% interest in SVN $512
AT&T Cable System 100% June 30 AT&T Cash $519
TGC 30.8% June 8 Fox Entertainment Cash $365
AT&T Cable Systems 100% April 30 AT&T 63.9 million shares of AT&T $1,423
common stock
HTS 100% February 14 Viacom and ARC Cable distribution of $240
programming
Adelphia Exchange 100% January 1 Adelphia Cable systems $1,799
2000
AT&T Exchange 100% December 31 AT&T Cable systems $2,840
Prime 100% August 1 Shareholders Converted loans, cash and $1,525
assumed debt
Jones Intercable 60.4% March 2 Shareholders 35.6 million shares of Comcast $1,727
Holdings common stock
Comcast MHCP 45% February 10 CalPERS Cash $750
Lenfest and 100% January 18 AT&T and 120.1 million shares of Comcast $7,340
Garden State Cable 50% shareholders Holdings common stock and
assumed debt
The Company's cable systems exchanges with Adelphia and AT&T, and certain
of the Company's acquisitions did not result in cash payments but affected
recognized assets and liabilities (see Note 10).
- 41 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Unaudited Pro Forma Information
The following unaudited pro forma information has been presented as if the
acquisitions and cable systems exchange made by the Company in 2001 each
occurred on January 1, 2000 and the acquisitions and cable systems exchange
made by the Company in 2000 each occurred on January 1, 1999. This
information is based on historical results of operations, adjusted for
acquisition costs, and, in the opinion of management, is not necessarily
indicative of what the results would have been had the Company operated the
entities acquired since such dates.
(Amounts in millions)
Year Ended December 31,
2001 2000
---------- ---------
Revenues........................................................... $10,089 $9,151
Income before cumulative effect of accounting change............... $149 $1,629
Net income......................................................... $534 $1,629
Other Income
In August 2000, the Company obtained the right to exchange its At Home
Corporation ("At Home") Series A Common Stock with AT&T and waived certain
of its At Home Board level and shareholder rights under a stockholders
agreement (the "Share Exchange Agreement"- see Note 5). The Company also
agreed to cause its existing appointee to the At Home Board of Directors to
resign. In connection with the transaction, the Company recorded to other
income a pre-tax gain of $1.045 billion, representing the estimated fair
value of the investment as of the closing date.
In August 2000, the Company exchanged all of the capital stock of a wholly
owned subsidiary which held certain wireless licenses for approximately 3.2
million shares of AT&T common stock. In connection with the exchange, the
Company recorded to other income a pre-tax gain of $98 million,
representing the difference between the fair value of the AT&T shares
received of $100 million and the Company's cost basis in the subsidiary.
5. INVESTMENTS
December 31,
2002 2001
----------- -----------
(Dollars in millions)
-----------
Fair value method
AT&T Corp.................................................... $287 $1,515
Sprint Corp. PCS Group....................................... 369 2,109
Other........................................................ 74 136
----------- -----------
730 3,760
Equity method..................................................... 317 387
Cost method....................................................... 105 155
----------- -----------
Total investments............................................ 1,152 4,302
Less, current investments......................................... 525 2,623
----------- -----------
Non-current investments........................................... $627 $1,679
=========== ===========
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 December 31, 2002 and 2001 of $70
million and $280 million, respectively, have been
- 42 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
reported in the Company's consolidated balance sheet principally as a
component of other comprehensive income (loss), net of related deferred
income taxes of $25 million and $95 million, respectively.
The cost, fair value and gross unrealized gains and losses related to the
Company's available for sale securities are as follows:
December 31,
2002 2001
----------- -----------
(Dollars in millions)
Cost............................................................. $269 $1,355
Gross unrealized gains........................................... 71 283
Gross unrealized losses.......................................... (1) (3)
----------- -----------
Fair value....................................................... $339 $1,635
=========== ===========
Equity Method
The Company's recorded investments exceed its proportionate interests in
the book value of the investees' net assets by $149 million as of December
31, 2002 (principally related to the Company's investment in Susquehanna
Cable). As a result of the adoption of SFAS No. 142, the Company does not
amortize the goodwill resulting from this excess but rather will continue
to test such excess for impairment in accordance with APB Opinion 18, "The
Equity Method of Accounting for Investments in Common Stock."
Equity in net losses of affiliates for the year ended December 31, 2002
includes impairment losses of $53 million, related principally to other
than temporary declines in the Company's investments in and advances to
certain of the Company's equity method investees.
The Company does not have any additional significant contractual
commitments with respect to any of its investments. However, to the extent
the Company does not fund its investees' capital calls, it exposes itself
to dilution of its ownership interests.
Investment Income (Expense)
Investment income (expense) includes the following (in millions):
Year Ended December 31,
2002 2001 2000
--------- --------- ---------
Interest and dividend income........................................... $45 $77 $171
(Losses) gains on sales and exchanges of investments, net.............. (48) 485 887
Investment impairment losses........................................... (247) (972) (74)
Reclassification of unrealized gains................................... 1,330
Unrealized (loss) gain on trading securities........................... (1,446) 285
Mark to market adjustments on derivatives related to trading
securities........................................................ 1,182 (185)
Mark to market adjustments on derivatives and hedged items............. (144) 42
--------- --------- ---------
Investment income (expense)....................................... ($658) $1,062 $984
========= ========= =========
The investment impairment losses for the years ended December 31, 2002 and
2001 relate principally to other than temporary declines in the Company's
investment in AT&T.
- 43 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
During the year ended December 31, 2001, the Company wrote-off its
investment in At Home common stock based upon a decline in the investment
that was considered other than temporary. In connection with the
realization of this impairment loss, the Company reclassified to investment
income (expense) the accumulated unrealized gain of $238 million on the
Company's investment in At Home common stock which was previously recorded
as a component of accumulated other comprehensive income (loss). The
Company recorded this accumulated unrealized gain prior to the Company's
designation of its right under the Share Exchange Agreement as a hedge of
the Company's investment in the At Home common stock (see Note 4 - Other
Income).
In June 2001, the Company and AT&T entered into an Amended and Restated
Share Issuance Agreement (the "Share Issuance Agreement"). AT&T issued to
the Company approximately 80.3 million unregistered shares of AT&T common
stock and the Company agreed to settle its right under the Share Exchange
Agreement (see Note 4 - Other Income) to exchange an aggregate 31.2 million
At Home shares and warrants held by the Company for shares of AT&T common
stock. Under the terms of the Share Issuance Agreement, the Company
retained the At Home shares and warrants held by it. The Company recorded
to investment income (expense) a pre-tax gain of $296 million, representing
the fair value of the increased consideration received by the Company to
settle its right under the Share Exchange Agreement.
In August 2001, the Company entered into a ten year Prepaid Forward Sale of
4.0 million shares of Sprint PCS common stock held by the Company with a
fair value of approximately $98 million and the Company received $78
million in cash. At maturity, the counterparty is entitled to receive
between 2.5 million and 4.0 million shares of Sprint PCS common stock, or
an equivalent amount of cash at the Company's option, based upon the market
value of Sprint PCS common stock at that time. The Company split the
Prepaid Forward Sale into its liability and derivative components and
recorded both components of the Prepaid Forward Sale obligation in other
long-term liabilities. The Company records the change in the fair value of
the derivative component and the accretion of the liability component to
investment income (expense).
The Company reclassified its investment in Sprint PCS from an available for
sale security to a trading security in connection with the adoption of SFAS
No. 133 on January 1, 2001. In connection with this reclassification, the
Company recorded to investment income (expense) the accumulated unrealized
gain of $1.092 billion on the Company's investment in Sprint PCS which was
previously recorded as a component of accumulated other comprehensive
income (loss).
6. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill by business segment (see
Note 12) for the periods presented are as follows (in millions):
Corporate
Cable Commerce and Other Total
------------ ------------ ------------ ------------
Balance, December 31, 2001...................... $4,688 $835 $766 $6,289
Purchase price allocation adjustments........... 5 152 157
------------ ------------ ------------ ------------
Balance, December 31, 2002...................... $4,693 $835 $918 $6,446
============ ============ ============ ============
During 2002, the Company recorded the final purchase price allocation
related to the Company's acquisition of OLN, which resulted in an increase
in goodwill and a corresponding decrease in cable and satellite television
distribution rights. In addition, during 2002, the Company recorded the
final purchase price allocation related to certain of its cable system
acquisitions, which resulted in an increase in goodwill and a corresponding
decrease in franchise rights.
- 44 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The gross carrying amount and accumulated amortization of the Company's
intangible assets subject to amortization for the periods presented are as
follows (in millions):
As of December 31, 2002 As of December 31, 2001
-------------------------------- -------------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------------- --------------- ------------- ----------------
Cable and satellite television
distribution rights................. $1,529 ($491) $1,588 ($316)
Cable franchise renewal costs and
contractual operating rights........ 314 (100) 267 (70)
Computer software........................ 138 (53) 125 (45)
Programming costs and rights............. 194 (144) 162 (117)
Non-competition agreements and other..... 281 (187) 210 (117)
------------- -------------- ------------- --------------
$2,456 ($975) $2,352 ($665)
============= ============== ============= ==============
- 45 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
As of December 31, 2002, the weighted average amortization period for the
Company's intangible assets subject to amortization is 8.7 years and
estimated related amortization expense for each of the five years ended
December 31 is as follows (in millions):
2003............................. $231
2004............................. $212
2005............................. $191
2006............................. $161
2007............................. $111
The following pro forma financial information for 2002, 2001 and 2000 is
presented as if SFAS No. 142 was adopted as of January 1, 2000 (amounts in
millions, except per share data):
Years Ended December 31,
2002 2001 2000
----------- ---------- ------------
Net Income (Loss)
As reported......................................... ($20) $609 $2,021
Amortization of goodwill.......................... 335 304
Amortization of equity method goodwill............ 15 15
Amortization of franchise rights.................. 1,083 858
----------- ---------- ------------
As adjusted......................................... ($20) $2,042 $3,198
=========== ========== ============
Income (loss) before cumulative effect of
accounting change, as adjusted.................... ($20) $1,657 $3,198
=========== ========== ============
7. LONG-TERM DEBT
December 31,
2002 2001
---------- ----------
(in millions)
Commercial Paper............................................................. $ 397
Notes payable to banks due in installments through 2009...................... 837 1,223
6.20% - 6-7/8% Senior notes, due 2006-2011................................... 3,053 3,054
7-1/8% - 7-5/8% Senior notes, due 2008-2013.................................. 1,105 1,103
8-1/8% - 8-7/8% Senior notes, due 2004-2027.................................. 2,653 2,660
9-5/8% Senior notes, due 2002................................................ 200
8-1/4% - 10-5/8% Senior subordinated debentures, due 2006-2012............... 521 521
Zero Coupon Convertible Debentures, due 2020................................. 86 1,096
ZONES at principal amount, due 2029.......................................... 699 1,613
Other, including capital lease obligations................................... 326 335
---------- ----------
9,280 12,202
Less current portion......................................................... 23 460
---------- ----------
9,257 $11,742
========== ==========
- 46 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Maturities of long-term debt outstanding as of December 31, 2002 for the
four years after 2003 are as follows (in millions):
2004............................... $324
2005............................... $1,544
2006............................... $650
2007............................... $988
The Cross-Guarantee Structure
To simplify Comcast's capital structure, effective with the acquisition of
Broadband, Comcast and four of its cable holding company subsidiaries,
including our wholly owned subsidiary Comcast Cable Communications, Inc.
("Comcast Cable"), fully and unconditionally guaranteed each other's debt
securities (the "Cross-Guarantee Structure"). Comcast Holdings is not a
guarantor, and none of its debt is guaranteed. As of December 31, 2002,
$24.729 billion of Comcast's debt securities were entitled to the benefits
of the Cross-Guarantee Structure, including $7.897 billion of Comcast
Cable's debt securities.
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, Comcast 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.
Zero Coupon Convertible Debentures
The Company's Zero Coupon Debentures have a yield to maturity of 1.25%,
computed on a semi-annual bond equivalent basis. The Zero Coupon Debentures
may be converted, subject to certain restrictions, into shares of Comcast's
Class A Special common stock at the option of the holder at a conversion
rate of 14.2566 shares per $1,000 principal amount at maturity,
representing an initial conversion price of $54.67 per share. The Zero
Coupon Debentures are senior unsecured obligations. The Company may redeem
for cash, at their accreted value, all or part of the Zero Coupon
Debentures on or after December 19, 2005.
Holders may require the Company to repurchase, at their accreted value, the
Zero Coupon Debentures on December 19, 2003, 2005, 2010 and 2015. The
Company may choose to pay the repurchase price for 2003 and 2005
repurchases in cash or shares of Comcast's Class A Special common stock or
a combination of cash and shares of Comcast's Class A Special common stock.
The Company may pay the repurchase price for the 2010 and 2015 repurchases
in cash only.
Holders may surrender the Zero Coupon Debentures for conversion at any time
prior to maturity if the closing price of Comcast's Class A Special common
stock is greater than 110% of the accreted conversion price for at least 20
trading days of the 30 trading days prior to conversion. During the year
ended 2002, the Company repurchased from holders an aggregate of $1.023
billion accreted value of Zero Coupon Debentures for cash. The Company
refinanced the redemption primarily with borrowings under its credit
facilities.
Amounts outstanding under the Zero Coupon Debentures are classified as
long-term in the Company's consolidated balance sheet as of December 31,
2002 and 2001 as the Company has both the ability and the intent to
refinance the Zero Coupon Debentures on a long-term basis with amounts
available under the Company's credit facilities in the event holders of the
Zero Coupon Debentures exercise their rights to require the Company to
repurchase the Zero Coupon Debentures in December 2003.
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 of $1.807 billion
or the market value of Sprint PCS Stock. Prior to maturity, each ZONES is
exchangeable at the holder's option for
- 47 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
an amount of cash equal to 95% of the market value of Sprint PCS Stock. As
of December 31, 2002, the number of Sprint PCS shares held by the Company
exceeded the number of ZONES outstanding.
Prior to the adoption of SFAS No. 133 on January 1, 2001, the Company
accounted for the ZONES as an indexed debt instrument since the maturity
value is dependent upon the fair value of Sprint PCS Stock. Therefore, the
carrying value of the ZONES was adjusted each balance sheet date to reflect
the fair value of the underlying Sprint PCS Stock with the change included
in income related to indexed debt in the Company's consolidated statement
of operations.
Upon adoption of SFAS No. 133, the Company split the accounting for the
ZONES into derivative and debt components. The Company records the change
in the fair value of the derivative component of the ZONES (see Note 5) and
the change in the carrying value of the debt component of the ZONES as
follows (in millions):
Year Ended
December 31, 2002
--------------------
Balance at Beginning of Year:
Debt component............................................................. $ 468
Derivative component....................................................... 1,145
--------
Total...................................................................... 1,613
Increase in debt component to interest expense............................. 23
Decrease in derivative component to investment income/expense.............. (937)
Balance at End of Year:
Debt component............................................................. 491
Derivative component....................................................... 208
--------
Total...................................................................... $699
========
Interest Rates
Bank debt interest rates vary based upon one or more of the following rates
at the option of the Company:
Prime rate to prime plus .625%;
Federal Funds rate plus .5% to 1.125%; and
LIBOR plus .14% to 1.625%.
Excluding the derivative component of the ZONES whose changes in fair value
are recorded to investment income (expense), the Company's effective
weighted average interest rate on its total debt outstanding was 7.07% and
6.31% as of December 31, 2002 and 2001, respectively.
Interest Rate Risk Management
The Company is exposed to the market risk of adverse changes in interest
rates. To manage the volatility relating to these exposures, the Company's
policy is to maintain a mix of fixed and variable rate debt and to enter
into various interest rate derivative transactions as described below.
Using Swaps, the Company agrees to exchange, at specified intervals, the
difference between fixed and variable interest amounts calculated by
reference to an agreed-upon notional principal amount. Rate Locks are used
to hedge the risk that the cash flows related to the interest payments on
an anticipated issuance or assumption of fixed rate debt may be adversely
affected by interest rate fluctuations. Caps are used to lock in a maximum
interest rate should variable rates rise, but enable the Company to
otherwise pay lower market rates. Collars limit the Company's exposure to
and benefits from interest rate fluctuations on variable rate debt to
within a certain range of rates.
- 48 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
All derivative transactions must comply with a board-approved derivatives
policy. In addition to prohibiting the use of derivatives for trading
purposes or that increase risk, this policy requires quarterly monitoring
of the portfolio, including portfolio valuation, measuring counterparty
exposure and performing sensitivity analyses.
The following table summarizes the terms of the Company's existing Swaps
(dollars in millions):
Notional Average Average Estimated
Amount Maturities Pay Rate Receive Rate Fair Value
------------- -------------- ------------ ----------------- -------------
As of December 31, 2002
Variable to Fixed Swaps $72 2003 4.9% 1.6% ($2)
As of December 31, 2001
Variable to Fixed Swaps $250 2002-2003 4.9% 2.2% ($6)
Fixed to Variable Swaps $950 2004-2008 3.6% 7.5% $47
The notional amounts of interest rate instruments, as presented in the
above table, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts.
While Swaps, Rate Locks, Caps and Collars represent an integral part of the
Company's interest rate risk management program, their incremental effect
on interest expense for the years ended December 31, 2002, 2001 and 2000
was not significant.
Estimated Fair Value
The Company's debt had estimated fair values of $9.497 billion and $12.559
billion as of December 31, 2002 and 2001, respectively. The estimated fair
value of the Company's publicly traded debt is based on quoted market
prices for that debt. Interest rates that are currently available to the
Company for issuance of debt with similar terms and remaining maturities
are used to estimate fair value for debt issues for which quoted market
prices are not available.
Debt Covenants
Certain of the Company's subsidiaries' loan agreements contain financial
covenants which require that certain ratios and cash flow levels be
maintained and contain certain restrictions on dividend payments and
advances of funds to the Company. The Company and its subsidiaries were in
compliance with all financial covenants for all periods presented.
As of December 31, 2002, restricted net assets of the Company's
subsidiaries were approximately $1.433 billion.
Lines and Letters of Credit
As of December 31, 2002, certain subsidiaries of the Company had unused
lines of credit of $3.601 billion under their respective credit facilities.
As of December 31, 2002, the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totaling $68 million to cover
potential fundings under various agreements.
8. STOCKHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue, in one or more series, up to a maximum
of 20 million shares of preferred stock. The shares can be issued with such
designations, preferences, qualifications, privileges, limitations,
restrictions, options, conversion rights and other special or related
rights as the Company's board of directors shall from time to time fix by
resolution.
- 49 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The Company's Series B Preferred Stock had a 5.25% pay-in-kind annual
dividend. Dividends were paid quarterly through the issuance of additional
shares of Series B Preferred Stock (the "Additional Shares") and were
cumulative from the issuance date (except that dividends on the Additional
Shares accrued from the date such Additional Shares were issued). The
Series B Preferred Stock, including the Additional Shares, was convertible,
at the option of the holder, into approximately 43 million shares of the
Company's Class A Special common stock, subject to adjustment in certain
limited circumstances, which equaled an initial conversion price of $11.77
per share, increasing as a result of the Additional Shares to $16.96 per
share on June 30, 2004. The Series B Preferred Stock was mandatorily
redeemable on June 30, 2017, or, at the option of the Company beginning on
June 30, 2004 or at the option of the holder on June 30, 2004 or on June
30, 2012. Upon redemption, the Company, at its option, could redeem the
Series B Preferred Stock with cash, Class A Special common stock or a
combination thereof. The Series B Preferred Stock was generally non-voting.
In December 2000, the Company issued approximately 38.3 million shares of
its Class A Special common stock to the holder in connection with the
holder's election to convert $533 million at redemption value of Series B
Preferred Stock. In March 2001, the Company issued approximately 4.2
million shares of its Class A Special common stock to the holder in
connection with the holder's election to convert the remaining $60 million
at redemption value of Series B Preferred Stock.
Common Stock
The Company's Class A Special common stock is generally nonvoting and each
share of the Company's Class A common stock is entitled to one vote. Each
share of the Company's Class B common stock is entitled to fifteen votes.
The Class B common stock is convertible, share for share, into Class A or
Class A Special common stock, subject to certain restrictions.
Board-Authorized Repurchase Programs
The following table summarizes the Company's repurchases and sales of
Comcast Put Options under its Board- authorized share repurchase programs
(shares and dollars in millions):
Year Ended December 31,
2001 2000
--------- ---------
Shares repurchased........................................................ 1 9
Aggregate consideration................................................... $27 $325
Comcast Put Options sold.................................................. 2
As part of the Company's Board-authorized repurchase programs, the Company
sold Comcast Put Options on shares of its Class A Special common stock. The
Comcast Put Options give the holder the right to require the Company to
repurchase such shares at specified prices on specific dates. All Comcast
Put Options sold expired unexercised. The Company reclassified the amount
it would have been obligated to pay to repurchase such shares had the
Comcast Put Options been exercised, from common equity put options to
additional capital upon expiration of the Comcast Put Options.
- 50 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The following table summarizes the Company's share activity for the three
years ended December 31, 2002:
Common Stock
----------------------------------------------
Series B
Preferred Class A
Stock Class A Special Class B
------------ ---------------- ------------- -------------
Balance, January 1, 2000................... 569,640 25,993,380 716,442,482 9,444,375
Acquisitions............................... 155,702,851
Stock compensation plans................... (330) 2,599,151
Retirement of common stock................. (3,106,500) (6,006,800)
Conversion of Series B Preferred........... (533,685) 38,278,558
Series B preferred dividends............... 23,495
Share exchange............................. (1,054,300) 998,950
------------ ---------------- ------------- -------------
Balance, December 31, 2000................. 59,450 21,832,250 908,015,192 9,444,375
Stock compensation plans................... (2,828) 2,515,538
Retirement of common stock................. (808,000)
Conversion of Series B Preferred........... (59,450) 4,208,824
------------ ---------------- ------------- -------------
Balance, December 31, 2001................. 21,829,422 913,931,554 9,444,375
Stock compensation plans................... 1,803,330
Retirement of common stock................. (238,307)
Employee Stock Purchase Plan............... 463,635
------------ ---------------- ------------- -------------
Balance, December 31, 2002................. 21,591,115 916,198,519 9,444,375
============ ================ ============= =============
Stock-Based Compensation Plans
Prior to the Broadband acquisition, the Company and its subsidiaries had
several stock-based compensation plans for directors and certain employees
designated by the applicable compensation committees of the boards of
directors of the Company and its subsidiaries. The Company's subsidiaries'
plans remain active as of December 31, 2002. These plans are described
below.
Comcast Option Plans. Through November 18, 2002, the Company sponsored stock
option plans for directors and certain employees under which fixed stock
options are granted and the option price is generally not less than the fair
value of a share of the underlying stock at the date of grant (collectively,
the "Comcast Option Plans"). Option terms are generally from five to 10 1/2
years, with options generally becoming exercisable between two and 9 1/2
years from the date of grant. Upon completion of the Broadband acquisition,
the Company's plans were adopted by Comcast.
- 51 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The following table summarizes the activity of the Comcast Option Plans
(options in thousands):
2002 2001 2000
------------------ --------------------- -----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----------- --------- ----------- --------- -----------
Class A Common Stock
--------------------
Outstanding at beginning of year.
Granted.......................... 339 $23.86
Outstanding at end of year....... 339 23.86
=======
Exercisable at end of year.......
=======
Class A Special Common Stock
----------------------------
Outstanding at beginning of year... 55,521 $26.89 49,618 $23.69 40,416 $16.01
Granted............................ 13,857 32.29 10,084 37.52 15,300 39.43
Exercised.......................... (2,347) 8.83 (3,360) 10.62 (4,805) 8.60
Canceled........................... (2,141) 30.38 (821) 30.69 (1,293) 25.98
------- --------- ---------
Outstanding at end of year......... 64,890 28.57 55,521 26.89 49,618 23.69
======= ========= =========
Exercisable at end of year......... 22,798 21.08 16,892 15.57 13,267 11.35
======= ========= =========
As of December 31, 2002, outstanding options on Class A and Class A Special
common stock include approximately 67,000 options and 42.3 million options,
respectively, relating to former employees of the Company who, subsequent
to the Broadband acquisition, are employees of Comcast.
- 52 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The following table summarizes information about the options outstanding
under the Comcast Option Plans as of December 31, 2002 (options in
thousands):
Options Outstanding Options Exercisable
------------------------------------------ -------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/02 Life Price at 12/31/02 Price
------------------- ------------- --------------- ----------- ----------- ------------
Class A Common Stock
--------------------
$16.11 - $27.74 339 10.0 years $23.86
=========
Class A Special Common Stock
----------------------------
$6.00 - $15.66 10,963 2.9 years $9.97 8,751 $9.96
$16.94 - $25.58 13,431 6.5 years 18.39 6,367 17.03
$27.04 - $35.49 16,968 8.1 years 34.13 3,241 32.15
$35.53 - $45.94 22,042 7.8 years 38.26 3,810 39.13
$46.00 - $53.13 1,486 6.9 years 50.53 629 50.40
--------- ---------
64,890 22,798
========= =========
Subsidiary Option Plans. Certain of the Company's subsidiaries maintain
combination stock option/stock appreciation rights ("SAR") plans
(collectively, the "Tandem Plans") for employees, officers, directors and
other designated persons. Under the Tandem Plans, the option price is
generally not less than the fair value, as determined by an independent
appraisal, of a share of the underlying common stock at the date of grant.
If the eligible participant elects the SAR feature of the Tandem Plans, the
participant receives 75% of the excess of the fair value of a share of the
underlying common stock over the exercise price of the option to which it
is attached at the exercise date. The holders of a majority of the
outstanding options have stated an intention not to exercise the SAR
feature of the Tandem Plans. Because the exercise of the option component
is more likely than the exercise of the SAR feature, compensation expense
is measured based on the stock option component. Under the Tandem Plans,
option/SAR terms are ten years from the date of grant, with options/SARs
generally becoming exercisable over four to five years from the date of
grant.
- 53 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The QVC Tandem Plan is the most significant of the Tandem Plans. The
following table summarizes information related to the QVC Tandem Plan
(options/SARs in thousands):
At December 31,
2002 2001 2000
----------- ---------- -----------
Options/SARs outstanding at end
of year...................................................... 240 253 219
=========== ========== ===========
Weighted-average exercise price of
options/SARs outstanding
at end of year............................................... $1,086.37 $913.88 $789.51
=========== ========== ===========
Options/SARs exercisable at end
of year...................................................... 115 113 79
=========== ========== ===========
Weighted-average exercise price
of options/SARs exercisable
at end of year............................................... $839.59 $706.51 $606.92
=========== ========== ===========
As of the latest valuation date, the fair value of a share of QVC Common
Stock was $1,768.15.
Other Stock-Based Compensation Plans
Prior to the Broadband acquisition, the Company maintained a restricted
stock plan under which management employees were granted restricted share
awards of the Company's Class A Special common stock (the "Restricted Stock
Plan"). The share awards vest annually, generally over a period not to
exceed five years from the date of the award, and do not have voting
rights.
The Company also had a deferred stock option plan for directors and certain
employees which provided the optionees with the opportunity to defer the
receipt of shares of the Company's Class A Special common stock which would
otherwise be deliverable upon exercise by the optionees of their stock
options.
Upon the closing of the Broadband acquisition, the Restricted Stock Plan
and the deferred stock option plan were adopted by Comcast.
Certain of the Company's subsidiaries have SAR plans for certain employees,
officers, directors and other persons (the "SAR Plans"). Under the SAR
Plans, eligible participants are entitled to receive a cash payment equal
to 100% of the excess, if any, of the fair value of a share of the
underlying common stock at the exercise date over the fair value of such a
share at the grant date. The SARs have a term of ten years from the date of
grant and become exercisable over four to five years from the date of
grant.
- 54 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The following table summarizes information related to the Company's
Restricted Stock Plan and subsidiary SAR Plans:
Year Ended December 31,
2002 2001 2000
--------- --------- -------
Restricted Stock Plan
Shares granted (in thousands)............................... 61 157 504
Weighted-average fair value per share at date of grant...... $28.47 $39.52 $37.80
Compensation expense (in millions).......................... $8 $9 $9
SAR Plans
Compensation expense (in millions).......................... $3 $4 $2
9. INCOME TAXES
Prior to Comcast's acquisition of Broadband, the Company joined with its
80% or more owned subsidiaries and filed a consolidated federal income tax
return. Effective with the date of the Broadband acquisition, the Company
and its 80% or more owned subsidiaries have joined with Comcast and
Broadband in filing a consolidated federal income tax return.
Subsequent to the Broadband acquisition, Comcast allocates income tax
expense or benefit to the Company as if the Company were filing separate
income tax returns. Tax benefits from both losses and tax credits are made
available to the Company as it is able to realize such benefits on a
separate return basis. The Company pays Comcast for income taxes an amount
equal to the amount of tax it would pay if it filed a separate tax return.
QVC and E! Entertainment each file separate consolidated federal income tax
returns. Income tax expense consists of the following components (in
millions):
Year Ended December 31,
2002 2001 2000
--------- --------- ---------
Current expense
Federal......................................................... $152 $622 $309
State........................................................... 59 85 43
Foreign......................................................... 5 3 2
--------- --------- ---------
216 710 354
--------- --------- ---------
Deferred expense (benefit)
Federal......................................................... 18 (255) 999
State........................................................... 13 15 76
Foreign......................................................... (1)
--------- --------- ---------
30 (240) 1,075
--------- --------- ---------
Income tax expense.............................................. $246 $470 $1,429
========= ========= =========
- 55 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
The Company's effective income tax expense differs from the statutory
amount because of the effect of the following items (in millions):
Year Ended December 31,
2002 2001 2000
--------- --------- ----------
Federal tax at statutory rate................................... $148 $299 $1,248
Non-deductible depreciation and amortization.................... 107 102
State income taxes, net of federal benefit...................... 47 65 77
Foreign losses and equity in net losses of affiliates........... 13 7 8
Increase in valuation allowance................................. 12
Adjustment to prior year accrual................................ 25
Other........................................................... 1 (8) (6)
--------- --------- ----------
Income tax expense.............................................. $246 $470 $1,429
========= ========= ==========
The Company's net deferred tax liability consists of the following
components (in millions):
December 31,
2002 2001
--------- ---------
Deferred tax assets:
Net operating loss carryforwards............................. $314 $243
Allowances for doubtful accounts and excess
and obsolete inventory...................................... 105 109
Differences between book and tax basis of investments........ 94
Non- deductible accruals and other........................... 181 167
Less: Valuation allowance.................................... (12)
--------- ---------
682 519
========= =========
Deferred tax liabilities:
Temporary differences, principally book and tax basis
of property and equipment and intangible assets............ 6,859 6,329
Differences between book and tax basis
of investments............................................. 645
Differences between book and tax basis of
indexed debt securities.................................... 576 196
--------- ---------
7,435 7,170
--------- ---------
Net deferred tax liability...................................... $6,753 $6,651
========= =========
The Company recorded a decrease of ($144) million, ($149) million and
($3.055) billion to deferred income tax liabilities in 2002, 2001 and 2000,
respectively, in connection with unrealized losses on marketable securities
which are included in other comprehensive income (loss). The Company
recorded $207 million of deferred income tax liabilities in 2001 in
connection with the cumulative effect of accounting change related to the
adoption of SFAS No. 133 (see Note 2).
The Company has recorded net deferred tax assets of $83 million and net
deferred tax liabilities of $275 million, as of December 31, 2002 and 2001,
respectively, which have been included in current assets and liabilities,
related
- 56 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
primarily to current investments. The Company has federal net operating
loss carryforwards of approximately $350 million and various state net
operating loss carryforwards, which expire in periods through 2022.
10. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The following table summarizes the fair values of the assets and
liabilities associated with acquisitions by the Company through noncash
transactions (see Note 4) (in millions):
Year Ended December 31,
2001 2000
----------- ------------
Current assets................................................. $57 $216
Investments.................................................... 437
Property and equipment......................................... 580 1,296
Intangible assets.............................................. 3,043 15,400
Other noncurrent assets........................................
Current liabilities............................................ (37) (277)
Long-term debt................................................. (2,147)
Deferred income taxes.......................................... (77) (3,308)
----------- ------------
Net assets acquired....................................... $3,566 $11,617
=========== ============
During 2002, Comcast made a noncash capital contribution to the Company of
$220 million. In addition, during 2002, the Company transferred certain
assets to Comcast in exchange for a note receivable of $191 million (see
Note 13).
The following table summarizes the Company's cash payments for interest and
income taxes (in millions):
Year Ended December 31,
2002 2001 2000
-------- -------- --------
Interest................................................................. $683 $660 $706
Income taxes............................................................. $287 $561 $709
11. COMMITMENTS AND CONTINGENCIES
Commitments
The Company's programming networks have entered into license agreements for
programs and sporting events which will be available for telecast
subsequent to December 31, 2002. In addition, the Company, through Comcast-
Spectacor, has employment agreements with both players and coaches of its
professional sports teams. Certain of these employment agreements, which
provide for payments that are guaranteed regardless of employee injury or
termination, are covered by disability insurance if certain conditions are
met.
The following table summarizes the Company's minimum annual programming
commitments under network launch and program license agreements, the
Company's future commitments under long-term professional sports contracts,
and the Company's minimum annual rental commitments for office space,
equipment and transponder service agreements under noncancellable operating
and capital leases as of December 31, 2002 (in millions):
- 57 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
Professional
Programming Sports Operating
Agreements Contracts Leases Total
-------------- ------------- ---------- ----------
2003........................... $104 $126 $123 $353
2004........................... 98 113 92 $303
2005........................... 97 84 69 $250
2006........................... 101 50 52 $203
2007........................... 83 24 44 $151
Thereafter..................... 485 8 124 $617
The following table summarizes the Company's rental expense charged to
operations (in millions):
Year Ended December 31,
2002 2001 2000
-------- -------- --------
Rental expense............................................................. $155 $121 $98
Contingencies
On March 3, 2003, Comcast announced that Liberty Media Corporation
("Liberty") delivered a notice to the Company, pursuant to the stockholders
agreement between the Company and Liberty, that triggers an exit rights
process with respect to Liberty's approximate 42% interest in QVC. The
Company and Liberty will attempt to negotiate the fair market value of QVC
prior to March 31, 2003. If the Company and Liberty cannot agree, an
appraisal process will determine the value of QVC. The Company will then
have the right to purchase Liberty's interest in QVC at the determined
value. The Company may pay Liberty for the QVC stock in cash, in a
promissory note maturing not more than three years after issuance, in
Comcast's equity securities or in a combination of these, subject to
Liberty's right to request payment in all equity securities and the
parties' obligation to use reasonable efforts to consummate the purchase in
the most tax efficient method available (provided that Comcast is not
required to issue securities representing more than 4.9% of the outstanding
equity or vote of Comcast's common stock). If the Company elects not to
purchase Liberty's interest in QVC, Liberty then will have a similar right
to purchase the Company's approximate 57% interest in QVC. If neither the
Company nor Liberty elect to purchase the interest of the other, then the
Company and Liberty are required to use their best efforts to sell QVC;
either company is permitted to be a purchaser in any such sale. The Company
and Liberty may agree not to enter into a transaction, or may agree to a
transaction other than that specified in the stockholders agreement. Under
the current terms of the stockholders agreement between the Company and
Liberty, the Company would no longer control QVC if it elects not to
purchase Liberty's interest in QVC.
The Company and the minority owner group in Comcast Spectacor each have the
right to initiate an "exit" process under which the fair market value of
Comcast Spectacor would be determined by appraisal. Following such
determination, the Company would have the option to acquire the interests
in Comcast Spectacor owned by the minority owner group based on the
appraised fair market value. In the event the Company does not exercise
this option, the Company and the minority owner group would then be
required to use their best efforts to sell Comcast Spectacor. This exit
process includes the minority owner group's interest in CSN.
The Company holds the majority of its interest in E! Entertainment through
Comcast Entertainment Holdings, LLC ("Entertainment Holdings"), which is
owned 50.1% by the Company and 49.9% by The Walt Disney Company ("Disney").
Under a limited liability company agreement between the Company and Disney,
the Company controls E! Entertainment's operations. As a result of the
Broadband acquisition and in certain other circumstances, under the
agreement Disney is entitled to trigger a potential exit process in which
Entertainment Holdings would have the right to purchase Disney's entire
interest in Entertainment Holdings at its then fair market value (as
determined by an appraisal process). If Disney exercises this right within
a specified time period, and Entertainment Holdings elects not to purchase
Disney's interest, Disney then has the right to purchase, at appraised fair
market value, either
- 58 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
the Company's entire interest in Entertainment Holdings or all of the
shares of stock of E! Entertainment held by Entertainment Holdings. In the
event that Disney exercises its right and neither Disney's nor the
Company's interest is purchased, Entertainment Holdings will continue to be
owned as it is today, as if the exit process had not been triggered.
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 access and content services which filed for bankruptcy protection
in September 2001. Filed actions are: (i) class action lawsuits against the
Company, Brian L. Roberts (the Company's President and Chief Executive
Officer and a director), AT&T (the former controlling shareholder of At
Home and also a former distributor of the At Home service) and other
corporate and individual defendants in the Superior Court of San Mateo
County, California, alleging breaches of fiduciary duty on the part of the
Company and the other defendants in connection with transactions agreed to
in March 2000 among At Home, the Company, AT&T and Cox Communications, Inc.
(Cox 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; and (iii) a
lawsuit brought in the United States District Court for the District of
Delaware in the name of At Home by certain At Home bondholders against the
Company, Brian L. Roberts, Cox and others, alleging breaches of fiduciary
duty relating to the March 2000 transactions and seeking recovery of
alleged short- swing profits of at least $600 million pursuant to Section
16(b) of the Securities Exchange Act of 1934 purported to have arisen in
connection with certain transactions relating to At Home stock effected
pursuant to the March 2000 agreements. The actions in San Mateo County,
California have been stayed by the United States Bankruptcy Court for the
Northern District of California, the court in which At Home filed for
bankruptcy, as violating the automatic bankruptcy stay. In the Southern
District of New York actions, the court ordered the actions consolidated
into a single action. An amended consolidated class action complaint was
filed on November 8, 2002. All of the defendants served motions to dismiss
on February 11, 2003.
The Company denies any wrongdoing in connection with the claims which have
been made 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.
Some of the entities formerly attributed to Broadband which are now
subsidiaries of Comcast are parties to an affiliation term sheet with Starz
Encore Group LLC, an affiliate of Liberty Media Corporation, which extends
to 2022. The term sheet requires annual fixed price payments, subject to
adjustment for various factors, including inflation. The term sheet also
requires Comcast to pay two-thirds of Starz Encore's programming costs
above levels designated in the term sheet.
By letter dated May 29, 2001, Broadband disputed the enforceability of the
excess programming pass-through provisions of the Starz Encore term sheet
and questioned the validity of the term sheet as a whole. Broadband also
has raised certain issues concerning the uncertainty of the provisions of
the term sheet and the contractual interpretation and application of
certain of its provisions to, among other things, the acquisition and
disposition of cable systems. In July 2001, Starz Encore filed a lawsuit in
Colorado state court seeking payment of the 2001 excess programming costs
and a declaration that the term sheet is a binding and enforceable
contract. In October 2001, Broadband and Starz Encore agreed to delay any
further proceedings in the litigation until August 31, 2002 to allow the
parties time to continue negotiations toward a potential business
resolution of this dispute. As part of this standstill agreement, Broadband
and Starz Encore settled Starz Encore's claim for the 2001 excess
programming costs, and Broadband agreed to continue to make the standard
monthly payments due under the term sheet, with a full reservation of
rights with respect to these payments. In connection with the standstill
agreement,
- 59 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
the court granted a stay on October 30, 2001. The terms of the stay order
allowed either party to petition the court to lift the stay after April 30,
2002 and to proceed with the litigation. Broadband and Starz Encore agreed
to extend the standstill agreement to and including January 31, 2003, with
a requirement that the parties attempt to mediate the dispute. A mediation
session held in January 2003 did not result in any resolution of the
matter.
On November 18, 2002, the Company and Comcast filed suit against Starz
Encore Group LLC in the United States District Court for the Eastern
District of Pennsylvania. The Company and Comcast seek a declaratory
judgment that, pursuant to their rights under a March 17, 1999 contract
with a predecessor of Starz Encore, upon the completion of the Broadband
acquisition that contract now provides the terms under which Starz Encore
programming is acquired and transmitted by Comcast's cable systems. On
January 8, 2003, Starz Encore filed a motion to dismiss the lawsuit on the
grounds that claims asserted by the Company and Comcast raised issues of
state law that the United States District Court should decline to decide.
The Company and Comcast have responded contesting these assertions. That
motion has been submitted to the Court for decision.
On January 31, 2003, Starz Encore filed an amended complaint in its lawsuit
against Broadband in Colorado state court. The amended complaint adds the
Company and Comcast as defendants and adds new claims against the Company,
Comcast and Broadband asserting alleged breaches of, and interference with,
the standstill agreement relating to the lawsuit filed by the Company and
Comcast in federal District Court in Pennsylvania and to the defendants'
position that since the completion of the Broadband acquisition, the March
17, 1999 contract now provides the terms under which Starz Encore
programming is acquired and transmitted by the Company's cable systems.
On March 3, 2003, Starz Encore filed a motion for leave to file a second
amended complaint that would add allegations that Broadband has breached
certain joint-marketing obligations under the term sheet and that the
Company and Comcast have breached certain joint-marketing obligations under
the March 17, 1999 contract and other agreements. The Company, Comcast and
Broadband intend to oppose Starz Encore's motion for leave to file a second
amended complaint and, in light of Starz Encore's pending motion for leave
to amend, have sought an extension of time from the Court to respond to
Starz Encore's amended complaint.
An entity formerly attributed to Broadband, which is now Comcast's
subsidiary, is party to a master agreement that may not expire until
December 31, 2012, under which it purchases certain billing services from
CSG Systems, Inc. The master agreement requires monthly payments, subject
to adjustment for inflation. The master agreement also contains a most
favored nation provision that may affect the amounts paid thereunder.
On May 10, 2002, Broadband filed a demand for arbitration against CSG
before the American Arbitration Association asserting, among other things,
the right to terminate the master agreement and seeking damages under the
most favored nation provision or otherwise. On May 31, 2002, CSG answered
Broadband's arbitration demand and asserted various counterclaims,
including for (i) breach of the master agreement; (ii) a declaration that
Comcast is now bound by the master agreement to use CSG as its exclusive
provider for certain billing and customer care services; (iii) tortious
interference with prospective contractual relations; and (iv) civil
conspiracy. A hearing in the arbitration is scheduled to commence on May 5,
2003.
On June 21, 2002, CSG filed a lawsuit against the Company in federal court
in Denver, Colorado asserting claims related to the master agreement and
the pending arbitration. On November 4, 2002, CSG withdrew its complaint
against the Company without prejudice. On November 15, 2002, Comcast
initiated a lawsuit against CSG in federal court in Philadelphia,
Pennsylvania asserting that cable systems owned by the Company are not
required to use CSG as a billing service or customer care provider pursuant
to the master agreement, and that the former Broadband cable systems owned
by Comcast may be added to a billing service agreement between Comcast and
CSG. CSG moved to dismiss or stay the lawsuit on the ground that the issues
raised by the complaint could be wholly or substantially determined by the
above-mentioned arbitration. By Order dated February 10, 2003, the Court
stayed the lawsuit until further notice.
- 60 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
In management's opinion, the final disposition of the Starz Encore and CSG
contractual disputes is not expected to have a material adverse effect on
the Company's consolidated financial position or results of operations.
However, no assurance can be given that any adverse outcome would not be
material to such consolidated financial position or results of operations.
The Company is subject to other legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to such actions is not expected
to 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 $200 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 $75
million.
- 61 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)
12. FINANCIAL DATA BY BUSINESS SEGMENT
The following represents the Company's significant business segments,
"Cable" and "Commerce." The components of net income (loss) below operating
income (loss) before depreciation and amortization are not separately
evaluated by the Company's management on a segment basis (dollars in
millions).
Corporate
Cable Commerce and Other(1) Total
--------- ---------- ------------- ------------
2002
Revenues (2)........................................................... $6,159 $4,381 $736 $11,276
Operating income before depreciation and amortization (3).............. 2,633 858 59 3,550
Depreciation and amortization.......................................... 1,276 119 243 1,638
Operating income (loss) ............................................... 1,357 739 (184) 1,912
Interest expense....................................................... 567 14 144 725
Assets................................................................. 29,844 3,000 2,845 35,689
Long-term debt......................................................... 7,908 1 1,348 9,257
Capital expenditures................................................... 1,317 123 38 1,478
2001
Revenues (2)........................................................... $5,323 $3,917 $596 $9,836
Operating income (loss) before depreciation and amortization (3)...... 2,054 722 (106) 2,670
Depreciation and amortization.......................................... 3,044 143 229 3,416
Operating income (loss)................................................ (990) 579 (335) (746)
Interest expense....................................................... 546 26 162 734
Assets................................................................. 29,085 2,809 6,367 38,261
Long-term debt......................................................... 8,363 63 3,316 11,742
Capital expenditures................................................... 1,855 143 184 2,182
2000
Revenues (2)........................................................... $4,362 $3,536 $459 $8,357
Operating income (loss) before depreciation and amortization (3)...... 1,903 619 (64) 2,458
Depreciation and amortization.......................................... 2,419 126 74 2,619
Operating income (loss)................................................ (516) 493 (138) (161)
Interest expense....................................................... 516 35 177 728
Assets................................................................. 25,764 2,632 7,478 35,874
Long-term debt......................................................... 6,711 302 3,504 10,517
Capital expenditures................................................... 1,249 156 232 1,637
______________
(1) Other includes segments not meeting certain quantitative guidelines for
reporting including the Company's content (see Note 1) and business
communications operations, as well as elimination entries related to the
segments presented. Corporate and other assets consist primarily of the
Company's investments and intangible assets related to the Company's
content operations (see Notes 5 and 6).
(2) Revenues include $678 million, $508 million and $458 million in 2002, 2001
and 2000, respectively, of non-US revenues, principally related to the
Company's Commerce segment. No single customer accounted for a significant
amount of the Company's revenues in any period.
(3) Operating income (loss) before depreciation and amortization is commonly
referred to in the Company's businesses as "EBITDA." EBITDA is a measure of
a company's ability to generate cash to service its obligations, including
debt service obligations, and to finance capital and other expenditures. In
part due to the capital intensive nature of the Company's businesses and
the resulting significant level of non-cash depreciation and amortization
expense, EBITDA is frequently used as one of the bases for comparing
businesses in the Company's industries, although the Company's measure of
EBITDA may not be comparable to similarly titled measures of other
companies. EBITDA is the primary basis used by the Company's management to
measure the operating performance of its businesses. EBITDA does not
purport to represent net income or net cash provided by operating
activities, as those terms are defined under generally accepted accounting
principles, and should not be considered as an alternative to such
measurements as an indicator of the Company's performance.
- 62 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Concluded)
13. RELATED PARTY TRANSACTIONS
QVC has an affiliation agreement with Comcast Cable Communications
Holdings, Inc. (formerly AT&T Broadband Corp.), a wholly owned subsidiary
of Comcast ("CCCH"), to carry QVC's programming. In return for carrying QVC
programming, QVC pays CCCH an allocated portion, based upon market share,
of a percentage of net sales of merchandise sold to QVC customers located
in CCCH's service area. These amounts, which are included in selling,
general and administrative expenses in the Company's consolidated statement
of operations, were not significant during 2002.
The Company's content businesses generate a portion of their revenues
through the sale of subscriber services and advertising time to CCCH. These
amounts, which are included in service revenues in the Company's
consolidated statement of operations, were not significant during 2002.
Comcast Cable, through management agreements, manages the operations of
CCCH's subsidiaries, including rebuilds and upgrades. The management
agreements generally provide that Comcast Cable supervise the management
and operations of the CCCH cable systems and arrange for and supervise
certain administrative functions. As compensation for such services, the
agreements provide for Comcast Cable to charge management fees based on a
percentage of gross revenues. These charges, which are recorded as a
reduction of selling, general and administrative expenses in the Company's
consolidated statement of operations, totaled $113 million during 2002.
Comcast Financial Agency Corporation ("CFAC"), an indirect wholly owned
subsidiary of the Company, provides cash management services to Comcast and
CCCH. Under this arrangement, Comcast's and CCCH's cash receipts are
deposited with and held by CFAC, as custodian and agent, which invests and
disburses such funds at the direction of the Company. Interest income
related to cash deposited by Comcast and CCCH in CFAC was not significant
during 2002.
The Company purchases certain other services, including insurance and
employee benefits, from Comcast under cost-sharing arrangements on terms
that reflect Comcast's actual cost. The Company reimburses Comcast for
certain other costs (primarily salaries) under cost reimbursement
arrangements. These charges, which are included in selling, general and
administrative expenses in the Company's consolidated statement of
operations, totaled $17 million during 2002.
As of December 31, 2002, note receivable from affiliate consists of a $191
million principal amount note receivable from Comcast. The note receivable
bears interest at a rate of 7.5% as of December 31, 2002 and is due in
2012. As of December 31, 2002, note payable to affiliate consists of a $22
million principal amount note payable to a subsidiary of Comcast. The note
payable bears interest at a rate of 7.5% and is due in 2012. Interest
relating to such notes as of December 31, 2002 was not significant and is
included in due to affiliates in the Company's consolidated balance sheet.
- 63 -
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information called for by Item 10, Directors and Executive Officers of the
Registrant, Item 11, Executive Compensation, Item 12, Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters, and
Item 13, Certain Relationships and Related Transactions, is omitted pursuant to
SEC General Instruction I of Form 10-K.
PART IV
ITEM 14 CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures. Our chief executive officer
and our co-chief financial officers, after evaluating the
effectiveness of our "disclosure controls and procedures" (as
defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and
15d-14(c)) as of a date (the "Evaluation Date") within 90 days
before the filing date of this annual report, have concluded that
as of the Evaluation Date, our disclosure controls and procedures
were adequate and designed to ensure that material information
relating to us and our consolidated subsidiaries would be made
known to them by others within those entities.
(b) Changes in internal controls. There were no significant changes in
our internal controls or to our knowledge, in other factors that
could significantly affect our internal controls and procedures
subsequent to the Evaluation Date.
ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements of the Company are
included in Part II, Item 8:
Independent Auditors' Report.................................27
Consolidated Balance Sheet--December 31, 2002 and 2001.......28
Consolidated Statement of Operations--Years
Ended December 31, 2002, 2001 and 2000.....................29
Consolidated Statement of Cash Flows--Years
Ended December 31, 2002, 2001 and 2000.....................30
Consolidated Statement of Stockholders' Equity--
Years Ended December 31, 2002, 2001 and 2000...............31
Notes to Consolidated Financial Statements...................32
(b) (i) The following financial statement schedules required to be
filed by Items 8 and 14(d) of Form 10-K are included in Part IV:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable,
not required or the required information is included in the
consolidated financial statements or notes thereto.
(c) Reports on Form 8-K:
(i) We filed a Current Report on Form 8-K under Item 5 on November 18,
2002 announcing that, in connection with the closing of the
transaction combining Comcast Holdings Corporation and AT&T's
broadband business, we amended our articles of incorporation to
change our name from "Comcast Corporation" to "Comcast Holdings
Corporation."
- 64 -
(d) Exhibits required to be filed by Item 601 of Regulation S-K:
2.1 Composite copy of Agreement and Plan of Merger dated as of
December 19, 2001, as amended, among Comcast Holdings
Corporation (f/k/a Comcast Corporation), AT&T Corp.,
Comcast Cable Communications Holdings, Inc. (f/k/a AT&T
Broadband Corp.), Comcast Corporation (f/k/a AT&T Comcast
Corporation) and the other parties signatory thereto
(incorporated by reference to Exhibit 2.1 to the Comcast
Corporation Current Report on Form 8-K12g3 filed on
November 18, 2002).
2.2 Support Agreement dated as of December 19, 2001, as
amended, among AT&T Corp., Comcast Holdings Corporation
(f/k/a Comcast Corporation), Comcast Corporation (f/k/a
AT&T Comcast Corporation), Sural LLC and Brian L. Roberts
(incorporated by reference to Exhibit 2.3 to the Comcast
Corporation registration statement on Form S-4 filed on
February 11, 2002).
2.3 Exchange Agreement dated as of December 7, 2001, as
amended, between Microsoft Corporation and Comcast Holdings
Corporation (f/k/a Comcast Corporation) (incorporated by
reference to Exhibit 2.6 to the Comcast Corporation
registration statement on Form S-4 filed on February 11,
2002).
3.1 Amended and Restated By-Laws (incorporated by reference to
Exhibit 3.1 to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999).
4.1 Amended and Restated Five-Year Revolving Credit Agreement
effective as of November 18, 2002, amending and restating
the Five-Year Revolving Credit Agreement dated as of August
24, 2000, among Comcast Cable Communications, Inc., Comcast
Corporation (f/k/a AT&T Comcast Corporation), the Lenders
party thereto and Bank of America, N.A., as Administrative
Agent. (incorporated by reference to Annex I of Exhibit
10.3 to the Comcast Cable Communications, Inc. Quarterly
Report on Form 10-Q for the quarter ended March 31, 2002).
4.2 First Amendment to Amended and Restated Five-Year Revolving
Credit Agreement dated as of February 7, 2003, among
Comcast Cable Communications, Inc., Comcast Corporation
(f/k/a AT&T Comcast Corporation), the Lenders party thereto
and Bank of America, N.A., as Administrative Agent
(incorporated by reference to Exhibit 4.7 to the Comcast
Corporation Annual Report on Form 10-K for the year ended
December 31, 2002).
4.3 Amended and Restated 364-Day Revolving Credit Agreement
effective as of November 18, 2002, amending and restating
the 364-Day Revolving Credit Agreement dated as of August
24, 2000, among Comcast Cable Communications, Inc., Comcast
Corporation (f/k/a AT&T Comcast Corporation), the Lenders
party thereto and Bank of America, N.A., as Administrative
Agent. (incorporated by reference to Annex I of Exhibit
10.4 to the Comcast Cable Communications, Inc. Quarterly
Report on Form 10-Q for the quarter ended March 31, 2002).
4.4 First Amendment to Amended and Restated 364-Day Revolving
Credit Agreement dated as of February 7, 2003, among
Comcast Cable Communications, Inc., Comcast Corporation
(f/k/a AT&T Comcast Corporation), the Lenders party to
thereto and Bank of America, N.A., as Administrative Agent
(incorporated by reference to Exhibit 4.9 to the Comcast
Corporation Annual Report on Form 10-K for the year ended
December 31, 2002).
4.5 Indenture, dated as of October 17, 1991, between Comcast
Holdings Corporation (f/k/a Comcast Corporation) and Bank
of Montreal/Harris Trust (successor to Morgan Guaranty
Trust Company of New York), as Trustee, relating to Comcast
Holdings' 10-5/8% Senior Subordinated Debentures due 2012
(incorporated by reference to Exhibit 2 to our Current
Report on Form 8-K filed on October 31, 1991).
4.6 Form of Debenture relating to Comcast Holdings
Corporation's (f/k/a Comcast Corporation) 10- 5/8% Senior
Subordinated Debentures due 2012 (incorporated by reference
to Exhibit 4(17) to our Annual Report on Form 10-K for the
year ended December 31, 1992).
4.7 Senior Indenture dated as of June 15, 1999 between Comcast
Holdings Corporation (f/k/a Comcast Corporation) and The
Bank of New York (as successor in interest to Bank of
Montreal Trust Company), as Trustee (incorporated by
reference to Exhibit 4.1 to our registration statement on
Form S-3 filed on June 23, 1999).
4.8 Form of Debenture relating to Comcast Holdings
Corporation's (f/k/a Comcast Corporation) Zero Coupon
Convertible Debentures due 2020 (incorporated by reference
to Exhibit 4.7 to our Annual Report on Form 10-K for the
year ended December 31, 2000).
- 65 -
4.9 Indenture dated as of May 1, 1997, between Comcast Cable
Communications, Inc. and The Bank of New York (as successor
in interest to Bank of Montreal Trust Company), as Trustee,
relating to Comcast Cable Communications, Inc.'s 8-1/8%
Notes due 2004, 8-3/8% Notes due 2007, 8- 7/8% Notes due
2017, 8-1/2% Notes due 2027, 6.20% Notes due 2008, 6.375%
Notes due 2006, 6.75% Notes due 2011, 6.875% Notes due 2009
and 7.125% Notes due 2013 (incorporated by reference to
Exhibit 4.1(a) to the registration statement on Form S-4 of
Comcast Cable Communications, Inc. filed on June 3, 1997).
4.10 Form of Comcast Cable Communications Inc.'s 8-1/8% Notes
due 2004, 8-3/8% Notes due 2007, 8-7/8% Notes due 2017 and
8-1/2% Notes due 2027, 6.20% Notes due 2008, 6.375% Notes
due 2006, 6.75% Notes due 2011, 6.875% Notes due 2009 and
7.125% Notes due 2013 (incorporated by reference to Exhibit
4.1(b) to the registration statement on Form S-4 of Comcast
Cable Communications, Inc. filed on June 3, 1997).
4.11 Form of Indenture among Comcast Corporation (f/k/a AT&T
Comcast Corporation), Comcast Cable Communications, Inc.,
Comcast Cable Communications Holdings, Inc. (f/k/a AT&T
Broadband Corp.), Comcast Cable Holdings, LLC (f/k/a AT&T
Broadband, LLC), Comcast MO Group, Inc. (f/k/a MediaOne
Group, Inc.), and The Bank of New York, as Trustee relating
to Comcast Cable Communications Holdings, Inc.'s 8.375%
Notes due March 15, 2013 and 9.455% Notes Due November 15,
2022 (incorporated by reference to Exhibit 4.18 to the
amended registration statement on Form S-4/A of Comcast
Corporation filed on September 26, 2002).
4.12 Form of Indenture among Comcast Corporation (f/k/a AT&T
Comcast Corporation), Comcast Cable Communications, Inc.,
Comcast Cable Communications Holdings, Inc. (f/k/a AT&T
Broadband Corp.), Comcast Cable Holdings, LLC (f/k/a AT&T
Broadband, LLC), Comcast MO Group, Inc. (f/k/a MediaOne
Group, Inc.), and The Bank of New York, as Trustee relating
to Comcast Corporation's 5.85% Notes due 2010 and 6.50%
Notes Due 2015 (incorporated by reference to Exhibit 4.5 to
the registration statement on Form S-3 of Comcast
Corporation filed on December 16, 2002).
4.13 Form of Subordinated Indenture between Comcast Holdings
Corporation (f/k/a Comcast Corporation) and Bankers Trust
Company, as Trustee, relating to Comcast Holdings
Corporation's 2.0% Exchangeable Subordinated Debentures Due
2029 and 2.0% Exchangeable Subordinated Debentures Due
November 2029 (incorporated by reference to Exhibit 4.2 to
our registration statement on Form S-3 filed on June 23,
1999).
4.14 Form of Comcast Holdings Corporation's (f/k/a Comcast
Corporation) 2.0% Exchangeable Subordinated Debentures Due
2029 (ZONES I) (incorporated by reference to Exhibit 4 to
our Current Report on Form 8-K filed on October 14, 1999).
4.15 Form of Comcast Holdings Corporation's (f/k/a Comcast
Corporation) 2.0% Exchangeable Subordinated Debentures Due
November 2029 (ZONES II) (incorporated by reference to
Exhibit 4 to our Current Report on Form 8-K filed on
November 3, 1999).
10.1 Amended and Restated Stockholders Agreement, dated as of
February 9, 1995, among the Company, Comcast QVC, Inc., QVC
Programming Holdings, Inc., Liberty Media Corporation, QVC
Investment, Inc. and Liberty QVC, Inc. (incorporated by
reference to Exhibit 10.5 to our Quarterly Report on Form
10-Q for the quarter ended March 31, 1995).
__________
Pursuant to Item 601(4)(iii)(A) of Regulation S-K, the registrant agrees to
furnish upon request to the Securities and Exchange Commission other instruments
defining the rights of holders of long-term debt.
- 66 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in Philadelphia,
Pennsylvania on March 28, 2003.
Comcast Holdings Corporation
By: /s/ Brian L. Roberts
----------------------------------------------------
Brian L. Roberts
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Brian L. Roberts President and Chief Executive Officer; Director March 28, 2003
------------------------- (Principal Executive Officer)
Brian L. Roberts
/s/ Lawrence S. Smith Executive Vice President; Director March 28, 2003
------------------------- (Co-Principal Financial Officer)
Lawrence S. Smith
/s/ John R. Alchin Executive Vice President and Treasurer March 28, 2003
------------------------- (Co-Principal Financial Officer)
John R. Alchin
/s/ David L. Cohen Executive Vice President; Director March 28, 2003
-------------------------
David L. Cohen
/s/ Arthur R. Block Senior Vice President; Director March 28, 2003
-------------------------
Arthur R. Block
/s/ Lawrence J. Salva Senior Vice President and Controller March 28, 2003
------------------------- (Principal Accounting Officer)
Lawrence J. Salva
- 67 -
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Comcast Holdings Corporation
Philadelphia, Pennsylvania
Our audits of the financial statements referred to in our report dated March 17,
2003 (which report expresses an unqualified opinion and includes an explanatory
paragraph related to the adoption of Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended, effective January 1, 2001, and Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangibles," effective January 1, 2002)
appearing in this Annual Report on Form 10-K of Comcast Holdings Corporation
(formerly known as Comcast Corporation) (the "Company") for the year ended
December 31, 2002 also included the financial statement schedule of the Company,
listed in Item 15(b)(i). This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 17, 2003
- 68 -
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
---------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
--------------------------------------------
(In millions)
-------------
Additions
Balance at Charged to Deductions Balance
Beginning Costs and from at End
of Year Expenses Reserves(A) of Year
----------- ------------ -------------- ------------
Allowance for Doubtful Accounts
------------------------------------------
2002 $154 $107 $101 $160
2001 142 86 74 154
2000 137 66 61 142
Allowance for Excess and Obsolete
Electronic Retailing Inventories
------------------------------------------
2002 $114 $57 $56 $115
2001 105 55 46 114
2000 89 46 30 105
(A) Uncollectible accounts and excess and obsolete inventory written off.
- 69 -
CERTIFICATIONS
I, Brian L. Roberts, certify that:
1. I have reviewed this annual report on Form 10-K of Comcast Holdings
Corporation;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 28, 2003
/s/ Brian L. Roberts
--------------------------------------------
Name: Brian L. Roberts
Chief Executive Officer
- 70 -
CERTIFICATIONS
I, Lawrence S. Smith, certify that:
1. I have reviewed this annual report on Form 10-K of Comcast Holdings
Corporation;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 28, 2003
/s/ Lawrence S. Smith
--------------------------------------------
Name: Lawrence S. Smith
Co-Chief Financial Officer
- 71 -
CERTIFICATIONS
I, John R. Alchin, certify that:
1. I have reviewed this annual report on Form 10-K of Comcast Holdings
Corporation;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 28, 2003
/s/John R. Alchin
--------------------------------------------
Name: John R. Alchin
Co-Chief Financial Officer
- 72 -