- --------------------------------------------------------------------------------
FORM 10-K
------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ____________
Commission file number 001-15471
COMCAST HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1709202
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Market Street, Philadelphia, PA 19102-2148
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
--------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
2.0% Exchangeable Subordinated Debentures due 2029
---------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
----------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- ---------
--------------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ Not Applicable ]
--------------------------
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
--------- ----------
As of the end of its fiscal year, all of the Registrant's voting and non-voting
common equity securities were held either directly or indirectly by its
affiliate, Comcast Corporation.
--------------------------
As of December 31, 2003, there were 21,591,115 shares of Class A Common Stock,
916,198,519 shares of Class A Special Common Stock and 9,444,375 shares of Class
B Common Stock outstanding.
--------------------------
The Registrant meets the conditions set forth in General Instructions I (1)(a)
and (b) of Form 10-K and is therefore filing this form with the reduced
disclosure format.
--------------------------
DOCUMENTS INCORPORATED BY REFERENCE
NONE
- --------------------------------------------------------------------------------
COMCAST HOLDINGS CORPORATION
2003 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business............................................................................................... 2
Item 2 Properties..............................................................................................13
Item 3 Legal Proceedings.......................................................................................13
Item 4 Submission of Matters to a Vote of Security Holders.....................................................14
PART II
Item 5 Market for the Registrant's Common Equity and Related
Stockholder Matters............................... .....................................................15
Item 6 Selected Financial Data.................................................................................15
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations ..............................................................................16
Item 7A Quantitative and Qualitative Disclosures About Market Risk..............................................22
Item 8 Financial Statements and Supplementary Data.............................................................24
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ....................................................................57
Item 9A Controls and Procedures.................................................................................57
PART III
Item 10 Directors and Executive Officers of the Registrant......................................................57
Item 11 Executive Compensation..................................................................................57
Item 12 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters .............................................................57
Item 13 Certain Relationships and Related Transactions..........................................................57
Item 14 Principal Accounting Fees and Services .................................................................57
PART IV
Item 15 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K ...............................................................................................57
SIGNATURES.......................................................................................................60
----------------------------
This Annual Report on Form 10-K is for the year ended December 31, 2003.
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
Holdings," "we," "us" and "our" refer to Comcast Holdings Corporation and its
subsidiaries, and "Comcast" refers to Comcast Corporation.
You should carefully review the information contained in this Annual
Report, and should particularly consider any risk factors that we set forth in
this Annual Report and in other reports or documents that we file from time to
time with the SEC. In this Annual Report, we state our beliefs of future events
and of our future financial performance. In some cases, you can identify those
so-called "forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions. In
evaluating those statements, you should specifically consider various factors,
including the risks outlined below. Actual events or our actual results may
differ materially from any of our forward-looking statements.
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 an indirect, wholly-owned subsidiary of Comcast Corporation, the
largest cable operator in the United States. We are a Pennsylvania corporation
that was organized in 1969 and we have been involved in the development,
management and operation of broadband cable networks since 1963.
We are involved in:
o Cable-through the development, management and operation of broadband
communications networks, including video, high-speed Internet and
phone service, and
o Content-through our consolidated programming investments, including
our national cable television networks E! Entertainment Television,
Style Network, The Golf Channel, Outdoor Life Network and G4, and our
regional programming-related enterprises Comcast Spectacor, Comcast
SportsNet, Comcast SportsNet Mid-Atlantic, Comcast SportsNet Chicago,
Cable Sports Southeast and CN8, as well as other programming
investments.
We have our principal executive offices at 1500 Market Street,
Philadelphia, PA 19102-2148. Our telephone number is (215) 665-1700. Comcast has
a world wide web site at http://www.comcast.com. Copies of the annual, quarterly
and current reports we file with the SEC, and any amendments to those reports,
are available on Comcast's web site. The information posted on Comcast's web
site is not incorporated into this Annual Report.
FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
Refer to Note 12 to our consolidated financial statements included in Item
8 for information about our operations by business segment.
GENERAL DEVELOPMENTS OF OUR BUSINESS
Comcast's Acquisition of Broadband
On November 18, 2002, Comcast acquired AT&T Corp.'s broadband business,
which we refer to as "Broadband." The Broadband cable systems included 12.8
million subscribers and other cable-related investments.
Sale of QVC
On September 17, 2003, we completed the sale to Liberty Media Corporation
of our approximate 57% interest in QVC, Inc. for an aggregate value of
approximately $7.7 billion. QVC markets a wide variety of products directly to
consumers primarily on merchandise-focused television programs. Financial
information related to QVC is presented as discontinued operations in our
financial statements. Refer to Note 4 to our consolidated financial statements
included in Item 8 for more information about the sale of QVC.
- 2 -
DESCRIPTION OF OUR BUSINESSES
Cable
Comcast is currently the largest cable operator in the United States. As of
December 31, 2003, our consolidated cable operations, which are part of Comcast,
served 8.6 million subscribers, passed 14.5 million homes, and provided digital
cable to 2.7 million subscribers, and high-speed Internet to 2.2 million
subscribers.
The table below summarizes certain information for our cable systems as of
December 31 (homes and subscribers in millions):
2003 2002 2001(1) 2000(1) 1999(1)
Cable ------ ------ ------ ------ ------
Homes Passed (2) .............. 14.5 14.2 13.9 12.7 9.5
Subscribers (3) ............... 8.6 8.5 8.5 7.6 5.7
Penetration ................... 59.0% 60.2% 60.8% 60.0% 60.1%
Digital Cable
"Digital Ready" Subscribers (4) 8.6 8.5 8.4 7.3 4.6
Subscribers (5) ............... 2.7 2.2 1.7 1.2 0.5
Penetration ................... 31.3% 26.3% 20.8% 16.6% 9.8%
High-Speed Internet
"Available" Homes (6) ......... 13.9 12.6 10.4 6.4 3.3
Subscribers ................... 2.2 1.5 0.9 0.4 0.1
Penetration ................... 16.0% 12.1% 9.1% 6.3% 4.4%
Phone (7)
"Available" Homes (6) ......... 0.5 0.3
Subscribers ...................
Penetration ...................
(1) In April 1999, we acquired a controlling interest in Jones Intercable, Inc.
In January 2000, we acquired Lenfest Communications, Inc. and began
consolidating the results of Comcast Cablevision of Garden State, L.P. In
August 2000, we acquired Prime Communications LLC. On December 31, 2000 and
January 1, 2001, we completed our cable systems exchanges with AT&T and
Adelphia Communications, respectively. In April and June 2001, we acquired
cable systems serving an aggregate of approximately 697,000 subscribers
from AT&T. The subscriber information as of December 31, 2000 excludes the
effects of our exchange with AT&T.
(2) A home is "passed" if we can connect it to our distribution system without
further extending the transmission lines. As described in Note 3 below, in
the case of certain multiple dwelling units, or MDUs, homes "passed" are
counted on an adjusted basis. "Homes passed" is an estimate based on the
best available information.
(3) Generally, a dwelling or commercial unit with one or more television sets
connected to a system counts as one cable subscriber. In the case of
certain MDUs, we count cable subscribers on an FCC equivalent basis.
(4) A subscriber is "digital ready" if the subscriber is in a market where we
have launched our digital cable service.
(5) A dwelling with one or more digital converter boxes counts as one digital
cable subscriber. On average, as of December 31, 2003, each digital cable
subscriber had 1.4 digital set-top boxes.
(6) A home passed is "available" if we can connect it to our distribution
system without further upgrading the transmission lines and if we offer the
service in that area.
(7) The number of phone "available" homes and subscribers was not material.
- 3 -
Cable Services
We offer a variety of services over our cable networks, including video,
high-speed Internet and phone. The greater the bandwidth, the greater the
information- carrying capacity of the system. Over the past several years, we
have deployed fiber optic cable and digital compression technology, and upgraded
the technical quality of our cable networks. As a result, we have increased the
reliability and capacity of our systems, enabling us to deliver additional
services, such as digital cable, high-speed Internet and phone. As of December
31, 2003, approximately 97% of our cable systems are capable of handling two-way
communications. We expect to continue to make substantial capital expenditures
during 2004.
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 subscribers
use.
We offer a full range of video services. We tailor both our basic channel
line-up and our additional channel offerings to each system according to
demographics, programming preferences and local regulation. Our video service
offerings include the following:
Basic programming. Our basic cable service typically consists of between
10-20 channels of programming. This service generally consists of programming
provided by national television networks, local broadcast television stations,
locally-originated programming, including governmental and public access, and
limited satellite-delivered programming.
Expanded basic programming. Our expanded basic cable service includes a
group of satellite-delivered or non-broadcast channels in addition to the basic
channel line-up.
Premium services. Our premium services generally offer, without commercial
interruption, feature motion pictures, live and taped sporting events, concerts
and other special features.
Pay-per-view programming. Our pay-per-view service permits our subscribers
to order, for a separate fee, individual feature motion pictures and special
event programs, such as professional boxing, professional wrestling and concerts
on an unedited, commercial-free basis.
Digital cable. Subscribers to our digital cable service receive one or more
of the following:
o an interactive program guide,
o multiple channels of digital programming and music,
o "multiplexes" of premium channels that are varied as to time of
broadcast or programming content theme,
o additional pay-per-view programming, such as more pay-per-view options
and/or frequent showings of the most popular films,
o video-on-demand service, commonly known as VOD,
o high-definition television, and
o digital video recorders.
High-Speed Internet Services
Residential subscribers can connect their personal computers via cable
modems to access online information, including the Internet, at faster speeds
than that of conventional modems. Prior to March 2002, in areas our cable
systems served, we marketed high-speed Internet services operated by a
third-party Internet service provider. By March 2002, we had moved all of our
high- speed Internet subscribers to our own service. In addition to offering our
own high-speed Internet service, Comcast has agreements with a number of
third-party Internet service providers, or ISPs, under which we make access to
our facilities available and the ISP markets a high- speed Internet service that
is provided over our cable systems.
Phone Services
In certain areas, we provide to our subscribers traditional
circuit-switched local telephone services, a full array of associated features
and third-party long distance services, all under the brand "Comcast Digital
Phone." We are also beginning to launch Voice over Internet Protocol ("VoIP"), a
phone service delivered over our cable infrastructure involving voice
transmissions using Internet protocol, on a limited commercial basis.
Advertising Sales
We generate revenues from the sale of advertising time to local, regional
and national advertisers on non- broadcast networks we carry over our cable
systems. As part of our programming carriage agreements with these networks, we
receive an allocation of scheduled advertising time into which we insert
commercials. In any particular cable system market area, we generally insert
commercials into an average of 32 networks.
- 4 -
We also coordinate the advertising sales efforts of other cable operators
in certain markets. Utilizing these arrangements, we have formed and operate
advertising interconnects, which establish a physical, direct link between
multiple unaffiliated cable systems and provide for the insertion primarily of
regional and national advertising across larger geographic areas.
Other Revenue Sources
We also generate revenues from installation services, commissions from
third-party electronic retailing and from other services, such as providing
businesses with Internet connectivity and networked business applications.
Sales and Marketing
Our sales efforts are primarily directed toward generating incremental
revenues in our franchise areas and increasing the number of subscribers we
serve. We sell our products and services through:
o telemarketing,
o direct mail advertising,
o door-to-door selling,
o cable television advertising,
o local media advertising, and
o retail outlets.
Programming
We generally acquire a license for the programming we sell to our
subscribers by paying a monthly fee to the licensor on a per subscriber, per
channel basis. Our programming costs are increased by:
o growth in the number of subscribers,
o expansion of the number of channels provided to subscribers, and
o increases in contract rates from programming suppliers.
We attempt to secure long-term programming contracts with volume discounts
and/or marketing support and incentives from programming suppliers. Our
programming contracts are generally for a fixed period of time and are subject
to negotiated renewal. We expect our programming costs to remain our largest
single expense item for the foreseeable future. In recent years, the cable and
satellite video industries have experienced a substantial increase in the cost
of programming, particularly sports programming. We anticipate our programming
costs will increase in the future primarily as a result of increased cost to
produce and purchase programming and additional programming channels provided to
our subscribers. These increases are mitigated, to some extent, by additional
volume discounts associated with Comcast's increased size and future growth in
subscribers receiving such programming channels. The inability to pass these
programming cost increases on to our subscribers would have a material adverse
impact on our operating results.
We also expect to be subject to increasing demands by broadcasters to
obtain the required consent for the retransmission of broadcast programming to
our subscribers. We cannot predict the impact of these negotiations or the
effect on our subscribers should we be required to stop offering this
programming.
Customer and Technical Service
We service our customers through local, regional and national call and
technical centers. Generally, our call centers provide 24-hour per day, 7-day
per week call answering capability, telemarketing and other services. Our
technical services function performs various tasks, including cable
installations, transmission and distribution plant maintenance, plant upgrades
and other customer service related activities.
Competition
Video Services
Our cable systems compete with a number of different sources that provide
news, information and entertainment programming to consumers, including:
o program distributors that use direct broadcast satellite, or DBS,
systems that transmit satellite signals containing video programming,
data and other information to receiving dishes of varying sizes
located on the subscriber's premises,
o local television broadcast stations that provide off-air programming
which can be received using an antenna and a television set, as well
as broadcast digital subscription services that can be received by a
special set-top box,
o satellite master antenna television systems, commonly known as SMATVs,
that generally serve condominiums, apartment and office complexes, and
residential developments,
o other operators who build and operate wireline communications systems
in the same communities that we serve, including those operating as
franchised cable operations or under an alternative regulatory scheme
known as Open Video Systems, or OVS,
o interactive online computer services, including Internet distribution
of movies,
- 5 -
o newspapers, magazines and book stores,
o movie theaters,
o live concerts and sporting events, and
o video stores and home video products.
In recent years, Congress has enacted legislation and the FCC has adopted
regulatory policies intended to provide a favorable operating environment for
existing competitors and for potential new competitors to our cable systems. The
FCC has recently created a new wireless service, known as Multichannel Video
Distribution and Data Service, or MVDDS, that we also expect to compete with our
cable systems. In order to compete effectively, we strive to provide, at a
reasonable price to subscribers, new products and services, superior technical
performance and customer service, and a greater variety of video programming.
DBS Systems. According to recent government and industry reports,
conventional, medium and high-power satellites currently provide video
programming to over 20 million customers in the United States. DBS providers
with high-power satellites typically offer to their subscribers more than 300
channels of programming, including programming services substantially similar to
those our cable systems provide. Two companies, DIRECTV and EchoStar, provide
service to substantially all of these DBS subscribers.
DBS service can be received throughout the continental United States
through a small roof top or side- mounted outside antenna. DBS systems use video
compression technology to increase channel capacity and digital technology to
improve the quality and quantity of the signals transmitted to their
subscribers. Our digital cable service is competitive with the programming,
channel capacity and the digital quality of signals delivered to subscribers by
DBS systems.
Federal legislation establishes, among other things, a permanent compulsory
copyright license that permits DBS systems to retransmit local broadcast
television signals to subscribers who reside in the local television station's
market. These companies are currently transmitting local broadcast signals in
most markets that we currently serve. Additionally, federal law generally
provides DBS systems with access to all cable-affiliated video programming
services delivered by satellite. As a result, satellite carriers are competitive
to cable system operators like us because they offer programming that closely
resembles what we offer. These satellite carriers are attempting to expand their
service offerings to include, among other things, high-speed Internet service,
and are entering marketing arrangements in which their service is promoted and
sold by local exchange carriers.
SMATV. Our cable systems also compete for subscribers with SMATV systems.
SMATV system operators typically are not subject to regulation like local
franchised cable system operators. SMATV systems offer subscribers both improved
reception of local television stations and many of the same satellite-delivered
programming services offered by franchised cable systems. In addition, some
SMATV operators are offering packages of telephony, data and video services to
private residential and commercial developments. SMATV system operators often
enter into exclusive service agreements with building owners or homeowners'
associations, although some states have enacted laws to provide cable systems
access to these complexes.
Overbuilds. We operate our cable systems pursuant to a non-exclusive
franchise that is issued by the community's governing body such as a city
council, a county board of supervisors or, in some cases, by 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. These and
other wireline communications systems 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.
High-Speed Internet Services
Most of our cable systems offer high-speed Internet services within their
service areas. These systems compete with a number of other companies, many of
whom have substantial resources, including:
o local telephone companies, such as Verizon Communications, Inc., SBC
Communications, Inc., BellSouth Corporation and Qwest Communications
International, Inc.,
o existing ISPs, such as America Online, Earthlink, Inc. and Microsoft
Corporation, and
o long distance telephone companies, such as AT&T Corp. and Sprint
Corporation.
The deployment of digital subscriber line, or DSL, technology allows
Internet access to be provided to subscribers over telephone lines at data
transmission speeds substantially greater than that of conventional telephone
modems. Numerous companies, including telephone companies, have introduced DSL
service, and certain telephone companies are seeking to provide high-
- 6 -
speed Internet services without regard to present service boundaries and other
regulatory restrictions. The FCC recently adopted an order that will reduce the
obligations of local telephone companies to offer their broadband facilities on
a wholesale basis to competitors, and the FCC is considering further measures to
deregulate the retail broadband offerings of local telephone companies as well.
Congress may also consider measures to deregulate such broadband offerings.
A number of cable operators have reached agreements to provide unaffiliated
ISPs access to their cable systems in the absence of regulatory requirements.
Comcast reached "access" agreements with several national and regional
third-party ISPs. Additionally, in connection with the restructuring of Time
Warner Entertainment, in which Comcast owned a 27.6% interest as a result of the
Broadband acquisition, Comcast entered into a three-year non-exclusive access
agreement with Time Warner. Under an agreement entered into in connection with
the Broadband acquisition, Comcast also agreed to offer to Microsoft an access
agreement on terms no less favorable than those provided to these and other ISPs
with respect to specified cable systems. We cannot provide any assurance,
however, that regulatory authorities will not impose "open access" or similar
requirements on us as part of an industry-wide requirement. These requirements
could adversely affect our results of operations.
During 2003, a number of competitors offered substantial price discounts to
subscribers willing to sign annual contracts or purchase additional bundled
services. We expect competition for high-speed Internet service subscribers to
remain intense, with companies competing on service availability, price,
transmission speed and bundled services.
Phone Services
Our traditional circuit-switched local service competes against incumbent
local exchange carriers, cellular telephone service providers, competitive local
exchange carriers (including established long distance companies) and VoIP
service providers. Many telecommunications carriers are expanding their
offerings to include high-speed Internet service, such as DSL. The incumbent
local exchange carriers have substantial capital and other resources,
longstanding customer relationships, extensive existing facilities and network
rights-of-way. A few competitive local exchange carriers also have existing
local networks and significant financial resources.
We expect advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environments, to occur in the
future. We refer you to page 8 for a detailed discussion of legislative and
regulatory factors that may affect the telecommunications market. Other new
technologies and services may develop and may compete with services that our
cable systems offer. Consequently, we are unable to predict the effect that
ongoing or future developments might have on our business and operations.
-7-
Content
We have made investments in national cable television networks and other
regional programming-related enterprises as a means of generating additional
revenues and subscriber interest. Our consolidated programming investments as of
December 31, 2003 include (approximate subscribers in millions):
Economic
Ownership Approximate
Investment Percentage Subscribers Description
- ---------------------------------------------------------------------------------------------------------
E! Entertainment Television 39.7% 74.2 Entertainment-related news and original
programming
Style Network 39.7 29.6 Lifestyle-related programming
The Golf Channel 99.9 50.1 Golf-related programming
Outdoor Life Network 100.0 50.6 Outdoor sports and leisure programming
G4 93.6 11.7 Programming focused on video and computer
games
Comcast Spectacor 66.3 N/A Live sporting events, concerts and other events
Comcast SportsNet 78.3 2.9 Regional sports programming and events
Comcast SportsNet Mid-Atlantic 100.0 4.5 Regional sports programming and events
Comcast SportsNet Chicago 30.0 (a) Regional sports programming and events
Cable Sports Southeast 62.2 3.9 Regional sports programming and events
CN8-The Comcast Network 100.0 6.2 Regional and local programming
(a) Comcast SportsNet Chicago is scheduled to launch in October 2004.
---------------------------
Consolidated Programming Investments
Our programming investments are comprised of the following:
o E! Entertainment Television, Style Network, The Golf Channel, Outdoor
Life Network and G4 are our 24-hour national cable television
networks. These networks provide programming dedicated to a variety of
special interests.
o 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.
It consists principally of the Philadelphia Flyers NHL hockey team,
the Philadelphia 76ers NBA basketball team and two large multi-purpose
arenas in Philadelphia.
o Comcast SportsNet, Comcast SportsNet Mid- Atlantic, Comcast SportsNet
Chicago, Cable Sports Southeast and CN8-The Comcast Network are our
24-hour, regional programming-related enterprises that provide
programming principally to support our cable networks.
Our shareholder agreements with Comcast Spectacor and E! Entertainment
contain certain exit rights processes with the minority shareholders. Refer to
Note 11 to our financial statements included in Item 8 for a discussion of these
exit rights processes.
Other Programming Interests. We also own other non-controlling interests in
programming investments including iN DEMAND, a pay-per-view and video-on- demand
service, TV One and the Discovery Health Channel.
LEGISLATION AND REGULATION
Our cable and phone businesses are subject to numerous regulatory
requirements, prohibitions and limitations imposed by various federal and state
laws, local ordinances and our franchise agreements. Our content businesses are
generally not subject to direct governmental regulation. Our high-speed Internet
business, while not currently regulated, may be subject to regulation in the
future. Laws and regulations affect the prices we can charge for some services,
such as basic cable service and associated customer-premises equipment, the
costs we incur (for example, for attaching our wires to poles owned by utility
companies), the relationships we establish with our suppliers, subscribers and
competitors, and many other aspects of our business.
The most significant federal law affecting our cable business is the
Communications Act of 1934, as amended. The provisions of the Communications Act
and the manner in which the FCC, state and local authorities, and the courts
implement and interpret those provisions affect
-8-
our ability to develop and execute business plans, our ability to raise capital
and the competitive dynamics between and among different sectors of the
communications and entertainment industries in which we operate. The FCC also
has the authority to enforce its regulations through the imposition of
substantial fines, the issuance of cease-and-desist orders and the imposition of
other administrative sanctions, such as the revocation of FCC licenses needed to
operate some of the transmission facilities we use in connection with our cable
business.
We believe we are currently in substantial compliance with all applicable
statutory and regulatory requirements imposed by, or under, the Communications
Act, but caution that the precise requirements of the law are not always clear.
Moreover, many laws and regulations can be interpreted in after-the-fact
enforcement proceedings or private party litigation in a manner that is
inconsistent with the judgments we have made. We also note that regulators at
all levels of government frequently consider changing, and sometimes do change,
existing rules or interpretations of existing rules, or prescribe new ones.
Judicial decisions often alter the regulatory framework in ways that are
inconsistent with regulator, business and investor expectations. In addition,
our cable business can be significantly affected by the enactment of new
legislation. Congress seriously considers the enactment of new legislative
requirements potentially affecting our businesses virtually every year. Even
though new laws infrequently result, we always face the risk that Congress will
approve legislation significantly affecting the cable industry. In particular,
we could be materially disadvantaged if we are subject to new laws or
regulations that do not equally affect our satellite, wireline and wireless
competitors.
A major objective of Congress and the FCC is to increase competition in all
communications services, including those central to our business. For example,
over the last ten years, Congress removed barriers to local telephone companies
offering video services in their local service areas, and the FCC has assigned
spectrum licenses for MVDDS, a new wireless service for providing multichannel
video programming. The FCC has also paved the way for additional satellite
competition and is currently pursuing efforts intended to enable utility power
lines to be used to provide video and high-speed Internet services. Our cable
business could be affected by any new competitors that enter the video or
high-speed Internet businesses as a result of these and similar efforts by
Congress or the FCC. In particular, we could be materially disadvantaged if we
remain subject to legal constraints that do not apply equally to these new
competitors.
There are potential risks associated with various proceedings that are
currently pending at the FCC, in the courts, and before federal and state
legislatures and local franchise authorities. We believe few of these
proceedings hold the potential to materially affect our ability to conduct our
cable business. Among the more substantial areas of exposure are the following:
Broadband Acquisition. The FCC approved Comcast's acquisition of AT&T
Corp.'s broadband business, which we refer to as the Broadband acquisition, in
November 2002, subject to various conditions. The most significant were a
requirement for the divestiture of Comcast's interest in Time Warner Cable, a
requirement that the Time Warner Cable interest be placed in trust pending
divesture, and safeguards that limit Comcast's involvement in Time Warner Cable
and the programming- related activities of the two partnerships held jointly by
Comcast and Time Warner Cable. Complying with these conditions has limited and
will continue to limit Comcast's flexibility as to the timing and nature of a
sale of the Time Warner Cable interest and, in the interim, will constrain
Comcast's business dealings with Time Warner Cable and Time Warner. Comcast has
fully complied with these conditions, and is committed to meeting its
obligations under the FCC's merger order going-forward.
Ownership Limits. The FCC is considering imposing "horizontal ownership
limits" that would limit the percentage of multichannel video subscribers -
those that subscribe to cable, DBS, MMDS and other multichannel distributors -
that any single provider could serve nationwide. A federal appellate court
struck down the previous 30% limit, and the FCC is now considering this issue
anew. As Comcast already serves nearly 29% of multichannel video subscribers,
limits similar to those previously imposed would restrict our ability to take
advantage of future growth opportunities. The FCC is also assessing whether it
should reinstate "vertical ownership limits" on the number of affiliated
programming services a cable operator may carry on its cable systems (the
previous limit of 40% of the first 75 channels had also been invalidated by the
federal appellate court). While our video programming interests are modest, new
vertical limits could affect our content-related business plans. Finally, the
FCC is considering revisions to its ownership attribution rules that would
affect which cable subscribers are counted under any horizontal ownership limit
and which programming interests are counted for purposes of any vertical
ownership limit.
Pricing. The Communications Act and the FCC's regulations and policies
limit the prices that cable systems may charge for basic services and equipment
in communities that are not subject to effective competition, as defined by
federal law. Failure to comply with these rate rules could result in rate
reductions and refunds for subscribers. From time to time, Congress considers
imposing new pricing or packaging regulations on the cable industry. Also, the
General Accounting Office occasionally issues reports regarding cable pricing or
-9-
packaging issues. We cannot now predict whether or when Congress or any
regulatory agency may adopt any new constraints on the pricing or packaging of
cable services. Also, various competitors are trying to persuade the FCC and the
Justice Department to limit our ability to respond to increased competition by
offering promotions or other discounts in an effort to retain existing
subscribers or regain those we have lost. We believe our competitive pricing
practices are lawful and pro-competitive. If we cannot make individualized
offers to subscribers who would otherwise choose a different provider, our
subscriber attrition may increase, or our overall prices may need to be reduced,
or both.
High-Speed Internet Service. Ever since high-speed Internet service was
introduced, some local governments and various competitors have sought to impose
regulatory requirements on how we deal with third-party ISPs. Thus far, only a
few local governments have imposed such requirements, and the courts have
invalidated all of them. Likewise, the FCC has refused to treat our service as a
common carrier "telecommunications service," but has instead classified it as an
"interstate information service," which has historically meant that no
regulations apply. However, the FCC's decision recently was vacated by a panel
of a federal appellate court. The FCC has asked for a rehearing of the case by a
larger panel of the appellate court, but there is likely to be continuing
uncertainty about how our high-speed Internet service will ultimately be
classified for regulatory purposes. In addition, even if the FCC's decision is
upheld, the FCC will then renew its assessment of whether to impose any
regulatory requirements on high-speed Internet service and also whether local
franchising authorities should be permitted to impose fees or other
requirements, such as service quality or customer service standards. A few
franchising authorities have sued us seeking payment of franchise fees on
high-speed Internet service revenues. Further, a number of software and content
providers and electronic retailers are now urging the FCC to adopt certain
"nondiscrimination principles" that purport to be intended to allow Internet
customers access to the Internet content of their choosing (something we already
provide). We cannot now predict whether these or similar regulations will be
adopted and, if so, what effects, if any, they would have on our business.
Internet Regulation. Congress and federal regulators have adopted a wide
range of measures affecting Internet use, including, for example, consumer
privacy, copyright protection, defamation liability, taxation and obscenity, and
state and local governmental organizations have adopted Internet-related
regulations, as well. These various governmental jurisdictions are also
considering additional regulations in these and other areas, such as pricing,
service and product quality, and intellectual property ownership. The adoption
of new laws or the adaptation of existing laws to the Internet could have a
material adverse effect on our high-speed Internet business. Recently, Congress
enacted anti-SPAM legislation creating certain rights and obligations applicable
to us as an ISP, and also imposing limitations on our ability to use electronic
mail for the purpose of sending commercial messages to existing and potential
customers. The exact parameters of the law remain to be developed by regulations
that are to be promulgated by the Federal Trade Commission, or FTC, and the FCC.
In addition, Congress has not extended the moratorium on state and local
taxation of Internet access (including access via high-speed Internet service).
The five-year moratorium expired on November 1, 2003. Congress is still
considering bills that would extend the moratorium, but it is uncertain if and
when such an extension might be adopted. In the absence of the moratorium, state
and local governments might seek to impose new taxes on Internet access, which
could adversely affect the operating results of our high-speed Internet service.
Must-Carry/Retransmission Consent. Cable companies are currently subject to
a requirement that they carry, without compensation, the programming transmitted
by most commercial and non-commercial local television stations ("must-carry").
Alternatively, local television stations may insist that a cable operator
negotiate for "retransmission consent," which may enable popular stations to
demand significant concessions (such as the carriage of and payment for other
programming networks) as a condition of our ability to transmit the TV broadcast
signals that cable subscribers expect to receive. As broadcasters transition
from analog to digital transmission technologies, the FCC is considering whether
to require cable companies to simultaneously carry both analog and digital
signals of a single broadcaster. It is also considering whether to allow
broadcasters to choose must-carry for either their analog or digital signals
during this transition period. Additionally, it is considering whether,
following the digital transition and the return of broadcaster analog spectrum
to the government, a cable company may be required to carry multiple digital
programming streams that each broadcaster may include within its digital
transmission. If the FCC should adopt such must-carry requirements, we would
have less freedom to allocate the usable spectrum of our cable plant to provide
the services that we believe will be of greatest interest to our subscribers.
This could diminish our ability to attract and retain subscribers. In addition,
must-carry requirements may similarly reduce the freedom of other cable
operators to allocate use of their cable plant. This could adversely impact the
ability of our cable networks to maintain or increase their carriage. We cannot
now predict whether the FCC will impose these or similar carriage obligations on
us.
Program Access. The Communications Act and the
-10-
FCC's "program access" rules prevent satellite video programmers affiliated with
cable operators from favoring cable operators over competing multichannel video
distributors, such as DBS, and limit the ability of such programmers to offer
exclusive programming arrangements to cable operators. The FCC has extended the
exclusivity restrictions through October 2007. The FCC has concluded that the
program access rules do not apply to programming services, such as Comcast
SportsNet, that are delivered terrestrially. However, the FCC has indicated that
it may reconsider how it regulates cable operators with regional sports
programming interests in its cable ownership rulemaking. Any decision by the FCC
or Congress to single out for new regulation cable operators like us who have
regional sports programming interests could have an adverse impact on our cable
and programming businesses. Some initiatives are underway to enact program
access-type regulations at the state or local level. We believe any such
regulations would be preempted by federal law or otherwise be unlawful, but we
cannot predict at this time whether such regulations will be enacted or found to
be enforceable.
Consumer Electronics Equipment Compatibility. The FCC has adopted rules to
implement an agreement between the cable and consumer electronics industries
aimed at promoting the manufacture of "plug-and-play" TV sets that can connect
directly to the cable network and receive one-way, analog and digital cable
services without the need for a set-top box. Among other things, the rules:
direct cable operators to implement technical standards in their networks to
support these digital television sets; require operators to provide a sufficient
supply of conditional access devices to subscribers who want to receive
scrambled programming services on their digital television sets; and require
operators to support basic home recording rights and copy protection rules for
digital programming content. These rules are being challenged at the FCC and in
the courts, and we cannot at this time predict the outcome of these challenges.
In addition, the FCC has initiated rulemaking that will consider additional
plug-and-play regulations, including standards for approving new digital
connectors and copy protection technologies that cable operators would have to
support. It is uncertain when the FCC will complete this rulemaking and how it
might affect cable operators. Also, the cable and consumer electronics
industries are currently negotiating an agreement that would allow for the
manufacture of two-way, interactive plug-and-play television sets. Once this
agreement is finalized, it will likely be subject to a separate FCC rulemaking.
It is unclear how this process will unfold and how it will ultimately affect our
cable business and our efforts to sell cable services at retail outlets.
Phone Service. Our traditional circuit-switched phone business is subject
to federal, state and local regulation. In general, the Communications Act
imposes interconnection requirements and universal service obligations on all
telecommunications service providers, including those that provide traditional
circuit-switched phone service over cable facilities, and more significant
regulations on incumbent local exchange carriers, such as Verizon and SBC. These
traditional common carrier rules, however, are being re-evaluated at the FCC and
in Congress. For example, the FCC has initiated several rulemakings that, in the
aggregate, could significantly change the rules that apply to telephone
competition, including the relationship between wireless and wireline providers,
long distance and local providers, and incumbents and new entrants, and it is
unclear how those proceedings (and the litigation and implementation proceedings
that are already underway as a product of one such rulemaking) will affect our
phone business. We are beginning to launch VoIP on a limited commercial basis.
The FCC has initiated rulemaking to consider whether and how to regulate VoIP
services. VoIP services may also be subject to potential regulation at the state
level, and several states have attempted to impose traditional common-carrier
regulation on such services. It is unclear how these VoIP-related proceedings at
the federal and state levels, and the related judicial proceedings that will
ensue, might affect our planned VoIP service.
Franchise Matters. Cable operators generally operate their cable systems
pursuant to non-exclusive franchises granted by local or state franchising
authorities. While the terms and conditions of franchises vary materially from
jurisdiction to jurisdiction, these franchises typically last for a fixed term,
obligate the franchisee to pay franchise fees and meet service quality, customer
service and other requirements, and are terminable if the franchisee fails to
comply with material provisions. The Communications Act includes provisions
governing the franchising process, including, among other things, renewal
procedures designed to protect incumbent franchisees against arbitrary denials
of renewal. We anticipate that our future franchise renewal prospects generally
will be favorable.
Leased Access/PEG. The Communications Act permits franchising authorities
to require cable operators to set aside channels for public, educational and
governmental access programming. The Communications Act also 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 directly by the cable
operator.
State and Local Taxes. Some states and their subdivisions are considering
imposing new taxes, including sales taxes, on the services we offer. We cannot
predict at this time whether such taxes will be enacted or what impact they
might have on our business.
-11-
Other Regulatory Issues. There are a number of other regulatory matters
under review by Congress, the FCC, and other federal agencies that could affect
our cable business. We briefly highlight these issues below:
o Cable/Broadcast Cross-Ownership: In 1996, the FCC eliminated
regulations precluding the cross- ownership of a national broadcasting
network and a cable system and in 2003 it repealed its regulations
prohibiting the common ownership of other broadcasting interests and
cable systems in the same geographical areas.
o Tier Buy Through: The Communications Act requires cable operators to
allow subscribers to purchase premium or pay-per-view services without
the necessity of subscribing to any tier of service, other than the
basic service tier. The applicability of this rule in certain
situations remains unclear, and adverse decisions by the FCC on this
issue could affect our pricing and packaging of such services.
o Content Regulation: The Communications Act prohibits the transmission
of obscene programming over cable systems. Members of Congress, the
FCC and some consumers from time to time express concerns about the
distribution of certain other programming over cable systems that
could lead to efforts to regulate the content of the programming we
carry.
o Set-Top Box Regulation: Current FCC rules bar cable operators from
leasing subscribers digital set-top boxes that integrate security and
other operating functions, effective July 1, 2006. The FCC is
conducting a rulemaking on the ban, and we have urged elimination of
the ban on the grounds that it will limit consumer choice, increase
the cost of set-top box equipment, and slow the deployment of digital
cable services, but there is no assurance that the FCC will accept our
position.
o Broadcast Flag: The FCC has adopted rules that require cable operators
to implement the "broadcast flag," a code that may be embedded in
digital broadcast programming that directs digital TVs and certain
other consumer electronics equipment to block the redistribution of
such content over the Internet. It is unclear how these rules might
affect the future design of cable-related equipment and
home-networking technologies. Several petitions have been filed at the
FCC requesting revisions to the broadcast flag rules. We cannot now
predict how or when the FCC will rule on these petitions. The FCC has
also initiated rulemaking to consider, among other things, whether
cable operators should be permitted to encrypt digital basic services.
It is uncertain when this rulemaking will be completed and how it will
affect cable operators.
o MDU Access: The FCC has adopted rules to promote competitive entry
into the MDU market. These rules are intended to make it easier for
new multichannel video service providers to compete with established
cable operators.
o Pole Attachments: The Communications Act requires that utilities
provide cable systems with nondiscriminatory access to any pole, or
right-of- way controlled by the utility, and the FCC has adopted
rules, upheld by the courts, that regulate the rates utilities may
charge for such access. There is always the possibility that the FCC
could alter the pole attachment rate paid by cable operators, and such
adverse decisions could potentially increase our pole attachment
costs. Additionally, significantly increased pole attachment rates
apply to those pole attachments that are subject to the FCC's
telecommunications services pole rates.
o Privacy Regulation: The Communications Act generally restricts the
nonconsensual collection and disclosure of subscribers' personal
information by cable operators. There are possible interpretations of
the Communications Act that could severely limit the ability of
service providers to collect and use personal information for
commercial purposes. Further constraints could be imposed if and to
the extent that state or local authorities establish their own privacy
standards. In addition, the FCC and the FTC have adopted rules that
limit the telemarketing practices of cable operators and other
commercial entities.
o Copyright Regulation. In exchange for filing certain reports and
contributing a percentage of their revenue to a U.S. federal copyright
royalty pool, cable operators can obtain blanket permission to
retransmit copyrighted material on broadcast signals. The U.S.
Copyright Office has recommended that Congress revise this compulsory
licensing scheme, although Congress has thus far declined to do so.
The elimination or substantial modification of the cable compulsory
license could adversely affect our ability to obtain certain
programming and substantially increase our programming costs. Further,
the Copyright Office has not yet made any determinations as to how the
compulsory license will apply to digital broadcast signals and
services. In addition, we pay standard industry licensing fees to use
music
-12-
in the programs we provide to subscribers, including local
advertising, local origination programming and pay-per-view events.
These licensing fees have been the source of litigation between the
cable industry and music performance rights organizations in the past,
and we cannot predict with certainty whether license fee disputes may
arise in the future.
o Other Areas: The FCC actively regulates other aspects of our cable
business, including, among other things: (1) the mandatory blackout of
syndicated, network, and sports programming; (2) customer service
standards; (3) advertising in children's programming; (4) political
advertising; (5) origination cablecasting; (6) sponsorship
identification; (7) closed captioning of video programming; (8) equal
employment opportunity; (9) lottery programming; (10) emergency alert
systems; and (11) technical standards relating to operation of the
cable network. The FCC is not considering any significant revisions to
these rules at this time, but we are unable to predict how these
regulations might be changed in the future and how any such changes
might affect our business.
In all these areas and a variety of others, we face the potential of
increased regulation. Given the intensely competitive nature of every aspect of
our business, we believe that increased regulation is not warranted. We can not
provide any assurance, however, that regulation of our business will not
increase.
EMPLOYEES
As of December 31, 2003, we had approximately 31,000 employees. Of these
employees, approximately 22,000 were associated with cable and approximately
9,000 were associated with our other divisions. Approximately 1,000 of our
employees are covered by collective bargaining agreements or have organized but
are not covered by collective bargaining agreements. We believe that our
relationships with our employees are good.
ITEM 2 PROPERTIES
Cable
A central receiving apparatus, distribution cables, servers, analog and
digital converters, cable modems, customer service call centers and local
business offices are the principal physical assets of a cable system. We own or
lease the receiving and distribution equipment of each system and own or lease
parcels of real property for the receiving sites, customer service call centers
and local business offices.
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
At Home.
--------
Litigation has been filed against us as a result of our alleged conduct
with respect to our investment in and distribution relationship with At Home
Corporation. At Home was a provider of high-speed Internet services that filed
for bankruptcy protection in September 2001. Filed actions are: (i) class action
lawsuits against us, Brian L. Roberts (our President and Chief Executive Officer
and a director), AT&T (the former controlling shareholder of At Home and also a
former distributor of the At Home service) and other corporate and individual
defendants in the Superior Court of San Mateo County, California, alleging
breaches of fiduciary duty in connection with transactions agreed to in March
2000 among At Home, AT&T, Cox Communications, Inc. (Cox is also an investor in
At Home and a former distributor of the At Home service) and us; (ii) class
action lawsuits against Comcast Cable Communications, LLC, AT&T and others in
the United States District Court for the Southern District of New York, alleging
securities law violations and common law fraud in connection with disclosures
made by At Home in 2001; and (iii) a lawsuit brought in the United States
District Court for the District of Delaware in the name of At Home by certain At
Home bondholders against us, Brian L. Roberts, Cox and others, alleging breaches
of fiduciary duty relating to the March 2000 transactions and seeking recovery
of alleged short- swing profits of at least $600 million pursuant to Section
16(b) of the Securities Exchange Act of 1934 purported to have arisen in
connection with certain transactions relating to At Home stock effected pursuant
to the March
-13-
2000 agreements. The actions in San Mateo County, California have been stayed by
the United States Bankruptcy Court for the Northern District of California, the
court in which At Home filed for bankruptcy, as violating the automatic
bankruptcy stay. In the Southern District of New York actions, the court ordered
the actions consolidated into a single action. All of the defendants served
motions to dismiss on February 11, 2003. The court dismissed the common law
claims against us and Mr. Roberts, leaving only a claim against them for
"control person" liability under the Securities Exchange Act of 1934. In a
subsequent decision, the court limited the remaining claim against us and Mr.
Roberts to disclosures that are alleged to have been made by At Home prior to
August 28, 2000. The Delaware case has been transferred to the United States
District Court for the Southern District of New York, and we have moved to
dismiss the Section 16(b) claims.
We deny any wrongdoing in connection with the claims that have been made
directly against us, our subsidiaries and Brian L. Roberts, and intend to defend
all of these claims vigorously. In our opinion, the final disposition of these
claims is not expected to have a material adverse effect on our consolidated
financial position, but could possibly be material to our consolidated results
of operations of any one period. Further, no assurance can be given that any
adverse outcome would not be material to our consolidated financial position.
Other.
------
We are subject to other legal proceedings and claims that arise in the
ordinary course of our business. In our opinion, 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
Information for this Item is omitted pursuant to SEC General Instruction I
to Form 10-K.
-14-
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Common Stock
Absence of Trading Market
Through the closing of Comcast's acquisition of Broadband on November 18,
2002, our Class A common stock was included on Nasdaq under the symbol CMCSA and
our Class A Special common stock was included on Nasdaq under the symbol CMCSK.
There was no established public trading market for our Class B common stock.
Subsequent to the closing of the Broadband acquisition, our common stock is not
publicly traded. Therefore, there is no established public trading market for
our common stock, and none is expected to develop in the foreseeable future.
Holders
All of our shares of common stock are owned directly or indirectly by
Comcast.
Dividends
None.
ITEM 6 SELECTED FINANCIAL DATA
Information for this Item is omitted pursuant to SEC General Instruction I to
Form 10-K.
-15-
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information for this item is omitted pursuant to SEC General Instruction I
to Form 10-K, except as noted below.
Overview
We are an indirect, wholly-owned subsidiary of Comcast Corporation
("Comcast"). We are principally involved in the management and operation of
cable communications networks and in the management of programming content over
cable and satellite television networks. In 2003, we received over 88% of our
revenue from our cable operations, primarily through monthly subscriptions to
our video, high-speed Internet and phone services, and advertising. Subscribers
typically pay us monthly, based on rates and related charges that vary according
to their chosen level of service and the type of equipment they use. Revenue
from our national television networks is derived from the sale of advertising
time and affiliation agreements with cable and satellite television companies.
We have historically met our cash needs for operations through our cash
flows from operating activities. We have generally financed our acquisitions and
capital expenditures through issuances of our common stock, borrowings of
long-term debt, sales of investments and from existing cash, cash equivalents
and short-term investments.
Business Developments
On September 17, 2003, we completed the sale to Liberty Media Corporation
of our approximate 57% interest in QVC, Inc. for approximately $7.7 billion. We
received from Liberty $4.0 billion of three-year senior unsecured floating rate
notes, approximately 218 million shares of Liberty Series A common stock valued
at $2.339 billion and cash of $1.35 billion. QVC has been presented as a
discontinued operation in our financial statements. Refer to Note 4 to our
consolidated financial statements included in Item 8 for more information on the
sale of QVC.
Refer to "General Developments of Our Business" in Part I and Note 4 to our
consolidated financial statements included in Item 8 for a discussion of our
acquisitions and other significant events.
Significant and Subjective Estimates
The following discussion and analysis of our results of operations is based
upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. We base our judgments
on historical experience and on various other assumptions that we believe are
reasonable under the circumstances, the results of which form the basis for
making estimates about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Refer to Note 2 to our consolidated financial statements included in Item 8
for a discussion of our accounting policies with respect to these and other
items.
-16-
Results of Continuing Operations
Revenues
Consolidated revenues for the years 2003 and 2002 increased $801 million
and $981 million, respectively, from the previous year. Of these increases, $696
million and $836 million, respectively, relate to our cable segment, which is
discussed separately below. The remaining increases are primarily the result of
our content businesses, which achieved combined revenue growth of 15.4% and
26.5%, during the years 2003 and 2002, respectively. Such increases in the
content businesses were primarily the result of increases in distribution
revenues, increases in advertising revenues and the effects of our 2001
acquisitions.
Operating, selling, general and administrative expenses
Consolidated operating, selling, general and administrative expenses for
the years 2003 and 2002 increased $541 million and $234 million, respectively,
from the previous year. Of these increases, $416 million and $257 million,
respectively, relate to our cable segment, which is discussed separately below.
The remaining changes are primarily attributable to costs associated with
management agreements between Comcast and our cable subsidiaries during 2003
that had been eliminated in consolidation in 2002 and 2001, and to increased
expenses in our content operations. These increases were offset, in part, by the
effects of reduced corporate overhead which, upon the closing of Comcast's
acquisition of Broadband on November 18, 2002, are recorded by the Comcast
parent rather than by the Comcast Holdings parent.
Depreciation
The changes in depreciation expense for the years 2003 and 2002 are
primarily attributable to our cable segment. The slight decrease in our cable
segment in 2003 is principally due to the effects of reduced losses from the
disposals of fixed assets due to reduced upgrade activity. The increase in our
cable segment in 2002 is principally due to the effects of our recent
acquisitions, our cable systems exchanges and our capital expenditures.
Amortization
The increase in amortization expense for the year 2003 is attributable to
both our cable segment and our content operations, principally due to the
effects of our intangible asset additions. The decrease in amortization expense
for the year 2002 is primarily attributable to our cable segment, principally
due to the effects of the adoption of SFAS No. 142, "Goodwill and Intangible
Assets," on January 1, 2002 because we no longer amortize goodwill or franchise
rights intangible assets.
---------------------------
-17-
Cable
The following table presents financial information for our cable segment
(dollars in millions).
Year Ended
December 31, Increase
2003 2002 $ %
------ ------ ------ -----
Video ........................................................................... $5,001 $4,710 $ 291 6.2%
High-speed Internet ............................................................. 939 590 349 59.2
Advertising sales ............................................................... 425 383 42 11.0
Other ........................................................................... 279 275 4 1.5
Franchise fees .................................................................. 211 201 10 5.0
------ ------ ------ -----
Revenues ................................................................... 6,855 6,159 696 11.3
Operating, selling, general and administrative expenses ......................... 3,942 3,526 416 11.8
------ ------ ------ -----
Operating income before depreciation and
amortization (a) ................................................................ $2,913 $2,633 $ 280 10.6%
====== ====== ====== ======
Year Ended
December 31, Increase
2002 2001 $ %
------ ------ ------ -----
Video ........................................................................... $4,710 $4,278 $ 432 10.1%
High-speed Internet ............................................................. 590 294 296 100.7
Advertising sales ............................................................... 383 326 57 17.5
Other ........................................................................... 275 232 43 18.5
Franchise fees .................................................................. 201 193 8 4.1
------ ------ ------ -----
Revenues ................................................................... 6,159 5,323 836 15.7
Operating, selling, general and administrative expenses ......................... 3,526 3,269 257 7.9
------ ------ ------ -----
Operating income before depreciation and
amortization (a) ................................................................ $2,633 $2,054 $ 579 28.2%
====== ====== ====== ======
- ---------------
(a) Operating income before depreciation and amortization is defined as
operating income before depreciation and amortization, impairment
charges, if any, related to fixed and intangible assets and gains or
losses from the sale of assets, if any. As such, it eliminates the
significant level of non-cash depreciation and amortization expense
that results from the capital intensive nature of our businesses and
intangible assets recognized in business combinations, and is
unaffected by our capital structure or investment activities. Our
management and Board of Directors use this measure in evaluating our
consolidated operating performance and the operating performance of
all of our operating segments. This metric is used to allocate
resources and capital to our operating segments and is a significant
component of our annual incentive compensation programs. We believe
that this measure is also useful to investors as it is one of the
bases for comparing our operating performance with other companies in
our industries, although our measure may not be directly comparable to
similar measures used by other companies. Because we use operating
income before depreciation and amortization as the measure of our
segment profit or loss, we reconcile it to operating income, the most
directly comparable financial measure calculated and presented in
accordance with Generally Accepted Accounting Principles (GAAP), in
the business segment footnote to our financial statements. This
measure should not be considered as a substitute for operating income
(loss), net income (loss), net cash provided by operating activities
or other measures of performance or liquidity reported in accordance
with GAAP.
Video revenue consists of our basic, expanded basic, premium, pay-per-view,
equipment and digital cable services. The increase in video revenue for the year
2003 is primarily due to the effects of an increase in average monthly revenue
per basic subscriber as a result of rate increases in our traditional video
service and growth in digital subscribers. The increase for the year 2002 is
primarily attributable to changes in rates and subscriber growth, driven
principally by growth in digital subscribers, and, to a lesser extent, the
effects of our acquisitions of cable systems. During 2003 and 2002, we added
approximately 433,000 and 505,000 digital
-18-
subscribers, respectively. We expect continued growth in
our video services revenue.
The increases in high-speed Internet revenue for the years 2003 and 2002
are primarily due to the addition of high-speed Internet subscribers. During
2003 and 2002, we added approximately 700,000 and 578,000 high-speed Internet
subscribers. We expect continued revenue growth as overall demand for our
services continues to increase.
The increases in advertising sales revenue for the years 2003 and 2002 are
primarily due to the effects of growth in regional/national advertising as a
result of the continuing success of our regional interconnects, offset by
reduced growth in a soft local advertising market in 2003.
Other revenue includes phone revenues, installation revenues, guide
revenues, commissions from electronic retailing, revenue from our regional
sports programming networks and revenue from other product offerings. The
increase for the year 2002 in other revenue is primarily attributable to growth
in our historical operations.
The increases in franchise fees collected from our cable subscribers for
the years 2003 and 2002 are primarily attributable to the increases in our
revenues upon which the fees apply.
The increases in operating, selling, general and administrative expenses
for the years 2003 and 2002 are primarily attributable to the effects of
increases in the costs of cable programming, increases in labor costs and other
volume-related expenses in our historical operations, and, to a lesser extent,
to the effects of high- speed Internet subscriber growth. The increase for the
year 2002 was partially offset by the effects of management fees we charged to
subsidiaries of Comcast during 2002.
Programming costs represent our single largest operating expense and
represent fees paid to license programming from cable and broadcast networks
that we distribute, package and sell to our video subscribers. Programming
expenses are impacted by changes in programming rates, the number of subscribers
and programming channels. We anticipate our programming costs will increase in
the future primarily as a result of increased cost to produce and purchase
programming and additional programming channels provided to our subscribers.
These increases are mitigated, to some extent, by additional volume discounts
associated with Comcast's increased size and future growth in subscribers
receiving such programming channels.
On September 28, 2001, At Home Corporation ("At Home"), our former provider
of high-speed Internet services, filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. In October 2001, we amended our agreement with At Home to
continue service to our existing and new subscribers during October and November
2001. We agreed to be charged a higher rate than we had incurred under our
previous agreement. On December 3, 2001, we reached a definitive agreement,
approved by the Bankruptcy Court, with At Home pursuant to which At Home agreed
to continue to provide high-speed Internet services to our existing and new
subscribers through February 28, 2002. In December 2001, we began to transfer
our high-speed Internet subscribers from the At Home network to our new
Comcast-owned and managed network. We completed this transition in February
2002. Operating expenses in our consolidated statement of operations for the
year ended December 31, 2001 include $140 million of net incremental expenses
incurred in the fourth quarter of 2001 in the continuation of service to and
transition of our high-speed Internet subscribers from At Home's network to our
network.
---------------------------
-19-
Consolidated Analysis
Interest Expense
The decrease in interest expense for the year 2003 is primarily
attributable to our reduced amount of outstanding debt as a result of our net
debt repayments during 2003. We anticipate that, for the foreseeable future,
interest expense will be significant. We believe we will continue to be able to
meet our obligations through our ability both to generate operating income
before depreciation and amortization and to obtain external financing.
Investment Income (Loss), Net
Investment income (loss), net includes the following (in millions):
Year Ended December 31,
2003 2002 2001
------- ------- -------
Interest and dividend income ............................. $ 69 $ 34 $ 59
Gains (losses) on sales and exchanges of investments, net 24 (48) 485
Investment impairment losses ............................. (71) (247) (972)
Reclassification of unrealized gains ..................... 1,330
Unrealized gains (losses) on trading securities .......... 314 (1,446) 285
Mark to market adjustments on derivatives related
to trading securities ............................... (164) 1,182 (227)
Mark to market adjustments on derivatives and hedged items (71) 26
------- ------- -------
Investment income (loss), net ....................... $ 172 ($ 596) $ 986
======= ======= =======
We have entered into derivative financial instruments that we account for
at fair value and which economically hedge the market price fluctuations in the
common stock of certain of our investments accounted for as trading securities.
Investment income (loss), net includes the fair value adjustments related to our
trading securities and derivative financial instruments. The change in the fair
value of our investments accounted for as trading securities, with the exception
in 2003 of the unrealized gain on 118 million shares of our Liberty common
shares discussed below, was substantially offset by the changes in the fair
value of the related derivatives.
Beginning in 2003, we are exposed to changes in the fair value of 118
million shares of Liberty common stock we hold and account for as a trading
security as we have not entered into a corresponding derivative to hedge this
market exposure. Accordingly, our future results of operations may be affected
by fluctuations in the fair value of the Liberty common stock in future periods.
Gains (losses) on sales and exchanges of investments, net in 2001 relates
principally to our investment in At Home.
The investment impairment losses relate principally to an other than
temporary decline in our investment in AT&T Corp.
In connection with the reclassification of our investment in Sprint PCS
from an available for sale security to a trading security upon the adoption of
SFAS No. 133, "Accounting for Derivatives and Hedging Activities," as amended,
on January 1, 2001, we reclassified to investment income (loss), net the
accumulated unrealized gain of $1.092 billion on our investment in Sprint PCS
which was previously recorded as a component of accumulated other comprehensive
income (loss).
Equity in Net Losses of Affiliates
The changes in equity in net losses of affiliates from 2002 to 2003 and
from 2001 to 2002 are primarily due to other than temporary declines in certain
of our equity method investees, the effects of our additional investments,
changes in the net income or loss of our equity method investees, as well as to
the effects of the discontinuance of amortization of equity method goodwill as a
result of the adoption of SFAS No. 142 on January 1, 2002.
Other Income (Expense)
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
-20-
recorded a pre-tax gain of $107 million, representing the difference
between the estimated fair value of our interest in SVN as of the closing date
of the transaction and our cost basis in SVN.
On January 1, 2001, we completed our cable systems exchange with Adelphia
Communications Corporation ("Adelphia"). We received cable systems serving
approximately 445,000 subscribers from Adelphia and Adelphia received certain of
our cable systems serving approximately 441,000 subscribers. We recorded a pre-
tax gain of $1.199 billion, representing the difference between the estimated
fair value of $1.799 billion as of the closing date of the transaction and our
cost basis in the systems exchanged.
Income Tax Benefit (Expense)
The changes in income tax benefit (expense) from 2002 to 2003 and from 2001
to 2002 are primarily the result of the effects of changes in our income before
taxes and minority interest, and our non-deductible goodwill amortization.
Minority Interest
The increases in minority interest from 2002 to 2003 and from 2001 to 2002
are attributable to increases in the net income of our less than wholly-owned
consolidated subsidiaries.
Discontinued Operations
Income from discontinued operations decreased from 2002 to 2003 primarily
as a result of the 2003 period including QVC's results through August 31, while
the 2002 period includes QVC's results for the full year. As a result of the
sale of QVC, we recognized a $3.290 billion gain, net of approximately $2.865
billion of related income taxes.
Income from discontinued operations decreased from 2001 to 2002 primarily
as a result of an investment loss recognized by QVC during 2002.
Cumulative Effect of Accounting Change
Upon adoption of SFAS No. 133, we recognized as income a cumulative effect
of accounting change, net of related income taxes, of $385 million during the
year ended December 31, 2001. The income consisted of a $400 million adjustment
to record the debt component of our 2.0% Exchangeable Subordinated Debentures
due 2029 ("ZONES") at a discount from its value at maturity and $192 million
principally related to the reclassification of gains previously recognized as a
component of accumulated other comprehensive income (loss) on our equity
derivative instruments, net of related deferred income taxes of $207 million.
We believe that our operations are not materially affected by inflation.
---------------------------
-21-
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk Management
We are exposed to the market risk of adverse changes in interest rates. We
maintain a mix of fixed and variable rate debt and enter into various derivative
transactions pursuant to our policies to manage the volatility relating to these
exposures.
We monitor our interest rate risk exposures using techniques including
market value and sensitivity analyses. We do not hold or issue any derivative
financial instruments for trading purposes and are not a party to leveraged
instruments.
We manage the credit risks associated with our derivative financial
instruments through the evaluation and monitoring of the creditworthiness of the
counterparties. Although we may be exposed to losses in the event of
nonperformance by the counterparties, we do not expect such losses, if any, to
be significant.
We use the following derivative financial instruments to manage the market
risk of adverse changes in interest rates:
o 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.
As of December 31, 2003, all of our Swaps are with Comcast and have
identical terms to the Swaps that Comcast has entered into with third
party counterparties.
o Interest rate lock agreements ("Rate Locks") to hedge the risk that
cash flows related to the interest payments on an anticipated issuance
or assumption of fixed rate debt may be adversely affected by interest
rate fluctuations;
o 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; and
o 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.
While Swaps, Rate Locks, Caps and Collars represent an integral part of our
interest rate risk management program, their effect on interest expense for the
years ended December 31, 2003, 2002 and 2001 was not significant. However,
Swaps, Rate Locks, Caps and Collars may have a significant effect on our
interest expense in the future.
The table set forth below summarizes the fair values and contract terms of
financial instruments subject to interest rate risk we maintained as of December
31, 2003 (dollars in millions):
Fair
Value at
2004 2005 2006 2007 2008 Thereafter Total 12/31/03
---- ---- ---- ---- ---- ---------- ----- --------
Debt
Fixed Rate ...................... $ 315 $ 711 $ 645 $ 856 $ 1,141 $ 4,474 $ 8,142 $8,974
Average Interest Rate ........ 8.1% 8.4% 7.1% 8.6% 6.8% 7.5% 7.6%
Variable Rate ................... $ 58 $ 1 $ 59 $ 59
Average Interest Rate ........ 2.0% 7.4% 2.1%
Interest Rate Instruments
Fixed to Variable Swaps (notional
amounts) ....................... $ 200 $ 600 $ 750 $ 1,550 ($ 20)
Average Pay Rate ............. 6.1% 7.0% 6.8% 6.8%
Average Receive Rate ......... 6.4% 6.2% 6.9% 6.5%
-----------------------
The notional amounts of interest rate instruments, as presented in the
table above, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the costs to settle the outstanding contracts. We estimate interest
rates on variable debt using the average implied forward London Interbank Offer
Rate ("LIBOR") rates for the year of maturity based on the yield curve in effect
at December 31, 2003, plus the borrowing margin in effect for each credit
facility at December 31, 2003. We estimate the floating rates on our Swaps using
the average implied forward LIBOR rates for the year of maturity based on the
yield curve in effect at December 31, 2003.
-22-
Equity Price Risk Management
We are exposed to the market risk of changes in the equity prices of
certain of our investments accounted for as trading securities. We enter into
various derivative transactions pursuant to our policies to manage the
volatility relating to these exposures.
We monitor our equity price risk exposures to ensure that the instruments
are matched with the underlying assets or liabilities, reduce our risks relating
to equity prices, and through market value and sensitivity analyses, maintain a
high correlation to the risk inherent in the hedged item.
We use the following derivative financial instruments, which we account for
at fair value, to limit our exposure to and benefits from price fluctuations in
the common stock of certain of our investments accounted for as trading
securities:
o Cashless collar agreements ("Equity Collars");
o Prepaid forward sales agreements ("Prepaid Forward Sales");
o Indexed debt instruments ("ZONES").
Except as described in Results of Continuing Operations - Investment Income
(Loss), Net on page 20, the changes in the fair value of our investments
accounted for as trading securities were substantially offset by the changes in
the fair values of the Equity Collars and the derivative components of the ZONES
and the Prepaid Forward Sales.
Refer to Note 2 to our financial statements included in Item 8 for a
discussion of our accounting policies with respect to derivative financial
instruments and to Notes 5 and 7 to our financial statements included in Item 8
for discussions of our derivative financial instruments.
-23-
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
- ----------------------------
Board of Directors and Stockholders
Comcast Holdings Corporation
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheet of Comcast Holdings
Corporation and its subsidiaries (the "Company") as of December 31, 2003 and
2002, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Comcast Holdings Corporation and
its subsidiaries as of December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles generally accepted
in the United States of America.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended, effective January 1,
2001, and Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets," effective January 1, 2002.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 19, 2004
-24-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
CONSOLIDATED BALANCE SHEET
(Dollars in millions, except share data)
December 31,
2003 2002
------- -------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................................ $ 1,509 $ 400
Investments .............................................................. 139 517
Accounts receivable, less allowance for doubtful accounts of $74 and $74 . 453 446
Other current assets ..................................................... 179 133
Current assets of discontinued operations ................................ 1,481
------- -------
Total current assets ................................................. 2,280 2,977
------- -------
NOTES RECEIVABLE FROM AFFILIATE ............................................. 3,310 191
DUE FROM AFFILIATES, net .................................................... 943
INVESTMENTS ................................................................. 3,363 594
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $4,456 and $3,398 6,571 6,431
FRANCHISE RIGHTS ............................................................ 16,620 16,611
GOODWILL .................................................................... 5,663 5,611
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $1,022 and $688 . 1,350 1,311
OTHER NONCURRENT ASSETS, net ................................................ 302 368
NONCURRENT ASSETS OF DISCONTINUED OPERATIONS ................................ 1,595
------- -------
$40,402 $35,689
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ......................................................... $ 303 $ 425
Accrued expenses and other current liabilities ........................... 2,014 1,425
Due to affiliates ........................................................ 76
Deferred income taxes .................................................... 26 46
Current portion of long-term debt ........................................ 373 23
Current liabilities of discontinued operations ........................... 816
------- -------
Total current liabilities ............................................ 2,716 2,811
------- -------
LONG-TERM DEBT, less current portion ........................................ 7,828 9,256
------- -------
NOTES PAYABLE TO AFFILIATES ................................................. 61 22
------- -------
DEFERRED INCOME TAXES ....................................................... 8,288 6,830
------- -------
OTHER NONCURRENT LIABILITIES ................................................ 2,289 1,216
------- -------
MINORITY INTEREST ........................................................... 316 266
------- -------
NONCURRENT LIABILITIES AND MINORITY INTEREST OF
DISCONTINUED OPERATIONS .................................................. 923
------- -------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS' EQUITY
Preferred stock - authorized 20,000,000 shares; issued, zero
Class A common stock, $1.00 par value - authorized,
200,000,000 shares; issued, 21,591,115 ............................. 22 22
Class A special common stock, $1.00 par value - authorized,
2,500,000,000 shares; issued 916,198,519 ........................... 916 916
Class B common stock, $1.00 par value - authorized, 50,000,000 shares;
issued, 9,444,375 .................................................. 9 9
Additional capital ................................................... 12,353 11,818
Retained earnings .................................................... 5,623 1,595
Accumulated other comprehensive income (loss) ........................ (19) 5
-------- --------
Total stockholders' equity ....................................... 18,904 14,365
-------- --------
$ 40,402 $ 35,689
======= =======
See notes to consolidated financial statements.
-25-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in millions)
Year Ended December 31,
2003 2002 2001
------- ------- -------
REVENUES ............................................................. $ 7,719 $ 6,918 $ 5,937
COSTS AND EXPENSES
Operating (excluding depreciation) ................................ 2,787 2,516 2,446
Selling, general and administrative ............................... 1,977 1,707 1,543
Depreciation ...................................................... 1,314 1,344 1,130
Amortization ...................................................... 183 177 2,143
------- ------- -------
6,261 5,744 7,262
------- ------- -------
OPERATING INCOME (LOSS) .............................................. 1,458 1,174 (1,325)
OTHER INCOME (EXPENSE)
Interest expense .................................................. (655) (711) (708)
Interest income on affiliate notes, net ........................... 17
Investment income (loss), net ..................................... 172 (596) 986
Equity in net losses of affiliates ................................ (51) (63) (16)
Other income (expense) ............................................ 4 (6) 1,290
------- ------- -------
(513) (1,376) 1,552
------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES, MINORITY
INTEREST AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE ............... 945 (202) 227
INCOME TAX (EXPENSE) BENEFIT ......................................... (321) 16 (216)
------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE MINORITY
INTEREST AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE ............... 624 (186) 11
MINORITY INTEREST .................................................... (54) (27) (7)
------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE ................................................. 570 (213) 4
INCOME FROM DISCONTINUED OPERATIONS, net of tax ...................... 168 193 220
GAIN ON DISCONTINUED OPERATIONS, net of tax .......................... 3,290
------- ------- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE .......... 4,028 (20) 224
CUMULATIVE EFFECT OF ACCOUNTING CHANGE ............................... 385
------- ------- -------
NET INCOME (LOSS) .................................................... $ 4,028 ($ 20) $ 609
======= ======= =======
See notes to consolidated financial statements.
-26-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in millions)
Year Ended December 31,
2003 2002 2001
------- ------- -------
OPERATING ACTIVITIES
Net income (loss) ................................................................. $ 4,028 ($ 20) $ 609
Income from discontinued operations ............................................... (168) (193) (220)
Gain on discontinued operations ................................................... (3,290)
------- ------- -------
Income (loss) from continuing operations .......................................... 570 (213) 389
Adjustments to reconcile net income (loss) from continuing
operations to net
cash provided by operating activities from continuing operations:
Depreciation .................................................................... 1,314 1,344 1,130
Amortization .................................................................... 183 177 2,143
Non-cash interest (income) expense, net ......................................... 30 42 43
Non-cash interest income on affiliate notes, net ................................ (17)
Equity in net losses of affiliates .............................................. 51 63 16
Losses (gains) on investments and other (income) expense, net ................... (100) 635 (2,229)
Minority interest ............................................................... 54 27 7
Cumulative effect of accounting change .......................................... (385)
Deferred income taxes ........................................................... 725 35 (253)
Proceeds from sales of trading securities ....................................... 85 367
Current tax associated with sale of discontinued operations ..................... (2,028)
Change in operating assets and liabilities, net of effects of
acquisitions and divestitures
Change in accounts receivable, net .............................................. (7) (56) (15)
Change in accounts payable ...................................................... (122) 180 10
Change in other operating assets and liabilities ................................ 598 82 (54)
------- ------- -------
Net cash provided by operating activities from continuing operations .......... 1,336 2,316 1,169
------- ------- -------
FINANCING ACTIVITIES
Proceeds from borrowings .......................................................... 1,260 1,579 5,687
Retirements and repayments of debt ................................................ (2,387) (3,294) (4,013)
Proceeds from settlement of interest rate exchange agreements ..................... 57
Capital contributions from (distributions to) parent .............................. 477 (212)
Net transactions with affiliates .................................................. (4,244) 98
Issuances of common stock and sales of put options on common stock ................ 19 27
Repurchases of common stock ....................................................... (27)
Deferred financing costs .......................................................... (2) (23)
------- ------- -------
Net cash (used in) provided by financing activities from continuing
operations .................................................................. (4,894) (1,755) 1,651
------- ------- -------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired ................................................ (191) (17) (1,329)
Proceeds from sales of (purchases of) short-term investments, net ................. (20) 9 (6)
Proceeds from sales of discontinued operations..................................... 1,350
Capital contributions to and purchases of investments ............................. (112) (56) (277)
Proceeds from sales and settlements of investments ................................ 5,107 1,241 806
Capital expenditures .............................................................. (1,360) (1,355) (2,039)
Additions to intangible and other noncurrent assets ............................... (107) (197) (305)
------- ------- -------
Net cash provided by (used in) investing activities from
continuing operations......................................................... 4,667 (375) (3,150)
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................................... 1,109 186 (330)
CASH AND CASH EQUIVALENTS, beginning of year ......................................... 400 214 544
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year ............................................... $ 1,509 $ 400 $ 214
======= ======= =======
See notes to consolidated financial statements
-27-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in millions)
Accumulated Other
Comprehensive
Income (Loss)
-------------------
Common Stock
Series B ---------------------- Unrealized Cumulative
Preferred Class A Additional Retained Gains Translation
Stock Class A Special Class B Capital Earnings (Losses) Adjustments Total
-----------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 2001............... $60 $22 $908 $9 $11,599 $1,055 $446 ($13) $14,086
Comprehensive income:
Net income.......................... 609
Unrealized gains on marketable securities,
net of deferred taxes of $114..... 212
Reclassification adjustments for gains included
in net income, net of deferred taxes of $264 (491)
Unrealized losses on effective portion of cash
flow hedges, net of deferred taxes of $0.3 (1)
Cumulative translation adjustments.. (9)
Total comprehensive income............. 320
Stock compensation plans............ 3 52 (16) 39
Retirement of common stock.......... (1) (10) (16) (27)
Conversion of Series B preferred.... (60) 4 56
Temporary equity related to put options 55 55
-----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001............. 22 914 9 11,752 1,632 166 (22) 14,473
Comprehensive loss:
Net loss............................ (20)
Unrealized losses on marketable securities,
net of deferred taxes of $165..... (307)
Reclassification adjustments for losses included
in net loss, net of deferred taxes of $92 169
Unrealized losses on effective portion of cash
flow hedges, net of deferred taxes of $0.3 (1)
Total comprehensive loss............... (159)
Stock compensation plans............ 2 48 (17) 33
Employee stock purchase plan........ 10 10
Net capital contribution from parent 8 8
-----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002............. 22 916 9 11,818 1,595 27 (22) 14,365
Comprehensive income:
Net income.......................... 4,028
Unrealized losses on marketable securities,
net of deferred taxes of $19...... (36)
Reclassification adjustments for losses included
in net income, net of deferred taxes of $10 19
Cumulative translation adjustments.. (7)
Total comprehensive income............. 4,004
Stock compensation plans............ 58 58
Net capital contribution from parent 477 477
-----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2003............. $22 $916 $9 $12,353 $5,623 $10 ($29) $18,904
=========================================================================================
See notes to consolidated financial statements.
-28-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
1. ORGANIZATION AND BUSINESS
On November 18, 2002, Comcast Corporation ("Comcast") completed the
acquisition of AT&T Corp.'s ("AT&T") broadband business (the "Broadband
acquisition"). In connection with the closing of the Broadband acquisition,
our shareholders and our subsidiaries received shares of Comcast Class A
common stock, Class A Special common stock and Class B common stock in
exchange for shares of our Class A common stock, Class A Special common
stock and Class B common stock, respectively, based on an exchange ratio of
1 to 1. Comcast also issued stock options to purchase shares of Comcast
common stock in exchange for all of our outstanding stock options, based on
an exchange ratio of 1 to 1. As a result of Comcast's acquisition of
Broadband, we are now an indirect, wholly-owned subsidiary of Comcast.
Our cable business is principally involved in the development, management
and operation of broadband communications networks in the United States.
Our consolidated cable operations served approximately 8.6 million
subscribers as of December 31, 2003. Our cable business represents our only
reportable segment (see Note 12).
We conduct the national networks of our content business through our
consolidated subsidiaries E! Entertainment Television, Inc., The Golf
Channel ("TGC"), Outdoor Life Network ("OLN"), and G4 Media, LLC. Our
content business also includes Comcast Spectator, our three 24-hour
regional sports programming networks, Comcast SportsNet ("CSN"), Comcast
SportsNet Mid-Atlantic ("CSN Mid-Atlantic") and Cable Sports Southeast
("CSS"), a fourth 24-hour regional sports network, Comcast SportsNet
Chicago ("CSN Chicago"), that we anticipate will launch in October 2004,
and our regional network, CN8. Our regional networks are included in our
cable segment as they derive a substantial portion of their revenues from
our cable operations and are managed by cable segment management.
On September 17, 2003, we sold our approximate 57% interest in QVC, Inc.,
which markets a wide variety of products directly to consumers primarily on
merchandise-focused television programs. Accordingly, we present QVC as a
discontinued operation pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" (see Note 4).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include our accounts and all entities
that we directly or indirectly control. We have eliminated significant
intercompany accounts and transactions among consolidated entities.
Variable Interest Entities
We account for our interests in variable interest special purpose entities
("SPEs") in accordance with Financial Accounting Standards Board ("FASB")
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN
46"). We consolidate all SPEs for which we are the primary beneficiary and
for which the entities do not effectively disperse risks among parties
involved. We do not consolidate variable interest entities that effectively
disperse risks unless we hold an interest or combination of interests that
effectively recombines risks that were previously dispersed. We adopted the
initial recognition and measurement provisions of FIN 46 effective January
1, 2002. The adoption of FIN 46 had no impact on our financial condition or
results of operations. See Note 3 for further discussion of FIN 46
interpretations and amendments.
Our Use of Estimates
We prepare our financial statements in conformity with accounting
principles generally accepted in the United States which requires us 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 allowances for doubtful
accounts, investments and derivative financial instruments, depreciation
and amortization, asset impairment, non-monetary transactions, certain
acquisition-related liabilities, pensions and other postretirement
benefits, income taxes and contingencies.
-29-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
Fair Values
We have 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 we 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. We based these fair value estimates on pertinent information
available to us as of December 31, 2003 and 2002. We have 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
our cash equivalents approximate their fair values.
Investments
Investments in entities in which we have 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 our proportionate share of the investees' net income or losses
after the date of investment, amortization of basis differences, additional
contributions made and dividends received, and impairment losses resulting
from adjustments to net realizable value. Prior to the adoption of SFAS No.
142, "Goodwill and Other Intangible Assets" on January 1, 2002, the
goodwill resulting from differences between our recorded investments and
our proportionate interests in the book value of the investees' net assets
were amortized to equity in net income or loss, primarily over a period of
20 years. Subsequent to the adoption of SFAS No. 142, we no longer amortize
such equity method goodwill (see Notes 5 and 6).
Unrestricted publicly traded investments are classified as available for
sale or trading securities and recorded at their fair value. Unrealized
gains or losses resulting from changes in fair value between measurement
dates for available for sale securities are recorded as a component of
other comprehensive income (loss). Unrealized gains or losses resulting
from changes in fair value between measurement dates for trading securities
are recorded as a component of investment income (loss), net. Cash flows
from all trading securities are classified as cash flows from operating
activities while cash flows from all other investment securities are
classified as cash flows from investing activities in our statement of cash
flows.
Restricted publicly traded investments and investments in privately held
companies are stated at cost, adjusted for any known decrease in value (see
Note 5).
-30-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
Property and Equipment
Depreciation is recorded using the straight-line method over estimated
useful lives and the significant components of property and equipment are
as follows (in millions):
December 31, December 31,
Useful Life 2003 2002
----------- --------------- ----------------
Transmission and distribution plant.... 2-15 years $9,815 $8,671
Buildings and building improvements.... 3-40 years 639 581
Land................................... N/A 65 53
Other.................................. 2-10 years 508 524
--------------- ----------------
Property and equipment, at cost..... 11,027 9,829
Less: accumulated depreciation......... (4,456) (3,398)
--------------- ----------------
Property and equipment, net......... $6,571 $6,431
=============== ================
We capitalize improvements that extend asset lives and expense 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.
We capitalize the costs associated with the construction of cable
transmission and distribution facilities and new cable service
installations. Costs include all direct labor and materials, as well as
certain indirect costs.
Intangible Assets
Cable franchise rights represent the value attributed to agreements with
local authorities that allow access to homes in cable service areas
acquired in connection with business combinations. Prior to the adoption of
SFAS No. 142, we amortized the value of these rights over periods related
to the term of the related franchise agreements. Subsequent to the adoption
of SFAS No. 142, we no longer amortize cable franchise rights because we
have determined that they have an indefinite life. We reassess this
determination periodically for each franchise based on the factors included
in SFAS No. 142. Costs we incur in negotiating and renewing cable franchise
agreements are included in other intangible assets and are amortized on a
straight-line basis over the term of the franchise renewal period,
generally 10 to 15 years.
Goodwill is the excess of the acquisition cost of an acquired entity over
the fair value of the identifiable net assets acquired. Prior to the
adoption of SFAS No. 142 we amortized goodwill over estimated useful lives
ranging principally from 20 to 30 years. Subsequent to the adoption of SFAS
No. 142, we no longer amortize goodwill.
We are required to test our goodwill and intangible assets that are
determined to have an indefinite life for impairment at least annually. The
provisions of SFAS No. 142 required the completion of an initial
transitional impairment assessment, with any impairments identified treated
as a cumulative effect of a change in accounting principle. We completed
this assessment in 2002 and determined that no cumulative effect resulted
from adopting this change in accounting principle. The provisions of SFAS
No. 142 also require the completion of an annual impairment test, with any
impairments recognized in current earnings.
Other intangible assets consist principally of cable and satellite
television distribution rights, cable franchise renewal costs, contractual
operating rights, computer software, programming costs and rights, and
non-competition agreements. We record these costs as assets and amortize
them on a straight-line basis over the term of the related agreements or
estimated useful life, which generally range from 2 to 20 years.
Certain of our content subsidiaries have entered into multi-year
affiliation agreements with various cable and satellite television system
operators for carriage of their respective programming. We capitalize cable
or satellite television distribution rights and amortize them on a
straight-line basis over the term of the related distribution agreements of
5 to 11 years. We classify the amortization of distribution fees paid by
our content subsidiaries pursuant to Emerging
-31-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
Issues Task Force ("EITF") 01-09, "Accounting for Consideration Given by a
Vendor to a Customer (Including a Reseller of the Vendor's Products)".
Under EITF 01-09, the amortization of such fees is classified as a
reduction of revenue unless the content subsidiary receives, or will
receive, an identifiable benefit from the cable or satellite system
operator separate from the distribution fee, in which case we recognize the
fair value of the identified benefit as an operating expense in the period
in which it is received.
Certain direct development costs associated with internal-use software are
capitalized, including external direct costs of material and services, and
payroll costs for employees devoting time to the software projects. Such
costs are included within other assets and are amortized over a period not
to exceed five years beginning when the asset is substantially ready for
use. Costs incurred during the preliminary project stage, as well as
maintenance and training costs, are expensed as incurred. Initial
operating-system software costs are capitalized and amortized over the life
of the associated hardware.
Valuation of Long-Lived and Indefinite-Lived Assets
We periodically evaluate the recoverability of our long-lived assets,
including property and equipment and intangible assets subject to
amortization, whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. 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 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.
We evaluate the recoverability of our goodwill and indefinite life
intangible assets annually or more frequently whenever events or changes in
circumstances indicate that the asset might be impaired. We perform the
impairment assessment of our goodwill one level below the business segment
level, except for our cable business. In our cable business, components one
level below the segment level are not separate reporting units and also
have similar economic characteristics that allow them to be aggregated into
one reporting unit at the cable segment level. During 2002 and 2003, we
performed the impairment assessment of our cable franchise rights at the
cable segment level based on our analysis of the factors outlined in EITF
02-07, "Unit of Accounting for Testing Impairment of Indefinite-Lived
Intangible Assets." Effective in the first quarter of 2004, we will change
the unit of accounting used for testing impairment to geographic regions
and will perform impairment testing on our cable franchise rights. We do
not anticipate recording any impairment charge in connection with the
impairment testing.
We estimate the fair value of our cable franchise rights primarily based on
multiples of operating income before depreciation and amortization
generated by the underlying assets, discounted cash flow analyses, analyses
of current market transactions and profitability information, including
estimated future operating results, trends or other determinants of fair
value. If the value of our cable franchise rights determined by these
evaluations is less than its carrying amount, an impairment charge would be
recognized for the difference between the estimated fair value and the
carrying value of the assets.
Foreign Currency Translation
We translate assets and liabilities of our foreign subsidiaries, where the
functional currency is the local currency, into US dollars at the December
31 exchange rate and record the related translation adjustments as a
component of other comprehensive income (loss). We translate 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
We recognize video, high-speed Internet, and phone revenues as service is
provided. We manage credit risk by disconnecting services to customers who
are delinquent. We recognize advertising sales revenue at estimated
realizable values when the advertising is aired. Installation revenues
obtained from the connection of subscribers to our broadband communications
network are less than related direct selling costs. Therefore, such
revenues are recognized as connections are completed. Revenues derived from
other sources are recognized when services are
-32-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
provided or events occur. Under the terms of our franchise agreements, we
are generally 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 classify fees
collected from cable subscribers as a component of revenues pursuant to
EITF 01-14, "Income Statement Characterization of Reimbursements Received
for 'Out-of- Pocket' Expenses Incurred."
Our content businesses recognize affiliate fees from cable and satellite
television system operators as programming is provided. Advertising revenue
is recognized in the period in which commercial announcements or programs
are telecast in accordance with the broadcast calendar. In certain
instances, our content businesses guarantee viewer ratings for their
programming. A liability for deferred revenue is provided for estimated
shortfalls, which are primarily settled by providing additional advertising
time.
Programming Costs
Our cable subsidiaries have received or may receive distribution fees from
programming networks for carriage of their programming. We reflect the
deferred portion of these fees within noncurrent liabilities and recognize
the fees as a reduction of programming costs (which are included in
operating expenses) over the term of the programming contract.
Stock-Based Compensation
We account for stock-based compensation in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations, as permitted by SFAS No. 123,
"Accounting for Stock-Based Compensation," as amended. Compensation expense
for stock options is measured as the excess, if any, of the quoted market
price of Comcast's stock at the date of the grant over the amount an
employee must pay to acquire the stock. We record compensation expense for
restricted stock awards based on the quoted market price of Comcast's stock
at the date of the grant and the vesting period. We record compensation
expense for stock appreciation rights based on the changes in quoted market
prices of Comcast's stock or other determinants of fair value (see Note 8).
The following table illustrates the effect on net income (loss) if we had
applied the fair value recognition provisions of SFAS No. 123 to
stock-based compensation. Upon further analysis during 2003, it was
determined that the expected option lives for options granted in prior
years should have been 7 years rather than the 8 years used previously. The
amounts in the table reflect this revision for all periods presented. Total
stock-based compensation expense was determined under the fair value method
for all awards using the accelerated recognition method as permitted under
SFAS No. 123 (dollars in millions, except per share data):
-33-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
Year Ended December 31,
2003 2002 2001
------- ------- -------
Net income (loss), as reported ................................... $ 4,028 ($ 20) $ 609
Add: Total stock-based compensation expense
included in net income (loss), as reported above ............ 5 11 10
Deduct: Total stock-based compensation expense
determined under fair value based method for all awards
relating to continuing operations, net of related tax effects (87) (126) (110)
Deduct: Total stock-based compensation expense determined
under fair value based method for all awards relating to
discontinued operations, net of related tax effects ......... (12) (19) (17)
------- ------- -------
Pro forma, net income (loss) ..................................... $ 3,934 ($ 154) $ 492
======= ======= =======
The weighted-average fair value at date of grant of a Comcast Class A
common stock option granted under Comcast's option plans during 2003 to our
employees was $10.18 and during 2002 was previously presented as $10.73,
and was recalculated as $9.24 based on the revised estimate of expected
option life. The weighted-average fair value at date of grant of a Comcast
Class A Special common stock option granted under the option plans during
2002 and 2001 was previously presented as $14.93 and $19.07, respectively,
and was recalculated as $13.72 and $17.73, respectively, based on the
revised estimate of expected option life. The fair value of each option
granted during 2003, 2002 and 2001 was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
Year Ended December 31,
------------------------------------------------
2003 2002 2001
---------- ---------------------- ---------
Class A Class A
Class A Class A Special Special
Common Common Common Common
Stock Stock Stock Stock
---------- ---------- ---------- ---------
Dividend yield..................... 0% 0% 0% 0%
Expected volatility................ 29.2% 28.4% 29.6% 35.6%
Risk-free interest rate............ 3.3% 4.1% 4.9% 5.0%
Expected option lives (in years)... 6.2 7.0 7.0 7.0
Forfeiture rate.................... 3.0% 3.0% 3.0% 3.0%
The pro forma effect on net income (loss) for the years ended December 31,
2003, 2002 and 2001 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 also because additional awards in
future years are anticipated.
Postretirement and Postemployment Benefits
We charge 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 (Loss), Net
Investment income (loss), net includes interest income, dividend income and
gains and losses on the sales and exchanges of marketable securities and
long-term investments. We recognize realized gains and losses using the
-34-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
specific identification method. Investment income (loss), net also includes
unrealized gains or losses on trading securities, fair value adjustments on
derivative instruments and hedged items, and impairment losses resulting
from adjustments to the net realizable value of certain of our investments
(see Note 5).
Income Taxes
We recognize deferred tax assets and liabilities for temporary differences
between the financial reporting basis and the tax basis of our 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
We use derivative financial instruments for a number of purposes. We manage
our exposure to fluctuations in interest rates by entering into interest
rate exchange agreements ("Swaps"), interest rate lock agreements ("Rate
Locks"), interest rate cap agreements ("Caps") and interest rate collar
agreements ("Collars"). We manage our exposure to fluctuations in the value
of certain of our investments by entering into equity collar agreements
("Equity Collars") and equity put option agreements ("Equity Put Options").
We make investments in businesses, to some degree, through the purchase of
equity call option or call warrant agreements ("Equity Warrants"). We have
issued indexed debt instruments ("ZONES") and entered into prepaid forward
sale agreements ("Prepaid Forward Sales") whose value, in part, is derived
from the market value of certain publicly traded common stock, and have
also sold call options on certain of our investments in equity securities
in order to monetize a portion of those investments.
On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 established accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and hedging activities.
SFAS No. 133 requires that all derivative instruments, whether designated
in hedging relationships or not, be recorded on the balance sheet at their
fair values. Upon adoption of SFAS No. 133, we recognized as income a
cumulative effect of accounting change, net of related income taxes, of
$385 million. The increase in income consisted of a $400 million adjustment
to record the debt component of indexed debt at a discount from its value
at maturity and $192 million principally related to the reclassification of
gains previously recognized as a component of accumulated other
comprehensive income (loss) on our equity derivative instruments, net of
related income taxes of $207 million.
For derivative instruments designated and effective as fair value hedges,
such as our 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 our Variable to Fixed Swaps and Rate Locks, the
effective portion of any hedge is reported in other comprehensive income
(loss) until it is recognized in earnings during the same period in which
the hedged item affects earnings. The ineffective portion of all hedges is
recognized in current earnings each period. Changes in the fair value of
derivative instruments that are not designated as a hedge are recorded each
period in current earnings.
When a fair value hedge is terminated, sold, exercised or has expired, the
adjustment in the carrying amount of the fair value hedged item is deferred
and recognized into earnings when the hedged item is recognized in
earnings. When a hedged item is settled or sold, the adjustment in the
carrying amount of the hedged item is recognized in earnings. When hedged
variable rate debt is settled, the previously deferred effective portion of
the hedge is written off similar to debt extinguishment costs.
Equity Warrants and Equity Collars are adjusted to estimated fair value on
a current basis with the result included in investment income (loss), net
in our consolidated statement of operations.
Derivative instruments embedded in other contracts, such as our ZONES and
our Prepaid Forward Sales, are separated into their host and derivative
financial instrument components. The derivative component is recorded at
-35-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
its estimated fair value in our consolidated balance sheet with changes in
estimated fair value recorded in investment income (loss), net.
We periodically examine those instruments we use to hedge exposure to
interest rate and equity price risks to ensure that the instruments are
matched with underlying assets or liabilities, reduce our 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 reflected on a current basis in our consolidated
statement of operations.
We do not hold or issue any derivative financial instruments for trading
purposes and are not a party to leveraged instruments (see Note 7). 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.
Sale of Stock by a Subsidiary or Equity Method Investee
Changes in our proportionate share of the underlying equity of a
consolidated subsidiary or equity method investee that result from the
issuance of additional securities by such subsidiary or investee are
recognized as gains or losses in our 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
We may enter into securities lending transactions pursuant to which we
require 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 we maintain
effective control are included in investments in our consolidated balance
sheet.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 2003.
3. RECENT ACCOUNTING PRONOUNCEMENTS
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. We adopted
SFAS No. 143 on January 1, 2003. SFAS No. 143 requires that a liability be
recognized for an asset retirement obligation in the period in which it is
incurred if a reasonable estimate of fair value can be made. Certain of our
franchise agreements and leases contain provisions requiring us to restore
facilities or remove equipment in the event that the franchise or lease
agreement is not renewed. We expect to continually renew our franchise
agreements and have concluded that the related franchise right is an
indefinite-lived intangible asset. Accordingly, it is remote that we would
be required to incur significant restoration or removal costs. We would
record an estimated liability in the unlikely event a franchise agreement
containing such a provision is no longer expected to be renewed. We also
expect to renew many of our lease agreements related to the continued
operation of our cable business in the franchise areas. For our lease
agreements, the liabilities related to the removal provisions, if any, are
either not estimable due to the wide range of potential expiration dates or
are not material.
SFAS No. 148
The FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure," in December 2002. SFAS No. 148 amends SFAS No.
123 to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for
stock-based employee compensation. SFAS No. 148 also amends the disclosure
provisions of SFAS No. 123 to require disclosure about the effects on
reported
-36-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
net income of an entity's stock-based employee compensation in interim
financial statements. SFAS No. 148 is effective for fiscal years beginning
after December 31, 2002. We adopted SFAS No. 148 on January 1, 2003. We did
not change to the fair value based method of accounting for stock-based
employee compensation. Accordingly, the adoption of SFAS No. 148 would only
affect our financial condition or results of operations if Comcast elects
to change to the fair value method specified in SFAS No. 123.
SFAS No. 149
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." The Statement amends and
clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003, for hedging relationships
designated after June 30, 2003, and to certain preexisting contracts. We
adopted SFAS No. 149 on July 1, 2003 on a prospective basis in accordance
with the new statement. The adoption of SFAS No. 149 did not have a
material impact on our financial condition or results of operations.
SFAS No. 150
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
This Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 requires that an issuer classify a
financial instrument that is within its scope as a liability or, in some
circumstances, as an asset, with many such financial instruments having
been previously classified as equity. We adopted SFAS No. 150 on July 1,
2003. The adoption of SFAS No. 150 did not have a material impact on our
financial condition or results of operations.
The FASB is addressing certain implementation issues associated with the
application of SFAS No. 150. In October 2003, the FASB decided to defer
certain provisions of SFAS No. 150 related to mandatorily redeemable
financial instruments representing non-controlling interests in
subsidiaries included in consolidated financial statements. We will monitor
the actions of the FASB and assess the impact, if any, that these actions
may have on our financial statements.
FIN 45
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 expands on the
accounting guidance of SFAS No.'s 5, 57, and 107 and supercedes FIN 34. FIN
45 clarifies that a guarantor is required to disclose in its interim and
annual financial statements its obligations under certain guarantees that
it has issued, including the nature and terms of the guarantee, the maximum
potential amount of future payments under the guarantee, the carrying
amount, if any, for the guarantor's obligations under the guarantee, and
the nature and extent of any recourse provisions or available collateral
that would enable the guarantor to recover the amounts paid under the
guarantee. FIN 45 also clarifies that, for certain guarantees, a guarantor
is required to recognize, at the inception of a guarantee, a liability for
the fair value of the obligation undertaken in issuing the guarantee. FIN
45 does not prescribe a specific approach for subsequently measuring the
guarantor's recognized liability over the term of the related guarantee.
The initial recognition and initial measurement provisions of FIN 45 apply
on a prospective basis to certain guarantees issued or modified after
December 31, 2002. The disclosure requirements in FIN 45 are effective for
financial statements of interim or annual periods ending after December 15,
2002. We adopted the disclosure provisions of FIN 45 in the fourth quarter
of 2002 and adopted the initial recognition and measurement provisions of
FIN 45 on January 1, 2003, as required by the Interpretation (see Note 11).
The impact of the adoption of FIN 45 will depend on the nature and terms of
guarantees into which we enter or modify in the future.
FIN 46/FIN 46R
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). We adopted the provisions of FIN 46
effective January 1, 2002. Since our initial application of FIN 46, the
FASB addressed various implementation issues regarding the application of
FIN 46 to entities outside its originally interpreted scope, focusing on
SPEs. In December 2003, the FASB revised FIN 46 ("FIN 46R"), which delayed
the
-37-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
required implementation date for entities that are not SPEs. We have
elected to defer the adoption of FIN 46R until March 31, 2004 for our
non-SPE entities, such as our equity method investments in operating
companies. We are analyzing the effect of FIN 46R on the accounting for our
equity method investments and do not believe it will have a material impact
on our financial condition or results of operations.
4. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
2003 Acquisitions
In December 2003, we, in conjunction with affiliates of the Chicago
Blackhawks, Bulls, Cubs and White Sox professional sports teams, formed
Comcast SportsNet Chicago. This new 24-hour regional sports network will be
available to approximately 1.5 million of Comcast's Chicago-area
subscribers upon its launch in October 2004. We acquired our controlling
interest in this network for approximately $87 million in cash. The
preliminary purchase price allocation resulted in the recording of $87
million of contract-related intangibles to be amortized over a period of 15
years.
In December 2003, we acquired the approximate 8.6% interest in TGC
previously held by the Tribune Company for $100 million in cash. This
amount has been allocated to cable and satellite television distribution
rights and goodwill pending completion of a valuation. As a result, we now
own 99.9% of TGC.
Sale of QVC
On September 17, 2003, we completed the sale to Liberty Media Corporation
("Liberty") of all shares of QVC common stock held by a number of our
direct wholly-owned subsidiaries for an aggregate value of approximately
$7.7 billion, consisting of $4 billion principal amount of Liberty's
Floating Rate Senior Notes due 2006 (the "Liberty Notes"), $1.35 billion in
cash and approximately 218 million shares of Liberty Series A common stock.
The shares had a fair value on the closing date of $10.73 per share. As a
condition of closing, certain equity awards were required to be settled.
The cost of settling the awards was included in costs of the transaction.
The consideration received, net of transaction costs, over our carrying
value of the net assets of QVC resulted in a gain of approximately $3.290
billion, net of approximately $2.865 billion of related income taxes (see
Note 9).
-38-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
The current and noncurrent assets and liabilities of QVC included within
the related discontinued operations captions are as follows (in millions):
December 31,
2002
------
Cash .................................................... $ 276
Accounts receivable, less allowance for doubtful accounts 569
Inventories, net ........................................ 479
Other current assets .................................... 157
------
Total current assets of discontinued operations .... $1,481
======
Property and equipment, net of accumulated depreciation . $ 485
Goodwill ................................................ 835
Other intangible assets, net of accumulated amortization 170
Other noncurrent assets, net ............................ 105
------
Total noncurrent assets of discontinued operations . $1,595
======
Accounts payable ........................................ $ 367
Accrued expenses and other current liabilities .......... 449
------
Total current liabilities of discontinued operations $ 816
======
Minority interest ....................................... $ 867
Other noncurrent liabilities ............................ 56
------
Total noncurrent liabilities and minority interest
of discontinued operations ....................... $ 923
======
The results of operations of QVC prior to its disposition are included
within income from discontinued operations, net of tax as follows (in
millions):
Year Ended December 31,
2003 2002 2001
--------- --------- ---------
Revenues ....................................... $2,915 $4,381 $3,917
Income before income taxes and minority interest $ 496 $ 624 $ 627
Income tax expense ............................. $ 184 $ 263 $ 254
For financial reporting purposes, the QVC transaction is presented as
having occurred on September 1, 2003. As such, the 2003 period includes QVC
operations through August 31, 2003, as reported to us by QVC.
In 2002, we had no significant acquisitions.
2001 Acquisitions and Exchanges
In 2001, we acquired the regional sports programming network Home Team
Sports ("HTS") from Viacom, Inc. ("Viacom") and Affiliated Regional
Communications, Ltd. ("ARC"), various cable systems serving an aggregate of
697,000 subscribers from AT&T, and additional interests in programming
networks TGC and OLN from Fox Entertainment Group, Inc. ("Fox
Entertainment"). Upon closing of the OLN acquisition, we exchanged our
14.5% interest in the Speedvision Network ("SVN"), together with a
previously made loan, for Fox Entertainment's interest in OLN and recorded
to other income a pre-tax gain of $107 million, representing the difference
between the estimated fair value of our interest in SVN as of the closing
date of the transaction and our cost basis in SVN. In 2001, we also
completed our cable systems exchange with Adelphia Communications
Corporation ("Adelphia").
-39-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
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.
The acquisitions we completed during 2001 were accounted for under the
purchase method of accounting. As such, our results include the operating
results of the acquired businesses from the dates of acquisition. A summary
of our acquisitions and cable systems exchange for 2001 is as follows
(dollars in millions):
% Interest
Acquisition/Exchange Acquired Date Seller Consideration Value
- ----------------------------- ------------ --------------- ------------------- -------------------------------- --------
OLN 83.2% October 30 Fox Entertainment Cash and 14.5% interest in SVN $512
AT&T Cable System 100% June 30 AT&T Cash $519
TGC 30.8% June 8 Fox Entertainment Cash $365
AT&T Cable Systems 100% April 30 AT&T 63.9 million shares of AT&T $1,423
common stock
HTS 100% February 14 Viacom and ARC Cable distribution of $240
programming
Adelphia Exchange 100% January 1 Adelphia Cable systems $1,799
Our cable systems exchange with Adelphia and certain of our acquisitions
did not result in cash payments but affected recognized assets and
liabilities (see Note 10).
Unaudited Pro Forma Information
The following unaudited pro forma information has been presented as if the
acquisitions and cable systems exchange we made in 2001 each occurred on
January 1, 2000. 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 we operated the entities acquired since such dates.
(Amounts in millions)
Year Ended December 31,
2001
----------
Revenues........................................................... $6,190
Income before cumulative effect of accounting change............... $ 149
Net income......................................................... $ 534
Pro forma information reflecting our 2003 acquisitions is not presented due
to immateriality.
-40-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
5. INVESTMENTS
December 31,
2003 2002
------ ------
(Dollars in millions)
Fair value method
AT&T Corp. ........... $ $ 287
Liberty .............. 2,644 43
Sprint Corp. PCS Group 349 369
Other ................ 41 24
------ ------
3,034 723
Equity method ............. 329 284
Cost method ............... 139 104
------ ------
Total investments .... 3,502 1,111
Less, current investments . 139 517
------ ------
Noncurrent investments .... $3,363 $ 594
====== ======
Fair Value Method
We hold unrestricted equity investments which we account for as available
for sale or trading securities in certain publicly traded companies. The
net unrealized pre-tax gains on investments accounted for as available for
sale securities as of December 31, 2003 and 2002 of $42 million and $70
million, respectively, have been reported in our consolidated balance sheet
principally as a component of other comprehensive income (loss), net of
related deferred income taxes of $15 million and $25 million, respectively.
The cost, fair value and unrealized gains and losses related to our
available for sale securities are as follows:
December 31,
2003 2002
----- -----
(Dollars in millions)
Cost ............ $ 44 $ 269
Unrealized gains 43 71
Unrealized losses (1) (1)
----- -----
Fair value ...... $ 86 $ 339
====== ======
Proceeds from the sales of available for sale securities for the years
ended December 31, 2003, 2002 and 2001 were $1.2 billion, $.85 billion and
$.71 billion, respectively. Gross realized gains and losses on these sales
for the years ended December 31, 2003, 2002 and 2001 were $23 million,
($47) million and $10 million, respectively.
The Liberty Notes and shares of Liberty common stock received in the sale
of QVC have been registered with the SEC pursuant to the sale agreement.
During 2003, we sold all $4.0 billion principal amount of the Liberty Notes
for net proceeds of approximately $4.0 billion. In December 2003, we
entered into a ten year prepaid forward sale of 100 million shares of
Liberty common stock and we received $894 million in cash. At maturity, the
counterparty is entitled to receive between 71 million and 100 million
shares of Liberty common stock, or an equivalent amount of cash at our
option, based upon the market value of Liberty common stock at the time.
The shares of Liberty common stock are classified as trading securities.
-41-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
In August 2001, we entered into a ten year prepaid forward sale of 4.0
million shares of Sprint PCS common stock and we received $78 million in
cash. At maturity, the counterparty is entitled to receive between 2.5
million and 4.0 million shares of Sprint PCS common stock, or an equivalent
amount of cash at our option, based upon the market value of Sprint PCS
common stock at that time.
We separated both of the prepaid forward sales into their liability and
derivative components and recorded both components of the prepaid forward
sales obligations to other long-term liabilities. We record the change in
the fair value of the derivative component and the accretion of the
liability component to investment income (loss), net.
We reclassified our investment in Sprint PCS from an available for sale
security to a trading security in connection with the adoption of SFAS No.
133 in 2001. In connection with this reclassification, we recorded to
investment income (loss), net the accumulated unrealized gain of $1.092
billion on our investment in Sprint PCS, which was previously recorded as a
component of accumulated other comprehensive income (loss).
Equity Method
Our recorded investments exceed our proportionate interests in the book
value of the investees' net assets by $283 million and $253 million as of
December 31, 2003 and 2002, respectively (principally related to our
investments in Susquehanna Cable and Discovery Health, LLC). As a result of
the adoption of SFAS No. 142, we do not amortize the portion of the basis
difference attributable to goodwill but will continue to test such excess
for impairment in accordance with APB Opinion 18, "The Equity Method of
Accounting for Investments in Common Stock."
Equity in net losses of affiliates for the year ended December 31, 2002
includes impairment losses of $31 million, related principally to other
than temporary declines in our investments in and advances to certain of
our equity method investees.
Summarized financial information for investments deemed significant and
accounted for under the equity method was as follows (amounts in millions):
(A) GSI Commerce, Inc. Broadnet Consorcio, S.A.
. ------------------------ ----------------------------
December 31, December 31,
2002 2003 2002
-------- ----------- ----------
Current assets.......................... $105 $3 $16
Noncurrent assets....................... 83 42 52
Current liabilities .................... 67 37 20
Noncurrent liabilities ................. 0 34 25
(A) GSI Commerce, Inc. Broadnet Consorcio, S.A.
--------------------------------- ---------------------------------
For the years ended For the years ended
December 31, December 31,
2003 2002 2001 2003 2002 2001
--------- --------- --------- --------- --------- ---------
Revenues.............................. $147 $173 $103 $3 $1 $24
Operating loss........................ (16) (30) (34) (17) (23) (1)
Loss from continuing operations
before extraordinary items and
cumulative effect of accounting
change........................... (15) (34) (31) (18) (23) (1)
Net loss.............................. (15) (34) (31) (18) (23) (1)
(A) GSI Commerce, Inc. was an equity method investment of QVC, and such amounts
are included within discontinued operations for all periods through QVC's
sale date (see Note 4).
-42-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
Investment Income (Loss), Net
Investment income (loss), net includes the following (in millions):
Year Ended December 31,
2003 2002 2001
------- ------- -------
Interest and dividend income ............................... $ 69 $ 34 $ 59
Gains (losses) on sales and exchanges of investments, net .. 24 (48) 485
Investment impairment losses ............................... (71) (247) (972)
Reclassification of unrealized gains ....................... 1,330
Unrealized gains (losses) on trading securities ............ 314 (1,446) 285
Mark to market adjustments on derivatives related to trading
securities ............................................ (164) 1,182 (227)
Mark to market adjustments on derivatives and hedged items . (71) 26
------- ------- -------
Investment income (loss), net ......................... $ 172 ($ 596) $ 986
======= ======= =======
Gains (losses) on sales and exchanges of investments, net in 2001 relate
principally to our investment in At Home.
The investment impairment losses for the years ended December 31, 2003,
2002 and 2001 relate principally to other than temporary declines in our
investment in AT&T.
6. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill by business segment (see
Note 12) for the periods presented are as follows (in millions):
Corporate
Cable and Other Total
------ ------ ------
Balance, December 31, 2002..... $4,693 $ 918 $5,611
Acquisitions .................. 52 52
Intersegment transfers ........ 20 (20)
------ ------ ------
Balance, December 31, 2003..... $4,713 $ 950 $5,663
======= ====== ======
During 2003, we acquired an additional interest in TGC (see Note 4). A
portion of the purchase price was allocated to goodwill.
-43-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
The gross carrying amount and accumulated amortization of our intangible
assets subject to amortization are as follows (in millions):
As of December 31, 2003 As of December 31, 2002
-------------------------------- -------------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------------- --------------- ------------- ----------------
Cable and satellite television
distribution rights................. $1,278 ($419) $1,177 ($261)
Cable franchise renewal costs and
contractual operating rights........ 326 (110) 313 (99)
Computer software........................ 91 (52) 78 (36)
Programming costs and rights............. 338 (274) 188 (143)
Non-competition agreements and other..... 339 (167) 243 (149)
------------- ------------- ------------- ------------
$2,372 ($1,022) $1,999 ($688)
------------- ------------- ------------- ------------
As of December 31, 2003, the weighted average amortization period for our
intangible assets subject to amortization is 7.3 years and estimated
related amortization expense for each of the five years ended December 31
is as follows (in millions):
2004............................. $202
2005............................. $189
2006............................. $162
2007............................. $105
2008............................. $96
The following pro forma financial information for 2003, 2002 and 2001 is
presented as if SFAS No. 142 was adopted as of January 1, 2001 (amounts in
millions, except per share data):
Years Ended December 31,
2003 2002 2001
----------- ---------- ------------
Net Income (Loss)
As reported............................................... $4,028 ($20) $ 609
Amortization of goodwill from continuing operations..... 299
Amortization of goodwill from discontinued operations... 36
Amortization of equity method goodwill.................. 15
Amortization of franchise rights........................ 1,083
----------- ---------- ------------
As adjusted............................................... $4,028 ($20) $2,042
=========== ========== ============
-44-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
7. LONG-TERM DEBT
December 31,
2003 2002
---------- ----------
(in millions)
---------- ----------
Notes payable to banks due in installments through 2009 ...... $ 2 $ 837
6.20% - 6-7/8% Senior notes, due 2006-2011 ................... 3,031 3,053
7-1/8% - 7-5/8% Senior notes, due 2008-2013 .................. 1,103 1,105
8-1/8% - 8-7/8% Senior notes, due 2004-2027 .................. 2,645 2,653
8-1/4% - 10-5/8% Senior subordinated debentures, due 2006-2012 372 521
Zero Coupon Convertible Debentures, due 2020 ................. 86
ZONES due 2029 ............................................... 783 699
Other, including capital lease obligations ................... 265 325
------ ------
8,201 9,279
Less current portion ......................................... 373 23
------ ------
$7,828 $9,256
====== ======
Maturities of long-term debt outstanding as of December 31, 2003 for the
four years after 2004 are as follows (in millions):
2005................................ $711
2006................................ $645
2007................................ $856
2008............................... $1,141
The Cross-Guarantee Structure
To simplify Comcast's capital structure, Comcast and certain of its cable
holding company subsidiaries, including our wholly-owned subsidiary Comcast
Cable Communications, LLC ("Comcast Cable"), have unconditionally
guaranteed each other's debt securities and indebtedness for borrowed
money, including amounts outstanding under Comcast's new credit facilities.
As of December 31, 2003, $20.866 billion of Comcast's debt securities were
entitled to the benefits of the cross-guarantee structure, including $6.909
billion of Comcast Cable's debt securities. Comcast Holdings Corporation is
not a guarantor, and none of its debt is guaranteed. As of December 31,
2003, $1.024 billion of debt was outstanding at Comcast Holdings
Corporation.
Repayments and Redemptions of Debt
During 2003, we borrowed $1.260 billion and repaid $2.387 billion of our
debt. We reduced our total debt outstanding by $1.078 billion primarily as
a result of our net debt repayments.
We used the proceeds from these borrowings, as well as the proceeds
received in connection with the sales of QVC and the Liberty Notes, to
repay our debt, including substantially all of our notes payable to banks,
and to repay certain of Comcast's bank credit facilities (see Note 13).
Zero Coupon Convertible Debentures
During the years ended 2003 and 2002, we repurchased from holders an
aggregate of $86 million and $1.023 billion, respectively, accreted value
of Zero Coupon Debentures. The 2003 repurchases were financed with cash on
hand and the 2002 repurchases were financed primarily from borrowings under
our credit facilities. As of December 31, 2003, substantially all of our
Zero Coupon Debentures have been repurchased.
-45-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
ZONES
At maturity, holders of our 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 common stock. Prior to maturity, each ZONES is exchangeable at the
holders' option for an amount of cash equal to 95% of the market value of
Sprint PCS Stock. As of December 31, 2003, the number of Sprint PCS shares
we held exceeded the number of ZONES outstanding.
We separated the accounting for the ZONES into derivative and debt
components. We record the change in the fair value of the derivative
component of the ZONES (see Note 5) and the change in the carrying value of
the debt component of the ZONES as follows (in millions):
Year Ended
December 31, 2003
---------------------
Balance at Beginning of Year:
Debt component..................................... $491
Derivative component............................... 208
---------
Total 699
Change in debt component to interest expense...... 24
Change in derivative component to investment
income (loss), net................................. 60
Balance at End of Year:
Debt component..................................... 515
Derivative component............................... 268
---------
Total $783
=========
Interest Rates
Excluding the derivative component of the ZONES whose changes in fair value
are recorded to investment income (loss), net, our effective weighted
average interest rate on our total debt outstanding was 7.56% and 7.08% as
of December 31, 2003 and December 31, 2002, respectively.
Interest Rate Risk Management
We are exposed to the market risk of adverse changes in interest rates. To
manage the volatility relating to these exposures, our 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, we agree to exchange, at specified intervals, the difference
between fixed and variable interest amounts calculated by reference to an
agreed-upon notional principal amount. Rate Locks are used to hedge the
risk that the cash flows related to the interest payments on an anticipated
issuance or assumption of fixed rate debt may be adversely affected by
interest rate fluctuations. Caps are used to lock in a maximum interest
rate should variable rates rise, but enable us otherwise to pay lower
market rates. Collars limit our 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.
-46-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
The following table summarizes the terms of our existing Swaps. As of
December 31, 2003, all of our Swaps are with Comcast and have identical
terms to the Swaps that Comcast has entered into with third party
counterparties (dollars in millions):
Notional Average Average Estimated
Amount Maturities Pay Rate Receive Rate Fair Value
------------- -------------- ------------ ----------------- -------------
As of December 31, 2003
-----------------------
Fixed to Variable Swaps $1,550 2006-2009 4.4% 6.5% ($20)
As of December 31, 2002
-----------------------
Variable to Fixed Swaps $ 35 2003 5.0% 1.4% ($1)
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 costs to settle the outstanding contracts. While Swaps,
Rate Locks, Caps and Collars represent an integral part of our interest
rate risk management program, their effect on interest expense for the
years ended December 31, 2003, 2002 and 2001 was not significant.
Estimated Fair Value
Our debt had estimated fair values of $9.033 billion and $9.496 billion as
of December 31, 2003 and 2002, respectively. The estimated fair value of
our publicly traded debt is based on quoted market prices for that debt.
Interest rates that are currently available to us 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 our subsidiaries' loan agreements require that we maintain
financial ratios based on debt, interest and operating income before
depreciation and amortization, as defined in the agreements. In addition,
certain of our subsidiary loan agreements contain restrictions on dividend
payments and advances of funds to us. We were in compliance with all
financial covenants for all periods presented.
As of December 31, 2003, restricted net assets of our subsidiaries were
approximately $368 million.
Lines and Letters of Credit
As of December 31, 2003, certain of our subsidiaries had unused lines of
credit of $2.508 billion under their respective credit facilities.
On January 8, 2004, Comcast refinanced three of its existing revolving
credit facilities, including Comcast Cable's $2.25 billion credit facility,
with a new $4.5 billion, five-year revolving bank credit facility due
January 2009. As of January 8, 2004, amounts available under our lines of
credit totaled $287 million.
As of December 31, 2003, certain of our subsidiaries had unused irrevocable
standby letters of credit totaling $42 million to cover potential fundings
under various agreements.
8. STOCKHOLDERS' EQUITY
Preferred Stock
We are authorized to issue, in one or more series, up to a maximum of 20
million shares of preferred stock. We can issue shares with such
designations, preferences, qualifications, privileges, limitations,
restrictions, options, conversion rights and other special or related
rights as our board of directors shall from time to time fix by resolution.
-47-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
Our Series B Preferred Stock had a 5.25% pay-in-kind annual dividend.
Dividends were paid quarterly through the issuance of additional shares of
our Series B Preferred Stock. In March 2001, we issued approximately 4.2
million shares of our Class A Special common stock to the holder in
connection with the holder's election to convert the remaining $60 million
at redemption value of Series B Preferred Stock.
Common Stock
Our Class A Special common stock is generally nonvoting and each share of
our Class A common stock is entitled to one vote. Each share of our Class B
common stock is entitled to fifteen votes. The Class B common stock is
convertible, share for share, into Class A or Class A Special common stock,
subject to certain restrictions.
Board-Authorized Repurchase Program
As part of a previous Board-authorized repurchase program, we sold Comcast
Put Options on shares of our Class A Special common stock that expired
unexercised in 2001.
The following table summarizes our share activity for the three years ended
December 31, 2003:
Common Stock
----------------------------------------------
Series B
Preferred Class A
Stock Class A Special Class B
----------- ----------- ----------- -----------
Balance, January 1, 2001 ....... 59,450 21,832,250 908,015,192 9,444,375
Stock compensation plans ....... (2,828) 2,515,538
Retirement of common stock ..... (808,000)
Conversion of Series B Preferred (59,450) 4,208,824
----------- ----------- ----------- -----------
Balance, December 31, 2001 ..... 21,829,422 913,931,554 9,444,375
Stock compensation plans ....... 1,803,330
Retirement of common stock ..... (238,307)
Employee Stock Purchase Plan ... 463,635
----------- ----------- ----------- -----------
Balance, December 31, 2002 ..... 21,591,115 916,198,519 9,444,375
----------- ----------- ----------- -----------
Balance, December 31, 2003 ..... 21,591,115 916,198,519 9,444,375
=========== =========== =========== ===========
Stock-Based Compensation Plans
As of December 31, 2003, Comcast and our subsidiaries have several
stock-based compensation plans for certain employees, officers, directors
and other persons designated by the applicable compensation committees of
Comcast's and our subsidiaries' boards of directors. These plans are
described below.
Comcast Option Plans. Comcast maintains 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, 204 million shares
of Comcast's Class A and Class A Special common stock, a portion of which
is attributable to our employees, were reserved for issuance upon the
exercise of options, including those outstanding as of December 31, 2003.
Option terms are generally ten years, with options generally becoming
exercisable between two and 9 1/2 years from the date of grant.
-48-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
The administration of Comcast's stock option plans does not provide for the
separate determination of certain disclosures for our company. The required
information is provided on a consolidated basis in Comcast's Annual Report
on Form 10-K for the year ended December 31, 2003.
Subsidiary Option Plans. Certain of our subsidiaries maintain combination
stock option/stock appreciation rights ("SAR") plans (collectively, the
"Tandem Plans") for employees, officers, directors and other designated
persons. Under the Tandem Plans, the option price is generally not less
than the fair value, as determined by an independent appraisal, of a share
of the underlying common stock at the date of grant. If the eligible
participant elects the SAR feature of the Tandem Plans, the participant
receives 75% of the excess of the fair value of a share of the underlying
common stock over the exercise price of the option to which it is attached
at the exercise date. The holders of a majority of the outstanding options
have stated an intention not to exercise the SAR feature of the Tandem
Plans. Because the exercise of the option component is more likely than the
exercise of the SAR feature, compensation expense is measured based on the
stock option component. Under the Tandem Plans, option/SAR terms are ten
years from the date of grant, with options/SARs generally becoming
exercisable over four to five years from the date of grant.
Other Stock-Based Compensation Plans
Comcast maintains a restricted stock plan u nder which our management
employees may be granted restricted share awards in Comcast's Class A or
Class A Special common stock (the "Restricted Stock Plan"). The share
awards vest annually, generally over a period not to exceed five years from
the date of the award, and do not have voting rights. At December 31, 2003,
there were 138,000 shares of Comcast's Class A common stock and 380,000
shares of Comcast's Class A Special common stock issuable to our management
employees in connection with restricted share awards under the Restricted
Stock Plan, of which 25,000 shares and 142,000 shares were issued in
January 2004, respectively.
The following table summarizes information related to Comcast's Restricted
Stock Plan:
Year Ended December 31,
2003 2002 2001
--------- --------- -------
Restricted Stock Plan
Share awards granted (in thousands) .................. 138 61 157
Weighted-average fair value per share at date of grant $31.72 $28.47 $39.52
Compensation expense (in millions) ................... $ 6 $ 8 $ 9
9. INCOME TAXES
Prior to Comcast's acquisition of Broadband, we joined with our 80% or more
owned subsidiaries and filed a consolidated federal income tax return.
Effective with the date of the Broadband acquisition, we have joined in the
filing of a consolidated federal income tax return with Comcast. Subsequent
to the Broadband acquisition, Comcast allocates income tax expense or
benefit to us as if we were filing separate income tax returns. E!
Entertainment has filed separate consolidated federal income tax returns
for all years presented.
Pursuant to the terms of our tax sharing arrangement, federal income tax
benefits from both losses and tax credits are made available to us as we
are able to realize such benefits on a separate return basis. We owe
Comcast for federal income taxes an amount equal to the amount of tax we
would pay if we filed a separate tax return (see Note 10). Income tax
expense (benefit) consists of the following components (in millions):
-49-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
Year Ended December 31,
2003 2002 2001
--------- --------- ---------
Current expense (benefit)
Federal......................................................... ($356) ($89) $418
State........................................................... (48) 38 51
--------- --------- ---------
(404) (51) 469
--------- --------- ---------
Deferred expense (benefit)
Federal......................................................... 714 23 (266)
State........................................................... 11 12 13
--------- --------- ---------
725 35 (253)
--------- --------- ---------
Income tax expense (benefit).................................... $321 ($16) $216
========= ========= =========
Our effective income tax expense differs from the statutory amount because
of the effect of the following items (in millions):
Year Ended December 31,
2003 2002 2001
--------- --------- ----------
Federal tax at statutory rate................................... $331 ($70) $80
Non-deductible depreciation and amortization.................... 91
State income taxes, net of federal benefit...................... (24) 33 42
Foreign income and equity in net losses of affiliates........... (1) (4) 4
Adjustments to prior year accrual............................... 15 25
Other........................................................... (1)
--------- --------- ----------
Income tax expense (benefit).................................... $321 ($16) $216
========= ========= =========
Our net deferred tax liability consists of the following components (in
millions):
December 31,
2003 2002
--------- ---------
Deferred tax assets:
Net operating loss carryforwards .................... $ 184 $ 314
Differences between book and tax basis of investments 94
Non- deductible accruals and other .................. 149 165
------ ------
333 573
------ ------
Deferred tax liabilities:
Temporary differences, principally book and tax basis
of property and equipment and intangible assets ... 7,292 6,873
Differences between book and tax basis
of investments .................................... 732
Differences between book and tax basis of
indexed debt securities ........................... 623 576
------ ------
8,647 7,449
------ ------
Net deferred tax liability ............................. $8,314 $6,876
====== ======
-50-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
We recorded $725 million and $837 million of deferred income tax
liabilities in 2003 through income tax expense and gain on discontinued
operations, respectively. We recorded decreases of $9 million, $73 million
and $149 million to deferred income tax liabilities in 2003, 2002 and 2001,
respectively, in connection with unrealized gains (losses) on marketable
securities and cash flow hedges that are included in other comprehensive
income (loss). We recorded $207 million of deferred income tax liabilities
in 2001 in connection with the cumulative effect of accounting change
related to the adoption of SFAS No. 133 (see Note 2).
We have recorded net deferred tax liabilities of $26 million and $46
million as of December 31, 2003 and 2002, respectively, that have been
included in current liabilities, related primarily to current investments.
We have net operating loss carryforwards, primarily state, that expire in
periods through 2023. The determination of the state net operating loss
carryforwards are dependent upon the subsidiaries' taxable income or loss,
apportionment percentages, and other respective state laws, which can
change year-to-year and impact the amount of such carryforward.
10. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The following table summarizes the fair values of the assets and
liabilities associated with our acquisitions through noncash transactions
(see Note 4) (in millions):
Year Ended December 31,
2001
------------
Current assets................................. $ 57
Property and equipment......................... 580
Intangible assets.............................. 3,043
Current liabilities............................ (37)
Deferred income taxes.......................... (77)
------------
Net assets acquired....................... $3,566
============
The following table summarizes our cash payments for interest and income
taxes (in millions):
Year Ended December 31,
2003 2002 2001
-------- -------- --------
Interest............................... $ 639 $667 $631
Income taxes........................... $1,407 $ 32 $344
During 2003, Comcast transferred certain assets to us through non-cash
intercompany transactions in the amount of $158 million. During 2002,
Comcast made a non-cash capital contribution to us of $220 million. In
addition, during 2002, we transferred certain assets to Comcast in exchange
for a note receivable of $191 million (see Note 13).
Cash payments for income taxes during 2003 include $1.330 billion paid to
Comcast, primarily as a result of our sale of QVC (see Notes 4 and 9).
The Liberty shares and Liberty Notes received in connection with the sale
of QVC are non-cash investing activities (see Note 4).
11. COMMITMENTS AND CONTINGENCIES
Commitments
Our programming networks have entered into license agreements for programs
and sporting events that are available for telecast. In addition, we,
through Comcast-Spectacor, have employment agreements with both players and
coaches of our professional sports teams. Certain of these employment
agreements, which provide for payments that
-51-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
are guaranteed regardless of employee injury or termination, are covered by
disability insurance if certain conditions are met.
The following table summarizes our minimum annual commitments under program
license agreements and our minimum annual rental commitments for office
space, equipment and transponder service agreements under noncancellable
operating leases as of December 31, 2003 (in millions):
Programming Operating
Agreements Leases Total
-------------- ------------- ----------
2004....................... $121 $100 $221
2005....................... 173 72 245
2006....................... 181 61 242
2007....................... 180 53 233
2008....................... 180 43 223
Thereafter................. 1,758 161 1,919
The following table summarizes our rental expense charged to operations (in
millions):
Year Ended December 31,
2003 2002 2001
-------- -------- --------
Rental expense........................... $72 $124 $94
Contingencies
We and the minority owner group in Comcast Spectacor each have the right to
initiate an "exit" process under which the fair market value of Comcast
Spectacor would be determined by appraisal. Following such determination,
we would have the option to acquire the interests in Comcast Spectacor
owned by the minority owner group based on the appraised fair market value.
In the event we do not exercise this option, we and the minority owner
group would then be required to use our best efforts to sell Comcast
Spectacor. This exit process includes the minority owner group's interest
in CSN.
We hold the majority of our interest in E! Entertainment through Comcast
Entertainment Holdings, LLC ("Entertainment Holdings"), which is owned
50.1% by us and 49.9% by The Walt Disney Company ("Disney"). Under a
limited liability company agreement between us and Disney, we control E!
Entertainment's operations. As a result of the Broadband acquisition and in
certain other circumstances, under the agreement Disney is entitled to
trigger a potential exit process in which Entertainment Holdings would have
the right to purchase Disney's entire interest in Entertainment Holdings at
its then fair market value (as determined by an appraisal process). If
Disney exercises this right within a specified time period, and
Entertainment Holdings elects not to purchase Disney's interest, Disney
then has the right to purchase, at appraised fair market value, either our
entire interest in Entertainment Holdings or all of the shares of stock of
E! Entertainment held by Entertainment Holdings. In the event that Disney
exercises its right and neither Disney's nor our interest is purchased,
Entertainment Holdings will continue to be owned as it is today, as if the
exit process had not been triggered.
At Home.
-------
Litigation has been filed against us as a result of our alleged conduct
with respect to our investment in and distribution relationship with At
Home Corporation. At Home was a provider of high-speed Internet services
that filed for bankruptcy protection in September 2001. Filed actions are:
(i) class action lawsuits against us, Brian L. Roberts (our President and
Chief Executive Officer and a director), AT&T (the former controlling
shareholder of At Home and also a former distributor of the At Home
service) and other corporate and individual defendants in the Superior
Court of San Mateo County, California, alleging breaches of fiduciary duty
in connection with transactions agreed to in March 2000 among At Home,
AT&T, Cox Communications, Inc. (Cox is also an investor in At Home and a
former distributor of the At Home service) and us; (ii) class action
lawsuits against Comcast Cable
-52-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
Communications, LLC, AT&T and others in the United States District Court
for the Southern District of New York, alleging securities law violations
and common law fraud in connection with disclosures made by At Home in
2001; and (iii) a lawsuit brought in the United States District Court for
the District of Delaware in the name of At Home by certain At Home
bondholders against us, Brian L. Roberts, Cox and others, alleging breaches
of fiduciary duty relating to the March 2000 transactions and seeking
recovery of alleged short-swing profits of at least $600 million pursuant
to Section 16(b) of the Securities Exchange Act of 1934 purported to have
arisen in connection with certain transactions relating to At Home stock
effected pursuant to the March 2000 agreements. The actions in San Mateo
County, California have been stayed by the United States Bankruptcy Court
for the Northern District of California, the court in which At Home filed
for bankruptcy, as violating the automatic bankruptcy stay. In the Southern
District of New York actions, the court ordered the actions consolidated
into a single action. All of the defendants served motions to dismiss on
February 11, 2003. The court dismissed the common law claims against us and
Mr. Roberts, leaving only a claim against them for "control person"
liability under the Securities Exchange Act of 1934. In a subsequent
decision, the court limited the remaining claim against us and Mr. Roberts
to disclosures that are alleged to have been made by At Home prior to
August 28, 2000. The Delaware case has been transferred to the United
States District Court for the Southern District of New York, and we have
moved to dismiss the Section 16(b) claims.
We deny any wrongdoing in connection with the claims that have been made
directly against us, our subsidiaries and Brian L. Roberts, and intend to
defend all of these claims vigorously. In our opinion, the final
disposition of these claims is not expected to have a material adverse
effect on our consolidated financial position, but could possibly be
material to our consolidated results of operations of any one period.
Further, no assurance can be given that any adverse outcome would not be
material to our consolidated financial position.
Other.
------
We are subject to other legal proceedings and claims which arise in the
ordinary course of our business. In our opinion, the amount of ultimate
liability with respect to such actions is not expected to materially affect
our financial condition, results of operations or liquidity.
-53-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
12. FINANCIAL DATA BY BUSINESS SEGMENT
As a result of the sale of QVC, our only reportable segment is "Cable." Our
other business segments, do not meet the quantitative guidelines for
segment reporting. The components of net income (loss) below operating
income before depreciation and amortization are not separately evaluated by
our management on a segment basis (in millions).
Corporate
Cable and Other(1) Total
-------- ---------- ---------
2003
- ----
Revenues (2) .................................................... $ 6,855 $ 864 $ 7,719
Operating income before depreciation and amortization (3) ....... 2,913 42 2,955
Depreciation and amortization ................................... 1,304 193 1,497
Operating income (loss) ......................................... 1,609 (151) 1,458
Interest expense ................................................ 529 126 655
Assets .......................................................... 34,952 5,450 40,402
Long-term debt .................................................. 6,609 1,219 7,828
Capital expenditures ............................................ 1,319 41 1,360
2002
- ----
Revenues (2) .................................................... $ 6,159 $ 759 $ 6,918
Operating income before depreciation and amortization (3) ....... 2,633 62 2,695
Depreciation and amortization ................................... 1,276 245 1,521
Operating income (loss) ......................................... 1,357 (183) 1,174
Interest expense ................................................ 567 144 711
Assets .......................................................... 29,844 5,845 35,689
Long-term debt .................................................. 7,908 1,348 9,256
Capital expenditures ............................................ 1,317 38 1,355
2001
- ----
Revenues (2) .................................................... $ 5,323 $ 614 $ 5,937
Operating income (loss) before depreciation and amortization (3) 2,054 (106) 1,948
Depreciation and amortization ................................... 3,044 229 3,273
Operating loss .................................................. (990) (335) (1,325)
Interest expense ................................................ 546 162 708
Assets .......................................................... 29,085 9,176 38,261
Long-term debt .................................................. 8,363 3,316 11,679
Capital expenditures ............................................ 1,855 184 2,039
- --------------
(1) Corporate and other includes segments not meeting certain quantitative
guidelines for reporting (see Note 1), corporate activities and elimination
entries. Our regional networks are included in our cable segment and all
other content businesses, including our national networks, are included in
the Corporate and Other caption. Assets included in this caption consist
primarily of our investments and intangible assets related to our content
operations (see Notes 5 and 6) and, as of December 31, 2002, $3.076 billion
of assets associated with discontinued operations and, as of December 31,
2001, $2.881 billion of assets associated with discontinued operations.
(2) Non-US revenues were not significant in any period. No single customer
accounted for a significant amount of our revenue in any period.
(3) Operating income (loss) before depreciation and amortization is defined as
operating income before depreciation and amortization, impairment charges,
if any, related to fixed and intangible assets and gains or losses from the
sale of assets, if any. As such, it eliminates the significant level of
non-cash depreciation and amortization expense that results from the
capital intensive nature of our businesses and intangible assets recognized
in business combinations, and is unaffected by our capital structure or
investment activities. Our management and Board of Directors use this
measure in evaluating our consolidated operating performance and the
operating performance of all of our operating segments. This metric is used
to allocate resources and capital to our operating segments and is a
significant component of our annual incentive compensation programs. We
believe that this measure is also useful to investors
-54-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)
as it is one of the bases for comparing our operating performance with
other companies in our industries, although our measure may not be directly
comparable to similar measures used by other companies. This measure should
not be considered as a substitute for operating income (loss), net income
(loss), net cash provided by operating activities or other measures of
performance or liquidity reported in accordance with generally accepted
accounting principles.
13. RELATED PARTY TRANSACTIONS
QVC has an affiliation agreement with Comcast Cable Communications
Holdings, Inc. ("CCCH"), a wholly owned subsidiary of Comcast, to carry
QVC's programming. In return for carrying QVC programming, QVC pays CCCH an
allocated portion, based upon market share, of a percentage of net sales of
merchandise sold to QVC customers located in CCCH's service area. These
amounts, which are included in income from discontinued operations in our
consolidated statement of operations, totaled $11 million for the year
ended December 31, 2003. Such amounts for the year ended December 31, 2002
were not significant. Amounts related to a similar affiliation agreement
between QVC and Comcast Cable, which are included in service revenues and
income from discontinued operations in our consolidated statement of
operations, totaled $13 million, $20 million and $18 million for the years
ended December 31, 2003, 2002 and 2001, respectively.
Our content businesses generate a portion of their revenues through the
sale of subscriber services to CCCH under affiliation agreements. These
amounts, which are included in service revenues in our consolidated
statement of operations, totaled $32 million for the year ended December
31, 2003. Such amounts for the year ended December 31, 2002 were not
significant. Amounts related to similar affiliation agreements between our
content businesses and Comcast Cable are eliminated in our consolidated
financial statements.
Effective January 1, 2003, Comcast has entered into management agreements
with our cable subsidiaries. The management agreements generally provide
that Comcast supervise the management and operations of the cable systems
and arrange for and supervise certain administrative functions. As
compensation for such services, the agreements provide for Comcast to
charge management fees based on a percentage of gross revenues. These
charges, which are included in selling, general and administrative expenses
in our consolidated statement of operations, totaled $147 million for the
year ended December 31, 2003. During 2002 and 2001, similar management
agreements existed between a subsidiary of Comcast Cable and Comcast
Cable's operating subsidiaries. Accordingly, amounts related to those
agreements were eliminated in our consolidated financial statements.
However, subsequent to the Broadband acquisition on November 18, 2002
through December 31, 2002, Comcast Cable managed the operations of CCCH's
subsidiaries, which included upgrades of its cable systems. Under these
management arrangements, Comcast Cable supervised the management and
operations of the CCCH cable systems and arranged for and supervised
certain administrative functions. As compensation for such services,
Comcast Cable charged a management fee based on a percentage of gross
revenues. These charges, which were recorded as a reduction of selling,
general and administrative expenses in our consolidated statement of
operations, totaled $113 million for the year ended December 31, 2002.
Effective January 1, 2003, Comcast Cable reimburses Comcast Cable
Communications Management, LLC ("CCCM"), a wholly owned subsidiary of
Comcast but not of us, for certain costs under a cost sharing agreement.
These charges, which are included in selling, general and administrative
expenses in our consolidated statement of operations, totaled $173 million
for the year ended December 31, 2003.
Effective upon the closing of Comcast's acquisition of Broadband on
November 18, 2002, we purchase certain other services from Comcast under
cost sharing arrangements on terms that reflect Comcast's actual cost.
These charges, which are included in selling, general and administrative
expenses in our consolidated statement of operations, totaled $157 million
and $17 million for the years ended December 31, 2003 and 2002,
respectively. Prior to the closing of the Broadband acquisition, similar
cost sharing arrangements existed between us and Comcast Cable.
Accordingly, amounts related to those arrangements were eliminated in our
consolidated financial statements.
-55-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Concluded)
Comcast Financial Agency Corporation ("CFAC"), an indirect wholly owned
subsidiary of ours, provides cash management services to Comcast and CCCH.
Under this arrangement, Comcast's and CCCH's cash receipts are deposited
with and held by CFAC, as custodian and agent, which invests and disburses
such funds at our direction. Interest income related to cash deposited by
Comcast and CCCH in CFAC was not significant for the years ended December
31, 2003 or 2002.
With the exception of cash payments related to interest and income taxes,
we consider all of our transactions with Comcast or its affiliates to be
financing transactions, which are presented as net transactions with
affiliates in our consolidated statement of cash flows. Our significant
financing transactions with Comcast and its affiliates are described below.
As of December 31, 2003, due from affiliates in our consolidated balance
sheet primarily consists of amounts due from Comcast and CCCH for advances
we made for working capital and capital expenditures in the ordinary course
of business. As of December 31, 2002, due to affiliates in our consolidated
balance sheet primarily consists of amounts due to Comcast and CCCH under
the cost sharing arrangements described above and as reimbursements for
costs incurred, in the ordinary course of business, by such affiliates on
our behalf.
As of December 31, 2003 and 2002, notes receivable from affiliate consists
of an aggregate of $3.284 billion and $191 million principal amount,
respectively, of notes receivable from Comcast. The increase in notes
receivable from affiliate results primarily from amounts we advanced to
Comcast during 2003 to finance the repayment of certain outstanding debt
(see Note 7). The notes receivable bear interest at rates ranging from 5.0%
to 7.5% and are due between 2012 and 2013. As of December 31, 2003 notes
receivable from affiliate includes $26 million of interest receivable
related to the notes.
As of December 31, 2003 and 2002, notes payable to affiliates consists of
an aggregate of $58 million and $22 million respectively, of notes payable
to Comcast and subsidiaries of CCCH. The notes payable bear interest at
7.5% and are due between 2012 and 2013. As of December 31, 2003, notes
payable to affiliates includes $3 million of interest payable related to
the notes.
-56-
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A CONTROLS AND PROCEDURES
(a) Our chief executive officer and our co-chief financial officers,
after evaluating the effectiveness of our disclosure controls and
procedures (as defined in the Securities Exchange Act of 1934
Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered
by this report, have concluded that based on the evaluation of
these controls and procedures required by paragraph (b) of
Exchange Act Rules 13a-15 or 15d-15, that our disclosure controls
and procedures were adequate and designed to ensure that material
information relating to us and our consolidated subsidiaries
would be made known to them by others within those entities.
(b) Changes in internal control over financial reporting. There were
no changes in our internal control over financial reporting
identified in connection with the evaluation required by
paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that
occurred during our last fiscal quarter that have materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART III
The information called for by Item 10, Directors and Executive Officers of
the Registrant, Item 11, Executive Compensation, Item 12, Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters, Item 13, Certain Relationships and Related
Transactions, and Item 14, Principal Accounting Fees and Services is
omitted pursuant to SEC General Instruction I of Form 10-K.
PART IV
ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements of the Company are
included in Part II, Item 8:
Independent Auditors' Report................................24
Consolidated Balance Sheet--December 31, 2003 and 2002......25
Consolidated Statement of Operations--Years
Ended December 31, 2003, 2002 and 2001....................26
Consolidated Statement of Cash Flows--Years
Ended December 31, 2003, 2002 and 2001....................27
Consolidated Statement of Stockholders' Equity--
Years Ended December 31, 2003, 2002 and 2001..............28
Notes to Consolidated Financial Statements..................29
(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:
We filed a Current Report on Form 8-K under Items 2, 7(b) and
7(c) on October 1, 2003 announcing the terms of the previously
announced disposition of QVC, Inc. We included the Amended and
Restated Stock Purchase Agreement dated as of June 30, 2003 and
pro forma information of Comcast Corporation, giving effect to
the disposition of QVC.
-57-
(d) Exhibits required to be filed by Item 601 of Regulation S-K:
2.1 Composite copy of Agreement and Plan of Merger dated as of
December 19, 2001, as amended, among Comcast Holdings
Corporation, AT&T Corp., Comcast Cable Communications
Holdings, Inc., Comcast Corporation and the other parties
signatory thereto (incorporated by reference to Exhibit 2.1
to the Comcast Corporation Current Report on Form 8-K12g3
filed on November 18, 2002).
2.2 Support Agreement dated as of December 19, 2001, as amended,
among AT&T Corp., Comcast Holdings Corporation, Comcast
Corporation, Sural LLC and Brian L. Roberts (incorporated by
reference to Exhibit 2.3 to the Comcast Corporation
registration statement on Form S-4 filed on February 11,
2002).
2.3 Exchange Agreement dated as of December 7, 2001, as amended,
between Microsoft Corporation and Comcast Holdings
Corporation (incorporated by reference to Exhibit 2.6 to the
Comcast Corporation registration statement on Form S-4 filed
on February 11, 2002).
3.1 Amended and Restated By-Laws (incorporated by reference to
Exhibit 3.1 to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999).
4.1 Amended and Restated Five-Year Revolving Credit Agreement
effective as of November 18, 2002, amending and restating
the Five-Year Revolving Credit Agreement dated as of August
24, 2000, among Comcast Cable Communications, LLC, Comcast
Corporation, the Lenders party thereto and Bank of America,
N.A., as Administrative Agent. (incorporated by reference to
Annex I of Exhibit 10.3 to the Comcast Cable Communications,
Inc. Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002).
4.2 First Amendment to Amended and Restated Five-Year Revolving
Credit Agreement dated as of February 7, 2003, among Comcast
Cable Communications, LLC, Comcast Corporation, the Lenders
party thereto and Bank of America, N.A., as Administrative
Agent (incorporated by reference to Exhibit 4.7 to the
Comcast Corporation Annual Report on Form 10-K for the year
ended December 31, 2002).
4.3 Amended and Restated 364-Day Revolving Credit Agreement
effective as of November 18, 2002, amending and restating
the 364-Day Revolving Credit Agreement dated as of August
24, 2000, among Comcast Cable Communications, LLC, Comcast
Corporation, the Lenders party thereto and Bank of America,
N.A., as Administrative Agent. (incorporated by reference to
Annex I of Exhibit 10.4 to the Comcast Cable Communications,
LLC. Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002).
4.4 First Amendment to Amended and Restated 364-Day Revolving
Credit Agreement dated as of February 7, 2003, among Comcast
Cable Communications, LLC, Comcast Corporation, the Lenders
party to thereto and Bank of America, N.A., as
Administrative Agent (incorporated by reference to Exhibit
4.9 to the Comcast Corporation Annual Report on Form 10-K
for the year ended December 31, 2002).
4.5 Indenture, dated as of October 17, 1991, between Comcast
Holdings Corporation and Bank of Montreal/Harris Trust
(successor to Morgan Guaranty Trust Company of New York), as
Trustee, relating to Comcast Holdings' 10-5/8% Senior
Subordinated Debentures due 2012 (incorporated by reference
to Exhibit 2 to our Current Report on Form 8-K filed on
October 31, 1991).
4.6 Form of Debenture relating to Comcast Holdings Corporation's
10-5/8% Senior Subordinated Debentures due 2012
(incorporated by reference to Exhibit 4(17) to our Annual
Report on Form 10-K for the year ended December 31, 1992).
4.7 Senior Indenture dated as of June 15, 1999 between Comcast
Holdings Corporation and The Bank of New York (as successor
in interest to Bank of Montreal Trust Company), as Trustee
(incorporated by reference to Exhibit 4.1 to our
registration statement on Form S-3 filed on June 23, 1999).
4.8 Form of Debenture relating to Comcast Holdings Corporation's
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).
4.9 Indenture dated as of May 1, 1997, between Comcast Cable
Communications, LLC and The Bank of New York (as successor
in interest to Bank of Montreal Trust Company), as Trustee,
relating to Comcast Cable Communications, LLC's 8-1/8% Notes
due 2004, 8-3/8% Notes due 2007, 8-
-58-
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, LLC. filed on June
3, 1997).
4.10 Form of Comcast Cable Communications LLC's 8-1/8% Notes due
2004, 8-3/8% Notes due 2007, 8-7/8% Notes due 2017 and
8-1/2% Notes due 2027, 6.20% Notes due 2008, 6.375% Notes
due 2006, 6.75% Notes due 2011, 6.875% Notes due 2009 and
7.125% Notes due 2013 (incorporated by reference to Exhibit
4.1(b) to the registration statement on Form S-4 of Comcast
Cable Communications, LLC filed on June 3, 1997).
4.11 Form of Indenture among Comcast Corporation, Comcast Cable
Communications, LLC, Comcast Cable Communications Holdings,
Inc., Comcast Cable Holdings, LLC, Comcast MO Group, Inc.,
and The Bank of New York, as Trustee relating to Comcast
Cable Communications Holdings, Inc.'s 8.375% Notes due March
15, 2013 and 9.455% Notes Due November 15, 2022
(incorporated by reference to Exhibit 4.18 to the amended
registration statement on Form S-4/A of Comcast Corporation
filed on September 26, 2002).
4.12 Form of Indenture among Comcast Corporation, Comcast Cable
Communications, LLC, Comcast Cable Communications Holdings,
Inc., Comcast Cable Holdings, LLC, Comcast MO Group, Inc.,
and The Bank of New York, as Trustee relating to Comcast
Corporation's 5.85% Notes due 2010 and 6.50% Notes Due 2015
(incorporated by reference to Exhibit 4.5 to the
registration statement on Form S-3 of Comcast Corporation
filed on December 16, 2002).
4.13 Form of Subordinated Indenture between Comcast Holdings
Corporation and Bankers Trust Company, as Trustee, relating
to Comcast Holdings Corporation's 2.0% Exchangeable
Subordinated Debentures Due 2029 and 2.0% Exchangeable
Subordinated Debentures Due November 2029 (incorporated by
reference to Exhibit 4.2 to our registration statement on
Form S-3 filed on June 23, 1999).
4.14 Form of Comcast Holdings Corporation's 2.0% Exchangeable
Subordinated Debentures Due 2029 (ZONES I) (incorporated by
reference to Exhibit 4 to our Current Report on Form 8-K
filed on October 14, 1999).
4.15 Form of Comcast Holdings Corporation's 2.0% Exchangeable
Subordinated Debentures Due November 2029 (ZONES II)
(incorporated by reference to Exhibit 4 to our Current
Report on Form 8-K filed on November 3, 1999).
10.1 Amended and Restated Stock Purchase Agreement, dated as of
June 30, 2003, among Comcast Corporation, Comcast QVC, Inc.,
Liberty Media Corporation and QVC, Inc. (incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K
filed on October 1, 2003).
31 Certifications of Chief Executive Officer and Co-Chief
Financial Officers pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certifications of Chief Executive Officer and Co-Chief
Financial Officers pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- ----------
Pursuant to Item 601(4)(iii)(A) of Regulation S-K, the registrant agrees to
furnish upon request to the Securities and Exchange Commission other instruments
defining the rights of holders of long-term debt.
-59-
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, 2004.
Comcast Holdings Corporation
By: /s/ Brian L. Roberts
--------------------------------------------------
Brian L. Roberts
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Brian L. Roberts President and Chief Executive Officer; Director March 29, 2004
- ----------------------- (Principal Executive Officer)
Brian L. Roberts
/s/ Lawrence S. Smith Executive Vice President; Director March 29, 2004
- ----------------------- (Co-Principal Financial Officer)
Lawrence S. Smith
/s/ John R. Alchin Executive Vice President and Treasurer March 29, 2004
- ----------------------- (Co-Principal Financial Officer)
John R. Alchin
/s/ David L. Cohen Executive Vice President; Director March 29, 2004
- -----------------------
David L. Cohen
/s/ Arthur R. Block Senior Vice President; Director March 29, 2004
- -----------------------
Arthur R. Block
/s/ Lawrence J. Salva Senior Vice President and Controller March 29, 2004
- ----------------------- (Principal Accounting Officer)
Lawrence J. Salva
-60-
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Comcast Holdings Corporation
Philadelphia, Pennsylvania
We have audited the consolidated financial statements of Comcast Holdings
Corporation and its subsidiaries (the "Company") as of December 31, 2003 and
2002, and for each of the three years in the period ended December 31, 2003, and
have issued our report thereon dated March 19, 2004 (which report expresses an
unqualified opinion and includes an explanatory paragraph related to the
adoption of Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended, effective January 1,
2001, and Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets," effective January 1, 2002); such report is included
elsewhere in this Form 10-K. Our audits also included the consolidated financial
statement schedule of Comcast Holdings Corporation and its subsidiaries, listed
in Item 15(b)(i). This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 19, 2004
-61-
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
--------------------------------------------
(In millions)
--------------
Additions
Balance at Charged to Deductions Balance
Beginning Costs and from at End
of Year Expenses Reserves(A) of Year
----------- ------------ -------------- ------------
Allowance for Doubtful Accounts
- ------------------------------------------
2003...................................... $74 $83 $83 $74
2002...................................... 71 79 76 74
2001...................................... 47 57 33 71
(A) Uncollectible accounts written off.
-62-