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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): September 19, 2002
COMCAST CORPORATION
(Exact Name of Registrant
as Specified in Its Charter)
PENNSYLVANIA
(State or Other Jurisdiction of Incorporation)
0-6983 23-1709202
(Commission File Number) (IRS Employer Identification No.)
1500 MARKET STREET 19102-2148
PHILADELPHIA, PA (Zip Code)
(Address of Principal Executive Office)
(215) 665-1700
(Registrant's Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
--------------------
--------------------------------------------------------------------------------
ITEM 5. OTHER EVENTS.
Measurement Date for the AT&T Comcast Transaction
As previously reported, on December 19, 2001, Comcast Corporation and AT&T
Corp. entered into an Agreement and Plan of Merger pursuant to which AT&T will
transfer the assets and liabilities of its broadband business to AT&T Broadband
Corp. ("Broadband"). Comcast and Broadband will then become wholly-owned
subsidiaries of AT&T Comcast Corporation. The consideration to complete the AT&T
Comcast transaction will consist of shares of AT&T Comcast common stock, assumed
debt of Broadband's subsidiaries, the intercompany indebtedness Broadband must
pay AT&T upon closing and Comcast's transaction costs.
On August 12, 2002, AT&T, AT&T Comcast and Broadband, among others, filed a
registration statement with the Securities and Exchange Commission for a
proposed exchange offer relating to $11.8 billion aggregate principal amount of
AT&T's existing debt securities. If the exchange offer is successful, then upon
closing of the AT&T Comcast transaction a portion of AT&T's debt securities will
cease being AT&T obligations and become Broadband obligations guaranteed by AT&T
Comcast and a number of its cable subsidiaries. The AT&T debt securities that
become Broadband obligations will reduce the intercompany indebtedness Broadband
must pay AT&T.
Comcast believes the assumption of a portion of AT&T's debt securities by
Broadband and the related reduction in the intercompany indebtedness represents
a substantive change in the non-equity, or "other", consideration being paid in
the AT&T Comcast transaction. Accordingly, Comcast asked the Staff of the
Commission to consider whether, for financial reporting purposes, completion of
the exchange offer will result in a new measurement date for the AT&T Comcast
equity securities to be issued in the AT&T Comcast transaction. On September 19,
2002, the Staff indicated that it would not object if AT&T Comcast treated
the exchange offer as resulting in a new measurement date.
Had the Staff rejected Comcast's position, or should the exchange offer not
be completed, AT&T Comcast would, for financial reporting purposes, have to
reflect the value of the AT&T Comcast equity securities as of the December 19,
2001 date on which the AT&T Comcast transaction was first announced. As of June
30, 2002, the recorded value of the estimated aggregate consideration to
complete the AT&T Comcast transaction, using the December 19, 2001 measurement
date, would have been $71.3 billion, resulting in AT&T Comcast recording $60.2
billion of acquisition-related non-amortizing intangible assets. As of June 30,
2002, and using that date as the new measurement date for purposes of the pro
forma financial information, the recorded value of the estimated aggregate
consideration to complete the AT&T Comcast transaction would have been $54.9
billion, and would result in AT&T Comcast recording $43.8 billion of
acquisition-related non-amortizing intangible assets.
In its June 30, 2002 quarterly report, AT&T noted significant changes in
the general business climate in the second quarter of 2002 as evidenced by the
severe downward movement in the U.S. stock market, including the decline in
values of publicly traded cable industry stocks. From January 1, 2002 to June
30, 2002, five of AT&T's cable competitors as a group, including Comcast,
experienced an average decline in total market capitalization of over 20%. AT&T
believed that these and other factors coupled with the pending AT&T Comcast
transaction created a "trigger event" for its broadband segment, which required
AT&T to test its goodwill and franchise rights for impairment as of June 30,
2002. As a result, on a pre-tax basis AT&T recognized a $12.3 billion franchise
right impairment charge and a $4.2 billion goodwill impairment charge.
AT&T Comcast will make a final determination of required purchase
accounting adjustments after closing the AT&T Comcast transaction and completing
a study, in conjunction with independent appraisers, to determine the fair value
of Broadband's identifiable assets (including franchise rights) and liabilities.
Subsequent to the adoption of SFAS 142 on January 1, 2002, goodwill and
franchise rights are no longer amortized. An increase or decrease in goodwill
and/or franchise rights as a result of a change in the measurement date or in
the allocation of fair value through the appraisal process would not affect AT&T
Comcast's future results of operations other than in periods in which AT&T
Comcast may recognize an impairment charge. A change in the recorded value of
these intangible assets could increase or decrease the likelihood that AT&T
Comcast will recognize an impairment charge related to these intangible assets
at some time in the future.
Item 7(b) to this current report on Form 8-K contains unaudited pro forma
combined condensed financial statements of AT&T Comcast Corporation as of June
30, 2002 and for the six months ended June 30, 2002 and the year ended December
31, 2001, giving effect to the AT&T Comcast transaction and using a new
measurement date of June 30, 2002. These pro forma financial statements are
those included in an amendment filed on September 26, 2002, to AT&T's exchange
offer registration statement.
At Home Litigation Update
As previously disclosed, At Home Corporation filed for bankruptcy
protection on September 28, 2001. On May 1, 2002, At Home filed a proposed
plan of liquidation pursuant to Chapter 11 of the U.S. Bankruptcy Code, which,
as modified on June 18, 2002, among other things, implements the creditors'
settlement and provides that all claims and causes of action of the bankrupt
estate of At Home against AT&T Corp. and other shareholders will be transferred
to a liquidating trust owned ratably by the bondholders of At Home and funded
with at least $12 million, and as much as $17 million, to finance the
litigation of those claims. The plan was approved by the bankruptcy court on
August 15, 2002 but has not yet become effective. Following closing of the
merger between Comcast Corporation and AT&T's broadband operations, Comcast may
be contractually liable for 50% of the liabilities of AT&T relating to At Home
(AT&T would be liable for the other 50% of these liabilities).
As expected, on September 23, 2002, the Official Committee of Unsecured
Bondholders of At Home filed suit in the Untied States District Court for the
District of Delaware against Comcast, Cox Communications, Inc. ("Cox"), Brian
L. Roberts in his capacity as a director of At Home, and other corporate and
individual defendants. The complaint seeks alleged "short-swing" profits under
Section 16(b) of the Securities and Exchange Act in connection with At Home put
options Comcast and Cox entered into with AT&T. The complaint alleges a total
of at least $600 million in damages in the aggregate from Comcast and Cox in
connection with this claim. The complaint also seeks damages in an unspecified
amount for alleged breaches of fiduciary duty by the defendants in connection
with transactions entered into among AT&T, At Home, Comcast and Cox. Comcast
believes this suit is without merit and intends to vigorously defend itself in
the action.
ITEM 7(B). PRO FORMA FINANCIAL INFORMATION.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
OF AT&T COMCAST CORPORATION
The following Unaudited Pro Forma Combined Condensed Balance Sheet of AT&T
Comcast as of June 30, 2002 and the Unaudited Pro Forma Combined Condensed
Statements of Operations of AT&T Comcast for the six months ended June 30, 2002
and the year ended December 31, 2001 give effect to the AT&T Comcast
transaction. The pro forma financial statements account for the AT&T Comcast
transaction under the purchase method of accounting.
The Unaudited Pro Forma Combined Condensed Balance Sheet assumes the AT&T
Comcast transaction occurred on June 30, 2002. The Unaudited Pro Forma Combined
Condensed Statements of Operations assume the AT&T Comcast transaction occurred
on January 1, 2001. The unaudited pro forma financial data is based on the
historical consolidated financial statements of Comcast and the historical
combined financial statements of AT&T Broadband Group under the assumptions and
adjustments set forth in the accompanying explanatory notes.
AT&T and Comcast have determined that the AT&T Comcast transaction will be
accounted for as an acquisition by Comcast of AT&T Broadband Group. See Note 5
to the consolidated financial statements of Comcast for the year ended December
31, 2001. As Comcast is considered the accounting acquiror, the historical
basis of Comcast's assets and liabilities will not be affected by the AT&T
Comcast transaction. For purposes of developing the Unaudited Pro Forma
Combined Condensed Balance Sheet as of June 30, 2002, AT&T Broadband Group's
assets, including identifiable intangible assets, and liabilities have been
recorded at their estimated fair values and the excess purchase price has been
assigned to goodwill. No adjustment has been made to AT&T Broadband Group's
franchise rights. The fair values assigned in these pro forma financial
statements are preliminary and represent management's best estimates of current
fair value which are subject to revision upon completion of the AT&T Comcast
transaction. Management of both companies currently knows of no events or
circumstances other than those disclosed in these pro forma notes that would
require a material change to the preliminary purchase price allocation.
However, a final determination of required purchase accounting adjustments
will be made upon the completion of a study to be undertaken by AT&T Comcast
in conjunction with independent appraisers to determine the fair value of
certain of AT&T Broadband Group's assets, including identifiable intangible
assets, and liabilities. Assuming completion of the AT&T Comcast transaction,
the actual financial position and results of operations will differ, perhaps
significantly, from the pro forma amounts reflected herein due to a variety of
factors, including access to additional information, changes in value not
currently identified and changes in operating results between the dates of the
pro forma financial data and the date on which the AT&T Comcast transaction
takes place. See Note (b) to Unaudited Pro Forma Combined Condensed Balance
Sheet.
Comcast shareholders will receive shares of AT&T Comcast Class A common
stock, AT&T Comcast Class B common stock and AT&T Comcast Class A Special common
stock in exchange for shares of Comcast Class A common stock, Comcast Class B
common stock and Comcast Class A Special common stock, respectively, based on an
exchange ratio of 1 to 1. AT&T Comcast will issue stock options to purchase
shares of AT&T Comcast common stock in exchange for all outstanding stock
options of Comcast, based on an exchange ratio of 1 to 1.
The consideration to complete the AT&T Comcast transaction will consist of
shares of AT&T Comcast common stock, assumed debt of AT&T Broadband Group, the
intercompany indebtedness Broadband must pay AT&T upon closing and Comcast's
transaction costs. If the closing date of the AT&T Comcast transaction were as
of June 30, 2002 and the exchange offer is completed, the estimated aggregate
consideration to complete the AT&T Comcast transaction would be $54,929 million,
consisting of $33,026 million of AT&T Comcast common stock based upon a per
share price of $24.20, $21,273 million of assumed debt at estimated fair value,
and $630 million of Comcast's transaction costs directly related to the AT&T
Comcast transaction.
The consideration in the form of assumed debt includes the short-term debt
due to AT&T, which is due at closing, of $6,486 million, as well as $14,787
million of long-term debt, including current portion, of AT&T Broadband Group.
If the exchange offer is successful, then upon completion of the AT&T Comcast
transaction a portion of AT&T's debt securities will cease being AT&T
obligations and become Broadband obligations guaranteed by AT&T Comcast and a
number of its cable subsidiaries. The AT&T debt securities that become
Broadband obligations (New Broadband Notes) will reduce the intercompany
indebtedness Broadband must pay AT&T in an amount to be mutually agreed. Absent
additional deleveraging activities and the effect of the exchange offer, it is
expected that the amount of short-term debt due to AT&T will increase to fund
capital expenditures, operations and third party debt maturities and
redemptions through the completion of the AT&T Comcast transaction. The amount
of short-term and long-term debt may be lower or higher at the closing date of
the AT&T Comcast transaction.
The consideration in the form of AT&T Comcast common stock includes the
fair value of the issuance of approximately 1,234 million shares of AT&T Comcast
common stock to AT&T shareholders in exchange for all of AT&T's interests in the
AT&T Broadband Group, the fair value of the issuance of 115 million shares of
AT&T Comcast common stock to Microsoft Corporation in exchange for Broadband
shares that Microsoft will receive immediately prior to the completion of the
AT&T Comcast transaction for settlement of its $5 billion aggregate principal
amount in quarterly income preferred securities (QUIPS), and the fair value of
AT&T Comcast stock options and stock appreciation rights issued in exchange for
Broadband stock options and stock appreciation rights.
The unaudited pro forma financial statements assume that completion of the
exchange offer results in a new measurement date for accounting purposes.
Assuming the exchange offer is completed, the fair value of the shares to be
issued for the AT&T Broadband Group would be based on the weighted average
market price of Comcast common stock during the period beginning two days before
and ending two days after the new measurement date. Further, in limited
circumstances, the number of shares of AT&T Comcast stock to be issued to
certain AT&T security holders in connection with the AT&T Comcast transaction is
subject to adjustment. If this occurs, the fair value of all of the shares to be
issued would be based on the market price of Comcast Class A common stock on the
closing date. The unaudited pro forma financial statements assume a measurement
date of June 30, 2002. Accordingly, the fair value of the shares to be issued
for the AT&T Broadband Group is based on a price per share of $24.20 which
reflects the reported last sale price of Comcast Class A common stock on June
30, 2002.
A $1.00 increase/decrease in the per share price of Comcast Class A common
stock would result in a $1,349 million increase/decrease in the recorded value
of the estimated aggregate consideration in the form of AT&T Comcast common
stock.
If the exchange offer is terminated, the fair value of the shares to be
issued for the AT&T Broadband Group would be based on a price per share of
$35.97 which reflects the weighted average market price of the Comcast common
stock during the period beginning two days before and ending two days after the
date the AT&T Comcast transaction was announced. Assuming the stock price is
$35.97 per share, the recorded value of the estimated aggregate consideration in
the form of AT&T Comcast common stock would be increased by approximately
$16,336 million, thereby increasing the amount of goodwill to be recorded upon
closing of the AT&T Comcast transaction.
Subsequent to the adoption of SFAS 142 on January 1, 2002, goodwill and
franchise rights are no longer amortized. An increase or decrease in goodwill
and/or franchise rights as a result of a change in the measurement date or in
the allocation of fair value through the appraisal process would not affect AT&T
Comcast's future results of operations other than in periods in which AT&T
Comcast may recognize an
impairment charge. A change in the recorded value of these intangible assets
could increase or decrease the likelihood that AT&T Comcast will recognize an
impairment charge related to these intangible assets at some time in the future.
AT&T Comcast intends to review the synergies of the combined business,
which may result in a plan to realign or reorganize certain of AT&T Broadband
Group's existing operations. The costs of implementing such a plan, if it were
to occur, have not been reflected in the accompanying pro forma financial
statements. The impact of a potential realignment, assuming such a plan were in
place at the consummation date of the AT&T Comcast transaction, could increase
or decrease the amount of goodwill and intangible assets recognized by AT&T
Comcast in accordance with Emerging Issues Task Force No. 95-3, "Recognition of
Liabilities in Connection with a Purchase Business Combination." The Unaudited
Combined Condensed Statements of Operations exclude any benefits that may result
from synergies that may be derived, or the elimination of duplicative efforts.
Among the provisions of Statement of Financial Accounting Standards No.
141, "Business Combinations," new criteria have been established for determining
whether intangible assets should be recognized separately from goodwill.
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," provides, among other guidelines, that goodwill and
intangible assets with indefinite lives will not be amortized, but rather will
be tested for impairment on at least an annual basis. Management of both
companies believes that cable franchise rights have indefinite lives based upon
an analysis utilizing the criteria in paragraph 11 of SFAS No. 142. The pro
forma adjustments to the Unaudited Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 2001 reflect the elimination of AT&T
Broadband Group's amortization expense related to goodwill and cable franchise
rights since this acquisition will be accounted for under the provisions of SFAS
No. 142.
Comcast incurred goodwill and cable and sports franchise rights
amortization expense of approximately $2,002 million for the year ended December
31, 2001. The historical consolidated financial statements of Comcast included
in the Unaudited Pro Forma Combined Condensed Statement of Operations for the
year ended December 31, 2001 include the amortization expense related to
Comcast's goodwill and cable and sports franchise rights, which has not been
eliminated in the pro forma adjustments. Effective January 1, 2002, Comcast, in
accordance with the provisions of SFAS No. 142, no longer amortizes goodwill and
cable and sports franchise rights.
Management of both companies believes that the assumptions used provide a
reasonable basis on which to present the unaudited pro forma financial data.
Both companies have completed other acquisitions and dispositions that are not
significant, individually or in the aggregate, and, accordingly, have not been
included in the accompanying unaudited pro forma financial data. The unaudited
pro forma financial data may not be indicative of the financial position or
results that would have occurred if the AT&T Comcast transaction had been in
effect on the dates indicated or which may be obtained in the future.
The unaudited pro forma financial data should be read in conjunction with
the historical consolidated financial statements and accompanying notes thereto
for Comcast and the historical combined financial statements and accompanying
notes thereto for AT&T Broadband Group.
AT&T COMCAST CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 2002
HISTORICAL
HISTORICAL AT&T PRO FORMA PRO FORMA
COMCAST(A) BROADBAND(A) ADJUSTMENTS AT&T COMCAST
---------- ------------ ----------- ------------
(AMOUNTS IN MILLIONS)
ASSETS
Current Assets
Cash and cash equivalents............................... $ 557.8 $ $ $ 557.8
Investments............................................. 1,057.6 414.0 1,471.6
Accounts receivable, net................................ 957.0 592.0 1,549.0
Inventories, net........................................ 414.0 414.0
Deferred income taxes................................... 135.9 135.9
Other current assets.................................... 337.7 420.0 57.5(b1) 815.2
--------- ---------- ---------- ----------
Total current assets.................................. 3,460.0 1,426.0 57.5 4,943.5
--------- ---------- ---------- ----------
(19.6)(b2)
INVESTMENTS............................................... 727.6 17,896.0 (1,144.4)(d) 17,459.6
--------- ---------- ---------- ----------
PROPERTY AND EQUIPMENT, NET............................... 7,023.1 14,861.0 21,884.1
--------- ---------- ---------- ----------
GOODWILL.................................................. 6,446.3 15,134.0 (367.1)(b3) 21,213.2
FRANCHISE RIGHTS.......................................... 16,599.4 29,083.0 45,682.4
OTHER INTANGIBLE ASSETS, NET.............................. 1,471.7 1,465.0 2,936.7
OTHER NON-CURRENT ASSETS, NET............................. 390.7 1,975.0 57.5(b4) 2,423.2
--------- ---------- ---------- ----------
$36,118.8 $ 81,840.0 $ (1,416.1) $116,542.7
========= ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable........................................ $ 680.1 $ 712.0 $ $ 1,392.1
(40.0)(b5)
Accrued expenses and other current liabilities.......... 1,371.7 2,244.0 1,547.7(b6) 5,123.4
Deferred income taxes................................... 121.8 488.0 609.8
57.5(b7)
Short-term debt......................................... 6,486.0 (1,993.7)(c) 4,549.8
Current portion of long-term debt....................... 206.9 2,050.0 (1,681.8)(c) 575.1
--------- ---------- ---------- ----------
Total current liabilities............................. 2,380.5 11,980.0 (2,110.3) 12,250.2
--------- ---------- ---------- ----------
572.5(b7)
(669.2)(b8)
LONG-TERM DEBT, LESS CURRENT PORTION...................... 10,543.5 13,406.0 3,675.5(c) 27,528.3
--------- ---------- ---------- ----------
DEFERRED INCOME TAXES..................................... 6,755.2 19,906.0 (79.2)(b9) 26,582.0
--------- ---------- ---------- ----------
(179.0)(b10)
OTHER NON-CURRENT LIABILITIES............................. 1,421.1 836.0 (6.4)(b11) 2,071.7
--------- ---------- ---------- ----------
MINORITY INTEREST......................................... 986.7 1,210.0 2,196.7
--------- ---------- ---------- ----------
Company-Obligated Convertible Quarterly Income Preferred
Securities of Subsidiary Trust Holding Solely
Subordinated Debt Securities of AT&T.................... 4,725.0 (4,725.0)(b12)
--------- ---------- ---------- ----------
STOCKHOLDERS' EQUITY
1,348.6(b13)
Common stock............................................ 946.7 (47.3)(d) 2,248.0
(1,097.1)(d)
Additional capital...................................... 11,791.5 31,677.8(b13) 42,372.2
Retained earnings....................................... 1,317.3 1,317.3
Accumulated other comprehensive loss.................... (23.7) (23.7)
Combined attributed net assets.......................... 29,777.0 (29,777.0)(b14)
--------- ---------- ---------- ----------
Total stockholders' equity............................ 14,031.8 29,777.0 2,105.0 45,913.8
--------- ---------- ---------- ----------
$36,118.8 $ 81,840.0 $ (1,416.1) $116,542.7
========= ========== ========== ==========
See Notes to Unaudited Pro Forma Combined Condensed Balance Sheet
AT&T COMCAST CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
(a) These columns reflect the historical balance sheets of the respective
companies. Certain reclassifications have been made to the combined
historical financial statements of AT&T Broadband Group to conform to the
presentation expected to be used by AT&T Comcast.
(b) This entry reflects the preliminary allocation of the purchase price to
identifiable net assets acquired and the excess purchase price to goodwill.
COMMON ADDITIONAL
STOCK CAPITAL TOTAL
-------- ---------- ----------
Calculation of consideration
Issuance of common stock to AT&T shareholders
(1,233.6 million shares x $24.20).................... $1,233.6 $28,619.5 $ 29,853.1
Issuance of common stock to Microsoft Corporation
(115.0 million shares x $24.20)...................... 115.0 2,668.0 2,783.0
Fair value of AT&T Comcast stock options resulting
from the conversion of AT&T Broadband Group stock
options in the merger based on Black-Scholes option
pricing model........................................ 390.3 390.3
-------- --------- ----------
(b13) Comcast common stock equity consideration............ 1,348.6 31,677.8 33,026.4
(b7) Transaction costs (assumed to be funded -- $57.5
short-term debt and $572.5 long-term debt)........... 630.0
----------
Total ........................................... $ 33,656.4
==========
Preliminary estimate of fair value of identifiable net
assets acquired
(b14) Book value of AT&T Broadband Group................... $ 29,777.0
Elimination of AT&T Broadband Group goodwill......... (15,134.0)
(b1) Current portion of deferred financing fees........... 57.5
(b2) Preliminary estimate of adjustment to fair value of
investments.......................................... (19.6)
(b4) Long-term portion of deferred financing fees......... 57.5
(b5) Elimination of accrued dividend for Microsoft
Corporation QUIPS (net of tax benefit)............... 40.0
(b6) Preliminary estimate of current tax liability arising
from the transaction.................................. (1,547.7)
(b8) Preliminary estimate of adjustment to fair value of
AT&T Broadband Group assumed long-term debt........... 669.2
(b9) Preliminary estimate of adjustment to deferred tax
liability on adjustments at combined federal and state
statutory rate........................................ 79.2
(b10) Certain liabilities retained by AT&T related to
Excite@Home........................................... 179.0
(b11) Preliminary estimate of adjustment to fair value of
other non-current liabilities......................... 6.4
(b12) Redemption of Microsoft Corporation QUIPS............. 4,725.0
----------
Preliminary estimate of adjustments to fair value of
identifiable net assets acquired....................... 18,889.5
----------
Acquisition goodwill................................... $ 14,766.9
==========
Calculation of goodwill acquisition adjustment
Acquisition goodwill................................... $ 14,766.9
Gross value of AT&T Broadband Group goodwill........... (15,134.0)
----------
(b3) Goodwill acquisition adjustment...................... $ (367.1)
==========
(i) Maximum number of shares of common stock that
could be issued in the AT&T Comcast
transaction..................................... 1,235.0
Share equivalent of intrinsic value of AT&T
Broadband Group stock options and stock
appreciation rights........................ (1.4)
--------
Common stock to be issued to AT&T
shareholders............................ 1,233.6
========
AT&T COMCAST CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(CONCLUDED)
Certain programming and other contracts of AT&T Broadband Group and Comcast
may, by their terms, be assumed, altered or terminated as a result of the
completion of the AT&T Comcast transaction. However, prior to closing
management does not expect to be able to estimate the impact, if any, of
favorable or unfavorable contracts that may result from the ultimate
allocation of purchase price. See note (l) to the Unaudited Pro Forma
Combined Condensed Statements of Operations for a sensitivity analysis of
purchase price allocation.
(c) Represents the refinancing of existing short-term debt due to AT&T
($6,486.0) and certain components of the current portion of long-term debt
($1,681.8) with new debt of AT&T Comcast. The refinancing is assumed to be
funded 55% with short-term debt and 45% with long-term debt. Short-term and
long-term debt amounts do not give effect to the Exchange Offer. The amount
of short-term debt will be reduced and the amount of long-term debt will be
increased based upon the amount of New Broadband Notes to be issued in
connection with the Exchange Offer in an amount to be mutually agreed.
(d) Represents the reclassification of AT&T Broadband Group's investment in
Comcast as follows:
Elimination of Comcast stock held by AT&T Broadband Group... $(1,144.4)
Reclassification of Comcast stock held by AT&T Broadband
Group to equity (par value common stock $47.3 and
additional capital $1,097.1).............................. 1,144.4
---------
$ --
=========
AT&T COMCAST CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
HISTORICAL PRO FORMA
HISTORICAL AT&T INTERCOMPANY PRO FORMA AT&T
COMCAST(A) BROADBAND(A) ADJUSTMENTS ADJUSTMENTS(D) COMCAST(L)
---------- ------------ ------------ -------------- ----------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
REVENUES
Service revenues(m)............................ $ 5,756.9 $10,132.0 $(108.9)(b) $ $15,780.0
Net sales from electronic retailing............ 3,917.3 3,917.3
--------- --------- ------- --------- ---------
9,674.2 10,132.0 (108.9) 19,697.3
--------- --------- ------- --------- ---------
COSTS AND EXPENSES
Operating (excluding depreciation)............. 2,905.8 5,459.0 (62.8)(b) 8,302.0
Cost of goods sold from electronic retailing
(excluding depreciation)..................... 2,514.0 2,514.0
Selling, general and administrative(m)......... 1,552.6 2,582.0 (22.6)(b) 4,112.0
Depreciation................................... 1,141.8 2,626.0 3,767.8
Amortization................................... 2,306.2 2,154.0 (1,882.9)(e) 2,577.3
Asset impairment, restructuring and other
charges...................................... 1,494.0 1,494.0
--------- --------- ------- --------- ---------
10,420.4 14,315.0 (85.4) (1,882.9) 22,767.1
--------- --------- ------- --------- ---------
OPERATING LOSS................................... (746.2) (4,183.0) (23.5) 1,882.9 (3,069.8)
OTHER INCOME (EXPENSE)
61.4(f)
Interest expense............................... (731.8) (1,735.0) 64.9(g) (2,340.5)
Investment income (expense).................... 1,061.7 (1,947.0) (18.7)(b) (904.0)
(106.0)(h)
Equity in net income (losses) of affiliates.... (28.5) 148.0(e) 13.5
Other income (expense)......................... 1,301.0 (927.0) 374.0
--------- --------- ------- --------- ---------
1,602.4 (4,609.0) (18.7) 168.3 (2,857.0)
--------- --------- ------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY
INTEREST, EXTRAORDINARY ITEMS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE.................... 856.2 (8,792.0) (42.2) 2,051.2 (5,926.8)
(576.7)(i)
INCOME TAX (EXPENSE) BENEFIT..................... (470.2) 3,857.0 (750.3)(c) 37.0(h) 2,096.8
--------- --------- ------- --------- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST,
EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE.............................. 386.0 (4,935.0) (792.5) 1,511.5 (3,830.0)
Net loss from equity investments................. (69.0) 69.0(h)
MINORITY INTEREST INCOME (EXPENSE)............... (160.4) 833.0 (24.0)(b) 160.0(j) 808.6
--------- --------- ------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE......... $ 225.6 $(4,171.0) $(816.5) $ 1,740.5 $(3,021.4)
========= ========= ======= ========= =========
Earnings (loss) per share from continuing
operations -- basic............................ $ 0.24 $ (1.34)
Earnings (loss) per share from continuing
operations -- assuming dilution................ $ 0.23 $ (1.34)
Weighted average number of common shares
outstanding -- basic........................... 949.7 1,301.3(k) 2,251.0
Weighted average number of common shares
outstanding -- assuming dilution............... 964.5 1,286.5(k) 2,251.0
See Notes to Unaudited Pro Forma Combined Condensed Statement of Operations
AT&T COMCAST CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
HISTORICAL PRO FORMA
HISTORICAL AT&T INTERCOMPANY PRO FORMA AT&T
COMCAST(A) BROADBAND(A) ADJUSTMENTS ADJUSTMENTS(D) COMCAST(L)
---------- ------------ ------------ -------------- ----------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
REVENUES
Service revenues..................... $ 3,393.4 $ 4,965.0 $(23.5)(b) $ $ 8,334.9
Net sales from electronic
retailing.......................... 1,988.0 1,988.0
--------- ---------- ------ --------- ----------
5,381.4 4,965.0 (23.5) 10,322.9
--------- ---------- ------ --------- ----------
COSTS AND EXPENSES
Operating (excluding depreciation)... 1,469.4 2,591.0 (13.2)(b) 4,047.2
Cost of goods sold from electronic
retailing (excluding
depreciation)...................... 1,260.0 1,260.0
Selling, general and
administrative..................... 977.2 1,342.0 (10.3)(b) 2,308.9
Depreciation......................... 676.6 1,357.0 2.033.6
Amortization......................... 98.7 109.0 207.7
Goodwill and franchise impairment
charges............................ 16,525.0 16,525.0
Asset impairment, restructuring and
other charges...................... 56.0 56.0
--------- ---------- ------ --------- ----------
4,481.9 21,980.0 (23.5) 26,438.4
--------- ---------- ------ --------- ----------
OPERATING INCOME (LOSS)................ 899.5 (17,015.0) (16,115.5)
OTHER INCOME (EXPENSE)
(42.8)(f)
Interest expense..................... (369.3) (732.0) (0.8)(g) (1,144.9)
Investment expense................... (707.1) (1,217.0) (1,924.1)
Equity in net losses of affiliates... (48.4) (1,004.0)(h) (1,052.4)
Other income (expense)............... (14.0) 331.0 317.0
--------- ---------- ------ --------- ----------
(1,138.8) (1,618.0) (1,047.6) (3,804.4)
--------- ---------- ------ --------- ----------
LOSS BEFORE INCOME TAXES, MINORITY
INTEREST, EXTRAORDINARY ITEMS AND
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE............................... (239.3) (18,633.0) (1,047.6) (19,919.9)
16.8(i)
INCOME TAX BENEFIT..................... 30.2 5,506.0 387.0(h) 5,940.0
--------- ---------- ------ --------- ----------
LOSS BEFORE MINORITY INTEREST,
EXTRAORDINARY ITEMS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE.......... (209.1) (13,127.0) (643.8) (13,979.9)
Net loss related to equity
investments.......................... (617.0) 617.0(h)
MINORITY INTEREST EXPENSE.............. (89.4) (140.0) 80.0(j) (149.4)
--------- ---------- ------ --------- ----------
LOSS BEFORE EXTRAORDINARY ITEMS AND
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE............................... $ (298.5) $(13,884.0) $ $ 53.2 $(14,129.3)
========= ========== ====== ========= ==========
Loss per share from continuing
operations -- basic.................. $ (0.31) $ (6.27)
Loss per share from continuing
operations -- assuming dilution...... $ (0.31) $ (6.27)
Weighted average number of common
shares outstanding -- basic.......... 951.9 1,301.3(k) 2,253.2
Weighted average number of common
shares outstanding -- assuming
dilution............................. 951.9 1,301.3(k) 2,253.2
See Notes to Unaudited Pro Forma Combined Condensed Statement of Operations
AT&T COMCAST CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(a) These columns reflect the historical statements of operations of the
respective companies.
(b) Adjustment reflects the elimination of historical intercompany transactions
between Comcast and AT&T Broadband Group as follows: amounts charged by
Comcast to AT&T Broadband Group for programming, the gains and losses
resulting from the sales of certain cable systems by AT&T Broadband Group
to Comcast and Excite@Home transactions.
(c) Represents the elimination of the aggregate historical income tax effects
recorded by Comcast and AT&T Broadband Group on Note (b) adjustments above.
(d) AT&T Broadband Group has certain intercompany agreements with AT&T Corp.
which will be terminated as of the date of the AT&T Comcast transaction.
The costs of replacing these services is uncertain. However, the impact of
the termination of these arrangements is not expected to be material.
(e) Represents the elimination of AT&T Broadband Group's historical goodwill
and cable franchise rights amortization expense for consolidated
subsidiaries and equity method investments. Under the accounting rules set
forth in SFAS No. 142 issued by the Financial Accounting Standards Board in
June 2001, goodwill and intangibles with indefinite lives are not amortized
against earnings other than in connection with an impairment.
(f) Represents the net effect on interest expense resulting from the financings
described in Note (c) to the Unaudited Pro Forma Combined Condensed Balance
Sheet. Pro forma interest expense was calculated based on the historical
interest rates for the historical debt outstanding and assumed interest
rates for the planned credit facilities. The pro forma financial
information assumes the financings occurred on January 1, 2001.
Amortization of deferred financing costs was calculated based on the
expected amounts and terms of the new facilities. Short-term rates are
assumed to be 4% and long term rates are assumed to be 7%. Assuming
interest rates changed by 0.125%, the related interest expense and pre-tax
impact on earnings would be $10.3 million for the year ended December 31,
2001 and $5.2 million for the six months ended June 30, 2002.
(g) Represents the net effect in interest expense as a result of the adjustment
of AT&T Broadband Group's long-term debt to its fair value as described in
Note (b8) to the Unaudited Pro Forma Combined Condensed Balance Sheet. The
difference between the fair value and the face amount of each borrowing is
amortized to interest expense over the remaining term of the borrowing.
(h) Represents the reclassification of losses in equity investments for the
year ended December 31, 2001 and losses related to equity method
investments for the six months ended June 30, 2002 to conform with the
presentation currently used by Comcast.
(i) Represents the aggregate pro forma income tax effect of Notes (e) through
(g) above at the combined federal and state statutory rate.
(j) Represents the elimination of historical impact of the QUIPS exchanged for
AT&T Broadband Group common stock.
(k) For basic earnings (loss) per share, this adjustment represents the
issuance of AT&T Comcast shares to AT&T shareholders and Microsoft
Corporation offset by shares of Comcast owned by AT&T Broadband Group
which are classified as treasury shares (see Note (d) to the Unaudited
Pro Forma Combined Condensed Balance Sheet). In addition, earnings per
share assuming dilution has been adjusted to include the dilutive effects
of AT&T Comcast stock options issued in exchange for the AT&T Broadband
Group stock options as well as adjustment for the year-ended December 31,
2001
AT&T COMCAST CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS -- (CONCLUDED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
to Comcast's historical average dilutive shares outstanding since such
shares would be anti-dilutive on a pro forma basis.
(l) The pro forma combined condensed financial statements reflect a
preliminary allocation to tangible assets, liabilities, goodwill and other
intangible assets. The final purchase price allocation may result in
different allocations for tangible and intangible assets than that
presented in these pro forma combined condensed financial statements. The
following table shows the absolute dollar effect on pro forma net income
(loss) applicable to common shares and net income (loss) per share
assuming dilution for every $500 of purchase price allocated to
amortizable assets or certain liabilities over assumed weighted-average
useful lives. An increase in the purchase amount allocated to amortizable
assets or a decrease in the amount allocated to certain liabilities will
result in a decrease to net income. A decrease in the amount allocated to
amortizable assets or an increase in the amount allocated to certain
liabilities will result in an increase to net income.
SIX MONTHS
YEAR ENDED ENDED
WEIGHTED AVERAGE LIFE DECEMBER 31, 2001 JUNE 30, 2002
--------------------- ----------------- -------------
Five years
Net Income........................................ $61.5 $30.8
Per Share......................................... $0.03 $0.01
Ten years
Net Income........................................ $30.8 $15.4
Per Share......................................... $0.01 $0.01
Twenty years
Net Income........................................ $15.4 $ 7.7
Per Share......................................... $0.01 $0.00
(m) Comcast's consolidated statement of operations for the year ended December
31, 2001 reflects franchise fees collected from cable subscribers as a
reduction of the related franchise fee expense included within selling,
general and administrative expenses. Upon adoption of EITF 01-14 "Income
Statement Characterization of Reimbursements Received for 'Out-of-Pocket'
Expenses Incurred," on January 1, 2002, Comcast reclassified such amounts to
service revenues. The change in classification had no impact on the
unaudited pro forma operating loss. The effect of the reclassification on
the Unaudited Pro Forma Combined Condensed Statement of Operations for the
ended December 31, 2001 would be to increase service revenues and selling,
general and administrative expenses by $192.3 million.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Comcast Corporation
Date: September 26, 2002 By /s/ Lawrence J. Salva
__________________________________
Name: Lawrence J. Salva
Title: Senior Vice President and
Chief Accounting Officer