Document/Exhibit Description Pages Size
1: 10-K Comcast Corporation 10-K 83 527K
4: EX-10 Material Contract -- exhibit10-10 14 59K
5: EX-10 Material Contract -- exhibit10-22 114 344K
2: EX-10 Material Contract -- exhibit10-7 7 29K
3: EX-10 Material Contract -- exhibit10-8 8 21K
6: EX-21 Subsidiaries of the Registrant -- exhibit21 12 52K
7: EX-23 Exhibit 23.1 1 6K
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FORM 10-K
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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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ___________ TO ____________
[GRAPHIC OMITTED - LOGO]
Commission file number 0-6983
COMCAST CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1709202
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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:
NONE
---------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A Special Common Stock, $1.00 par value
Class A Common Stock, $1.00 par value
----------------------------
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
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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. [ ]
--------------------------
As of December 31, 2001, the aggregate market value of the Class A Special
Common Stock and Class A Common Stock held by non-affiliates of the Registrant
was $32.484 billion and $751.3 million, respectively.
--------------------------
As of December 31, 2001, there were 913,931,554 shares of Class A Special Common
Stock, 21,829,422 shares of Class A Common Stock and 9,444,375 shares of Class B
Common Stock outstanding.
--------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Part III - The Registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders presently scheduled to be held in June 2002.
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COMCAST CORPORATION
2001 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
[Enlarge/Download Table]
Item 1 Business.................................................................................................1
Item 2 Properties..............................................................................................17
Item 3 Legal Proceedings.......................................................................................18
Item 4 Submission of Matters to a Vote of Security Holders.....................................................18
Item 4A Executive Officers of the Registrant....................................................................19
PART II
Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters...............................20
Item 6 Selected Financial Data.................................................................................21
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations...................23
Item 8 Financial Statements and Supplementary Data.............................................................38
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................74
PART III
Item 10 Directors and Executive Officers of the Registrant......................................................74
Item 11 Executive Compensation..................................................................................74
Item 12 Security Ownership of Certain Beneficial Owners and Management..........................................74
Item 13 Certain Relationships and Related Transactions..........................................................74
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.........................................75
SIGNATURES.......................................................................................................79
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This Annual Report on Form 10-K is for the year ended December 31, 2001.
This Annual Report modifies and supersedes documents filed prior to this Annual
Report. The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you directly to those documents. Information incorporated by reference
is considered to be part of this Annual Report. In addition, 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,"
"we," "us" and "our" refer to Comcast Corporation and its subsidiaries.
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
On December 19, 2001, we entered into an Agreement and Plan of Merger with
AT&T Corp. ("AT&T") pursuant to which we agreed to a transaction which will
result in the combination of Comcast and a holding company of AT&T's broadband
business ("AT&T Broadband"). Refer to "General Developments of Our Business" on
page 2 for a description of this pending transaction.
Factors that may cause our actual results to differ materially from any of
our forward-looking statements presented in this Annual Report on Form 10-K
include, but are not limited to:
o our businesses and those of AT&T Broadband may not be integrated
successfully or such integration may be more difficult, time-consuming
or costly than expected,
o expected combination benefits from the transaction may not be fully
realized or realized within the expected time frame,
o revenues following the transaction may be lower than expected,
o operating costs, financing costs, subscriber loss and business
disruption, including, without limitation, difficulties in maintaining
relationships with employees, subscribers, clients or suppliers, may
be greater than expected following the transaction, and
o the shareholder, regulatory and other approvals required for the
transaction may not be obtained on the proposed terms or on the
anticipated schedule.
In addition, our businesses may be affected by, among other things:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o industry consolidation and mergers,
o franchise related matters,
o market conditions that may adversely affect the availability of debt
and equity financing for working capital, capital expenditures or
other purposes,
o demand for the programming content we distribute or the willingness of
other video program distributors to carry our content, and
o general economic conditions.
PART I
ITEM 1 BUSINESS
We are involved in three principal lines of business:
o Cable-through the development, management and operation of broadband
communications networks,
o Commerce-through QVC, our electronic retailing subsidiary, and
o Content-through our consolidated subsidiaries Comcast Spectacor,
Comcast SportsNet, Comcast SportsNet Mid-Atlantic, Comcast Sports
Southeast, E! Entertainment Television, The Golf Channel, Outdoor Life
Network, G4 Media, and through our other programming investments.
We are currently the third largest cable operator in the United States and
have deployed digital cable applications and high-speed Internet service to the
substantial majority of our cable communications systems to expand the products
available on our broadband communications networks.
Our consolidated cable operations served approximately 8.5 million
subscribers and passed approximately 13.9 million homes in the United States as
of December 31, 2001. We have entered into an agreement which will result in the
combination of Comcast and AT&T Broadband. Upon completion of this pending
transaction, which is subject to the receipt of necessary shareholder,
regulatory and other approvals, we will serve approximately 22 million
subscribers. We expect to close the transaction by the end of 2002.
Through QVC, we market a wide variety of products directly to consumers
primarily on merchandise-focused television programs. As of December 31, 2001,
QVC was available, on a full and part-time basis, to approximately 82.1 million
homes in the United States, approximately 9.5 million homes in the United
Kingdom, approximately 23.6 million homes in Germany and approximately 3.6
million homes in Japan.
We are a Pennsylvania corporation that was organized in 1969. We have our
principal executive offices at 1500 Market Street, Philadelphia, PA 19102-2148.
Our telephone number is (215) 665-1700. We also have a world wide web site at
http://www.comcast.com. The information posted on our web site is not
incorporated into this Annual Report.
FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
Refer to Note 12 to our consolidated financial statements in Item 8 of this
Annual Report for information about our operations by business segment.
GENERAL DEVELOPMENTS OF OUR BUSINESS
We entered into a number of significant transactions in 2001 which have
closed or are expected to close in 2002. We have summarized these transactions
below and have more fully described them in Note 5 to our consolidated financial
statements in Item 8 of this Annual Report.
Agreement and Plan of Merger with AT&T Broadband
On December 19, 2001, we entered into an Agreement and Plan of Merger with
AT&T Corp. ("AT&T") pursuant to which we agreed to a transaction which will
result in the combination of Comcast and a holding company of AT&T's broadband
business ("AT&T Broadband") that AT&T will spin off to its shareholders
immediately prior to the combination. As of December 31, 2001, AT&T Broadband
served approximately 13.6 million subscribers. If not sold by AT&T prior to the
closing, the combined company will also hold AT&T's minority interest in Time
Warner Entertainment ("TWE"). We intend to dispose of the TWE interest in the
event this interest remains as a part of the combined company after closing.
Under the terms of the transaction, the combined company will issue
approximately 1.235 billion shares of its voting common stock to AT&T Broadband
shareholders in exchange for all of AT&T's interests in AT&T Broadband, and
approximately 115 million shares of its common stock to Microsoft Corporation
("Microsoft") in exchange for AT&T Broadband shares that Microsoft will receive
immediately prior to the completion of the transaction for settlement of their
$5 billion aggregate principal amount in quarterly income preferred securities.
The combined company will also assume or incur approximately $20 billion of AT&T
Broadband debt. For each share of a class of common stock of Comcast that they
hold at the time of the merger, each Comcast shareholder will receive one share
of a corresponding class of stock of the combined company. We expect that the
transaction will qualify as tax-free to both us and to AT&T. We will account for
the transaction as an acquisition under the purchase method of accounting, with
Comcast as the acquiring entity. The transaction is subject to customary closing
conditions and shareholder, regulatory and other approvals. We expect to close
the transaction by the end of 2002.
Refer to Note 5 to our financial statements included in Item 8 for a
discussion of this transaction.
Adelphia Cable Systems Exchange
On January 1, 2001, we completed our cable systems exchange with Adelphia
Communications Corporation. We received cable systems serving approximately
445,000 subscribers from Adelphia and Adelphia received certain of our cable
systems serving approximately 441,000 subscribers. We recorded to other income 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.
Home Team Sports Acquisition
On February 14, 2001, we acquired Home Team Sports (now known as Comcast
SportsNet Mid-Atlantic), a regional sports programming network serving
approximately 4.8 million homes, from Viacom, Inc. and Affiliated Regional
Communications, Ltd. (an affiliate of Fox Cable Network Services, LLC). We also
agreed to increase the distribution of certain of Viacom's and Fox's programming
networks on certain of our cable systems. The estimated fair value of Home Team
Sports as of the closing date of the acquisition was $240.0 million.
AT&T Cable Systems Acquisition
On April 30, 2001, we acquired cable systems serving approximately 585,000
subscribers from AT&T in exchange for approximately 63.9 million shares of AT&T
common stock then held by us. The market value of the AT&T shares was
approximately $1.423 billion, based on the price of the AT&T common stock on the
closing date of the transaction. The transaction is expected to qualify as tax
free to both us and to AT&T.
Acquisition of Controlling Interest in The Golf Channel
On June 8, 2001, we acquired the approximate 30.8% interest in The Golf
Channel held by Fox Entertainment Group, Inc., a subsidiary of The News
Corporation Limited. In addition, Fox Entertainment and News Corp. agreed to a
five-year non-competition agreement. We paid aggregate consideration of $364.9
million in cash. We now own approximately 91.0% of The Golf Channel and
consolidate The Golf Channel.
- 2 -
Baltimore, Maryland System Acquisition
On June 30, 2001, we acquired the cable system serving approximately
112,000 subscribers in Baltimore City, Maryland from AT&T for $518.7 million in
cash.
Acquisition of Outdoor Life Network
On October 30, 2001, we acquired from Fox Entertainment Group, Inc. the
approximate 83.2% interest in Outdoor Life Network not previously owned by us by
exchanging our 14.5% interest in Speedvision Network, together with a previously
made loan, for Fox Entertainment's interest in Outdoor Life Network. The
estimated fair value of the additional interest we acquired in Outdoor Life
Network as of the closing date of the transaction was approximately $512
million. We no longer own any interest in Speedvision Network and now own 100%
of Outdoor Life Network.
At Home Services
On September 28, 2001, At Home Corporation, our provider of high-speed
Internet services, filed for protection under Chapter 11 of the U.S. Bankruptcy
Code. On December 3, 2001, At Home agreed to continue to provide high-speed
Internet services to our 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.
DESCRIPTION OF OUR BUSINESSES
Cable Communications
Technology and Capital Improvements
Our cable communications networks receive signals by means of:
o special antennae,
o microwave relay systems,
o earth stations, and
o coaxial and fiber optic cables.
Products and Services
We offer a variety of services over our cable communications networks,
including traditional analog video, digital cable and high-speed Internet
service. Available service offerings depend on the bandwidth capacity of the
cable communications system. Bandwidth, expressed in megahertz (MHz), is a
measure of information-carrying capacity. It is the range of usable frequencies
that can be carried by a cable communications system. The greater the bandwidth,
the greater the capacity of the system. As of December 31, 2001, approximately
82% of our cable subscribers were served by a system with a capacity of at least
750-MHz and approximately 95% of our cable subscribers were served by a system
with a capacity of at least 550-MHz.
Digital compression technology enables us to substantially increase the
number of channels our cable communications systems can carry, thereby providing
a significant number of additional programming choices to our subscribers.
Digital compression technology converts up to twelve analog signals into a
digital format and compresses such signals into the bandwidth normally occupied
by one analog signal. At the home, a set-top video terminal converts the digital
signal into analog signals that can be viewed on a television set.
We have deployed fiber optic cable and have upgraded the technical quality
of the substantial majority of our cable communications networks. As a result,
the reliability and capacity of our systems have increased, aiding in the
delivery of additional video programming and other services such as enhanced
digital video, high- speed Internet service and, in some areas, telephony.
Franchises
Cable communications systems are constructed and operated under
non-exclusive franchises granted by state or local governmental authorities for
varying lengths of time and are subject to federal, state and local legislation
and regulation. Our franchises establish our contractual rights and obligations
for constructing and operating a cable communications system in our franchise
areas and typically provide for periodic payment of fees to franchising
authorities of up to 5% of "revenues" (as defined by each franchise agreement).
We normally pass those fees on to subscribers. In many cases, we need the
consent of the franchising authority to transfer our franchises.
Although franchises historically have been renewed, renewals may include
less favorable terms and conditions than the existing franchise. Under law,
franchises should continue to be renewed for companies that have provided
adequate service and have complied with existing franchise terms and applicable
law. We have never had a franchise revoked or otherwise been denied the right to
provide service in a municipality. The franchising authority may choose to award
additional franchises to competing companies at any time. As of December 31,
2001, we served approximately 1,900 franchise areas in the United States.
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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, competition, price
sensitivity and local regulation. Our analog service offerings include the
following programming:
o basic programming,
o expanded basic programming,
o premium services, and
o pay-per-view 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.
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.
Subscribers can also subscribe to our premium services either individually
or in packages of several channels. 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 level of service selected by the subscriber.
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.
Advanced Service Offerings
The high bandwidth capacity of our cable communications networks enables us
to deliver substantially more channels and/or advanced products and services to
our subscribers. A variety of technologies and the rapid growth of the Internet
have presented us with opportunities to provide new or expanded products and
services to our subscribers and to expand our sources of revenue. As a result,
we now offer for the benefit of both our residential and commercial subscribers:
o digital cable television services in substantially all of our systems,
and
o high-speed Internet service installed in personal computers in
approximately 75% of our systems.
We have and will continue to upgrade our cable communications systems so
that we are able to provide these and other new services such as video on
demand, commonly known as VOD, interactive television and cable telephony to our
subscribers.
Digital Cable Services
Subscribers to our digital cable service may receive:
o an interactive program guide,
o multiple channels of digital music,
o additional expanded basic programming,
o additional premium services,
o "multiplexes" of premium channels to which a subscriber also
subscribes, which are varied as to time of broadcast or programming
content theme, and
o additional pay-per-view programming, such as more pay-per-view options
and/or frequent showings of the most popular films to provide near
video-on-demand.
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 converters selected
by the subscriber.
High-Speed Internet Service
Prior to March 2002, we marketed At Home's high- speed Internet services as
Comcast@Home in areas served by our cable communications systems. Subsequent to
that time, our high-speed Internet subscribers are on our network. Residential
subscribers can connect their personal computers via cable modems to a
high-speed national network provided and managed by us to access online
information, including the Internet, at faster speeds than that of conventional
modems. We also provide businesses with Internet connectivity solutions and
networked business applications.
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Other Revenue Sources
We also generate revenues from advertising sales, installation services,
commissions from electronic retailing and other services. We generate revenues
from the sale of advertising time to local, regional and national advertisers on
non-broadcast channels we carry over our cable communications systems.
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 increases 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 have experienced increases in our cost of programming
and we anticipate that future contract renewals will result in programming costs
that are higher than our costs today, particularly for sports programming.
We utilize interactive programming guides to provide our subscribers with
current programming information, as well as advertising and other content.
Customer Service
We manage most of our cable communications systems in 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 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.
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Our Cable Communications Systems
The table below summarizes certain information for our cable communications
systems as of December 31 (homes, subscribers and subscriptions in thousands):
[Enlarge/Download Table]
2001(9) 2000(9) 1999(9) 1998 1997
---------- ---------- ----------- --------- ----------
Cable
Homes Passed (1)..................... 13,929 12,679 9,522 7,382 7,138
Subscribers (2)...................... 8,471 7,607 5,720 4,511 4,366
Penetration (3)...................... 60.8% 60.0% 60.1% 61.1% 61.2%
Digital Cable
"Digital Ready" Subscribers (4)...... 8,375 7,258 4,637 1,570
Subscriptions (5).................... 2,336 1,354 515 78
Penetration (6)...................... 27.9% 18.7% 11.1% 5.0%
High-Speed Internet
"Modem Ready" Homes Passed (7)....... 10,400 6,360 3,259 1,804 866
Subscribers.......................... 948 400 142 51 10
"Modem Ready" Penetration (8)........ 9.1% 6.3% 4.4% 2.8% 1.2%
---------------
<FN>
(1) A home is "passed" if we can connect it to our distribution system without
further extending the transmission lines.
(2) A dwelling with one or more television sets connected to a system counts as
one cable subscriber.
(3) Cable penetration means the number of cable subscribers as a percentage of
cable homes passed.
(4) A subscriber is "digital ready" if the subscriber is in a market where we
have launched our digital cable service.
(5) Each digital converter box counts as one digital cable subscription.
(6) Digital cable penetration means the number of digital cable subscriptions
as a percentage of "digital ready" subscribers. Certain subscribers may
have multiple digital cable subscriptions.
(7) A home passed is "modem ready" if we can connect it to our Internet service
connection system without further upgrading the transmission lines.
(8) "Modem ready" penetration means the number of high-speed Internet
subscribers as a percentage of "modem ready" homes passed.
(9) 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 Corp.
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.
</FN>
---------------------------
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Competition
Our cable communications systems compete with a number of different sources
which provide news, information and entertainment programming to consumers,
including:
o local television broadcast stations that provide off-air programming
which can be received using a roof-top antenna and television set,
o program distributors that transmit satellite signals containing video
programming, data and other information to receiving dishes of varying
sizes located on the subscriber's premises,
o satellite master antenna television systems, commonly known as SMATV,
which generally serve condominiums, apartment and office complexes and
residential developments,
o other operators who build and operate communications systems in the
same communities that we serve,
o interactive online computer services,
o newspapers, magazines and book stores,
o movie theaters,
o live concerts and sporting events, and
o home video products.
In order to compete effectively, we strive to provide, at a reasonable
price to subscribers:
o new products and services,
o superior technical performance,
o superior customer service, and
o a greater variety of video programming.
Federal law allows local telephone companies to provide, directly to
subscribers, a wide variety of services that are competitive with our cable
communications services, including video and Internet services 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. We are unable to predict the likelihood of success of competing
video or cable service ventures by telephone companies or other businesses. Nor
can we predict the impact these competitive ventures might have on our business
and operations.
We operate our cable communications 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.
In recent years, Congress has enacted legislation and the Federal
Communications Commission, commonly known as the FCC, has adopted regulatory
policies intended to provide a favorable operating environment for existing
competitors and for potential new competitors to our cable communications
systems. These competitors include open video systems, commonly known as OVS,
and direct broadcast satellite service, commonly known as DBS, among others.
According to recent government and industry reports, conventional, medium and
high-power satellites currently provide video programming to over 17 million
individual households, condominiums, apartment and office complexes 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 communications
systems.
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.
Two major companies, DirecTV and Echostar, are currently offering
nationwide high-power DBS services. On October 29, 2001, the Board of Directors
of General Motors agreed to sell its Hughes Electronics subsidiary, the parent
of DirecTV, to Echostar. Upon closing of the transaction, which is subject to
shareholder and regulatory approvals, the combined company would serve more than
16 million subscribers, which constitutes
- 7 -
approximately 94% of satellite television subscribers nationwide according to a
recent FCC report.
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
communications system operators like us because they offer programming which
closely resembles what we offer. These companies and others are also developing
ways to bring advanced communications services to their customers. They are
currently offering satellite-delivered high-speed Internet services with a
telephone return path and are beginning to provide true two-way interactivity.
We are unable to predict the effects these competitive developments might have
on our business and operations.
Our cable communications systems also compete for subscribers with SMATV
systems. SMATV system operators typically are not subject to regulation like
local franchised cable communications 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
communications 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 communications systems access to
these complexes. Courts have reviewed challenges to these laws and have reached
varying results.
Most of our cable communications 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 Internet service providers, commonly known as ISPs,
o local telephone companies, and
o long distance telephone companies.
Various companies, including telephone companies and ISPs, have asked
local, state and federal governments to mandate that cable communications
systems operators provide capacity on their broadband infrastructure so that
these companies and others may deliver high-speed Internet and interactive
television services to customers over cable facilities. In February 2002, we
announced an agreement with a national ISP which will provide our subscribers in
two major markets with access to the ISP's service, with the potential to
roll-out this offering to other of our cable communications systems with the
concurrence of both parties.
The deployment of Digital Subscriber Line technology, known as DSL, allows
Internet access to subscribers at data transmission speeds equal to or greater
than that of modems over conventional telephone lines. Numerous companies,
including telephone companies, have introduced DSL service, and certain
telephone companies are seeking to provide high-speed broadband services without
regard to present service boundaries and other regulatory restrictions. Congress
is currently considering legislation that, if enacted into law, will eliminate
or reduce significantly many of the regulatory restrictions on the offering of
high-speed broadband services by local telephone companies. We are unable to
predict the outcome of any legislative initiatives, the likelihood of success of
competing online services offered by our competitors or what impact these
competitive ventures may have on our business and operations.
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 11 for a detailed discussion of legislative and
regulatory factors. Other new technologies and services may develop and may
compete with services that our cable communications 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. We own 57% of 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
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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 64.1 million cable television homes. An additional 0.6 million cable
television homes receive QVC on a less than full time basis and 17.4 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 sells products by means of electronic media in the United Kingdom,
Germany and Japan. In the UK, this service currently reaches approximately 9.5
million cable television and home satellite dish-served homes. In Germany, this
service currently is available to approximately 23.6 million cable television
and home satellite dish-served homes. However, we estimate that only 10.6
million homes in Germany have programmed their television sets to receive this
service. In Japan, this service is currently available to approximately 3.6
million cable television and home satellite dish-served homes.
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, and has made arrangements 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 future 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. As of December 31, 2001, 8.8% of the total homes reached by QVC
were attributable to QVC's affiliation agreement with us.
QVC's business depends on its affiliation with programming distributors for
the transmission of QVC programming. If a significant number of homes are 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 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,
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including department, discount, warehouse and specialty stores, mail order and
other direct sellers, 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,
2001 include:
[Enlarge/Download Table]
Investment Description
------------------------------------ ----------------------------------------------------------
Comcast Spectacor Live sporting events, concerts and other events
Comcast SportsNet Regional sports programming and events
Comcast SportsNet Mid-Atlantic Regional sports programming and events
Comcast Sports Southeast Regional sports programming and events
E! Entertainment Entertainment-related news and original programming
Style Fashion-related programming
The Golf Channel Golf-related programming
Outdoor Life Network Outdoor activities
CN8-The Comcast Network Regional and local programming
G4 Media Interactive video, computer and online 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.
Comcast SportsNet
Comcast SportsNet ("CSN") is our 24-hour regional sports programming
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. CSN is delivered to affiliates terrestrially.
Comcast SportsNet Mid-Atlantic
We acquired Home Team Sports (now known as Comcast SportsNet Mid-Atlantic)
("CSN Mid-Atlantic") in February 2001. CSN Mid-Atlantic is our 24-hour
satellite-delivered regional sports programming 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 5.4 million subscribers
primarily in Delaware, Maryland, Pennsylvania, Virginia, Washington, D.C. and
West Virginia.
Comcast Sports Southeast
Comcast Sports Southeast ("CSS") was created in September 1999. CSS is a
satellite-delivered regional sports programming network which provides sports
programming and sports news geared toward college athletics to approximately 3.0
million subscribers primarily in Alabama, Arkansas, Florida, Georgia, Kentucky,
Louisiana, 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.
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Style
Style, a division of E! Entertainment, is our 24-hour cable network
dedicated to fashion, home design, beauty, health, fitness and more, with
distribution to approximately 17 million subscribers.
The Golf Channel
We acquired a controlling interest in The Golf Channel in June 2001. The
Golf Channel is our 24-hour network devoted exclusively to golf programming with
distribution to approximately 46 million subscribers. The programming schedule
includes live tournaments, golf instruction programs and golf news.
Outdoor Life Network
We acquired the approximate 83.2% interest in Outdoor Life Network that we
did not previously own in October 2001. Outdoor Life Network is our 24-hour
network devoted exclusively to adventure and the outdoor lifestyle with
distribution to approximately 41 million subscribers. Its programming focuses on
a wide range of outdoor activities including expeditions, skiing, bicycling,
surfing and camping.
CN8-The Comcast Network
CN8-The Comcast Network, our regional programming service, is delivered to
approximately 3.5 million cable subscribers in Pennsylvania, New Jersey,
Delaware and Maryland. CN8 provides original programming, including local and
regional news and public affairs, regional sports, health, cooking and family-
oriented programming.
G4 Media
G4 Media, our 24-hour programming network, is dedicated to creating a
lifestyle brand that is the source of entertainment, news and information about
the interactive entertainment industry, including video, computer, online and
wireless games. G4 Media is expected to launch during the second or third
quarter of 2002.
---------------------------
LEGISLATION AND REGULATION
Cable
The Communications Act of 1934, as amended, establishes a national policy
to regulate the development and operation of cable communications systems. The
Communications Act allocates responsibility for enforcing federal policies among
the FCC, state and local governmental authorities. The courts, especially the
federal courts, play an important oversight role as these statutory and
regulatory provisions are interpreted and enforced by the various federal, state
and local governmental units.
We expect that court actions and regulatory proceedings will continue to
refine the rights and obligations of various parties, including the government,
under the Communications Act. The results of these judicial and administrative
proceedings may materially affect our business operations. In the following
paragraphs, we summarize the principal federal laws and regulations materially
affecting the growth and operation of the cable communications industry. We also
provide a brief description of certain state and local laws applicable to our
businesses.
The Communications Act and FCC Regulations
The Communications Act and the regulations and policies of the FCC affect
significant aspects of our cable system operations, including:
o subscriber rates,
o the content of programming we offer our subscribers, as well as the
way we sell our program packages to subscribers and other video
program distributors,
o the use of our cable systems by franchising authorities, the public
and other unrelated third parties,
o our franchise agreements with governmental authorities,
o cable system ownership limitations and prohibitions, and
o our use of utility poles and conduit.
Subscriber Rates
The Communications Act and the FCC's regulations and policies limit the
ability of cable systems to raise rates for basic services and equipment in
communities that are not subject to effective competition, as defined by federal
law. Where there is no effective competition, federal law gives franchising
authorities the power to regulate the monthly rates charged by the operator for:
o the lowest level of programming service,
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typically called basic service, which generally includes local
broadcast channels and public access or governmental channels required
by the operator's franchise, and
o the installation, sale and lease of equipment used by subscribers to
receive basic service, such as converter boxes and remote control
units.
The FCC has detailed rate regulations, guidelines and rate forms that we
and the franchising authority must use in connection with the regulation of our
basic service and equipment rates. If the franchising authority concludes that
our rates are not in accordance with the FCC's rate regulations, it may require
us to reduce our rates and to refund overcharges to subscribers, with interest.
We may appeal adverse rate decisions to the FCC.
The Communications Act and the FCC's regulations also:
o prohibit regulation of rates charged by cable operators for
programming offered on a per channel or per program basis, and for
multi- channel groups of non-basic programming,
o require operators to charge uniform rates throughout each franchise
area that is not subject to effective competition,
o prohibit regulation of non-predatory bulk discount rates offered by
operators to subscribers in commercial and residential developments,
o permit regulated equipment rates to be computed by aggregating costs
of broad categories of equipment at the franchise, system, regional or
company level, and
o prohibit regulation of rates by local franchising authorities for
other services provided over a cable system, such as high-speed
Internet services.
Content Requirements
The Communications Act and the FCC's regulations contain broadcast signal
carriage requirements that allow certain local commercial television broadcast
stations:
o to elect once every three years to require a cable communications
system to carry the station, subject to certain exceptions, or
o to negotiate with us on the terms by which we may carry the station on
our cable communications system, commonly called retransmission
consent.
The Communications Act and the FCC's regulations require a cable operator
to devote up to one-third of its activated channel capacity for the mandatory
carriage of local commercial television stations. The Communications Act and the
FCC's regulations also give local non-commercial television stations mandatory
carriage rights; however, such stations are not given the option to negotiate
retransmission consent for the carriage of their signals by cable systems.
Additionally, cable systems must obtain retransmission consent for:
o all "distant" commercial television stations (except for commercial
satellite-delivered independent "superstations"),
o commercial radio stations, and
o certain low-power television stations.
FCC regulations require us to carry the signals of local digital-only
broadcast stations (both commercial and non-commercial) and the digital signals
of those local broadcast stations that return their analog spectrum to the
government and convert to a digital broadcast format. The FCC's rules give the
digital-only broadcast stations the discretion to elect whether the operator
will carry the station's signal in a digital or converted analog format, and
they also permit broadcasters with both analog and digital signals to tie the
carriage of their digital signals with the carriage of their analog signals as a
retransmission consent condition. The FCC continues to consider further
modifications to its digital broadcast signal carriage requirements. We are
unable to predict the impact any new carriage requirements might have on the
operations of our cable systems.
The Communications Act requires our cable systems to permit subscribers to
purchase video programming on a per channel or a per program basis without the
necessity of subscribing to any tier of service, other than the basic cable
service tier. However, we are not required to comply with this requirement until
October 2002 for any of our cable systems that do not have addressable converter
boxes or that have other substantial technological limitations. Although a
limited number of our systems do not have the technological capability to offer
programming in the manner required by the statute, and thus currently are exempt
from complying with this requirement, we anticipate that all of our systems will
be in compliance with this requirement by the statutory deadline.
The Communications Act and the FCC's regulations:
o preclude any satellite video programmer affiliated with a cable
company, or with a common carrier, providing video programming
directly to its subscribers, from favoring an
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affiliated company over competitors, and
o limit the ability of such programmers to offer exclusive programming
arrangements to their affiliates.
The FCC has concluded that the program access rules do not apply to certain
terrestrially-delivered programming, such as CSN. The FCC decision is currently
under appeal. The FCC also is considering whether to retain the current
prohibition, which is scheduled to expire in October 2002, on exclusive
programming distribution contracts between cable operators and affiliated
program distributors.
The Communications Act contains restrictions on the transmission by cable
operators of obscene programming. The Communications Act requires the cable
operator, upon the request of the subscriber, to scramble or otherwise fully
block any channel that is not included in the programming package purchased by
the subscriber. Additionally, cable operators are required by the Communications
Act and the FCC's regulations to provide by sale or lease a lockbox or other
device that permits the subscriber to block the viewing of specific channels in
the subscriber's home during periods selected by the subscriber.
The FCC actively regulates other aspects of our programming, involving such
areas as:
o our use of syndicated and network programs and local sports broadcast
programming,
o advertising in children's programming,
o political advertising,
o origination cablecasting,
o sponsorship identification, and
o closed captioning of video programming.
The FCC has also initiated a proceeding to evaluate its jurisdiction and
regulatory authority concerning the distribution over cable communications
systems of interactive television services, including advanced instant messaging
and interactive menu services.
Use of Our Cable Systems by The Government and Unrelated Third Parties
The Communications Act allows franchising authorities and unrelated third
parties to have access to our cable systems' channel capacity. For example, it:
o permits franchising authorities to require cable operators to set
aside channels for public, educational and governmental access
programming, and
o 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.
The FCC regulates various aspects of third party commercial use of channel
capacity on our cable systems, including the rates and certain terms and
conditions of the commercial use.
Various companies, including telephone companies and ISPs, have asked
local, state and federal governments to mandate that cable operators provide
capacity on their broadband infrastructure so that these companies and others
may deliver high-speed Internet and interactive television services directly to
subscribers over cable facilities. Some cable operators, including us, have
successfully challenged efforts by local franchising authorities to impose
unilaterally so-called "open access" requirements. Although the court decisions
dealing with this issue generally have concluded that the local franchising
authority cannot regulate Internet access over cable systems, the legal
rationale for these decisions has varied.
In connection with its review of the AOL-Time Warner merger in early 2001,
the FCC and the Federal Trade Commission imposed certain access, technical
performance and other requirements relating to the merged company's high-speed
Internet, Interactive Television, and advanced Instant Messaging services. The
FCC and the U.S. Department of Justice (DOJ) are currently reviewing our
proposed merger with AT&T Broadband, but we do not believe the factual
circumstances involved in our merger with AT&T Broadband warrant the imposition
of comparable restrictions on the combined company.
In a decision adopted in March 2002 addressing the regulatory
classification of high-speed Internet services, the FCC concluded that Internet
services delivered over cable operators' communications systems are interstate
"information services," and it confirmed that cable operators like us, who are
offering high-speed Internet services, are not subject to common carrier
requirements to offer on a stand-alone basis to third parties the transport
functions underlying the information services we offer to our subscribers. The
FCC also recently initiated separate rulemaking proceedings to assess the
appropriate regulatory frameworks, including the role of local regulatory
authorities, governing broadband access to the Internet through cable operators'
and telephone companies' communications networks, respectively. In
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the telephone broadband proceeding, the FCC has proposed to classify broadband
Internet services delivered by telephone companies over their own wireline
facilities as interstate "information services." The outcome of these FCC
rulemaking proceedings may affect significantly our regulatory obligations,
including whether we will be required to pay local governmental franchise fees
and/or federal and state universal service fees on our cable Internet revenues.
The March 2002 decision of the FCC has been appealed to the courts.
Some cable operators, including us, have entered into contracts that allow
independent ISPs to provide their Internet services over the cable operators'
communications network. We expect such contractual arrangements to become more
common in the future as cable operators' networks evolve and as competitive
alternatives to cable broadband networks continue to grow, thereby limiting the
need, if any, for government action mandating access by ISPs to our
communications networks. We cannot predict the ultimate outcome of the FCC's
rulemaking proceedings, the appeal of the FCC decision, the governmental review
of our proposed merger with AT&T Broadband, or the impact of any new regulatory
requirements on our operations.
Franchise Matters
Although franchising matters are normally regulated at the local level
through a franchise agreement and/or a local ordinance, the Communications Act
provides oversight and guidelines to govern our relationship with local
franchising authorities. For example, the Communications Act:
o affirms the right of franchising authorities (state or local,
depending on the practice in individual states) to award one or more
franchises within their jurisdictions,
o generally prohibits us from operating in communities without a
franchise,
o encourages competition with our existing cable systems by:
o allowing municipalities to operate cable systems without
franchises, and
o preventing franchising authorities from granting exclusive
franchises or from unreasonably refusing to award additional
franchises covering an existing cable system's service area,
o permits local authorities, when granting or renewing our franchises,
to establish requirements for certain cable-related facilities and
equipment, but prohibits franchising authorities from establishing
requirements for specific video programming or information services
other than in broad categories,
o permits us to obtain modification of our franchise requirements from
the franchise authority or by judicial action if warranted by changed
circumstances,
o generally prohibits franchising authorities from:
o imposing requirements during the initial cable franchising
process or during franchise renewal that require, prohibit
or restrict us from providing telecommunications services,
o imposing franchise fees on revenues we derive from providing
telecommunications services over our cable systems, or
o restricting our use of any type of subscriber equipment or
transmission technology, and
o limits our payment of franchise fees to the local franchising
authority to 5% of our gross revenues derived from providing cable
services over our cable system.
The Communications Act contains procedures designed to protect us against
arbitrary denials of the renewal of our franchises, although a franchising
authority under various conditions can deny us a franchise renewal. Moreover,
even if our franchise is renewed, the franchising authority may seek our
agreement to new or additional requirements such as significant upgrades in
facilities and services or increased franchise fees as a condition of renewal.
Similarly, if a franchising authority's consent is required for the purchase or
sale of a cable system or franchise, the franchising authority may seek
additional franchise requirements on us in connection with a request for such
consent. Historically, cable operators providing satisfactory services to their
subscribers and complying with the terms of their franchises have typically
obtained franchise renewals. We believe that we have generally met the terms of
our franchise agreements and have provided quality levels of service. We have
never had a franchise revoked or otherwise been denied the right to provide
service in a municipality. We anticipate that our future franchise renewal
prospects generally will be favorable.
Various courts have considered whether franchising authorities have the
legal right to limit the number of franchises awarded within a community and to
impose certain substantive franchise requirements (e.g. access channels,
universal service and other technical requirements). These decisions have been
inconsistent and, until the United States Supreme Court rules
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definitively on the scope of cable operators' constitutional and statutory
protections, the legality of the franchising process generally and of various
specific franchise requirements is likely to be in a state of flux.
Ownership Limitations
The Communications Act generally prohibits us from owning or operating a
SMATV or wireless cable system in any area where we provide franchised cable
service. We may, however, acquire and operate SMATV systems in our franchised
service areas if the programming and other services provided to SMATV
subscribers are offered according to the terms and conditions of our franchise
agreement.
The Communications Act also authorizes the FCC to impose nationwide limits
on the number of subscribers under the control of a cable operator and on the
number of channels that can be occupied on a cable system by video programmers
in which the cable operator has an attributable ownership interest. The FCC
adopted cable ownership regulations and established:
o subscriber ownership information reporting requirements, and
o attribution rules that identify when the ownership or management by us
or third parties of other communications businesses, including cable
systems, television broadcast stations and local telephone companies,
may be imputed to us for purposes of determining our compliance with
the FCC's ownership restrictions.
The federal courts have rejected constitutional challenges to the statutory
ownership limitations; however, a federal appellate court concluded that the
FCC's 30% nationwide cable subscriber ownership limit and its 40% cap on the
number of affiliated programming channels an operator may carry on its system
were unconstitutional and that certain of its ownership attribution rules were
not justified properly. The FCC recently initiated a rulemaking proceeding to
determine new horizontal and vertical cable ownership limitations and to
evaluate its attribution standards. We are unable to predict the outcome of this
administrative proceeding or the impact any ownership restrictions might have on
our business and operations.
The Communications Act eliminated the statutory prohibition on the common
ownership, operation or control of a cable system and a television broadcast
station in the same market. The FCC eliminated its regulations which precluded
the cross-ownership of a national broadcasting network and a cable system, and a
federal appellate court recently ordered the FCC to repeal its regulations
prohibiting the common ownership of other broadcasting interests and cable
systems in the same geographical areas.
The 1996 amendments to the Communications Act made far-reaching changes in
the relationship between local telephone companies and cable companies. These
amendments:
o eliminated federal legal barriers to competition in the local
telephone and cable communications businesses, including allowing
local telephone companies to offer video services in their local
telephone service areas,
o preempted state and local laws and regulations which impose barriers
to telecommunications competition,
o set basic standards for relationships between telecommunications
providers, and
o generally limited acquisitions and prohibited certain joint ventures
between local telephone companies and cable operators in the same
market.
Local telephone companies may provide service as traditional cable
operators with local franchises or they may opt to provide their programming
over unfranchised "open video systems," subject to certain conditions,
including, but not limited to, setting aside a portion of their channel capacity
for use by unaffiliated program distributors on a non-discriminatory basis. A
federal appellate court overturned various parts of the FCC's open video rules,
including the FCC's preemption of local franchising requirements for open video
operators. The FCC has modified its open video rules to comply with the federal
court's decision. We are unable to predict the impact these rule modifications
may have on our business and operations.
Pole Attachment Regulation
The Communications Act requires that utilities provide cable systems and
telecommunications carriers with nondiscriminatory access to any pole, conduit
or right-of-way controlled by the utility. The Communications Act also requires
the FCC to regulate the rates, terms and conditions imposed by public utilities
for cable systems' use of utility pole and conduit space unless state
authorities demonstrate to the FCC that they adequately regulate pole attachment
rates, as is the case in certain states in which we operate. In the absence of
state regulation, the FCC administers pole attachment rates on a formula basis.
The FCC's original rate formula governs the maximum rate certain utilities may
charge for attachments to their poles and conduit by cable operators
- 15 -
providing only cable services. The FCC also adopted a second rate formula that
became effective in February 2001 and governs the maximum rate certain utilities
may charge for attachments to their poles and conduit by companies providing
telecommunications services, including cable operators. Any resulting increase
in attachment rates due to the FCC's new rate formula will be phased in over a
five-year period in equal annual increments, beginning in February 2001.
The U.S. Supreme Court recently upheld the FCC's jurisdiction to regulate
the rates, terms and conditions of cable operators' pole attachments that are
simultaneously used to provide high-speed Internet access and cable services,
and a federal appellate court is currently evaluating whether the FCC's rate
formulas, as applied in a specific case, provide "just compensation" under the
Federal Constitution. We have joined in several pending complaints filed at the
FCC by various state cable associations challenging certain utilities' rate
increases and the unilateral imposition of new contract terms. The utilities in
these cases have challenged, among other things, the constitutionality of the
FCC's pole attachment rate formulas. We are unable to predict the outcome of the
legal challenge to the FCC's regulations or the ultimate impact any revised FCC
rate formula, any new pole attachment rate regulations or any modification of
the FCC's regulatory authority might have on our business and operations.
Other Regulatory Requirements of the Communications Act and the FCC
The Communications Act also includes provisions, among others, regulating:
o customer service,
o subscriber privacy,
o marketing practices,
o equal employment opportunity, and
o technical standards and equipment compatibility.
The FCC actively regulates other parts of our cable operations and has
adopted regulations implementing its authority under the Communications Act.
The FCC may enforce its regulations through the imposition of substantial
fines, the issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in connection with cable
operations. The FCC has ongoing rulemaking proceedings that may change its
existing rules or lead to new regulations. We are unable to predict the impact
that any further FCC rule changes may have on our business and operations.
Copyright
Our cable communications systems provide our subscribers with local and
distant television and radio broadcast signals which are protected by the
copyright laws. We generally do not obtain a license to use this programming
directly from the owners of the programming; instead we comply with an
alternative federal copyright licensing process. In exchange for filing certain
reports and contributing a percentage of our revenues to a federal copyright
royalty pool, we obtain blanket permission to retransmit copyrighted material.
The U.S. Copyright Office recommended that Congress make major revisions to
both the cable television and satellite compulsory licenses. Congress modified
the satellite compulsory license in a manner that permits DBS providers to
become more competitive with cable operators like us. The possible
simplification, modification or elimination of the cable communications
compulsory copyright license is the subject of continuing legislative review.
The elimination or substantial modification of the cable compulsory license
could adversely affect our ability to obtain suitable programming and could
substantially increase the cost of programming that remains available for
distribution to our subscribers. We are unable to predict the outcome of this
legislative activity.
Our cable communications systems often utilize music in the programs we
provide to subscribers including local advertising, local origination
programming and pay-per-view events. The right to use this music is controlled
by music performing rights organizations who negotiate on behalf of their
members for license fees covering each performance. The cable industry and one
of these organizations previously agreed upon a standard licensing agreement
covering the performance of music contained in programs originated by cable
operators and in pay-per-view events. Cable industry representatives recently
negotiated standard license agreements with the two remaining sizable music
performing rights organizations covering cable operators' locally originated
programming, including advertising inserted by the operator in programming
produced by other parties. We expect that these organizations will now seek to
execute these standard agreements with most cable operators, including us.
Although each of these agreements requires payment of music license fees for
earlier time periods, we do not believe that the amount of license fees paid to
such organizations will be significant to our financial condition, results of
operations or liquidity.
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State and Local Regulation
Our cable systems use local streets and rights-of-way. Consequently, we
must comply with state and local regulation which is typically imposed through
the franchising process. The terms and conditions of our franchises vary
materially from jurisdiction to jurisdiction. Franchises generally contain
provisions governing:
o cable service rates,
o franchise fees,
o franchise term,
o system construction and maintenance obligations,
o system channel capacity,
o design and technical performance,
o customer service standards,
o franchise renewal,
o sale or transfer of the franchise,
o service territory of the franchisee,
o indemnification of the franchising authority,
o use and occupancy of public streets, and
o types of cable services provided.
A number of states subject cable systems to the jurisdiction of state
governmental agencies. Those states in which we operate that have enacted such
state level regulation are Connecticut, New Jersey and Delaware. State and local
franchising jurisdiction is not unlimited, however; it must be exercised
consistently with federal law. The Communications Act immunizes franchising
authorities from monetary damage awards arising from the regulation of cable
systems or decisions made on franchise grants, renewals, transfers and
amendments.
The summary of certain federal and state regulatory requirements in the
preceding pages does not describe all present and proposed federal, state and
local regulations and legislation affecting the cable industry. Other existing
federal regulations, copyright licensing, and, in many jurisdictions, state and
local franchise requirements, are currently the subject of judicial proceedings,
legislative hearings and administrative proposals which could change, in varying
degrees, the manner in which cable systems operate. We are unable to predict the
outcome of these proceedings or their impact upon our cable operations at this
time.
Commerce and Content
The FCC does not directly regulate the content or transmission of our
programming services. The FCC does, however, exercise regulatory authority over
the satellites and uplink facilities which transmit programming services such as
those provided by certain of our programming networks. The FCC has granted,
subject to periodic reviews, permanent licenses to QVC for its uplink facilities
(and for backup equipment of certain of these facilities) at sufficient power
levels for transmission of the QVC service. The FCC has licensing authority over
satellites from which certain of our programming services obtain transponder
capacity, but does not regulate their rates, terms or conditions of service. The
FCC could, however, alter the regulatory obligations applicable to satellite
service providers. The QVC programming services offered in the UK, Germany and
Japan are regulated by the media authorities in those countries.
EMPLOYEES
As of December 31, 2001, we had approximately 38,000 employees. Of these
employees, approximately 20,000 were associated with cable communications,
approximately 11,000 were associated with commerce and approximately 7,000 were
associated with our other divisions. 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 communications
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. In order to keep pace with
technological advances, we are maintaining, periodically upgrading and
rebuilding the physical components of our cable communications systems.
Commerce
Television studios, customer service call centers,
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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 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. QVC's warehousing and distribution
facilities will continue to be upgraded over the next several years.
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
We are subject to 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.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT
The current term of office of each of our officers expires at the first
meeting of our Board of Directors following the next Annual Meeting of
Shareholders, presently scheduled to be held in June 2002, or as soon thereafter
as each of their successors is elected and qualified. The following table sets
forth certain information concerning our executive officers, including their
ages, positions and tenure as of December 31, 2001:
[Enlarge/Download Table]
Officer
Name Age Since Position with Comcast
--------------------- ---------- ------------ --------------------------------------------------------
Ralph J. Roberts 81 1969 Chairman of the Board of Directors; Director
Julian A. Brodsky 68 1969 Vice Chairman of the Board of Directors; Director
Brian L. Roberts 42 1986 President; Director
John R. Alchin 53 1990 Executive Vice President; Treasurer
Stephen B. Burke 43 1998 Executive Vice President
Lawrence S. Smith 54 1988 Executive Vice President
Stanley L. Wang 61 1981 Executive Vice President - Law and Administration
Lawrence J. Salva 45 2000 Senior Vice President and Chief Accounting Officer
--------------------
Ralph J. Roberts has served as a Director and as our Chairman of the Board
of Directors for more than five years. Mr. Roberts devotes a major portion of
his time to our business and affairs. Mr. Roberts also presently serves as a
Director of Comcast Cable Communications, Inc. Mr. Roberts is the father of
Brian L. Roberts.
Julian A. Brodsky has served as a Director and as our Vice Chairman of the
Board of Directors for more than five years. Mr. Brodsky devotes a major portion
of his time to our business and affairs. Mr. Brodsky has served as the Chairman
of Comcast Interactive Capital, LP since its formation in January 1999. Mr.
Brodsky is also a Director of RBB Fund, Inc. and NDS Group plc.
Brian L. Roberts has served as our President and as a Director for more
than five years. Mr. Roberts devotes a major portion of his time to our business
and affairs. Mr. Roberts is Manager of Sural LLC ("Sural"), a privately-held
investment company and our controlling shareholder. As of December 31, 2001, our
shares owned by Sural constituted approximately 87% of the voting power of the
two classes of our voting common stock combined. Mr. Roberts has sole voting
power over stock representing a majority of voting power of all Sural stock and,
therefore, has voting control over Comcast. Mr. Roberts is our Principal
Executive Officer. Mr. Roberts also presently serves as a Director of Comcast
Cable Communications, Inc. and The Bank of New York. Mr. Roberts is a son of
Ralph J. Roberts.
John R. Alchin was named an Executive Vice President in January 2000. Prior
to that time, Mr. Alchin served as our Treasurer and as a Senior Vice President
for more than five years. Mr. Alchin is our Principal Financial Officer.
Stephen B. Burke was named an Executive Vice President in January 2000. Mr.
Burke joined the Company in June 1998 as Senior Vice President and has served as
President of Comcast Cable Communications, Inc. since that time. Prior to
joining the Company, Mr. Burke served with The Walt Disney Company as President
of ABC Broadcasting from January 1996 to June 1998, and as President of Euro
Disney from October 1992 to January 1996.
Lawrence S. Smith has served as an Executive Vice President for more than
five years. For more than five years prior to January 2000, Mr. Smith served as
our Principal Accounting Officer. Mr. Smith also presently serves as a Director
of Comcast Cable Communications, Inc.
Stanley L. Wang was named Executive Vice President - Law and Administration
in January 2000. Prior to that time, Mr. Wang served as a Senior Vice President
and as our Secretary and General Counsel for more than five years. Mr. Wang also
presently serves as a Director of Comcast Cable Communications, Inc.
Lawrence J. Salva joined the Company in January 2000 as Senior Vice
President and Chief Accounting Officer. Prior to that time, Mr. Salva was a
national accounting consulting partner in the public accounting firm of
PricewaterhouseCoopers for more than five years. Mr. Salva has served as our
Principal Accounting Officer since January 2000.
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our Class A Special Common Stock is included on Nasdaq under the symbol
CMCSK and our Class A Common Stock is included on Nasdaq under the symbol CMCSA.
There is no established public trading market for our Class B Common Stock. Our
Class B Common Stock can be converted, on a share for share basis, into Class A
Special or Class A Common Stock. The following table sets forth, for the
indicated periods, the closing price range of our Class A Special and Class A
Common Stock as furnished by Nasdaq.
[Enlarge/Download Table]
Class A
Special Class A
-------------------------------------------------------------
High Low High Low
------------- ----------- ------------- ------------
2001
First Quarter...................................... $45.88 $38.69 $45.25 $38.06
Second Quarter..................................... 45.50 39.50 44.75 38.88
Third Quarter...................................... 43.30 32.51 42.70 32.79
Fourth Quarter..................................... 40.18 35.19 40.06 34.95
2000
First Quarter...................................... $54.56 $38.31 $51.44 $36.25
Second Quarter..................................... 44.19 29.75 41.75 29.75
Third Quarter...................................... 41.06 31.06 40.69 30.75
Fourth Quarter..................................... 43.94 34.00 43.94 33.88
--------------------
Our Board of Directors eliminated the quarterly cash dividend on all
classes of our common stock in March 1999. We do not intend to pay dividends on
our Class A Special, Class A or Class B Common Stock for the foreseeable future.
If you hold shares of our Class A Special Common Stock, you cannot vote in
the election of directors or otherwise, except where class voting is required by
law. In that case, if you hold Class A Special Common Stock, you have one vote
per share. Generally, if you hold Class A Common Stock, you have one vote per
share. If you hold Class B Common Stock, you have 15 votes per share. Generally,
including the election of directors, holders of Class A Common Stock and Class B
Common Stock vote as one class except where class voting is required by law.
As of December 31, 2001, there were 4,088 record holders of our Class A
Special Common Stock, 1,484 record holders of our Class A Common Stock and one
record holder of our Class B Common Stock.
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ITEM 6 SELECTED FINANCIAL DATA
[Enlarge/Download Table]
Year Ended December 31,
2001(1) 2000(1) 1999(1) 1998 1997
-------------------------------------------------------------
(Dollars in millions, except per share data)
-------------------------------------------------
Statement of Operations Data:
Revenues........................................... $9,674.2 $8,218.6 $6,529.2 $5,419.0 $4,700.4
Operating income (loss)............................ (746.2) (161.0) 664.0 557.1 466.6
Income (loss) from continuing operations before
extraordinary items and cumulative effect
of accounting change.......................... 225.6 2,045.1 780.9 1,007.7 (182.9)
Discontinued operations (2)........................ 335.8 (31.4) (25.6)
Extraordinary items................................ (1.5) (23.6) (51.0) (4.2) (30.2)
Cumulative effect of accounting change............. 384.5
Net income (loss).................................. 608.6 2,021.5 1,065.7 972.1 (238.7)
Basic earnings (loss) for common stockholders
per common share (3)
Income (loss) from continuing operations
before extraordinary items and cumulative
effect of accounting change................ $.24 $2.27 $1.00 $1.34 ($.29)
Discontinued operations (2)................... .45 (.04) (.04)
Extraordinary items........................... (.03) (.07) (.01) (.04)
Cumulative effect of accounting change........ .40
----------- ---------- ---------- ---------- ----------
Net income (loss)............................. $.64 $2.24 $1.38 $1.29 ($.37)
=========== ========== ========== ========== ==========
Diluted earnings (loss) for common
stockholders per common share (3)
Income (loss) from continuing operations
before extraordinary items and cumulative
effect of accounting change................ $.23 $2.16 $.95 $1.25 ($.29)
Discontinued operations (2)................... .41 (.03) (.04)
Extraordinary items........................... (.03) (.06) (.01) (.04)
Cumulative effect of accounting change ....... .40
----------- ---------- ---------- ---------- ----------
Net income (loss)............................. $.63 $2.13 $1.30 $1.21 ($.37)
=========== ========== ========== ========== ==========
Cash dividends declared per common share (3)....... $.0467 $.0467
Balance Sheet Data (at year end):
Total assets....................................... $38,131.8 $35,744.5 $28,685.6 $14,710.5 $11,234.3
Working capital.................................... 1,419.5 1,670.9 4,771.6 2,497.0 13.6
Long-term debt..................................... 11,741.6 10,517.4 8,707.2 5,464.2 5,334.1
Stockholders' equity............................... 14,473.0 14,086.4 10,341.3 3,815.3 1,646.5
Supplementary Financial Data:
Operating income before depreciation and
amortization (4).............................. $2,701.8 $2,470.3 $1,880.0 $1,496.7 $1,293.1
Net cash provided by (used in) (5)
Operating activities.......................... 1,229.5 1,219.3 1,249.4 1,067.7 844.6
Financing activities.......................... 1,476.3 (271.4) 1,341.4 809.2 283.9
Investing activities.......................... (3,007.3) (1,218.6) (2,539.3) (1,415.3) (1,045.8)
----------
<FN>
(1) You should see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Item 7 of this Annual Report for a discussion
of events which affect the comparability of the information reflected in
this financial data.
(2) In July 1999, we sold Comcast Cellular Corporation to SBC Communications,
Inc. Comcast Cellular is presented as a discontinued operation for all
periods presented (see Note 5 to our consolidated financial statements in
Item 8 of this Annual Report).
(3) We have adjusted these for our two-for-one stock split in the form of a
100% stock dividend in May 1999.
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(4) Operating income before depreciation and amortization is commonly referred
to in our businesses as "operating cash flow." Operating cash flow is a
measure of a company's ability to generate cash to service its obligations,
including debt service obligations, and to finance capital and other
expenditures. In part due to the capital intensive nature of our businesses
and the resulting significant level of non-cash depreciation and
amortization expense, operating cash flow is frequently used as one of the
bases for comparing businesses in our industries, although our measure of
operating cash flow may not be comparable to similarly titled measures of
other companies. Operating cash flow is the primary basis used by our
management to measure the operating performance of our businesses.
Operating cash flow does not purport to represent net income or net cash
provided by operating activities, as those terms are defined under
generally accepted accounting principles, and should not be considered as
an alternative to those measurements as an indicator of our performance.
(5) This represents net cash provided by (used in) operating activities,
financing activities and investing activities as presented in our
consolidated statement of cash flows which is included in Item 8 of this
Annual Report.
</FN>
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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We have grown significantly in recent years through both strategic
acquisitions and growth in our existing businesses. We have historically met our
cash needs for operations through our cash flows from operating activities. We
have generally financed our cash requirements for acquisitions and capital
expenditures through borrowings of long-term debt, sales of investments and from
existing cash, cash equivalents and short-term investments.
Except where specifically indicated, the following management's discussion
and analysis of financial condition and results of operations does not include
the anticipated effects of the AT&T Broadband transaction.
General Developments of Business
Refer to "General Developments of Our Business" in Part I and Note 5 to our
financial statements in Item 8 for a discussion of our acquisitions and other
significant events.
Most Significant and Subjective Estimates
The following discussion and analysis of our financial condition and
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 and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to sales returns, doubtful accounts, inventories, investments and
derivative financial instruments, long-lived assets, non-monetary transactions,
and contingencies. We base our estimates 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 judgments 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.
We believe the following represent the most significant and subjective
estimates used in the preparation of our consolidated financial statements.
QVC, Inc. ("QVC") is our majority-owned electronic retailing subsidiary.
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.
QVC estimates and maintains reserves for expected sales returns and allowances
based principally on its return practices and its historical experience. If
actual sales returns differ from the estimated return rates projected by QVC,
QVC may need to increase or decrease its reserves for sales returns and
allowances, which could affect our reported income.
We maintain allowances for doubtful accounts for estimated losses resulting
from our customers' failure to make required payments. If the future payments by
our customers were to differ from our estimates, we may need to increase or
decrease our allowances for doubtful accounts, which could affect our reported
income.
QVC maintains reserves for excess and obsolete inventories to reflect its
inventory at the lower of its stated cost or market value. QVC's estimate for
excess and obsolete inventory is based upon QVC's assumptions about future
demand and market conditions. If future demand and actual market conditions are
more or less favorable than those projected by QVC, QVC may need to increase or
decrease its reserves for excess and obsolete inventories, which could affect
our reported income.
We hold minority interests in companies generally having operations or
technology in areas within our strategic focus, some of which are publicly
traded and may have highly volatile share prices. We also hold investments in
private companies that have no active market by which fair values can be easily
assessed. We record an investment impairment charge when we believe an
investment has experienced a decline in value that is other than temporary.
Future adverse changes in market conditions or poor operating results of
underlying investments could result in losses or an inability to recover the
carrying value of the investments that may not be reflected in an investment's
current carrying value, thereby possibly requiring an impairment charge in the
future.
We use derivative financial instruments to manage exposures to interest
rates and equity prices, and to manage the cost of our share repurchases. We
make investments in businesses, to some degree, through the purchase of equity
call option or call warrant agreements. We have issued indexed debt instruments
and entered into prepaid forward sale agreements whose value, in part, is
derived from the market value of Sprint PCS common stock, and we have also sold
call options on certain of our investments in equity securities in order to
monetize a
- 23 -
portion of those investments. We record all our derivative financial instruments
on our balance sheet at their estimated fair values. Other than for the
effective portion of our derivative instruments that we designate as cash flow
hedges, all changes in the fair value of our derivative financial instruments
are recorded each period in current earnings. The estimated fair values of our
derivative financial instruments are determined through the use of various
valuation models that incorporate certain market assumptions such as volatility,
dividend yield and interest rates. The estimated fair values assigned could
change significantly as a result of changes in the underlying assumptions.
We periodically examine those instruments that we have entered into to
hedge exposure to interest rate and equity price risks to ensure that the
instruments are matched with underlying assets and liabilities, reduce our risks
relating to interest rates and equity prices and, through market value and
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 our
statement of operations. Although we periodically monitor hedge effectiveness,
market conditions could cause our hedges to become ineffective, thereby reducing
our ability to manage our risks and requiring additional amounts to be recorded
through our statement of operations. 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 periodically evaluate the recoverability of our long-lived assets,
including property and equipment and intangible assets, whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. Our 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 value of
an asset determined by these evaluations is less than its carrying amount, a
loss is recognized for the difference between the fair value and the carrying
value of the asset. Future adverse changes in market conditions or poor
operating results of the related business may indicate an inability to recover
the carrying value of the assets, thereby possibly requiring an impairment
charge in the future.
Periodically, we enter into non-monetary transactions such as exchanges of
cable systems and exchanges of investments which require us to make estimates of
the fair values of the assets involved in order to record these transactions in
our financial statements. Fair values assigned affect operating results in the
period of the exchange and possibly in future periods. In the case of a cable
systems exchange, the gain or loss on the systems sold and the future
depreciation and amortization expense on the assets acquired are affected by the
fair values assigned to the transaction.
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.
Liquidity and Capital Resources
The cable communications and the electronic retailing industries are
experiencing increasing competition and rapid technological changes. Our future
results of operations will be affected by our ability to react to changes in the
competitive environment and by our ability to implement new technologies. We
believe that competition and technological changes will not significantly affect
our ability to obtain financing.
We believe that we will be able to meet our current and long-term liquidity
and capital requirements, including fixed charges, through our cash flows from
operating activities, existing cash, cash equivalents and investments, and
through available borrowings under our existing credit facilities.
We have both the ability and intent to redeem the $1.096 billion
outstanding Zero Coupon Debentures with amounts available under subsidiary
credit facilities if holders exercise their rights to require us to repurchase
the Zero Coupon Debentures in December 2002. As of December 31, 2001, certain of
our subsidiaries had unused lines of credit of $3.460 billion under their
respective credit facilities.
Refer to Note 7 to our financial statements included in Item 8 for a
discussion of our Zero Coupon Debentures. Refer to the Contractual Cash
Obligations and Commitments table on page 28 and to Note 11 to our financial
statements included in Item 8 for a discussion of our commitments and
contingencies.
AT&T Broadband Transaction
Excluding AT&T Broadband's exchangeable notes, which are mandatorily
redeemable at AT&T Broadband's option into shares of certain publicly traded
companies held by AT&T Broadband, we currently estimate that an aggregate of
approximately $20 billion of assumed and refinanced indebtedness will be
required upon completion of the AT&T Broadband transaction. At the completion of
the transaction, we anticipate that the combined company will assume
approximately $7 to $8 billion of
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debt and will require financing of $11 billion to $14 billion. The financing,
while not a condition for the closing, is expected to include:
o approximately $9 billion to $10 billion to retire the intercompany
debt balance which AT&T Broadband is expected to owe AT&T Corp.
("AT&T"),
o approximately $1 billion to $2 billion to refinance certain AT&T
Broadband debt that may be put for redemption by investors or that
will mature on or soon after the closing date for the transaction, and
o approximately $1 billion to $2 billion to provide appropriate cash
reserves to fund the operations and capital expenditures of AT&T
Broadband after completion of the transaction.
We are in the process of attempting to secure an aggregate of $12.5 billion
in new indebtedness in order to achieve these funding requirements. If we obtain
this financing, we expect that we will be required to provide subsidiary
guarantees, including guarantees by certain of our wholly owned subsidiaries and
by subsidiaries of AT&T Broadband.
We may also use other available sources of financing to fund these
requirements, including:
o our existing cash, cash equivalents and short- term investments, which
totaled $2.973 billion as of December 31, 2001,
o amounts available under our subsidiaries' lines of credit, which
totaled $3.460 billion as of December 31, 2001, and
o through the sales of our and AT&T Broadband's investments, including
AT&T Broadband's investment in Time Warner Entertainment.
Subsequent to closing of the AT&T Broadband transaction, we will have a
substantially higher amount of debt, interest expense and capital expenditures
at the combined company. If the credit rating agencies determine that the
combined company is less creditworthy, on a combined basis, than that of Comcast
on an historical basis, it is possible that our cost of and access to capital
could be negatively affected. We currently hold investment grade ratings for our
various debt securities. If our debt securities are downgraded as a result of
our assumption of debt in the AT&T Broadband transaction, access to the
commercial paper market would likely become limited and the costs of borrowing
under alternative sources would likely increase.
Cash, Cash Equivalents and Short-term Investments
We have traditionally maintained significant levels of cash, cash
equivalents and short-term investments to meet our short-term liquidity
requirements. Our cash equivalents and short-term investments are recorded at
fair value. Cash, cash equivalents and short-term investments as of December 31,
2001 were $2.973 billion, substantially all of which is unrestricted.
Investments
A significant portion of our investments are in publicly traded companies
and are reflected at fair value, which fluctuates with market changes.
We do not have any significant contractual funding commitments with respect
to any of our investments. Our ownership interests in these investments may,
however, be diluted if we do not fund our investees' non-binding capital calls.
We continually evaluate our existing investments, as well as new investment
opportunities.
Refer to Note 6 to our financial statements included in Item 8 for a
discussion of our investments.
Capital Expenditures
During 2002, we expect to incur approximately $1.5 billion of capital
expenditures in our cable, commerce and content businesses, including
approximately $1.3 billion for our cable operations.
We anticipate capital expenditures for years subsequent to 2002 will
continue to be significant. As of December 31, 2001, we do not have any
significant contractual obligations for capital expenditures.
Cable
We expect our 2002 cable capital expenditures will include approximately
$225 million for the upgrading and rebuilding of certain of our cable
communications systems, approximately $625 million for the deployment of cable
modems, digital converters and new service offerings, and approximately $450
million for recurring capital projects.
The amount of our capital expenditures for years subsequent to 2002 will
depend on numerous factors, some of which are beyond our control including:
o competition,
o cable system capacity of newly acquired systems, and
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o the timing and rate of deployment of new services.
Commerce
During 2002, we expect to incur approximately $175 million of capital
expenditures for QVC, primarily for the upgrading of QVC's warehousing
facilities, distribution facilities and information systems. Capital
expenditures in QVC's international operations represent nearly 50% of QVC's
total capital expenditures.
Affiliation Agreements
Certain of our content subsidiaries and QVC enter into multi-year
affiliation agreements with various cable and satellite system operators for
carriage of their respective programming. In connection with these affiliation
agreements, we generally pay a fee to the cable or satellite operator based upon
the number of subscribers. During 2002, we expect to incur $200 million to $300
million related to these affiliation agreements.
Financing
As of December 31, 2001 and 2000, our long-term debt, including current
portion, was $12.202 billion and $10.811 billion, respectively.
The $1.391 billion increase from December 31, 2000 to December 31, 2001
results principally from the effects of our net borrowings, offset by the $194.2
million aggregate reduction to the carrying value of our 2% Exchangeable
Subordinated Debentures due 2029 (the "ZONES") during 2001.
Excluding the effects of interest rate risk management instruments, 13.4%
and 28.5% of our long- term debt, including current portion, as of December 31,
2001 and 2000, respectively, was at variable rates. The decrease from December
31, 2000 to December 31, 2001 in the percentage of our variable rate debt was
due principally to the effects of our 2001 financings. See "Statement of Cash
Flows" below.
We have, and may from time to time in the future, depending on certain
factors including market conditions, make optional repayments on our debt
obligations, which may include open market repurchases of our outstanding public
notes and debentures.
Refer to Notes 7 and 8 to our financial statements included in Item 8 for a
discussion of our financing activities.
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 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.
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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, 2001 (dollars in millions):
[Enlarge/Download Table]
Fair
Expected Maturity Date Value at
2002 2003 2004 2005 2006 Thereafter Total 12/31/01
---- ---- ---- ---- ---- ---------- ----- --------
Debt
Fixed Rate.......................... $210.6 $11.9 $330.9 $708.7 $653.1 $8,656.4 $10,571.6 $10,928.4
Average Interest Rate............ 9.6% 8.6% 7.6% 8.4% 7.0% 5.8% 6.2%
Variable Rate....................... $249.6 $61.3 $0.1 $1,317.5 $0.1 $1.6 $1,630.2 $1,630.2
Average Interest Rate............ 2.4% 3.4% 5.8% 5.2% 6.9% 6.9% 4.7%
Interest Rate Instruments
Variable to Fixed Swaps............. $178.6 $71.7 $250.3 ($5.5)
Average Pay Rate................. 4.8% 4.9% 4.9%
Average Receive Rate............. 2.0% 3.0% 2.3%
Fixed to Variable Swaps (1)......... $300.0 $300.0 $350.0 $950.0 $46.8
Average Pay Rate................. 5.5% 5.9% 6.8% 6.1%
Average Receive Rate............. 8.1% 6.4% 7.9% 7.5%
<FN>
(1) During January and February 2002, we settled all $950.0 million notional
amount of our Fixed to Variable Swaps and received proceeds of $56.8
million.
</FN>
---------------------------
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 proceeds (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, 2001, plus the borrowing margin in
effect for each credit facility at December 31, 2001. 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, 2001. While Swaps, 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, 2001, 2000 and 1999 was not
significant.
Equity Price Risk Management
During 1999, we entered into cashless collar agreements (the "Equity
Collars") covering $1.365 billion notional amount of our Sprint PCS common stock
which we account for at fair value. The Equity Collars limit our exposure to and
benefits from price fluctuations in the Sprint PCS common stock. During 2001,
$483.7 million notional amount of Equity Collars matured and we sold or entered
into prepaid forward sales of the related Sprint PCS common stock. Refer to Note
6 to our financial statements included in Item 8 for a discussion of our prepaid
forward sales of Sprint PCS common stock. The remaining $881.0 million notional
amount of Equity Collars mature between 2002 and 2003. As we had accounted for
the Equity Collars as a hedge, changes in the value of the Equity Collars were
substantially offset by changes in the value of the Sprint PCS common stock
which were also marked to market through accumulated other comprehensive income
in our balance sheet through December 31, 2000.
In connection with the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, on January 1, 2001, we reclassified our investment in
Sprint PCS from an available for sale security to a trading security. During
2001, the increase in the fair value of our investment in Sprint PCS common
stock of $284.4 million was partially offset by the decrease in the fair value
of the Equity Collars and the increase in the fair value of the derivative
components of the ZONES and prepaid forward sales. See "Results of Operations -
Investment Income" below.
Accumulated Other Comprehensive Income
The change in accumulated other comprehensive income from December 31, 2000
to December 31, 2001 is principally related to realized gains and losses on our
investments classified as available for sale, and reclassification adjustments
related to the effects of adoption of SFAS No. 133. The change in accumulated
other comprehensive income from December 31, 1999 to December 31, 2000 is
principally related to the decline in unrealized gains on our investments
classified as available
- 27 -
for sale held throughout the year.
Contractual Cash Obligations and Commitments
In January 2002, the Securities and Exchange Commission ("SEC") issued
Financial Reporting Release No. 61, "Commission Statement about Management's
Discussion and Analysis of Financial Condition and Results of Operations" ("FRR
No. 61"). While FRR No. 61 does not create new or modify existing requirements,
it does set forth certain views of the SEC regarding disclosure that should be
considered by registrants. Among other things, FRR No. 61 encourages registrants
to provide disclosure in one place, within Management's Discussion and Analysis
of Financial Condition and Results of Operations, of the on and off balance
sheet arrangements that may affect liquidity and capital resources. As there is
no prescribed format for this disclosure, we have segregated our arrangements
that may affect liquidity and capital resources between those contractual cash
obligations that are recorded in our financial statements and those commitments
that are disclosed in the notes to our financial statements in accordance with
accounting principles generally accepted in the United States. Future rulemaking
by the SEC could result in the form and content of this disclosure being
different from the information that we have presented below. The following
tables summarize our obligations and commitments as of December 31, 2001, and
the effect such obligations and commitments are expected to have on our
liquidity and cash flow in future periods.
[Enlarge/Download Table]
Payments Due by Period
-------------------------------------------------
Less than 1 - 3 4 - 5 After 5
Total 1 year years years years
---------- ---------- ---------- ---------- ----------
(dollars in millions)
---------- ---------- ---------- ---------- ----------
Contractual Cash Obligations
Long-term debt (1).............................. $12,201.8 $460.2 $404.2 $2,679.4 $8,658.0
Other long-term obligations (2)................. 437.4 138.9 179.3 26.5 92.7
---------- ---------- ---------- ---------- ----------
Total contractual cash obligations......... $12,639.2 $599.1 $583.5 $2,705.9 $8,750.7
---------- ---------- ---------- ---------- ----------
Commitments
Operating leases (3)............................ $487.9 $98.6 $146.8 $93.9 $148.6
Programming agreements (4)...................... 844.0 95.4 166.6 168.4 413.6
Professional sports contracts (5)............... 403.3 122.5 193.3 79.5 8.0
Guarantees (6).................................. 75.0 75.0
---------- ---------- ---------- ---------- ----------
Total commitments.......................... $1,810.2 $316.5 $581.7 $341.8 $570.2
========== ========== ========== ========== ==========
------------
<FN>
(1) The table presents maturities of long-term debt outstanding, including
capital lease obligations, as of December 31, 2001. Refer to Note 7 to our
financial statements included in Item 8 for a description of our long-term
debt.
(2) Other long-term obligations consist principally of the Company's deferred
compensation obligations, post- retirement and post-employment benefit
obligations, and program rights payable under license agreements.
(3) Operating leases include the Company's minimum annual rental commitments
for office space, equipment and transponder service agreements under
noncancellable operating leases.
(4) Certain of the Company's programming networks (CSN, CSN Mid-Atlantic, CSS,
E!, TGC, OLN and G4) have entered into license agreements for programs and
sporting events which will be available for telecast subsequent to December
31, 2001. Programming agreements represent the Company's minimum aggregate
commitments under these agreements.
(5) 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. Professional sports contracts
represent the Company's future commitments under these contracts.
(6) 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. Refer to Note
11 to our financial statements included in Item 8 for a description of this
contingency.
</FN>
---------------------------
- 28 -
Statement of Cash Flows
Cash and cash equivalents decreased $301.5 million as of December 31, 2001
from December 31, 2000. The decrease in cash and cash equivalents resulted from
cash flows from operating, financing and investing activities as explained
below.
Net cash provided by operating activities from continuing operations
amounted to $1.230 billion for the year ended December 31, 2001, due principally
to our operating income before depreciation and amortization (see "Results of
Operations"), offset by changes in working capital as a result of the timing of
receipts and disbursements and the effects of net interest and current income
tax expense.
Net cash provided by financing activities from continuing operations
includes borrowings and repayments of debt, as well as the issuances and
repurchases of our equity securities. Net cash provided by financing activities
from continuing operations was $1.476 billion for the year ended December 31,
2001. During 2001, we borrowed $5.686 billion, consisting of:
o $2.991 billion from Comcast Cable's senior notes offerings,
o $1.470 billion under Comcast Cable's commercial paper program,
o $1.075 billion under revolving credit facilities, and
o $150.3 million from our Zero Coupon Debentures offering.
During 2001, we repaid $4.188 billion of our long-term debt, consisting
of:
o $2.396 billion under Comcast Cable's commercial paper program,
o $1.612 billion on certain of our revolving credit facilities,
o $109.6 million of our senior subordinated debentures, and
o $70.3 million of our Zero Coupon Debentures.
In addition, during 2001, we received proceeds of $27.2 million related to
issuances of our common stock, we repurchased $27.1 million of our common stock,
and we incurred $22.5 million of deferred financing costs.
Net cash used in investing activities from continuing operations includes
the effects of acquisitions, net of cash acquired, purchases of investments,
capital expenditures and additions to intangible assets, offset by proceeds from
sales of investments. Net cash used in investing activities from continuing
operations was $3.007 billion for the year ended December 31, 2001.
During 2001, acquisitions, net of cash acquired, amounted to $1.329
billion, consisting primarily of:
o $518.7 million for the cable system serving Baltimore City,
o $305.9 million for a controlling interest in The Golf Channel, and
o $396.8 million for the acquisition of Outdoor Life Network.
Results of Operations
The effects of our recent acquisitions were to increase our revenues and
expenses, resulting in increases in our operating income before depreciation and
amortization. The increases in our property and equipment, intangible assets and
long-term debt, and the corresponding increases in depreciation expense,
amortization expense and interest expense from 2000 to 2001 and from 1999 to
2000 are primarily due to the effects of our acquisitions, our cable systems
exchanges and our increased levels of capital expenditures.
Refer to Notes 5 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 SFAS No. 142, "Goodwill and Other Intangible Assets," on January
1, 2002, as required by the new statement. We refer you to page 36 for a
discussion of the expected impact the adoption of the new statement will have on
our consolidated financial condition and results of operations.
- 29 -
Our summarized consolidated financial information for the three years ended
December 31, 2001 is as follows (dollars in millions, "NM" denotes percentage is
not meaningful):
[Enlarge/Download Table]
Year Ended
December 31, Increase/(Decrease)
2001 2000 $ %
---------- --------- ---------- --------
Revenues........................................................ $9,674.2 $8,218.6 $1,455.6 17.7%
Cost of goods sold from electronic retailing.................... 2,514.0 2,284.9 229.1 10.0
Operating, selling, general and administrative expenses......... 4,458.4 3,463.4 995.0 28.7
Depreciation.................................................... 1,141.8 837.3 304.5 36.4
Amortization.................................................... 2,306.2 1,794.0 512.2 28.6
---------- --------- ---------- --------
Operating loss.................................................. (746.2) (161.0) 585.2 363.5
---------- --------- ---------- --------
Interest expense................................................ (731.8) (691.4) 40.4 5.8
Investment income............................................... 1,061.7 983.9 77.8 7.9
Income related to indexed debt.................................. 666.0 (666.0) (100.0)
Equity in net losses of affiliates.............................. (28.5) (21.3) 7.2 33.8
Other income.................................................... 1,301.0 2,825.5 (1,524.5) (54.0)
Income tax expense.............................................. (470.2) (1,441.3) (971.1) (67.4)
Minority interest............................................... (160.4) (115.3) 45.1 39.1
---------- --------- ---------- --------
Income from continuing operations before extraordinary items
and cumulative effect of accounting change................... $225.6 $2,045.1 ($1,819.5) (89.0%)
========== ========= ========== ========
Operating income before depreciation and amortization (1) ...... $2,701.8 $2,470.3 $231.5 9.4%
========== ========= ========== ========
Year Ended
December 31, Increase/(Decrease)
2000 1999 $ %
---------- --------- ---------- --------
Revenues........................................................ $8,218.6 $6,529.2 $1,689.4 25.9%
Cost of goods sold from electronic retailing.................... 2,284.9 2,060.0 224.9 10.9
Operating, selling, general and administrative expenses......... 3,463.4 2,589.2 874.2 33.8
Depreciation.................................................... 837.3 572.0 265.3 46.4
Amortization.................................................... 1,794.0 644.0 1,150.0 178.6
---------- --------- ---------- --------
Operating income (loss)......................................... (161.0) 664.0 (825.0) NM
---------- --------- ---------- --------
Interest expense................................................ (691.4) (538.3) 153.1 28.4
Investment income............................................... 983.9 629.5 354.4 56.3
Income (expense) related to indexed debt........................ 666.0 (666.0) 1,332.0 NM
Equity in net income (losses) of affiliates..................... (21.3) 1.4 (22.7) NM
Other income.................................................... 2,825.5 1,409.4 1,416.1 100.5
Income tax expense.............................................. (1,441.3) (723.7) 717.6 99.2
Minority interest............................................... (115.3) 4.6 (119.9) NM
---------- --------- ---------- --------
Income from continuing operations before
extraordinary items.......................................... $2,045.1 $780.9 $1,264.2 161.9%
========== ========= ========== ========
Operating income before depreciation and amortization (1) ...... $2,470.3 $1,880.0 $590.3 31.4%
========== ========= ========== ========
------------
<FN>
(1) Operating income before depreciation and amortization is commonly referred
to in our businesses as "operating cash flow." Operating cash flow is a
measure of a company's ability to generate cash to service its obligations,
including debt service obligations, and to finance capital and other
expenditures. In part due to the capital intensive nature of our businesses
and the resulting significant level of non-cash depreciation and
amortization expense, operating cash flow is frequently used as one of the
bases for comparing businesses in our industries, although our measure of
operating cash flow may not be comparable to similarly titled measures of
other companies. Operating cash flow is the primary basis used by our
management to measure the operating performance of our businesses.
Operating cash flow does not purport to represent net income or net cash
provided by operating activities, as those terms are defined under
generally accepted accounting principles, and should not be considered as
an alternative to such measurements as an indicator of our performance. See
"Statement of Cash Flows" above for a discussion of net cash provided by
operating activities.
</FN>
- 30 -
Consolidated Operating Results
Revenues
The increases in consolidated revenues from 2000 to 2001 and from 1999 to
2000 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.
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 2000 to 2001 and from 1999 to 2000 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 and amortization
The increases in depreciation expense and amortization expense from 2000 to
2001 and from 1999 to 2000 in our Cable segment are primarily due to the effects
of our recent acquisitions, our cable systems exchanges and our increased levels
of capital expenditures. The increases in depreciation expense and amortization
expense from 2000 to 2001 and from 1999 to 2000 in our Commerce segment are
primarily due to the effects of our increased levels of capital expenditures.
The remaining increases in depreciation expense and amortization expense from
2000 to 2001 are primarily the result of increases in depreciation and
amortization in our content operations, principally due to the effects of our
acquisitions and increased levels of capital expenditures. The remaining
increases in depreciation expense and amortization expense from 1999 to 2000 are
principally due to the effects of our increased levels of capital expenditures.
Operating Results by Business Segment
The following represent the operating results of our significant business
segments, "Cable" and "Commerce." Our regional sports programming networks,
which consist of Comcast SportsNet ("CSN"), Comcast SportsNet Mid- Atlantic
("CSN Mid-Atlantic") and Comcast Sports Southeast ("CSS"), derive a substantial
portion of their revenues from our cable operations. In 2001, as a result of a
change in our internal reporting structure, our regional sports programming
networks are now included in our Cable segment for all periods presented. Except
for the effects of our acquisitions, the change did not have a significant
effect on the comparisons of our operating results for the periods presented.
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.
---------------------------
- 31 -
Cable
The following table presents financial information for the three years
ended December 31, 2001 for our Cable segment (dollars in millions):
[Enlarge/Download Table]
Year Ended
December 31, Increase
2001 2000 $ %
---------- ---------- -------- ------
Video......................................................... $4,278.2 $3,651.3 $626.9 17.2%
High-speed Internet........................................... 294.3 114.4 179.9 157.3
Advertising sales............................................. 325.3 290.2 35.1 12.1
Other......................................................... 232.9 152.6 80.3 52.6
---------- ---------- -------- ------
Revenues................................................. 5,130.7 4,208.5 922.2 21.9
Operating, selling, general and administrative expenses....... 3,076.6 2,305.1 771.5 33.5
---------- ---------- -------- ------
Operating income before depreciation and amortization (a)..... $2,054.1 $1,903.4 $150.7 7.9%
========== ========== ======== ======
Year Ended
December 31, Increase
2000 1999 $ %
---------- ---------- -------- ------
Video......................................................... $3,651.3 $2,588.9 $1,062.4 41.0%
High-speed Internet........................................... 114.4 44.5 69.9 157.1
Advertising sales............................................. 290.2 190.3 99.9 52.5
Other......................................................... 152.6 146.2 6.4 4.4
---------- ---------- -------- ------
Revenues................................................. 4,208.5 2,969.9 1,238.6 41.7
Operating, selling, general and administrative expenses....... 2,305.1 1,611.9 693.2 43.0
---------- ---------- -------- ------
Operating income before depreciation and amortization (a)..... $1,903.4 $1,358.0 $545.4 40.2%
========== ========== ======== ======
---------------
<FN>
(a) See footnote (1) on page 30.
</FN>
Video revenue consists of our basic, expanded basic, premium, pay-per-view,
equipment and digital subscriptions. Of the $626.9 million and $1.062 billion
increases in video revenues from 2000 to 2001 and from 1999 to 2000, $339.2
million and $918.0 million are attributable to the effects of our acquisitions
and exchanges of cable systems and $287.7 million and $144.4 million relate to
changes in rates and subscriber growth in our historical operations, driven
principally by growth in digital subscriptions, and to a lesser extent, to the
effects of a higher-priced digital service offering made in the second half of
2000. During 2001, 2000 and 1999, through acquisitions and normal operations, we
added approximately 982,000, 839,000 and 437,000 digital subscriptions,
respectively.
The increases in high-speed Internet revenue from 2000 to 2001 and from
1999 to 2000 are primarily due to the addition of high-speed Internet
subscribers. During 2001, 2000 and 1999, through acquisitions and normal
operations, we added approximately 548,000, 258,000 and 91,000 high-speed
Internet subscribers, respectively (see below).
The increase in advertising sales revenue from 2000 to 2001 is 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. Approximately one-half of the increase
from 1999 to 2000 in advertising sales revenue is attributable to the effects of
our acquisition of Lenfest Communications, Inc. in January 2000, with the
remaining increase attributable to the effects of the 2000 political campaigns
and increased cable viewership.
Other revenue includes installation revenues, guide revenues, commissions
from electronic retailing, revenues of our regional sports programming networks
and revenue from other product offerings. The 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), with the remaining increase
attributable to growth in our historical operations. The increase from 1999 to
2000 is primarily attributable to growth in our historical operations.
- 32 -
On September 28, 2001, At Home Corporation ("At Home"), our 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 $139.5 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 and the increases from 1999 to
2000 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.
Commerce
The following table sets forth the operating results for our Commerce
segment, which consists of QVC, Inc. and subsidiaries (dollars in millions):
[Enlarge/Download Table]
Year Ended
December 31, Increase
2001 2000 $ %
--------- -------- ------- ------
Net sales from electronic retailing........................... $3,917.3 $3,535.9 $381.4 10.8%
Cost of goods sold from electronic retailing.................. 2,514.0 2,284.9 229.1 10.0
Operating, selling, general and administrative expenses....... 681.0 631.8 49.2 7.8
--------- -------- ------- ------
Operating income before depreciation and amortization (a)..... $722.3 $619.2 $103.1 16.7%
========= ======== ======= ======
Gross margin.................................................. 35.8% 35.4%
========= ========
Year Ended
December 31, Increase
2000 1999 $ %
--------- -------- ------- ------
Net sales from electronic retailing........................... $3,535.9 $3,167.4 $368.5 11.6%
Cost of goods sold from electronic retailing.................. 2,284.9 2,060.0 224.9 10.9
Operating, selling, general and administrative expenses....... 631.8 568.6 63.2 11.1
--------- -------- ------- ------
Operating income before depreciation and amortization (a)..... $619.2 $538.8 $80.4 14.9%
========= ======== ======= ======
Gross margin.................................................. 35.4% 35.0%
========= ========
---------------
<FN>
(a) See footnote (1) on page 30.
</FN>
- 33 -
Of the $381.4 million and $368.5 million increases in net sales from
electronic retailing from 2000 to 2001 and from 1999 to 2000, $332.1 million and
$358.3 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:
[Enlarge/Download Table]
Year Ended December 31,
2001 2000
--------------------- ---------------------
Increase in average number of homes in U.S.................... 3.8% 4.7%
Increase in net sales per home in U.S......................... 6.5% 8.1%
It is unlikely that the number of homes receiving the QVC service
domestically will continue to grow at rates comparable to prior periods given
that the QVC service is already received by approximately 94% 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 $49.3 million and $10.2 million in net sales
from electronic retailing from 2000 to 2001 and from 1999 to 2000 are primarily
attributable to increases in net sales in Germany and Japan offset, in part, by
decreases in net sales in the United Kingdom, and to the effects of fluctuations
in foreign currency exchange rates during the periods.
The increases in cost of goods sold from 2000 to 2001 and from 1999 to 2000
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 across all
product categories, as well as to the effects of a shift in sales mix.
The increases in operating, selling, general and administrative expenses
from 2000 to 2001 and from 1999 to 2000 are primarily attributable to higher
variable costs and personnel costs associated with the increase in sales volume.
---------------------------
Consolidated Analysis
Interest Expense
The increase in interest expense from 2000 to 2001 is primarily due to the
increase in our net borrowings. The increase in interest expense from 1999 to
2000 is primarily due to the effects of our acquisitions of Lenfest in January
2000 and Jones Intercable in April 1999 and the issuance of the ZONES in October
and November 1999, offset, in part, by the net effects of our borrowings and
repayments and retirements of debt.
We anticipate that, for the foreseeable future, interest expense will be a
significant cost to us. 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.
---------------------------
- 34 -
Investment Income
Investment income includes the following (in millions):
[Enlarge/Download Table]
Year Ended December 31,
2001 2000 1999
--------- --------- ---------
Interest and dividend income........................................... $76.5 $171.6 $172.5
Gains on sales and exchanges of investments, net....................... 485.2 886.7 510.6
Investment impairment losses........................................... (972.4) (74.4) (35.5)
Reclassification of unrealized gains................................... 1,330.3
Unrealized gain on Sprint PCS common stock............................. 284.4
Mark to market adjustments on derivatives related
to Sprint PCS common stock........................................ (184.6)
Mark to market adjustments on derivatives and hedged items............. 42.3
Settlement of call options............................................. (18.1)
--------- --------- ---------
Investment income................................................. $1,061.7 $983.9 $629.5
========= ========= =========
The investment impairment loss for the year ended December 31, 2001 relates
principally to an other than temporary decline in the Company's investment in
AT&T, a portion of which was exchanged on April 30, 2001.
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 the accumulated unrealized gain of
$237.9 million on our investment in At Home common stock which was previously
recorded as a component of accumulated other comprehensive income. 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 connection with the reclassification of our investment in Sprint PCS
from an available for sale security to a trading security, we reclassified to
investment income 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.
Income (Expense) 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 years ended December
31, 2000 and 1999, we recorded income (expense) related to indexed debt of
$666.0 million and ($666.0) million, respectively, to reflect the fair value of
the underlying Sprint PCS stock.
Equity in Net Income (Losses) of Affiliates
The changes in equity in net losses of affiliates from 2000 to 2001 and
from 1999 to 2000 are 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 $106.7 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 in exchange for 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
- 35 -
AT&T in exchange for 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 $98.1 million, representing the difference between the fair
value of the AT&T shares received of $100.0 million and our cost basis in the
subsidiary.
In May 1999, we received a $1.5 billion termination fee as liquidated
damages from MediaOne Group, Inc. ("MediaOne") as a result of MediaOne's
termination of its Agreement and Plan of Merger with us dated March 1999. The
termination fee, net of transaction costs, was recorded to other income.
Income Tax Expense
The changes in income tax expense from 2000 to 2001 and from 1999 to 2000
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 2000 to 2001 is primarily
attributable to the effects of changes in the net income or loss of our less
than 100% owned consolidated subsidiaries. The change in minority interest from
1999 to 2000 is attributable to the effects of our acquisition of a controlling
interest in Jones Intercable, Inc. in April 1999, our acquisition of the
California Public Employees Retirement System's 45% interest in Comcast MHCP
Holdings, L.L.C. in February 2000, and to the effects of changes in the net
income or loss of our less than 100% owned consolidated subsidiaries.
Extraordinary Items
Extraordinary items for the years ended December 31, 2001, 2000 and 1999
consist of unamortized debt issue costs and debt extinguishment
costs, net of related tax benefits, expensed in connection with the redemption
and refinancing of certain indebtedness.
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 $384.5 million during the
year ended December 31, 2001. The income consisted of a $400.2 million
adjustment to record the debt component of our ZONES at a discount from its
value at maturity and $191.3 million principally related to the reclassification
of gains previously recognized as a component of accumulated other comprehensive
income on our equity derivative instruments, net of related deferred income
taxes of $207.0 million.
We believe that our operations are not materially affected by inflation.
Expected Impact of Adoption of SFAS No. 142
The Financial Accounting Standards Board ("FASB") issued SFAS No. 142,
"Goodwill and Other Intangible Assets," in June 2001. This statement addresses
how intangible assets that are acquired individually or with a group of other
assets other than in connection with a business combination should be accounted
for in financial statements upon their acquisition. The new statement also
addresses how goodwill and other intangible assets should be accounted for after
they have been initially recognized in the financial statements.
We adopted SFAS No. 142 on January 1, 2002, as required by the new
statement. Upon adoption, we will no longer amortize goodwill and other
indefinite lived intangible assets, which consist primarily of our cable
franchise operating rights. We will be required to test our goodwill and
intangible assets that are determined to have an indefinite life for impairment
at least annually. Other than in the period of adoption or in those periods in
which we may record an asset impairment, we expect that the adoption of SFAS No.
142 will result in increased income as a result of reduced amortization expense.
The Emerging Issues Task Force ("EITF") of the FASB is expected to provide
further guidance on certain implementation issues related to the adoption of
SFAS No. 142 as it relates to identifiable intangible assets other than
goodwill. Subject to further guidance to be provided,
- 36 -
based upon our interpretation of SFAS No. 142, we may record a charge as a
cumulative effect of accounting change, net of related deferred income taxes, in
an amount not expected to exceed $1.5 billion upon adoption of SFAS No. 142 on
January 1, 2002.
Based on our preliminary evaluation, the estimated effect of adoption of
SFAS No. 142 would have been to decrease amortization expense by approximately
$2.0 billion and to increase deferred income tax expense by approximately $600
million for the year ended December 31, 2001.
Expected Impact of Adoption of EITF 01-9
In November 2001, the EITF reached a consensus on EITF 01-9, "Accounting
for Consideration Given to a Customer (Including a Reseller of the Vendor's
Products)." EITF 01-9 requires, among other things, that consideration paid to
customers should be classified as a reduction of revenue unless certain criteria
are met. Certain of our content subsidiaries have paid or may pay distribution
fees to cable television and satellite broadcast systems for carriage of their
programming. We currently classify the amortization of these distribution fees
as expense in our statement of operations. Upon adoption of EITF 01-9 on January
1, 2002, we will reclassify certain of these distribution fees from expense to a
revenue reduction for all periods presented in our statement of operations. The
change in classification will have no impact on our reported operating loss or
financial condition and will not have a significant impact on our revenues.
Refer to Note 3 to our financial statements included in Item 8 for the effect of
adoption of EITF 01-9 on our results of operations.
Expected Impact of Adoption of EITF 01-14
In November 2001, the FASB staff announced EITF Topic D-103, "Income
Statement Characterization of Reimbursements Received for 'Out-of-Pocket'
Expenses Incurred," which has subsequently been recharacterized as EITF Issue
No. 01-14 ("EITF 01-14"). EITF 01-14 requires that reimbursements received for
out-of-pocket expenses incurred be characterized as revenue in the statement of
operations.
Under the terms of our franchise agreements, we are required to pay up to
5% of our gross revenues derived from providing cable services to the local
franchising authority. We normally pass these fees through to our cable
subscribers. We currently classify cable franchise fees collected from our cable
subscribers as a reduction of the related franchise fee expense included within
selling, general and administrative expenses in our statement of operations.
EITF 01-14, by analogy, applies to franchise fees. Upon adoption of EITF
01-14 on January 1, 2002, we will reclassify franchise fees collected from cable
subscribers from a reduction of selling, general and administrative expenses to
a component of service revenues in our statement of operations. The change in
classification will have no impact on our reported operating income (loss) or
financial condition. Refer to Note 3 to our financial statements included in
Item 8 for the effect of adoption of EITF 01-14 on our results of operations.
- 37 -
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Comcast Corporation
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheet of Comcast
Corporation and its subsidiaries (the "Company") as of December 31, 2001 and
2000, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2001. 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 Corporation and its
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.
As discussed in Notes 2 and 3 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.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 5, 2002
- 38 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions, except share data)
[Enlarge/Download Table]
December 31,
2001 2000
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................. $350.0 $651.5
Investments................................................................ 2,623.2 3,059.7
Accounts receivable, less allowance for doubtful accounts
of $153.9 and $141.7.................................................. 967.4 891.9
Inventories, net........................................................... 454.5 438.5
Other current assets....................................................... 153.7 102.8
--------- ---------
Total current assets................................................... 4,548.8 5,144.4
--------- ---------
INVESTMENTS................................................................... 1,679.2 2,661.9
--------- ---------
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $2,725.7 and $1,873.1.............................................. 7,011.1 5,519.9
--------- ---------
INTANGIBLE ASSETS
Goodwill................................................................... 7,507.3 6,945.1
Cable franchise operating rights........................................... 20,167.8 17,545.5
Other intangible assets.................................................... 2,833.4 1,485.6
--------- ---------
30,508.5 25,976.2
Accumulated amortization................................................... (5,999.2) (3,908.7)
--------- ---------
24,509.3 22,067.5
--------- ---------
OTHER NONCURRENT ASSETS, net.................................................. 383.4 350.8
--------- ---------
$38,131.8 $35,744.5
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable........................................................... $698.2 $813.2
Accrued expenses and other current liabilities............................. 1,695.5 1,576.5
Deferred income taxes...................................................... 275.4 789.9
Current portion of long-term debt.......................................... 460.2 293.9
--------- ---------
Total current liabilities.............................................. 3,129.3 3,473.5
--------- ---------
LONG-TERM DEBT, less current portion.......................................... 11,741.6 10,517.4
--------- ---------
DEFERRED INCOME TAXES......................................................... 6,375.7 5,786.7
--------- ---------
OTHER NONCURRENT LIABILITIES.................................................. 1,532.0 1,108.6
--------- ---------
MINORITY INTEREST............................................................. 880.2 717.3
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
COMMON EQUITY PUT OPTIONS..................................................... 54.6
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock - authorized, 20,000,000 shares
5.25% series B mandatorily redeemable convertible, $1,000 par value;
issued, zero and 59,450 at redemption value.............................. 59.5
Class A special common stock, $1 par value - authorized,
2,500,000,000 shares; issued, 937,256,465 and 931,340,103; outstanding,
913,931,554 and 908,015,192.............................................. 913.9 908.0
Class A common stock, $1 par value - authorized,
200,000,000 shares; issued, 21,829,422 and 21,832,250.................... 21.8 21.8
Class B common stock, $1 par value - authorized,
50,000,000 shares; issued, 9,444,375.................................. 9.4 9.4
Additional capital......................................................... 11,752.0 11,598.8
Retained earnings.......................................................... 1,631.5 1,056.5
Accumulated other comprehensive income..................................... 144.4 432.4
--------- ---------
Total stockholders' equity............................................. 14,473.0 14,086.4
--------- ---------
$38,131.8 $35,744.5
========= =========
See notes to consolidated financial statements.
- 39 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in millions, except per share data)
[Enlarge/Download Table]
Year Ended December 31,
2001 2000 1999
-------- -------- --------
REVENUES
Service revenues...................................................................... $5,756.9 $4,682.7 $3,361.8
Net sales from electronic retailing................................................... 3,917.3 3,535.9 3,167.4
-------- -------- --------
9,674.2 8,218.6 6,529.2
-------- -------- --------
COSTS AND EXPENSES
Operating (excluding depreciation).................................................... 2,905.8 2,212.5 1,663.1
Cost of goods sold from electronic retailing (excluding depreciation)................. 2,514.0 2,284.9 2,060.0
Selling, general and administrative................................................... 1,552.6 1,250.9 926.1
Depreciation.......................................................................... 1,141.8 837.3 572.0
Amortization.......................................................................... 2,306.2 1,794.0 644.0
-------- -------- --------
10,420.4 8,379.6 5,865.2
-------- -------- --------
OPERATING INCOME (LOSS).................................................................. (746.2) (161.0) 664.0
OTHER INCOME (EXPENSE)
Interest expense...................................................................... (731.8) (691.4) (538.3)
Investment income..................................................................... 1,061.7 983.9 629.5
Income (expense) related to indexed debt.............................................. 666.0 (666.0)
Equity in net income (losses) of affiliates........................................... (28.5) (21.3) 1.4
Other income.......................................................................... 1,301.0 2,825.5 1,409.4
-------- -------- --------
1,602.4 3,762.7 836.0
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES, MINORITY INTEREST,
EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE........................ 856.2 3,601.7 1,500.0
INCOME TAX EXPENSE....................................................................... (470.2) (1,441.3) (723.7)
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST,
EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE........................ 386.0 2,160.4 776.3
MINORITY INTEREST........................................................................ (160.4) (115.3) 4.6
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEMS
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE............................................ 225.6 2,045.1 780.9
GAIN FROM DISCONTINUED OPERATIONS, net of income tax expense of $166.1................... 335.8
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE..................................................................... 225.6 2,045.1 1,116.7
EXTRAORDINARY ITEMS ..................................................................... (1.5) (23.6) (51.0)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE................................................... 384.5
-------- -------- --------
NET INCOME............................................................................... 608.6 2,021.5 1,065.7
PREFERRED DIVIDENDS...................................................................... (23.5) (29.7)
-------- -------- --------
NET INCOME FOR COMMON STOCKHOLDERS....................................................... $608.6 $1,998.0 $1,036.0
======== ======== ========
BASIC EARNINGS (LOSS) FOR COMMON STOCKHOLDERS PER COMMON SHARE
Income from continuing operations before extraordinary items and cumulative
effect of accounting change........................................................ $0.24 $2.27 $1.00
Discontinued operations............................................................... 0.45
Extraordinary items................................................................... (0.03) (0.07)
Cumulative effect of accounting change................................................ 0.40
-------- -------- --------
Net income............................................................................ $0.64 $2.24 $1.38
======== ======== ========
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING.............................. 949.7 890.7 749.1
======== ======== ========
DILUTED EARNINGS (LOSS) FOR COMMON STOCKHOLDERS PER COMMON SHARE
Income from continuing operations before extraordinary items and cumulative
effect of accounting change........................................................ $0.23 $2.16 $0.95
Discontinued operations............................................................... 0.41
Extraordinary items................................................................... (0.03) (0.06)
Cumulative effect of accounting change................................................ 0.40
-------- -------- --------
Net income............................................................................ $0.63 $2.13 $1.30
======== ======== ========
DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING............................. 964.5 948.7 819.9
======== ======== ========
See notes to consolidated financial statements.
- 40 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
[Enlarge/Download Table]
Year Ended December 31,
2001 2000 1999
--------- --------- ---------
OPERATING ACTIVITIES
Net income........................................................... $608.6 $2,021.5 $1,065.7
Adjustments to reconcile net income to net cash provided
by operating activities from continuing operations:
Depreciation....................................................... 1,141.8 837.3 572.0
Amortization....................................................... 2,306.2 1,794.0 644.0
Non-cash interest (income) expense, net............................ 40.2 (22.6) (27.8)
Non-cash (income) expense related to indexed debt.................. (666.0) 666.0
Equity in net (income) losses of affiliates........................ 28.5 21.3 (1.4)
Gains on investments and other income, net......................... (2,303.3) (3,679.3) (1,917.0)
Minority interest.................................................. 160.4 115.3 (4.6)
Discontinued operations............................................ (335.8)
Extraordinary items................................................ 1.5 23.6 51.0
Cumulative effect of accounting change............................. (384.5)
Deferred income taxes.............................................. (240.7) 1,074.6 (73.4)
Other.............................................................. 23.6 51.2 41.5
--------- --------- ---------
1,382.3 1,570.9 680.2
Changes in working capital, net of effects of acquisitions
and divestitures
Increase in accounts receivable, net............................. (15.8) (195.8) (89.5)
Increase in inventories, net..................................... (16.0) (35.7) (91.9)
(Increase) decrease in other current assets...................... (27.1) 13.7 30.7
(Decrease) increase in accounts payable, accrued expenses
and other current liabilities................................. (93.9) (133.8) 719.9
--------- --------- ---------
(152.8) (351.6) 569.2
Net cash provided by operating activities from continuing
operations.................................................... 1,229.5 1,219.3 1,249.4
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings............................................. 5,686.4 5,435.3 2,786.6
Retirements and repayments of debt................................... (4,187.7) (5,356.5) (1,368.2)
Issuances of common stock and sales of put options on common stock... 27.2 30.5 17.1
Repurchases of common stock.......................................... (27.1) (324.9) (30.7)
Dividends............................................................ (9.4)
Deferred financing costs............................................. (22.5) (55.8) (51.0)
Other (3.0)
--------- --------- ---------
Net cash provided by (used in) financing activities from
continuing operations......................................... 1,476.3 (271.4) 1,341.4
--------- --------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired................................... (1,329.0) (187.3) (755.2)
Proceeds from liquidated damages, net................................ 1,460.0
Proceeds from sales of (purchases of) short-term investments, net.... (6.2) 1,028.1 (1,035.5)
Capital contributions to and purchases of investments................ (317.0) (1,010.7) (2,012.2)
Proceeds from sales of investments................................... 1,172.8 997.3 599.8
Capital expenditures................................................. (2,181.7) (1,636.8) (893.8)
Sale of subsidiary, net of cash sold................................. 361.1
Additions to intangible and other noncurrent assets.................. (346.2) (409.2) (263.5)
--------- --------- ---------
Net cash used in investing activities from continuing operations. (3,007.3) (1,218.6) (2,539.3)
--------- --------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
- CONTINUING OPERATIONS............................................. (301.5) (270.7) 51.5
CASH AND CASH EQUIVALENTS, beginning of year............................ 651.5 922.2 870.7
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year.................................. $350.0 $651.5 $922.2
========= ========= =========
See notes to consolidated financial statements.
- 41 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in millions)
[Enlarge/Download Table]
Accumulated Other
Comprehensive
Income (Loss)
--------------------
Retained
Preferred Stock Common Stock Earnings Unreal- Cumul-
------------- ---------------------- (Accumu- ized ative
Series Series Class A Additional lated Gains Translation
A B Special Class A Class B Capital Deficit) (Losses) Adjustments Total
------ ------ ------- ------- ------ --------- ----------- --------- ---------- --------
BALANCE, JANUARY 1, 1999................ $31.9 $540.7 $698.4 $31.7 $9.4 $2,941.7 ($1,488.2) $1,049.5 $0.2 $3,815.3
Comprehensive income:
Net income........................... 1,065.7
Unrealized gains on
marketable securities,
net of deferred taxes of $2,891.9.. 5,370.6
Reclassification adjustments
for gains included in net income,
net of deferred taxes of $161.7.... (300.3)
Cumulative translation adjustments... (7.3)
Total comprehensive income.............. 6,128.7
Acquisition.......................... 8.5 283.2 291.7
Exercise of options.................. 2.2 23.7 25.9
Conversion of Series A preferred..... (31.9) 2.7 29.2
Retirement of common stock........... (0.8) (4.6) (25.3) (30.7)
Cash dividends, Series A preferred... (0.8) (0.8)
Series B preferred dividends......... 28.9 (28.9)
Share exchange....................... 4.6 (4.9) 172.3 (172.0)
Temporary equity related to put
options............................ 111.2 111.2
------ ------ ------- ------- ------ --------- ----------- --------- ---------- --------
BALANCE, DECEMBER 31, 1999 ............. 569.6 716.4 26.0 9.4 3,527.0 (619.8) 6,119.8 (7.1) 10,341.3
Comprehensive income:
Net income........................... 2,021.5
Unrealized losses on
marketable securities,
net of deferred taxes of $2,789.3.. (5,180.1)
Reclassification adjustments
for gains included in net income,
net of deferred taxes of $266.0.... (494.0)
Cumulative translation adjustments... (6.2)
Total comprehensive loss................ (3,658.8)
Acquisitions......................... 155.7 7,585.2 7,740.9
Exercise of options.................. 2.6 53.9 (27.7) 28.8
Retirement of common stock........... (6.0) (3.1) (42.3) (273.5) (324.9)
Conversion of Series B preferred..... (533.6) 38.3 495.3
Series B preferred dividends......... 23.5 (23.5)
Share exchange....................... 1.0 (1.1) 44.1 (44.0)
Temporary equity related to put
options............................ (40.9) (40.9)
------ ------ ------- ------- ------ --------- ----------- --------- ---------- --------
BALANCE, DECEMBER 31, 2000.............. 59.5 908.0 21.8 9.4 11,598.8 1,056.5 445.7 (13.3) 14,086.4
Comprehensive income:
Net income........................... 608.6
Unrealized gains on
marketable securities,
net of deferred taxes of $114.4.... 212.5
Reclassification adjustments
for gains included in net income,
net of deferred taxes of $264.4.... (491.1)
Unrealized losses on effective
portion of cash flow hedges,
net of deferred taxes of $0.3...... (0.6)
Cumulative translation adjustments... (8.8)
Total comprehensive income.............. 320.6
Exercise of options.................. 2.5 53.3 (17.3) 38.5
Retirement of common stock........... (0.8) (10.0) (16.3) (27.1)
Conversion of Series B preferred..... (59.5) 4.2 55.3
Temporary equity related to put
options............................ 54.6 54.6
------ ------ ------- ------- ------ --------- ----------- --------- ---------- --------
BALANCE, DECEMBER 31, 2001.............. $ $ $913.9 $21.8 $9.4 $11,752.0 $1,631.5 $166.5 ($22.1) $14,473.0
====== ====== ======= ======= ====== ========= =========== ========= ========== =========
See notes to consolidated financial statements.
- 42 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
1. BUSINESS
Comcast Corporation and its subsidiaries (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 ("US"). The Company's consolidated cable operations served
approximately 8.5 million subscribers and passed approximately 13.9 million
homes as of December 31, 2001.
The Company's commerce operations consist of the Company's consolidated
subsidiary, QVC, Inc. and subsidiaries ("QVC"). Through QVC, an electronic
retailer, the Company 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 82.1 million
homes in the US, approximately 9.5 million homes in the United Kingdom
("UK"), approximately 23.6 million homes in Germany and approximately 3.6
million homes in Japan as of December 31, 2001.
Content is provided through the Company's consolidated subsidiaries
including Comcast Spectacor, Comcast SportsNet ("CSN"), Comcast SportsNet
Mid-Atlantic ("CSN Mid-Atlantic"), Comcast Sports Southeast ("CSS"), E!
Entertainment Television, Inc. ("E! Entertainment"), The Golf Channel
("TGC"), Outdoor Life Network ("OLN") and G4 Media, LLC ("G4 Media"), and
through other programming investments (see Note 5).
The Company's cable and commerce operations represent the Company's two
reportable segments under accounting principles generally accepted in the
United States. The Company's three 24-hour regional sports programming
networks, which consist of CSN, CSN Mid-Atlantic and CSS, derive a
substantial portion of their revenues from the Company's cable operations.
In 2001, as a result of a change in its internal reporting structure, the
Company's regional sports programming networks are included in the
Company's cable segment for all periods presented. 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.
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
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
- 43 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
to management as of December 31, 2001 and 2000. 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. The differences between the Company's recorded
investments and its proportionate interests in the book value of the
investees' net assets are being amortized to equity in net income or loss,
primarily over a period of 20 years, which is consistent with the estimated
lives of the underlying assets.
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. Unrealized gains or losses resulting from
changes in fair value between measurement dates for trading securities are
recorded as a component of investment income.
Restricted publicly traded investments and investments in privately held
companies are stated at cost, adjusted for any known diminution in value
(see Note 6).
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.........................4-40 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
Goodwill is the excess of the acquisition cost of an acquired entity over
the fair value of the identifiable net assets acquired. The Company
amortizes goodwill over estimated useful lives ranging principally from 20
to 30 years.
- 44 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
Cable franchise operating 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 and amortizes them over the
term of the related franchise agreements. Costs incurred by the Company in
negotiating and renewing 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.
Other intangible assets consist principally of cable and satellite
television distribution rights, cable system franchise renewal costs,
contractual operating rights, computer software, programming costs and
rights, license acquisition costs 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.
See Note 3 for a discussion of the expected impact of adoption of Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations"
("SFAS No. 141") and SFAS No. 142, "Goodwill and Other Intangible Assets"
("SFAS No. 142").
Valuation of Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets, including property and equipment and intangible assets, 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.
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. 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 (expense).
Revenue Recognition
The Company recognizes video, high-speed Internet, and programming revenues
as service is provided. The Company manages credit risk by disconnecting
services to cable and high-speed Internet customers who are delinquent. The
Company recognizes advertising sales revenue at estimated realizable values
when the advertising is aired. Revenues derived from other sources are
recognized when services are provided or events occur.
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 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.
See Note 3 for a discussion of the expected impact of adoption of Emerging
Issues Task Force ("EITF") 01-9, "Accounting for Consideration Given to a
Customer (Including a Reseller of the Vendor's Products)" ("EITF 01-9") and
EITF 01-14, "Income Statement Characterization of Reimbursements Received
for 'Out-of-Pocket' Expenses Incurred" ("EITF 01-14").
- 45 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
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." Compensation expense for
stock options is measured as the excess, if any, of the quoted market price
of the Company's stock at the date of the grant over the amount an employee
must pay to acquire the stock. The Company records compensation expense for
restricted stock awards based on the quoted market price of the Company's
stock at the date of the grant and the vesting period. The Company records
compensation expense for stock appreciation rights based on the changes in
quoted market prices of the Company's stock or other determinants of fair
value at the end of the year (see Note 8).
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
Investment income 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 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 6).
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
cap agreements ("Caps") and interest rate collar agreements ("Collars").
The Company manages 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 ("Covered Call Options") in order to
monetize a portion of those investments.
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 in the Company's consolidated balance sheet. Covered
Call
- 46 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
Options are marked to market on a current basis with the result included in
investment income in the Company's consolidated statement of operations.
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.
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, the
effective portion of any hedge is reported in other comprehensive income
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 are marked to
market on a current basis with the result included in investment income 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.
Proceeds from sales of Comcast Put Options are recorded in stockholders'
equity and an amount equal to the redemption price of the common stock is
reclassified from permanent equity to temporary equity. Subsequent changes
in the market value of Comcast Put Options are 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 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.
See Note 3 for a discussion of the impact of adoption of SFAS No. 133.
- 47 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
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 2001.
3. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, as Amended
On January 1, 2001, the Company adopted SFAS No. 133. SFAS No. 133
establishes accounting and reporting standards for derivatives and hedging
activities. SFAS No. 133 requires that all derivative instruments be
reported on the balance sheet at their fair values.
Upon adoption of SFAS No. 133, the Company recognized as income a
cumulative effect of accounting change, net of related income taxes, of
$384.5 million and a cumulative decrease in other comprehensive income, net
of related income taxes, of $127.0 million.
The increase in income consisted of a $400.2 million adjustment to record
the debt component of indexed debt at a discount from its value at maturity
(see Note 7) and $191.3 million principally related to the reclassification
of gains previously recognized as a component of accumulated other
comprehensive income on the Company's equity derivative instruments, net of
related deferred income taxes of $207.0 million (see Note 9).
The decrease in other comprehensive income consisted principally of the
reclassification of the gains noted above.
SFAS No's. 141 and 142
The Financial Accounting Standards Board ("FASB") issued SFAS No. 141 and
SFAS No. 142 in June 2001. These statements address how intangible assets
that are acquired individually, with a group of other assets or in
connection with a business combination should be accounted for in financial
statements upon and subsequent to their acquisition. The new statements
require that all business combinations initiated after June 30, 2001 be
accounted for using the purchase method and establish specific criteria for
the recognition of intangible assets separately from goodwill.
The Company adopted SFAS No. 141 on July 1, 2001, as required by the new
statement. The adoption of SFAS No. 141 did not have a material impact on
the Company's financial condition or results of operations.
The Company adopted SFAS No. 142 on January 1, 2002, as required by the new
statement. Upon adoption, the Company will no longer amortize goodwill and
other indefinite lived intangible assets, which consist primarily of cable
franchise operating rights. The Company will be required to test its
goodwill and intangible assets that are determined to have an indefinite
life for impairment at least annually. Other than in the period of adoption
or in those periods in which the Company may record an asset impairment,
the Company expects that the adoption of SFAS No. 142 will result in
increased income as a result of reduced amortization expense.
- 48 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
The EITF of the FASB is expected to provide further guidance on certain
implementation issues related to the adoption of SFAS No. 142 as it relates
to identifiable intangible assets other than goodwill. Subject to further
guidance to be provided, based upon the Company's interpretation of SFAS
No. 142, the Company may record a charge as a cumulative effect of
accounting change, net of related deferred income taxes, in an amount not
expected to exceed $1.5 billion upon adoption of SFAS No. 142 on January 1,
2002.
Based on the Company's preliminary evaluation, the estimated effect of
adoption of SFAS No. 142 would have been to decrease amortization expense
by approximately $2.0 billion and to increase deferred income tax expense
by approximately $600 million for the year ended December 31, 2001.
SFAS No. 143
The FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," in June 2001. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS No. 143
is effective for fiscal years beginning after June 15, 2002. While the
Company is currently evaluating the impact the adoption of SFAS No. 143
will have on its financial condition and results of operations, it does not
expect such impact to be material.
SFAS No. 144
The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," in August 2001. SFAS No. 144, which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of, supercedes SFAS No. 121 and is
effective for fiscal years beginning after December 15, 2001. While the
Company is currently evaluating the impact the adoption of SFAS No. 144
will have on its financial condition and results of operations, it does not
expect such impact to be material.
EITF 01-9
In November 2001, the EITF reached a consensus on EITF 01-9. EITF 01-9
requires, among other things, that consideration paid to customers should
be classified as a reduction of revenue unless certain criteria are met.
Certain of the Company's content subsidiaries have paid or may pay
distribution fees to cable television and satellite broadcast systems for
carriage of their programming. The Company currently classifies the
amortization of these distribution fees as expense in its consolidated
statement of operations. Upon adoption of EITF 01-9 on January 1, 2002, the
Company will reclassify certain of these distribution fees from expense to
a revenue reduction for all periods presented in its consolidated statement
of operations. The change in classification will have no impact on the
Company's reported operating loss or financial condition. The effect of the
reclassification of cable television and satellite broadcast distribution
fees from expense to a reduction of revenue is to decrease the amounts
reported in the Company's consolidated statement of operations as follows
(in millions):
[Enlarge/Download Table]
Year Ended December 31,
2001 2000 1999
------- ------- -------
Service revenues...................................... $35.8 $17.3 $4.6
Selling, general and administrative expense........... $4.7 $5.3 $4.2
Amortization expense.................................. $31.1 $12.0 $0.4
EITF 01-14
In November 2001, the FASB staff announced EITF Topic D-103, "Income
Statement Characterization of Reimbursements Received for 'Out-of-Pocket'
Expenses Incurred," which has subsequently been recharacterized as EITF
01-14. EITF 01-14 requires that reimbursements received for out-of-pocket
expenses incurred be characterized as revenue in the statement of
operations.
- 49 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
Under the terms of its franchise agreements, the Company is required to pay
up to 5% of its gross revenues derived from providing cable services to the
local franchising authority. The Company normally passes these fees through
to its cable subscribers. The Company currently classifies cable franchise
fees collected from its cable subscribers as a reduction of the related
franchise fee expense included within selling, general and administrative
expenses in its consolidated statement of operations.
EITF 01-14, by analogy, applies to franchise fees. Upon adoption of EITF
01-14 on January 1, 2002, the Company will reclassify franchise fees
collected from cable subscribers from a reduction of selling, general and
administrative expenses to a component of service revenues in its
consolidated statement of operations. The change in classification will
have no impact on the Company's reported operating income (loss) or
financial condition. The effect of the reclassification of cable franchise
fees is to increase the amounts reported in the Company's consolidated
statement of operations as follows (in millions):
[Enlarge/Download Table]
Year Ended December 31,
2001 2000 1999
-------- -------- --------
Service revenues......................................... $192.3 $152.3 $105.6
Selling, general and administrative expense.............. $192.3 $152.3 $105.6
4. EARNINGS PER SHARE
Earnings for common stockholders per common share is computed by dividing
net income, after deduction of preferred stock dividends, when applicable,
by the weighted average number of common shares outstanding during the
period on a basic and diluted basis.
The following table reconciles the numerator and denominator of the
computations of diluted earnings for common stockholders per common share
("Diluted EPS") for the years presented.
[Enlarge/Download Table]
(Amounts in millions, except per share data)
Year Ended
December 31,
2001 2000 1999
---- ---- ----
Net income for common stockholders........................... $608.6 $1,998.0 $1,036.0
Preferred dividends.......................................... 23.5 29.7
------------ ------------ -----------
Net income for common stockholders used for
Diluted EPS............................................... $608.6 $2,021.5 $1,065.7
============ ============ ===========
Basic weighted average number of common shares
outstanding............................................... 949.7 890.7 749.1
Dilutive securities:
Series A and B convertible preferred stock.............. 1.0 42.5 44.0
Stock option and restricted stock plans................. 13.8 15.4 26.8
Put options on Class A Special Common Stock............. 0.1
------------ ------------ -----------
Diluted weighted average number of common shares
outstanding............................................... 964.5 948.7 819.9
============ ============ ===========
Diluted earnings for common stockholders per
common share.............................................. $0.63 $2.13 $1.30
============ ============ ===========
- 50 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
Comcast Put Options on a weighted average 0.2 million shares, 1.5 million
shares and 2.7 million shares of its Class A Special Common Stock (see Note
8) were outstanding during the years ended December 31, 2001, 2000 and
1999, respectively. Comcast Put Options outstanding during the years ended
December 31, 2001 and 1999 were not included in the computation of Diluted
EPS as the Comcast Put Options' exercise price was less than the average
market price of the Company's Class A Special Common Stock during the
periods.
In December 2000 and January 2001, the Company issued $1.478 billion
principal amount at maturity of Zero Coupon Convertible Debentures due 2020
(the "Zero Coupon Debentures" - see Note 7). The Zero Coupon Debentures may
be converted at any time prior to maturity if the closing sale price of the
Company's Class A Special Common Stock is greater than 110% of the accreted
conversion price (as defined). The Zero Coupon Debentures were excluded
from the computation of Diluted EPS in 2001 and 2000 as the weighted
average closing sale price of the Company's Class A Special Common Stock
was not greater than 110% of the accreted conversion price.
5. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Agreement and Plan of Merger with AT&T Broadband
On December 19, 2001, the Company entered into an Agreement and Plan of
Merger with AT&T Corp. ("AT&T") pursuant to which the Company agreed to a
transaction which will result in the combination of the Company and a
holding company of AT&T's broadband business ("AT&T Broadband") that AT&T
will spin off to its shareholders immediately prior to the combination. As
of December 31, 2001, AT&T Broadband served approximately 13.6 million
subscribers. Under the terms of the transaction, the combined company will
issue approximately 1.235 billion shares of its voting common stock to AT&T
Broadband shareholders in exchange for all of AT&T's interests in AT&T
Broadband, and approximately 115 million shares of its common stock to
Microsoft Corporation ("Microsoft") in exchange for AT&T Broadband shares
that Microsoft will receive immediately prior to the completion of the
transaction for settlement of their $5 billion aggregate principal amount
in quarterly income preferred securities. The combined company will also
assume or incur approximately $20 billion of AT&T Broadband debt. For each
share of a class of common stock of Comcast that they hold at the time of
the merger, each Comcast shareholder will receive one share of a
corresponding class of stock of the combined company. The Company expects
that the transaction will qualify as tax-free to both the Company and to
AT&T.
The Company will account for the transaction as an acquisition under the
purchase method of accounting, with the Company as the acquiring entity.
The identification of the Company as the acquiring entity was made after
careful consideration of all facts and circumstances, as follows:
Voting Rights in the New Combined Company. Former AT&T shareholders will
own approximately 53.7% of the combined company's economic interest and
approximately 60.6% of the combined company's voting interest following the
merger. Microsoft will own shares representing approximately 5.2% of the
combined company's economic interest and 4.95% of the combined company's
voting interest following the merger. No individual former AT&T shareholder
will have any significant ownership or voting interest following the
merger. Brian L. Roberts, the Company's controlling shareholder and
President ("Mr. Roberts"), either directly or through his control of a
family holding company, will own an approximately 33.34% voting interest in
the combined company following the merger (including a 33.33% non-
dilutable voting interest through ownership of the Class B common stock of
the combined company), and an approximately .8% economic interest. Mr.
Roberts will hold the largest minority voting interest in the combined
company. The next largest voting interest held by an individual shareholder
will be 4.95%, held by Microsoft. Under the governing documents of the
combined company, as a result of his ownership of the Class B stock, Mr.
Roberts will have the right to approve any merger involving the combined
company or any other transaction in which any other person would own more
than 10 percent of the stock of the combined company, the right to approve
any issuances of Class B stock, and any charter amendments or other actions
that would limit the rights of the Class B stock.
- 51 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
Governance Arrangements Relating to the Board of Directors. The initial
Board of the combined company will have twelve members, five of whom will
be designated by the Company from its existing Board, five of whom will be
designated by AT&T from its existing Board, and two of whom will be jointly
designated by the Company and AT&T and will be independent persons. Except
for pre-approved designees, the individuals designated by each of the
Company and AT&T will be mutually agreed upon by the Company and AT&T.
Pursuant to the terms of the merger agreement, existing Company directors
Ralph J. Roberts, Mr. Roberts, Sheldon M. Bonovitz, Julian A. Brodsky and
Decker Anstrom have been pre-approved as Company director designees of the
combined company and existing AT&T director and Chairman C. Michael
Armstrong ("Mr. Armstrong") is the sole pre-approved AT&T director
designee. The remaining four AT&T designees are subject to the approval of
the Company. All of the initial director designees will hold office until
the 2005 annual meeting of the combined company shareholders. After this
initial term, the entire Board will be elected annually. During the period
before the 2005 annual meeting, Mr. Roberts will be the chairman of the
Board committee that nominates the slate of directors for the combined
company (the "Directors Nominating Committee") if he is the Chairman or the
CEO of the combined company. The remaining four members of the Directors
Nominating Committee will consist of one director designee who is an
independent director selected by the Company's director designees, and
three independent directors selected by the Company's director designees
from the AT&T director designees and the Company/AT&T joint director
designees. Since the initial director designees will hold office until the
2005 annual meeting, the Directors Nominating Committee would be expected
to act only in order to fill vacancies that may occur in director positions
prior to that meeting. After the 2005 annual meeting of shareholders, Mr.
Roberts will continue to be the chairman of the Directors Nominating
Committee of the combined company. The remaining four members of the
Directors Nominating Committee will be selected by Mr. Roberts from among
the combined company's independent directors. Nominations of the Directors
Nominating Committee will be submitted directly to the shareholders without
any requirement of Board approval or ratification.
Governance Arrangements Relating to Management. The combined company will
have an Office of the Chairman, comprised of the Chairman of the Board and
the CEO, from the closing of the merger until the earlier to occur of: (i)
the 2005 annual meeting of the shareholders, and (ii) the date on which Mr.
Armstrong ceases to be Chairman of the Board. The Office of the Chairman
will be the combined company's principal executive deliberative body with
responsibility for corporate strategy, policy and direction, governmental
affairs and other significant matters. While the Office of the Chairman is
in effect, the Chairman of the Board and the CEO will advise and consult
with each other with respect to those matters. Mr. Armstrong, AT&T's
Chairman of the Board, will be Chairman of the Board of the combined
company. Mr. Armstrong may serve as Chairman of the Board until the 2005
annual meeting of shareholders. After the 2005 annual meeting of
shareholders, or if Mr. Armstrong ceases to serve as Chairman of the Board
prior to that date, Mr. Roberts will become the Chairman of the Board of
the combined company. Removal of the Chairman of the Board will require the
vote of at least 75% of the entire Board until the earlier to occur of: (i)
the date on which neither Mr. Armstrong nor Mr. Roberts is Chairman of the
Board, and (ii) the fifth anniversary of the 2005 annual meeting of
shareholders. Mr. Roberts will be the CEO of the combined company. Mr.
Roberts will also be President of the combined company for as long as he is
the CEO. The CEO's powers and responsibilities will include: (i) the
supervision and management of the combined company's business and
operations, (ii) all matters related to officers and employees, including
hiring and termination, (iii) all rights and powers typically exercised by
the chief executive officer and president of a corporation, and (iv) the
authority to call special meetings of the combined company Board. Removal
of Mr. Roberts as CEO will require the vote of at least 75% of the entire
Board until the earlier to occur of: (i) the date on which Mr. Roberts
ceases to be CEO, and (ii) the fifth anniversary of the 2005 annual meeting
of the combined company shareholders. Under the terms of the merger
agreement, Mr. Roberts has the right to fill all senior management
positions of the combined company after consultation with Mr. Armstrong.
Other Factors. The Company made an unsolicited offer to purchase all of
AT&T Broadband. Subsequent to the Company's offer, AT&T solicited bids from
other potential purchasers.
- 52 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
The headquarters of the combined company will be in Philadelphia,
Pennsylvania, the current headquarters of the Company. An executive office
will be maintained in the New York City metropolitan area until at least
April 2005.
The Company's current investment in shares of AT&T common stock, to the
extent still held by the Company at the time of the AT&T Broadband spin-off
and merger, will be exchanged into AT&T shares (representing its Consumer
Services and Business Services Groups). Therefore, the Company will
continue to have an investment in the "selling company." Conversely, AT&T
Broadband's current investment in the Company will either be retired to
treasury after the merger or used to settle related debt.
*****
Notwithstanding that the former AT&T Broadband shareholders will, in the
aggregate, receive the majority of the voting common stock of the combined
company, the Company believes that this fact is outweighed by the totality
of the other facts and circumstances described above, with the most
significance being given to Mr. Roberts' non-dilutable minority voting
interest, Mr. Roberts' role on the Nominating Committee of the Board of
Directors, Mr. Roberts position as CEO and President, and Mr. Roberts'
right to appoint other members of senior management.
The transaction is subject to customary closing conditions and shareholder,
regulatory and other approvals. The Company expects to close the
transaction by the end of 2002.
At Home Services
On September 28, 2001, At Home Corporation ("At Home"), the Company's
provider of high-speed Internet services, filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. In October 2001, the Company
amended its agreement with At Home to continue service to the Company's
existing and new subscribers during October and November 2001. The Company
agreed to be charged a higher rate than it had incurred under its previous
agreement. On December 3, 2001, the Company and At Home reached a
definitive agreement, approved by the Bankruptcy Court, pursuant to which
the Company paid $160 million to At Home and At Home agreed to continue to
provide high-speed Internet services to existing and new subscribers
through February 28, 2002. In December 2001, the Company began to transfer
its high-speed Internet subscribers from the At Home network to the
Company's new Company-owned and managed network. The Company completed this
transition in February 2002.
In the fourth quarter of 2001, the Company recognized $139.5 million of net
incremental expenses incurred in the continuation of service to and
transition of the Company's high-speed Internet subscribers from At Home's
network to the Company's own network. This charge is included in operating
expenses in the Company's consolidated statement of operations.
Acquisition of Outdoor Life Network
On October 30, 2001, the Company acquired from Fox Entertainment Group,
Inc. ("Fox Entertainment"), a subsidiary of The News Corporation Limited
("News Corp.") the approximate 83.2% interest in OLN not previously owned
by the Company. OLN is a 24-hour network devoted exclusively to adventure
and the outdoor lifestyle with distribution to approximately 41 million
subscribers. The Company made the acquisition to increase its investment in
programming content. The estimated fair value of the additional interest of
OLN acquired by the Company as of the closing date of the transaction was
approximately $512 million, substantially all of which was allocated to
affiliation agreements and goodwill in connection with the preliminary
purchase price allocation. Upon closing of the 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. In
connection with the exchange of its interest in SVN, the Company recorded
to other income a pre-tax gain of $106.7 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. The Company no longer owns any interest in SVN and now owns 100% of
OLN.
- 53 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
Baltimore, Maryland System Acquisition
On June 30, 2001, the Company acquired the cable system serving
approximately 112,000 subscribers in Baltimore City, Maryland from AT&T for
$518.7 million in cash. The purchase price is subject to adjustment.
Acquisition of Controlling Interest in The Golf Channel
On June 8, 2001, the Company acquired the approximate 30.8% interest in TGC
held by Fox Entertainment. In addition, Fox Entertainment and News Corp.
agreed to a five-year non-competition agreement. The Company paid aggregate
consideration of $364.9 million in cash. The Company previously accounted
for TGC under the equity method. The Company now owns approximately 91.0%
of TGC and consolidates TGC.
AT&T Cable Systems Acquisition
On April 30, 2001, the Company acquired cable systems serving approximately
585,000 subscribers from AT&T in exchange for approximately 63.9 million
shares of AT&T common stock then held by the Company. The market value of
the AT&T shares was approximately $1.423 billion, based on the price of the
AT&T common stock on the closing date of the transaction. The transaction
is expected to qualify as tax free to both the Company and to AT&T.
Home Team Sports Acquisition
On February 14, 2001, the Company acquired Home Team Sports (now known as
CSN Mid-Atlantic), a regional sports programming network with distribution
to approximately 4.8 million homes in the Mid-Atlantic region, from Viacom,
Inc. ("Viacom") and Affiliated Regional Communications, Ltd. (an affiliate
of Fox Cable Network Services, LLC ("Fox")). The Company also agreed to
increase the distribution of certain of Viacom's and Fox's programming
networks on certain of the Company's cable systems. The estimated fair
value of Home Team Sports as of the closing date of the acquisition was
$240.0 million.
Adelphia Cable Systems Exchange
On January 1, 2001, the Company completed its cable systems exchange with
Adelphia Communications Corporation ("Adelphia"). The Company received
cable systems serving approximately 445,000 subscribers from Adelphia and
Adelphia received certain of the Company's cable systems serving
approximately 441,000 subscribers. The Company recorded to other income 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.
AT&T Cable Systems Exchange
On December 31, 2000, the Company completed its cable systems exchange with
AT&T. The Company received cable systems serving approximately 770,000
subscribers from AT&T and AT&T received certain of the Company's cable
systems serving approximately 700,000 subscribers. 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.
Acquisition of Prime Communications LLC
In December 1998, the Company agreed to invest in Prime Communications LLC
("Prime"), a cable communications company serving approximately 406,000
subscribers. Pursuant to the terms of this agreement, in December 1998 the
Company acquired from Prime a $50.0 million 12.75% subordinated note due
2008 issued by Prime. In July 1999, the Company made a loan to Prime in the
form of a $733.5 million 6% ten year note, convertible into 90% of the
equity of Prime. The Company made an additional $70.0 million in loans to
Prime (on the same terms as the original loan). In August 2000, the note,
plus accrued interest of $51.7 million on the note and the loans, was
converted and the owners of Prime sold their remaining 10% equity interest
in Prime to the Company for $87.7 million. As a result, the Company owns
100% of Prime and has assumed management control of Prime's operations.
Upon closing, the Company assumed and immediately repaid $532.0 million of
Prime's debt with proceeds from borrowings under existing credit
facilities.
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COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
Acquisition of Jones Intercable, Inc.
In April 1999, the Company acquired a controlling interest in Jones
Intercable, Inc. ("Jones Intercable"), a cable communications company
serving approximately 1.1 million subscribers, for aggregate consideration
of $706.3 million in cash. In June 1999, the Company purchased an
additional 1.0 million shares of Jones Intercable Class A Common Stock for
$50.0 million in cash in a private transaction. The Company contributed its
interest in Jones Intercable to Comcast Cable Communications, Inc.
("Comcast Cable"), an indirect wholly owned subsidiary of the Company.
In March 2000, the Jones Intercable shareholders approved a merger
agreement pursuant to which the Jones Intercable shareholders, including
Comcast Cable, received 1.4 shares of the Company's Class A Special Common
Stock in exchange for each share of Jones Intercable Class A Common Stock
and Common Stock (the "Jones Merger") and Jones Intercable was merged with
and into a wholly owned subsidiary of the Company. In connection with the
closing of the Jones Merger, the Company issued approximately 58.9 million
shares of its Class A Special Common Stock to the Jones Intercable
shareholders, including approximately 23.3 million shares to a subsidiary
of the Company and 35.6 million shares with a value of $1.727 billion to
the public shareholders. As required under accounting principles generally
accepted in the United States, the shares held by the subsidiary of the
Company are presented as issued but not outstanding (held in treasury) in
the Company's December 31, 2001 and 2000 consolidated balance sheet.
Acquisition of CalPERS' Interest in Jointly Owned Cable Properties
In February 2000, the Company acquired the California Public Employees
Retirement System's ("CalPERS") 45% interest in Comcast MHCP Holdings,
L.L.C. ("Comcast MHCP"), formerly a 55% owned consolidated subsidiary of
the Company which serves subscribers in Michigan, New Jersey and Florida.
As a result, the Company owns 100% of Comcast MHCP. The consideration was
$750.0 million in cash.
Acquisition of Lenfest Communications, Inc.
In January 2000, the Company acquired Lenfest Communications, Inc.
("Lenfest"), a cable communications company serving approximately 1.1
million subscribers primarily in the Philadelphia area from AT&T and the
other Lenfest stockholders for approximately 120.1 million shares of the
Company's Class A Special Common Stock with a value of $6.014 billion (the
"Lenfest Acquisition"). In connection with the Lenfest Acquisition, the
Company assumed approximately $1.326 billion of debt.
Consolidation of Comcast Cablevision of Garden State, L.P.
Comcast Cablevision of Garden State, L.P. ("Garden State Cable") (formerly
Garden State Cablevision L.P.), a cable communications company serving
approximately 216,000 subscribers in New Jersey, is a partnership which was
owned 50% by Lenfest and 50% by the Company. The Company had accounted for
its interest in Garden State Cable under the equity method. As a result of
the Lenfest Acquisition, the Company owns 100% of Garden State Cable. As
such, the operating results of Garden State Cable have been included in the
Company's consolidated statement of operations from the date of the Lenfest
Acquisition.
Acquisition of Greater Philadelphia Cablevision, Inc.
In June 1999, the Company acquired Greater Philadelphia Cablevision, Inc.
("Greater Philadelphia"), a cable communications company serving
approximately 79,000 subscribers in Philadelphia from Greater Media, Inc.
for approximately 8.5 million shares of the Company's Class A Special
Common Stock with a value of $291.7 million.
The acquisitions completed by the Company during the three years in the
period ended December 31, 2001 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. During the fourth
quarter of 2001, the Company recorded the final purchase price allocation
related to the Company's cable systems exchange with AT&T and related to
the Company's acquisitions of Home Team Sports and TGC. The allocation of
the purchase price for the other 2001 acquisitions and the cable systems
exchange with Adelphia made by the Company is preliminary
- 55 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
pending completion of final appraisals. The Company's cable systems
exchanges with Adelphia and AT&T and certain of the Company's acquisitions
had no significant impact on the Company's consolidated statement of cash
flows due to their noncash nature (see Note 10).
Unaudited Pro Forma Information
The following unaudited pro forma information has been presented as if the
acquisitions and cable systems exchanges made by the Company in 2001 each
occurred on January 1, 2000, the acquisitions and cable systems exchanges
made by the Company in 2000 each occurred on January 1, 1999, and the
acquisitions made by the Company in 1999 each occurred on January 1, 1998.
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.
[Enlarge/Download Table]
(Amounts in millions,
except per share data)
Year Ended December 31,
2001 2000 1999
--------- --------- ----------
Revenues......................................................... $9,926.9 $9,012.2 $7,566.5
Income before extraordinary items and cumulative
effect of accounting change................................. $150.2 $1,652.3 $252.2
Net income....................................................... $533.2 $1,628.7 $201.2
Diluted EPS...................................................... $0.55 $1.68 $0.21
Sale of Comcast Cellular Corporation
In July 1999, the Company sold Comcast Cellular Corporation ("Comcast
Cellular") to SBC Communications, Inc. for $361.1 million in cash and the
assumption of $1.315 billion of Comcast Cellular debt, and recognized a
gain on the sale of $355.9 million, net of income tax expense. The results
of operations of Comcast Cellular have been presented as a discontinued
operation in accordance with APB Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." During the year ended December 31, 1999, the Company
recognized losses from discontinued operations of $20.1 million.
Other Income
In August 2000, the Company obtained the right to exchange its 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 6). 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 $98.1 million,
representing the difference between the fair value of the AT&T shares
received of $100.0 million and the Company's cost basis in the subsidiary.
In May 1999, the Company received a $1.5 billion termination fee as
liquidated damages from MediaOne Group, Inc. ("MediaOne") as a result of
MediaOne's termination of its Agreement and Plan of Merger with the Company
dated March 1999. The termination fee, net of transaction costs, was
recorded to other income in the Company's consolidated statement of
operations.
- 56 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
6. INVESTMENTS
[Enlarge/Download Table]
December 31,
2001 2000
----------- -----------
(Dollars in millions)
Fair value method
AT&T Corp.................................................... $1,514.9 $1,174.3
Sprint Corp. PCS Group....................................... 2,109.5 2,149.8
Other........................................................ 136.1 1,873.0
----------- -----------
3,760.5 5,197.1
Cost method....................................................... 155.2 128.4
Equity method..................................................... 386.7 396.1
----------- -----------
Total investments........................................ 4,302.4 5,721.6
Less, current investments......................................... 2,623.2 3,059.7
----------- -----------
Non-current investments........................................... $1,679.2 $2,661.9
=========== ===========
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 unrealized pre-tax gains on these investments as of
December 31, 2001 and 2000 of $280.3 million and $707.1 million,
respectively, have been reported in the Company's consolidated balance
sheet principally as a component of other comprehensive income, net of
related deferred income taxes of $95.3 million and $240.0 million,
respectively.
The cost, fair value and gross unrealized gains and losses related to the
Company's available for sale securities are as follows:
[Enlarge/Download Table]
December 31,
2001 2000
----------- -----------
(Dollars in millions)
Cost............................................................. $1,355.0 $4,490.0
Gross unrealized gains........................................... 283.2 1,887.6
Gross unrealized losses.......................................... (2.9) (1,180.5)
----------- -----------
Fair value....................................................... $1,635.3 $5,197.1
=========== ===========
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 5 - 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. The Company has registration rights, subject to customary
restrictions, which allow the Company to require AT&T to register the AT&T
shares received. 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 a pre-tax gain of $296.3 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 $78.3
million in cash. At maturity, the counterparty is entitled to receive
between 2.5 million and 4.0 million shares
- 57 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
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.
Investment Income
Investment income includes the following (in millions):
[Enlarge/Download Table]
Year Ended December 31,
2001 2000 1999
--------- --------- ---------
Interest and dividend income........................................... $76.5 $171.6 $172.5
Gains on sales and exchanges of investments, net....................... 485.2 886.7 510.6
Investment impairment losses........................................... (972.4) (74.4) (35.5)
Reclassification of unrealized gains................................... 1,330.3
Unrealized gain on Sprint PCS common stock............................. 284.4
Mark to market adjustments on derivatives related
to Sprint PCS common stock........................................ (184.6)
Mark to market adjustments on derivatives and hedged items............. 42.3
Settlement of call options............................................. (18.1)
--------- --------- ---------
Investment income................................................. $1,061.7 $983.9 $629.5
========= ========= =========
The investment impairment loss for the year ended December 31, 2001 relates
principally to an other than temporary decline in the Company's investment
in AT&T, a portion of which was exchanged on April 30, 2001 (see Note 5 -
AT&T Cable Systems Acquisition).
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 the accumulated unrealized gain of $237.9 million on the Company's
investment in At Home common stock which was previously recorded as a
component of accumulated other comprehensive income. 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 5 - Other Income).
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. As a result, the Company reclassified to investment income 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.
Equity Price Risk
During 1999, the Company entered into Equity Collars covering $1.365
billion notional amount of the Company's Sprint PCS common stock, which are
accounted for at fair value. The Equity Collars limit the Company's
exposure to and benefits from price fluctuations in the underlying Sprint
PCS common stock. During 2001, $483.7 million notional amount of Equity
Collars matured and the Company sold or entered into Prepaid Forward Sales
of the related Sprint PCS common stock. The remaining $881.0 million
notional amount of Equity Collars mature between 2002 and 2003. As the
Company had accounted for the Equity Collars as a hedge, changes in the
value of the Equity Collars were substantially offset by changes in the
value of the Sprint PCS common stock which was also
- 58 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
marked-to-market through accumulated other comprehensive income in the
Company's consolidated balance sheet through December 31, 2000.
Equity Method
The Company records its proportionate interests in the net income (loss) of
certain of its equity method investees in arrears. The Company's recorded
investments exceed its proportionate interests in the book value of the
investees' net assets by $188.7 million as of December 31, 2001
(principally related to the Company's investment in Susquehanna Cable).
Such excess is being amortized to equity in net income or loss, over a
period of twenty years, which is consistent with the estimated lives of the
underlying assets. The original cost of investments accounted for under the
equity method totaled $479.8 million and $506.5 million as of December 31,
2001 and 2000, respectively. Upon adoption of SFAS No. 142, the Company
will no longer amortize 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."
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.
Cost Method
It is not practicable to estimate the fair value of the Company's
investments in privately held companies, accounted for under the cost
method, due to a lack of quoted market prices.
- 59 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
7. LONG-TERM DEBT
[Enlarge/Download Table]
December 31,
2001 2000
---------- ----------
(in millions)
Commercial Paper............................................................. $397.3 $1,323.5
Notes payable to banks due in installments through 2009...................... 1,222.7 1,751.4
9-5/8% Senior notes, due 2002................................................ 200.0 200.0
8-1/8% Senior notes, due 2004................................................ 320.4 299.9
8-3/8% Senior notes, due 2005................................................ 697.0 696.3
6-3/8% Senior notes, due 2006................................................ 511.3
8-3/8% Senior notes, due 2007................................................ 597.5 597.2
8-7/8% Senior notes, due 2007................................................ 249.1 249.0
6.20% Senior notes, due 2008................................................. 798.4 798.2
7-5/8% Senior notes, due 2008................................................ 206.1 197.1
7-5/8% Senior notes, due 2008................................................ 147.7 147.4
6-7/8% Senior notes, due 2009................................................ 751.5
6-3/4% Senior notes, due 2011................................................ 993.1
7-1/8% Senior notes, due 2013................................................ 748.4
8-7/8% Senior notes, due 2017................................................ 545.9 545.8
8-1/2% Senior notes, due 2027................................................ 249.6 249.6
10-1/4% Senior subordinated debentures, due 2001............................. 100.4
10-1/2% Senior subordinated debentures, due 2006............................. 133.0 123.8
8-1/4% Senior subordinated debentures, due 2008.............................. 154.3 149.1
10-5/8% Senior subordinated debentures, due 2012............................. 247.8 257.0
Zero Coupon Convertible Debentures, due 2020................................. 1,096.4 1,002.0
7% Disney Notes, due 2007.................................................... 132.8 132.8
ZONES at principal amount, due 2029.......................................... 1,612.6 1,806.8
Other, including capital lease obligations................................... 188.9 184.0
---------- ----------
12,201.8 10,811.3
Less current portion......................................................... 460.2 293.9
---------- ----------
$11,741.6 $10,517.4
========== ==========
Maturities of long-term debt outstanding as of December 31, 2001 for the
four years after 2002 are as follows (in millions):
2003............................... $73.2
2004............................... 331.0
2005............................... 2,026.2
2006............................... 653.2
Senior Notes Offerings
During 2001, Comcast Cable sold an aggregate of $3.0 billion of public
debt. The Company used substantially all of the net proceeds from the
offerings to repay a portion of the amounts outstanding under Comcast
Cable's commercial paper program and revolving credit facility, and to fund
acquisitions.
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COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
Zero Coupon Convertible Debentures
In December 2000, the Company issued $1.285 billion principal amount at
maturity of Zero Coupon Debentures for proceeds of $1.002 billion. In
January 2001, the Company issued an additional $192.8 million principal
amount at maturity of Zero Coupon Debentures for proceeds of $150.3
million. The Company used substantially all of the net proceeds from the
offering to repay a portion of the amounts outstanding under Comcast
Cable's commercial paper program and revolving credit facility.
The Zero Coupon Debentures have a yield to maturity of 1.25%, computed on a
semi-annual bond equivalent basis. The Zero Coupon Debentures may be
converted, subject to certain restrictions, into shares of the Company's
Class A Special Common Stock at the option of the holder at a conversion
rate of 14.2566 shares per $1,000 principal amount at maturity,
representing an initial conversion price of $54.67 per share. The Zero
Coupon Debentures are senior unsecured obligations. The Company may redeem
for cash all or part of the Zero Coupon Debentures on or after December 19,
2005.
On December 17, 2001, the Company amended the terms of the Zero Coupon
Debentures to permit holders of the Zero Coupon Debentures to require the
Company to repurchase the Zero Coupon Debentures on December 19, 2002.
Holders may require the Company to repurchase the Zero Coupon Debentures on
December 19, 2001, 2002, 2003, 2005, 2010 and 2015. The Company may choose
to pay the repurchase price for 2001, 2002, 2003 and 2005 repurchases in
cash or shares of its Class A Special Common Stock or a combination of cash
and shares of its Class A Special Common Stock. The Company may pay the
repurchase price for the 2010 and 2015 repurchases in cash only.
On December 19, 2001, holders of an aggregate of $70.3 million accreted
value of Zero Coupon Debentures exercised their right to have the Company
repurchase their Zero Coupon Debentures for cash. The Company financed the
redemption with available cash.
Holders may surrender the Zero Coupon Debentures for conversion at any time
prior to maturity if the closing price of the Company's Class A Special
Common Stock is greater than 110% of the accreted conversion price for at
least 20 trading days of the 30 trading days prior to conversion.
Amounts outstanding under the Zero Coupon Debentures are classified as
long-term in the Company's consolidated balance sheet as of December 31,
2001 and 2000 as the Company has both the ability and the intent to
refinance the Zero Coupon Debentures on a long-term basis with amounts
available under the Comcast Cable Revolver (see "Commercial Paper" below)
in the event holders of the Zero Coupon Debentures exercise their rights to
require the Company to repurchase the Zero Coupon Debentures in December
2002.
Commercial Paper
The Company's senior bank credit facility consists of a $2.25 billion,
five-year revolving credit facility and a $2.25 billion, 364-day revolving
credit facility (together, the "Comcast Cable Revolver"). The 364-day
revolving credit facility supports Comcast Cable's commercial paper
program. Amounts outstanding under the commercial paper program are
classified as long-term in the Company's consolidated balance sheet as of
December 31, 2001 and 2000 as the Company has both the ability and the
intent to refinance these obligations, if necessary, on a long-term basis
with amounts available under the Comcast Cable Revolver.
ZONES
At maturity, holders of the Company's 2.0% Exchangeable Subordinated
Debentures due 2029 (the "ZONES") are entitled to receive in cash an amount
equal to the higher of the principal amount of the ZONES or the market
value of Sprint PCS Stock. Prior to maturity, each ZONES is exchangeable at
the holder's option for an amount of cash equal to 95% of the market value
of Sprint PCS Stock.
- 61 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
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 (expense) related to indexed debt in the Company's consolidated
statement of operations. As of December 31, 2001, the number of Sprint PCS
shares held by the Company exceeded the number of ZONES outstanding.
Upon adoption of SFAS No. 133, the Company split the ZONES into their
derivative and debt components. In connection with the adoption of SFAS No.
133, the Company recorded the debt component of the ZONES at a discount
from its value at maturity resulting in a reduction in the outstanding
balance of the ZONES of $400.2 million (see Note 3).
The Company recorded the increase in the fair value of the ZONES (see Note
6) and the increase in the carrying value of the debt component of the
ZONES as follows (in millions):
[Enlarge/Download Table]
Year Ended
December 31, 2001
-----------------------
Increase in derivative component to investment expense............ $183.8
Increase in debt component to interest expense.................... $22.2
Extraordinary Items
Extraordinary items consist of unamortized debt issue costs and debt
extinguishment costs, net of related tax benefits, expensed principally in
connection with the redemptions and refinancings of certain indebtedness.
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 .75%;
Federal Funds rate plus .5% to 1.25%; and
LIBOR plus .19% to 1.875%.
As of December 31, 2001 and 2000, the Company's effective weighted average
interest rate on its variable rate debt outstanding was 2.70% and 7.34%,
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. 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.
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.
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COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
The following table summarizes the terms of the Company's existing Swaps
(dollars in millions):
[Download Table]
Notional Average Estimated
Amount Maturities Interest Rate Fair Value
As of December 31, 2001
Variable to Fixed Swaps $250.3 2002-2003 4.9% ($5.5)
Fixed to Variable Swaps $950.0 2004-2008 7.5% $46.8
As of December 31, 2000
Variable to Fixed Swaps $377.7 2001-2003 5.2% $3.7
Fixed to Variable Swaps $450.0 2004-2008 7.7% $3.2
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, 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, 2001, 2000 and 1999 was not
significant.
During January and February 2002, the Company settled all $950.0 million
notional amount of its Fixed to Variable Swaps and received proceeds of
$56.8 million.
Estimated Fair Value
The Company's long-term debt had estimated fair values of $12.559 billion
and $10.251 billion as of December 31, 2001 and 2000, 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 restrictive
covenants which, for example, limit the subsidiaries' ability to enter into
arrangements for the acquisition of property and equipment, investments,
mergers and the incurrence of additional debt. Certain of these 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, 2001, $246.9 million of the Company's cash, cash
equivalents and short-term investments is restricted to use by subsidiaries
of the Company under contractual or other arrangements. Restricted net
assets of the Company's subsidiaries were approximately $1.233 billion as
of December 31, 2001.
Lines and Letters of Credit
As of December 31, 2001, certain subsidiaries of the Company had unused
lines of credit of $3.460 billion under their respective credit facilities.
As of December 31, 2001, the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totaling $96.1 million to
cover potential fundings under various agreements.
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COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
8. STOCKHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue, in one or more series, up to a maximum
of 20.0 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.
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 42.5 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 $533.6 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 $59.5
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
and 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):
[Enlarge/Download Table]
Year Ended December 31,
2001 2000 1999
--------- --------- ---------
Shares repurchased........................................................ 0.8 9.1 1.0
Aggregate consideration................................................... $27.1 $324.9 $30.7
Comcast Put Options sold.................................................. 2.0 5.5
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. The
difference between the proceeds from the sale of the Comcast Put Options
and their estimated fair value was not significant as of December 31, 2000.
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COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
Stock-Based Compensation Plans
As of December 31, 2001, the Company and its subsidiaries have several
stock-based compensation plans for certain employees, officers, directors
and other persons designated by the applicable compensation committees of
the boards of directors of the Company and its subsidiaries. These plans
are described below.
Comcast Option Plans. The Company maintains qualified and nonqualified
stock option plans for certain employees, directors and other persons 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"). Under the Comcast Option
Plans, 55.9 million shares of Class A Special Common Stock were reserved as
of December 31, 2001. 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.
The following table summarizes the activity of the Comcast Option Plans
(options in thousands):
[Enlarge/Download Table]
2001 2000 1999
--------------------- --------------------- -----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- ----------- --------- ----------- --------- -----------
Class A Special Common Stock
Outstanding at beginning of year 49,618 $23.69 40,416 $16.01 43,002 $11.09
Granted 10,084 37.52 15,300 39.43 7,403 34.16
Exercised (3,360) 10.62 (4,805) 8.60 (7,527) 6.76
Canceled (821) 30.69 (1,293) 25.98 (2,462) 12.90
--------- --------- ---------
Outstanding at end of year 55,521 26.89 49,618 23.69 40,416 16.01
========= ========= =========
Exercisable at end of year 16,892 15.57 13,267 11.35 10,947 8.19
========= ========= =========
The following table summarizes information about the Class A Special Common
Stock options outstanding under the Comcast Option Plans as of December 31,
2001 (options in thousands):
[Enlarge/Download Table]
Options Outstanding Options Exercisable
------------------------------------------ -------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/01 Life Price at 12/31/01 Price
------------------- ------------- --------------- ----------- ----------- ------------
$4.96 - $6.04 2,229 1 year $5.74 2,067 $5.71
$6.71 - $10.06 7,095 3.3 years 8.70 4,829 8.95
$10.11 - $14.94 4,267 4.9 years 13.13 2,428 13.04
$15.66 - $22.88 10,490 6.4 years 17.01 4,809 17.01
$27.59 - $34.48 6,112 7.4 years 32.29 2,042 31.96
$34.50 - $41.38 21,745 8.9 years 37.78 490 38.52
$41.44 - $53.13 3,583 8.3 years 46.05 227 45.71
--------- ---------
55,521 16,892
========= =========
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COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
The weighted-average fair value at date of grant of a Class A Special
Common Stock option granted under the Comcast Option Plans during 2001,
2000 and 1999 was $19.07, $21.20 and $20.41, respectively. The fair value
of each option granted during 2001, 2000 and 1999 was estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
[Enlarge/Download Table]
Year Ended December 31,
2001 2000 1999
--------- --------- -------
Dividend yield................................................ 0% 0% 0%
Expected volatility........................................... 35.7% 35.8% 36.1%
Risk-free interest rate....................................... 5.1% 6.3% 5.8%
Expected option lives (in years).............................. 8.0 8.0 9.9
Forfeiture rate............................................... 3.0% 3.0% 3.0%
Subsidiary Option Plans. Certain of the Company's subsidiaries maintain
qualified and nonqualified 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. Option holders
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.
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):
[Enlarge/Download Table]
At December 31,
2001 2000 1999
----------- ---------- -----------
Options/SARs outstanding at end
of year...................................................... 253 219 200
=========== ========== ===========
Weighted-average exercise price of
options/SARs outstanding
at end of year............................................... $913.88 $789.51 $618.02
=========== ========== ===========
Options/SARs exercisable at end
of year...................................................... 113 79 80
=========== ========== ===========
Weighted-average exercise price
of options/SARs exercisable
at end of year............................................... $706.51 $606.92 $505.86
=========== ========== ===========
As of the latest valuation date, the fair value of a share of QVC Common
Stock was $1,492.00.
- 66 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
Had compensation expense for the Company's aforementioned stock-based
compensation plans been determined based on the fair value at the grant
dates for awards under those plans under the provisions of SFAS No. 123,
the Company's net income and net income per share would have changed to the
pro forma amounts indicated below (dollars in millions, except per share
data):
[Enlarge/Download Table]
Year Ended December 31,
2001 2000 1999
---------- ---------- ----------
Net income:
As reported................................................ $608.6 $2,021.5 $1,065.7
Pro forma.................................................. $482.0 $1,918.1 $1,005.5
Net income for common stockholders:
As reported................................................ $608.6 $1,998.0 $1,036.0
Pro forma.................................................. $482.0 $1,894.6 $975.8
Basic earnings for common stockholders per common share:
As reported................................................ $0.64 $2.24 $1.38
Pro forma.................................................. $0.51 $2.13 $1.30
Diluted earnings for common stockholders per common share:
As reported................................................ $0.63 $2.13 $1.30
Pro forma.................................................. $0.50 $2.02 $1.23
The pro forma effect on net income and net income per share for the years
ended December 31, 2001, 2000 and 1999 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.
Other Stock-Based Compensation Plans
The Company maintains a restricted stock plan under which management
employees may be granted restricted shares of the Company's Class A Special
Common Stock (the "Restricted Stock Plan"). The shares awarded vest
annually, generally over a period not to exceed five years from the date of
the award, and do not have voting rights. At December 31, 2001, there were
714,000 unvested shares granted under the Restricted Stock Plan, of which
158,000 vested in January 2002.
The Company maintains a deferred stock option plan for certain employees,
officers and directors which provides 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. As of December 31, 2001 and 2000, 5.9 million and 5.0
million shares were issuable under options exercised but the receipt of
which was irrevocably deferred by the optionees pursuant to the Company's
deferred stock option plan.
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.
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COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
The following table summarizes information related to the Company's
Restricted Stock Plan and subsidiary SAR Plans:
[Enlarge/Download Table]
Year Ended December 31,
2001 2000 1999
--------- --------- -------
Restricted Stock Plan
Shares granted (in thousands)............................... 157 504 170
Weighted-average fair value per share at date of grant...... $39.52 $37.80 $43.22
Compensation expense (in millions).......................... $8.9 $9.2 $4.7
SAR Plans
Compensation expense (in millions).......................... $3.5 $2.2 $6.4
9. INCOME TAXES
The Company joins with its 80% or more owned subsidiaries (the
"Consolidated Group") in filing consolidated federal income tax returns.
QVC and E! Entertainment, each file separate consolidated federal income
tax returns. Income tax expense consists of the following components (in
millions):
[Enlarge/Download Table]
Year Ended December 31,
2001 2000 1999
--------- --------- --------
Current expense
Federal......................................................... $623.2 $321.4 $606.7
State........................................................... 84.8 42.8 188.4
Foreign......................................................... 2.9 2.5 2.0
--------- --------- --------
710.9 366.7 797.1
--------- --------- --------
Deferred expense (benefit)
Federal......................................................... (255.8) 998.6 (65.2)
State........................................................... 15.1 76.0 (8.2)
--------- --------- --------
(240.7) 1,074.6 (73.4)
--------- --------- --------
Income tax expense.............................................. $470.2 $1,441.3 $723.7
========= ========= ========
The Company's effective income tax expense differs from the statutory
amount because of the effect of the following items (in millions):
[Enlarge/Download Table]
Year Ended December 31,
2001 2000 1999
--------- --------- --------
Federal tax at statutory rate................................... $299.7 $1,260.6 $525.0
Non-deductible depreciation and amortization.................... 106.6 102.1 49.8
State income taxes, net of federal benefit...................... 64.9 77.2 117.1
Foreign (income) losses and equity in net losses of affiliates.. 7.2 8.0 (2.0)
Other........................................................... (8.2) (6.6) 33.8
--------- --------- --------
Income tax expense.............................................. $470.2 $1,441.3 $723.7
========= ========= ========
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COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
The Company's net deferred tax liability consists of the following
components (in millions):
[Enlarge/Download Table]
December 31,
2001 2000
--------- ---------
Deferred tax assets:
Net operating loss carryforwards........................ $242.8 $289.8
Allowances for doubtful accounts and excess
and obsolete inventory............................... 108.7 109.0
Other................................................... 167.0 163.5
--------- ---------
518.5 562.3
--------- ---------
Deferred tax liabilities:
Temporary differences, principally book and tax basis
of property and equipment and intangible assets....... 6,329.0 5,851.7
Differences between book and tax basis
in investments........................................ 644.9 1,221.3
Differences between book and tax basis of
indexed debt securities............................... 195.7 65.9
--------- ---------
7,169.6 7,138.9
--------- ---------
Net deferred tax liability................................. $6,651.1 $6,576.6
========= =========
The Company recorded $212.3 million of deferred income tax liabilities in
2001 in connection with acquisitions principally related to basis
differences in property and equipment and intangible assets. The Company
recorded a decrease of ($148.6) million and ($3.055) billion, and an
increase of $2.730 billion to deferred income tax liabilities in 2001, 2000
and 1999, respectively, in connection with unrealized gains (losses) on
marketable securities which are included in other comprehensive income. The
Company recorded $207.0 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 3).
The Company has recorded net deferred tax liabilities of $275.4 million and
$789.9 million, as of December 31, 2001 and 2000, respectively, which have
been included in current liabilities, related primarily to current
investments. The Company has net operating loss carryforwards of
approximately $250.0 million which expire primarily in periods through
2019.
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COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
10. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The following table summarizes the fair values of the assets and
liabilities acquired by the Company through noncash transactions (see Note
5) (in millions):
[Enlarge/Download Table]
Year Ended December 31,
2001 2000 1999
--------- ---------- --------
Current assets.................................................... $56.6 $216.2 $6.4
Investments....................................................... 437.3
Property, plant & equipment....................................... 580.4 1,295.8 74.0
Intangible assets................................................. 3,042.7 15,399.4 337.0
Current liabilities............................................... (37.0) (277.3) (11.1)
Long-term debt.................................................... (2,146.5)
Deferred income taxes............................................. (76.9) (3,308.0) (114.6)
--------- ---------- --------
Net assets acquired.......................................... $3,565.8 $11,616.9 $291.7
========= ========== ========
The following table summarizes the Company's cash payments for interest and
income taxes (in millions):
[Enlarge/Download Table]
Year Ended December 31,
2001 2000 1999
-------- -------- --------
Interest................................................................. $660.4 $705.8 $529.2
Income taxes............................................................. $561.2 $708.9 $190.5
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, 2001. 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 these 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 leases as of
December 31, 2001 (in millions):
[Enlarge/Download Table]
Professional
Programming Sports Operating
Agreements Contracts Leases Total
-------------- --------------- ----------- ---------
2002..................................... $95.4 $122.5 $98.6 $316.5
2003..................................... 82.6 108.8 78.0 269.4
2004..................................... 84.0 84.5 68.8 237.3
2005..................................... 82.6 50.8 54.3 187.7
2006..................................... 85.8 28.7 39.6 154.1
Thereafter............................... 413.6 8.0 148.6 570.2
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COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
The following table summarizes the Company's rental expense charged to
operations (in millions):
[Enlarge/Download Table]
Year Ended December 31,
2001 2000 1999
-------- -------- --------
Rental expense............................................................. $120.9 $97.6 $88.5
Contingencies
The Company and the owners of the 34% interest in Comcast Spectacor that
the Company does not own (the "Minority Group") 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 Group based on the appraised fair market
value. In the event the Company did not exercise this option, the Company
and the Minority Group would then be required to use their best efforts to
sell Comcast Spectacor.
The Walt Disney Company ("Disney"), in certain circumstances, is entitled
to cause Comcast Entertainment Holdings LLC ("Entertainment Holdings"),
which is owned 50.1% by the Company and 49.9% by Disney, to purchase
Disney's entire interest in Entertainment Holdings at its then fair market
value (as determined by an appraisal process). If Entertainment Holdings
elects not to purchase Disney's interests, Disney has the right, at its
option, to purchase either the Company's entire interest in Entertainment
Holdings or all of the shares of stock of E! Entertainment held by
Entertainment Holdings in each case at fair market value. In the event that
Disney exercises its rights, as described above, a portion or all of the
Disney Notes (see Note 7) may be replaced with a three year note due to
Disney.
Liberty Media Group ("Liberty") may, at certain times, trigger the exercise
of certain exit rights with respect to its investment in QVC. If Liberty
Media triggers its exit rights, the Company has first right to purchase the
stock in QVC held by Liberty at Liberty's pro rata portion of the fair
market value (on a going concern or liquidation basis, whichever is higher,
as determined by an appraisal process) of QVC. The Company may pay Liberty
for such stock, subject to certain rights of Liberty to consummate the
purchase in the most tax-efficient method available, in cash, the Company's
promissory note maturing not more than three years after issuance, the
Company's equity securities or any combination thereof. If the Company
elects not to purchase the stock of QVC held by Liberty, then Liberty will
have a similar right to purchase the stock of QVC held by the Company. If
Liberty elects not to purchase the stock of QVC held by the Company, then
Liberty and the Company will use their best efforts to sell QVC.
The Company is subject to 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.
- 71 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Continued)
12. FINANCIAL DATA BY BUSINESS SEGMENT
The following represents the Company's significant business segments,
"Cable" and "Commerce." The Company's regional sports programming networks,
which derive a substantial portion of their revenues from the Company's
cable operations, were previously included in "Other." In 2001, as a result
of a change in the Company's internal reporting structure, the Company's
regional sports programming networks are now included in the Company's
Cable segment for all periods presented (see Note 1). The components of net
income (loss) below operating income (loss) are not separately evaluated by
the Company's management on a segment basis (dollars in millions).
[Enlarge/Download Table]
Corporate
Cable Commerce and Other(1) Total
-------------- ------------ ------------ -----------
2001
Revenues (2).................................................... $5,130.7 $3,917.3 626.2 $9,674.2
Operating income (loss) before depreciation and amortization (3) 2,054.1 722.3 (74.6) 2,701.8
Depreciation and amortization................................... 3,043.6 143.3 261.1 3,448.0
Operating income (loss)......................................... (989.5) 579.0 (335.7) (746.2)
Interest expense................................................ 546.4 25.9 159.5 731.8
Assets.......................................................... 29,084.6 2,680.5 6,366.7 38,131.8
Long-term debt.................................................. 8,363.2 62.7 3,315.7 11,741.6
Capital expenditures............................................ 1,855.3 142.9 183.5 2,181.7
2000
Revenues (2).................................................... $4,208.5 $3,535.9 $474.2 $8,218.6
Operating income (loss) before depreciation and amortization (3) 1,903.4 619.2 (52.3) 2,470.3
Depreciation and amortization................................... 2,419.5 125.9 85.9 2,631.3
Operating income (loss)......................................... (516.1) 493.3 (138.2) (161.0)
Interest expense................................................ 515.9 34.9 140.6 691.4
Assets.......................................................... 25,763.9 2,503.0 7,477.6 35,744.5
Long-term debt.................................................. 6,711.0 302.0 3,504.4 10,517.4
Capital expenditures............................................ 1,248.9 155.9 232.0 1,636.8
1999
Revenues (2).................................................... $2,969.9 $3,167.4 $391.9 $6,529.2
Operating income (loss) before depreciation and amortization (3) 1,358.0 538.8 (16.8) 1,880.0
Depreciation and amortization................................... 1,028.3 117.2 70.5 1,216.0
Operating income (loss)......................................... 329.7 421.6 (87.3) 664.0
Interest expense................................................ 353.5 39.6 145.2 538.3
Assets.......................................................... 10,863.6 2,243.6 15,578.4 28,685.6
Long-term debt.................................................. 4,735.5 476.7 3,495.0 8,707.2
Capital expenditures............................................ 739.9 80.1 73.8 893.8
--------------
<FN>
(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 (see Note 6).
(2) Revenues include $508.1 million, $458.4 million and $448.2 million in 2001,
2000 and 1999, respectively, of non-US revenues, principally related to the
Company's Commerce segment. No single customer accounted for a significant
amount of the Company's revenues in any period.
(3) Operating income (loss) before depreciation and amortization is commonly
referred to in the Company's businesses as "operating cash flow (deficit)."
Operating cash flow is a measure of a company's ability to generate cash to
service its obligations, including debt service obligations, and to finance
capital and other expenditures. In part due to the capital intensive nature
of the Company's businesses and the resulting significant level of non-cash
depreciation and amortization expense, operating cash flow is frequently
used as one of the bases for comparing businesses in the Company's
industries, although the Company's measure of operating cash flow may not
be comparable to similarly titled measures of other companies. Operating
cash flow is the primary basis used by the Company's management to measure
the operating performance of its businesses. Operating cash flow does not
purport to represent net income or net cash
</FN>
- 72 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Concluded)
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.
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
[Enlarge/Download Table]
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
--------- --------- --------- ------------ ---------
(Dollars in millions, except per share data)
2001
Revenues.................................................. $2,196.1 $2,298.5 $2,355.5 $2,824.1 $9,674.2
Operating loss............................................ (100.5) (133.3) (178.2) (334.2) (746.2)
Income (loss) before extraordinary items and cumulative
effect of accounting change.......................... 616.7 36.7 (106.8) (321.0) 225.6
Basic earnings (loss) for common
stockholders per common share
Income (loss) before extraordinary items and cumulative
effect of accounting change.......................... 0.65 0.04 (0.11) (0.34) 0.24
Net income (loss)....................................... 1.06 0.04 (0.11) (0.34) 0.64
Diluted earnings (loss) for common
stockholders per common share
Income (loss) before extraordinary items and cumulative
effect of accounting change.......................... 0.64 0.04 (0.11) (0.34) 0.23
Net income (loss)....................................... 1.04 0.04 (0.11) (0.34) 0.63
Operating income before depreciation and amortization (1). 640.9 700.4 705.8 654.7 2,701.8
2000
Revenues.................................................. $1,938.9 $1,912.1 $1,960.0 $2,407.6 $8,218.6
Operating income (loss)................................... 41.2 (31.6) (56.4) (114.2) (161.0)
Income (loss) before extraordinary items.................. (186.4) 198.8 1,249.1 783.6 2,045.1
Basic earnings (loss) for common
stockholders per common share
Income (loss) before extraordinary items.................. (0.23) 0.21 1.37 0.87 2.27
Net income (loss)....................................... (0.24) 0.20 1.37 0.86 2.24
Diluted earnings (loss) for common
stockholders per common share
Income (loss) before extraordinary items.................. (0.23) 0.20 1.29 0.81 2.16
Net income (loss)....................................... (0.24) 0.19 1.29 0.80 2.13
Operating income before depreciation and amortization (1). 586.9 602.8 605.7 674.9 2,470.3
--------------
<FN>
(1) See Note 12, note 3.
</FN>
- 73 -
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Except for the information regarding executive officers required by Item
401 of Regulation S-K, which is included in Part I of this Annual Report on Form
10-K as Item 4A in accordance with General Instruction G(3), the following
required information is incorporated by reference to our definitive Proxy
Statement for our Annual Meeting of Shareholders presently scheduled to be held
in June 2002:
Item 10 Directors and Executive Officers of the Registrant
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management
Item 13 Certain Relationships and Related Transactions
We will file our definitive Proxy Statement for our Annual Meeting of
Shareholders with the Securities and Exchange Commission on or before April 30,
2002.
- 74 -
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements of ours are included in
Part II, Item 8:
Independent Auditors' Report...................................38
Consolidated Balance Sheet--December 31, 2001 and 2000.........39
Consolidated Statement of Operations--Years
Ended December 31, 2001, 2000 and 1999.......................40
Consolidated Statement of Cash Flows--Years
Ended December 31, 2001, 2000 and 1999.......................41
Consolidated Statement of Stockholders' Equity--
Years Ended December 31, 2001, 2000 and 1999.................42
Notes to Consolidated Financial Statements.....................43
(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 and 7(c) on
December 20, 2001 relating to our announcement that we had entered
into an Agreement and Plan of Merger with AT&T Corp. pursuant to
which we agreed to a transaction which will result in the
combination of Comcast Corporation and AT&T Broadband, a holding
company of AT&T's broadband business.
(d) Exhibits required to be filed by Item 601 of Regulation S-K:
2.1 Agreement and Plan of Merger dated as of December 19, 2001
by and among AT&T Corp., AT&T Broadband Corp., Comcast
Corporation, AT&T Broadband Acquisition Corp., Comcast
Acquisition Corp. and AT&T Comcast Corporation
(incorporated by reference to Exhibit 2.1 to our Current
Report on Form 8-K filed on December 20, 2001).
3.1(a) Amended and Restated Articles of Incorporation filed on
July 24, 1990 (incorporated by reference to Exhibit 3.1(a)
to our Annual Report on Form 10-K for the year ended
December 31, 1995).
3.1(b) Amendment to Restated Articles of Incorporation filed on
July 14, 1994 (incorporated by reference to Exhibit 3.1(b)
to our Annual Report on Form 10-K for the year ended
December 31, 1995).
3.1(c) Amendment to Restated Articles of Incorporation filed on
July 12, 1995 (incorporated by reference to Exhibit 3.1(c)
to our Annual Report on Form 10-K for the year ended
December 31, 1995).
3.1(d) Amendment to Restated Articles of Incorporation filed on
June 24, 1996 (incorporated by reference to Exhibit 4.1(d)
to our Registration Statement on Form S-3, as amended,
filed on July 16, 1996).
3.1(e) Form of Statement of Designations, Preferences and Rights
of Series B Convertible Preferred Stock of the Company
(incorporated by reference to Exhibit 3.1 to our Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997).
3.1(f) Amendment to Restated Articles of Incorporation
(incorporated by reference to Exhibit 3.1(f) to our Annual
Report on Form 10-K for the year ended December 31, 2000).
- 75 -
3.2 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 Specimen Class A Common Stock Certificate (incorporated by
reference to Exhibit 2(a) to our Registration Statement on
Form S-7 filed on September 17, 1980).
4.2 Specimen Class A Special Common Stock Certificate
(incorporated by reference to Exhibit 4(2) to our Annual
Report on Form 10-K for the year ended December 31, 1986).
4.3 Indenture, dated as of October 17, 1991, between the
Company and Bank of Montreal/Harris Trust (successor to
Morgan Guaranty Trust Company of New York), as Trustee
(incorporated by reference to Exhibit 2 to our Current
Report on Form 8-K filed on October 31, 1991).
4.4 Form of Debenture relating to our $300,000,000 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).
4.5 Form of Debenture relating to our $1,477,750,000 Principal
Amount at Maturity of 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).
10.1* Comcast Corporation 1987 Stock Option Plan, as amended and
restated, effective December 15, 1998 (incorporated by
reference to Exhibit 10.2 to our Annual Report on Form 10-K
for the year ended December 31, 1998).
10.2* Comcast Corporation 1996 Stock Option Plan, as amended and
restated, effective June 5, 2001 (incorporated by reference
to Exhibit 10.1 to our Quarterly Report on Form 10-Q for
the quarter ended June 30, 2001).
10.3* Comcast Corporation 1996 Deferred Compensation Plan, as
amended and restated, effective December 19, 2000
(incorporated by reference to Exhibit 10.4 to our Annual
Report on Form 10-K for the year ended December 31, 2000).
10.4* Comcast Corporation 1990 Restricted Stock Plan, as amended
and restated, effective June 21, 1999 (incorporated by
reference to Exhibit 10.3 to our Quarterly Report on Form
10-Q for the quarter ended June 30, 1999).
10.5* 1992 Executive Split Dollar Insurance Plan (incorporated by
reference to Exhibit 10(12) to our Annual Report on Form
10-K for the year ended December 31, 1992).
10.6* Comcast Corporation 1996 Cash Bonus Plan, as amended and
restated, effective December 19, 2000 (incorporated by
reference to Exhibit 10.7 to our Annual Report on Form 10-K
for the year ended December 31, 2000).
10.7* Comcast Corporation 1996 Executive Cash Bonus Plan, as
amended through October 1, 2001.
10.8* Compensation and Deferred Compensation Agreement by and
between Comcast Corporation and Ralph J. Roberts, as
amended and restated effective June 5, 2001.
10.9* Compensation Agreement by and between Comcast Corporation
and Brian L. Roberts (incorporated by reference to Exhibit
10.1 to our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000).
10.10* Comcast Corporation Supplemental Executive Retirement Plan,
as amended and restated effective June 5, 2001.
10.11 The Comcast Corporation Retirement-Investment Plan, as
amended and restated (incorporated by reference to Exhibit
10.3 to our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000).
10.12 Defined Contribution Plans Master Trust Agreement, between
Comcast Corporation and State Street Bank and Trust Company
(incorporated by reference to Exhibit 10.2 to our
Registration Statement on Form S-8 filed on October 5,
1995).
----------
* Constitutes a management contract or compensatory plan or arrangement.
- 76 -
10.13 Tax Sharing Agreement, dated as of December 2, 1992, among
Storer Communications, Inc., TKR Cable I, Inc., TKR Cable
II, Inc., TKR Cable III, Inc., AT&T Corp. (as successor to
Tele-Communications, Inc.), the Company and each of the
Departing Subsidiaries that are signatories thereto
(incorporated by reference to Exhibit 4 to our Current
Report on Form 8-K filed on December 17, 1992, as amended
by Form 8 filed January 8, 1993).
10.14* Comcast Corporation 1997 Deferred Stock Option Plan, as
amended and restated, effective November 29, 2001
(incorporated by reference to Exhibit 4.1 to our
Registration Statement on Form S-8 filed on January 22,
2002).
10.15 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).
10.16 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,
in respect of 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.).
10.17 Purchase and Sale Agreement dated as of January 19, 1999
among SBC Communications Inc., Comcast Cellular Holdings
Corporation, Comcast Financial Corporation and Comcast
Corporation (incorporated by reference to Exhibit 10.34 to
our Annual Report on Form 10-K for the year ended December
31, 1998).
10.18 Agreement and Plan of Merger, dated as of November 16,
1999, by and among Comcast Corporation, Comcast LCI
Holdings, Inc., a wholly owned subsidiary of Comcast,
Lenfest Communications, Inc. ("Lenfest") and Lenfest's
stockholders as named therein. (incorporated by reference
to Exhibit 10.1 to our Current Report on Form 8-K filed on
December 13, 1999).
10.19 Asset Exchange Agreement, dated as of August 11, 2000,
among AT&T Corp. and Comcast Corporation (incorporated by
reference to Exhibit 10.1 to our Quarterly Report on Form
10-Q for the quarter ended September 30, 2000).
10.20 Agreement and Plan of Reorganization, dated as of August
11, 2000, among Comcast Corporation, Comcast Cable
Communications, Inc., Comcast CCCI II, LLC, Comcast
Teleport, Inc., Comcast Heritage, Inc., Comcast
Communications Properties, Inc., and AT&T Corp
(incorporated by reference to Exhibit 10.2 to our Quarterly
Report on Form 10-Q for the quarter ended September 30,
2000).
10.21 Five-Year Revolving Credit Agreement, dated as of August
24, 2000, among Comcast Cable Communications, Inc. and the
Financial Institutions Party Hereto, Banc of America
Securities LLC and Chase Securities Inc., as Joint Lead
Arrangers and Joint Book Managers, BNY Capital Markets,
Inc. and Salomon Smith Barney Inc., as Co-Arrangers, Bank
of America, N.A., as Administrative Agent, Swing Line
Lender and Letter of Credit Issuing Lender, Chase
Securities Inc., as Syndication Agent and Citibank, N.A.
and The Bank of New York, as Co- Documentation Agents
(incorporated by reference to Exhibit 10.4 to the Comcast
Cable Communications, Inc. Quarterly Report on Form 10-Q
for the quarter ended September 30, 2000).
10.22 364-Day Revolving Credit Agreement, dated as of July 17,
2001, among Comcast Cable Communications, Inc. and the
Financial Institutions Party Hereto, Banc of America
Securities LLC and Chase Securities Inc., as Joint Lead
Arrangers and Joint Book Managers, BNY Capital Markets,
Inc. and Salomon Smith Barney Inc., as Co-Arrangers, Bank
of America, N.A., as Administrative Agent, Chase Securities
Inc., as Syndication Agent and Citibank, N.A. and The Bank
of New York, as Co-Documentation Agents.
----------
* Constitutes a management contract or compensatory plan or arrangement.
- 77 -
10.23 Asset Exchange Closing Agreement dated as of January 1,
2001 among Comcast Corporation, the Comcast Parties,
Adelphia Communications Corporation and the Adelphia
Parties (incorporated by reference to Exhibit 10.24 to our
Annual Report on Form 10-K for the year ended December 31,
2000).
21 List of Subsidiaries.
23.1 Consent of Deloitte & Touche LLP.
- 78 -
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 29, 2002.
Comcast Corporation
By: /s/ Brian L. Roberts
-------------------------
Brian L. Roberts
President 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.
[Enlarge/Download Table]
Signature Title Date
--------- ----- ----
/s/ Ralph J. Roberts Chairman of the Board of Directors; Director March 29, 2002
-----------------------------
Ralph J. Roberts
/s/ Julian A. Brodsky Vice Chairman of the Board of Directors; March 29, 2002
----------------------------- Director
Julian A. Brodsky
/s/ Brian L. Roberts President; Director (Principal Executive March 29, 2002
----------------------------- Officer)
Brian L. Roberts
/s/ John R. Alchin Executive Vice President, Treasurer March 29, 2002
----------------------------- (Principal Financial Officer)
John R. Alchin
/s/ Lawrence J. Salva Senior Vice President March 29, 2002
----------------------------- (Principal Accounting Officer)
Lawrence J. Salva
/s/ Decker Anstrom Director March 29, 2002
-----------------------------
Decker Anstrom
/s/ Sheldon M. Bonovitz Director March 29, 2002
-----------------------------
Sheldon M. Bonovitz
/s/ Joseph L. Castle II Director March 29, 2002
-----------------------------
Joseph L. Castle II
/s/ Felix G. Rohatyn Director March 29, 2002
-----------------------------
Felix G. Rohatyn
/s/ Bernard C. Watson Director March 29, 2002
-----------------------------
Bernard C. Watson
/s/ Irving A. Wechsler Director March 29, 2002
-----------------------------
Irving A. Wechsler
/s/ Anne Wexler Director March 29, 2002
-----------------------------
Anne Wexler
-79-
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Comcast Corporation
Philadelphia, Pennsylvania
Our audits of the financial statements referred to in our report dated February
5, 2002 (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) appearing in the Annual
Report on Form 10-K of Comcast Corporation (the "Company") for the year ended
December 31, 2001 also included the financial statement schedule of the Company,
listed in Item 14(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.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 5, 2002
- 80 -
COMCAST CORPORATION AND SUBSIDIARIES
------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------
(In millions)
[Enlarge/Download Table]
Additions
Balance at Charged to Deductions Balance
Beginning Costs and from at End
of Year Expenses Reserves(A) of Year
---------- ---------- ----------- --------
Allowance for Doubtful Accounts
2001 $141.7 $86.3 $74.1 $153.9
2000 136.6 65.9 60.8 141.7
1999 120.7 48.6 32.7 136.6
Allowance for Excess and Obsolete
Electronic Retailing Inventories
2001 $105.5 $55.1 $46.3 $114.3
2000 89.2 46.3 30.0 105.5
1999 60.9 61.9 33.6 89.2
<FN>
(A) Uncollectible accounts and excess and obsolete inventory written off.
</FN>
- 81 -
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘10-K’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| | 6/30/17 | | 66 |
| | 12/19/15 | | 63 |
| | 6/30/12 | | 66 |
| | 12/19/10 | | 63 |
| | 12/19/05 | | 63 |
| | 6/30/04 | | 66 | | | | | 10-Q |
| | 12/19/03 | | 63 |
| | 12/19/02 | | 63 |
| | 6/15/02 | | 51 |
| | 4/30/02 | | 76 | | | | | DEF 14A, PRER14A |
| Filed on: | | 3/29/02 | | 81 |
| | 2/28/02 | | 5 | | 55 |
| | 2/5/02 | | 40 | | 82 |
| | 1/22/02 | | 79 | | | | | S-8 |
| | 1/1/02 | | 31 | | 52 |
| For Period End: | | 12/31/01 | | 1 | | 83 | | | 11-K |
| | 12/20/01 | | 77 | | | | | 425, 8-K |
| | 12/19/01 | | 3 | | 77 | | | 8-K |
| | 12/17/01 | | 63 |
| | 12/15/01 | | 51 |
| | 12/3/01 | | 5 | | 55 |
| | 11/29/01 | | 79 |
| | 10/30/01 | | 5 | | 55 |
| | 10/29/01 | | 9 |
| | 10/1/01 | | 78 | | | | | 425, DFAN14A |
| | 9/28/01 | | 5 | | 55 |
| | 7/17/01 | | 79 |
| | 7/1/01 | | 50 |
| | 6/30/01 | | 5 | | 78 | | | 10-Q |
| | 6/8/01 | | 4 | | 56 |
| | 6/5/01 | | 78 |
| | 4/30/01 | | 4 | | 60 |
| | 2/14/01 | | 4 | | 56 | | | SC 13G, SC 13G/A |
| | 1/1/01 | | 4 | | 82 |
| | 12/31/00 | | 8 | | 83 | | | 10-K, 11-K, 8-K |
| | 12/19/00 | | 78 |
| | 9/30/00 | | 79 | | | | | 10-Q |
| | 8/24/00 | | 79 |
| | 8/11/00 | | 79 | | | | | 10-Q |
| | 3/31/00 | | 78 | | | | | 10-Q |
| | 1/1/00 | | 58 |
| | 12/31/99 | | 29 | | 83 | | | 10-K, 11-K |
| | 12/13/99 | | 79 | | | | | 8-K |
| | 11/16/99 | | 79 | | | | | 8-A12B, 8-K, 8-K/A |
| | 6/30/99 | | 78 | | | | | 10-Q |
| | 6/21/99 | | 78 | | | | | DEF 14A |
| | 3/31/99 | | 78 | | | | | 10-Q |
| | 1/19/99 | | 79 |
| | 1/1/99 | | 44 | | 58 |
| | 12/31/98 | | 78 | | 79 | | | 10-K, 11-K |
| | 12/15/98 | | 78 |
| | 1/1/98 | | 58 |
| | 6/30/97 | | 77 | | | | | 10-Q, 11-K, 8-K |
| | 5/1/97 | | 79 |
| | 7/16/96 | | 77 | | | | | 8-A12G/A, S-3/A |
| | 6/24/96 | | 77 |
| | 12/31/95 | | 77 | | | | | 10-K, 11-K |
| | 10/5/95 | | 78 | | | | | 424B2, S-8 |
| | 7/12/95 | | 77 |
| | 3/31/95 | | 79 | | | | | 10-Q |
| | 2/9/95 | | 79 | | | | | 8-K, SC 13G/A |
| | 1/1/95 | | 69 |
| | 7/14/94 | | 77 |
| | 1/8/93 | | 79 |
| | 12/31/92 | | 78 |
| | 12/17/92 | | 79 |
| | 12/2/92 | | 79 |
| List all Filings |
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