CMCSA

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended December 31, 2002 for Comcast Corporation (formerly AT&T Comcast Corporation). The reporting period is dominated by the consummation of the Broadband acquisition on November 18, 2002, in which Comcast acquired AT&T Corp.'s broadband business for approximately $50.8 billion. This transaction made Comcast the largest cable operator in the United States. The company operates in three principal segments: Cable (broadband communications networks), Commerce (QVC electronic retailing), and Content (programming investments including E!, The Golf Channel, and Comcast Spectacor).

Key Financial Metrics

Note: The 2002 Net Loss includes a $385 million cumulative effect of accounting change related to SFAS No. 133. Operating income before depreciation and amortization (EBITDA) increased 38.2% year-over-year.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenues increased 26.7% to $12.46 billion, driven primarily by the inclusion of Broadband operations (which contributed 60% of total subscribers) and growth in the Commerce segment.
• Profitability Shift: While Operating Income improved from a $746 million loss in 2001 to a $1.66 billion profit in 2002, Net Income turned negative due to significant interest expense ($884 million) and investment losses ($605 million), partially offset by a one-time accounting gain.
• Balance Sheet Expansion: Total assets nearly tripled to $113.1 billion, and total debt increased by $22.7 billion to $34.9 billion, reflecting the assumption of AT&T's debt and new borrowings to fund the acquisition.
• Amortization Reduction: Amortization expense dropped 88.3% to $257 million due to the adoption of SFAS No. 142, which eliminated the amortization of goodwill and cable franchise rights.

Outlook, Risks, and Contingencies

Guidance and Capital Expenditures: Management expects to incur approximately $4.2 billion in capital expenditures in 2003, with roughly $4 billion allocated to cable operations for system upgrades and rebuilds of newly acquired assets.

Key Risks and Contingencies:

• Integration Risk: Significant challenges remain in integrating Broadband's 12.7 million newly acquired subscribers and employees. Management warns that integration may be more costly or time-consuming than expected.
• Regulatory Constraints: The FCC required Comcast to divest its 27.6% interest in Time Warner Entertainment (TWE). This interest is held in trust pending a restructuring expected to close in Q2 2003, which will yield approximately $2.1 billion in cash and equity in Time Warner Cable.
• Legal Proceedings: Comcast faces litigation regarding its former investment in At Home Corporation (liable for 50% of AT&T's liabilities) and contractual disputes with Starz Encore and CSG Systems regarding billing and programming costs. Management believes these will not materially affect financial position but could impact results of operations.
• QVC Exit Rights: Liberty Media triggered an exit rights process regarding its 42% stake in QVC. Comcast and Liberty must negotiate a fair market value or sell the company.

Investor Verification Checklist

• Debt Servicing Capacity: Verify the company's ability to service $34.9 billion in debt, particularly given the high interest expense and variable rate exposure (31.8% of long-term debt).
• Integration Progress: Monitor subscriber retention rates and operating cost synergies in the newly acquired Broadband systems throughout 2003.
• TWE Restructuring Closing: Confirm the timing and final valuation of the TWE divestiture to ensure the expected $2.1 billion cash inflow materializes.
• Capital Expenditure Execution: Track the $4.2 billion planned capital spend to ensure it aligns with the projected upgrade of cable infrastructure.
• Legal Exposure: Review updates on the At Home litigation and Starz Encore disputes for potential liability accruals.