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TABLE OF CONTENTSUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549FORM 10-Q
(Mark One) (X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended: SEPTEMBER 30, 2003 OR ( ) Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period from ________ to ________.
(Mark One) | |
ý | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended: |
SEPTEMBER 30, 2004 | |
OR | |
o | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period fromto. |
Commission File Number 001-15471
COMCAST HOLDINGS CORPORATION
(Exact
(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.)
PENNSYLVANIA (State or other jurisdiction of incorporation or organization) | 23-1709202 (I.R.S. Employer Identification No.) |
1500 Market Street, Philadelphia, PA 19102-2148
- --------------------------------------------------------------------------------
(Address
(Address of principal executive offices) (Zip
(Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
--------------
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 twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.
Yes Xý No --- ---
__________________________o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b2 of the Exchange Act). Yes oNo X
--- ---ý
As of September 30, 2003,2004, 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 H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2004
Page Number | ||||||
---|---|---|---|---|---|---|
PART I. FINANCIAL INFORMATION | ||||||
ITEM 1. | Financial Statements | |||||
Condensed Consolidated Balance Sheet as of September 30, and December 31, | 2 | |||||
Condensed Consolidated Statement of Operations for the Three and Nine Months Ended September 30, 2004 and 2003 | 3 | |||||
Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2004 and 2003 | 4 | |||||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 5 | |||||
ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of | 16 | ||||
ITEM 3. | Quantitative and Qualitative Disclosures about Market Risk | 20 | ||||
ITEM 4. | Controls and | 20 | ||||
PART II. OTHER INFORMATION | ||||||
ITEM 1. | Legal | 20 | ||||
ITEM 6. | Exhibits | 20 | ||||
SIGNATURES | 21 |
This Quarterly Report on Form 10-Q is for the three and nine months ended September 30, 2003.2004. This Quarterly Report modifies and supersedes documents filed prior to this Quarterly Report. Information that we file with the SEC in the future will automatically update and supersede information contained in this Quarterly Report. In this Quarterly Report, "Comcast Holdings," "we," "us,""us" and "our" and the "Company" refer to Comcast Holdings Corporation and its subsidiaries, and "Comcast" refers to Comcast Corporation.
You should carefully review the information contained in this Quarterly Report, and should particularly consider any risk factors that we set forth in this Quarterly Report and in other reports or documents that we file from time to time with the SEC. In this Quarterly Report, we state our beliefs of future events and of our future financial performance. In some cases, you can identify those so-called "forward-looking statements" by words such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of those words and other comparable words. You should be aware that those statements are only our predictions. Actual events or results may differ materially. In evaluating those statements, you should specifically consider various factors, including the risks and uncertainties outlined below. Those factors may causebelow and in other reports we file with the SEC. Actual events or our actual results tomay differ materially from any of our forward-looking statements.
Factors Affecting Future Operations
As more fully described elsewhere in this Quarterly Report, on September
17, 2003, we sold
Among other things, our approximate 57% interest in QVC, Inc., our electronic
retailing subsidiary, to Liberty Media Corporation. The results of QVC have been
reported as discontinued operations for all periods presented in the
accompanying condensed consolidated financial statements.
In addition, factors thatbusinesses may cause our actual results to differ materially
from any of our forward-looking statements presented in this Quarterly Report
include, but are not limited to:
o be affected by:
As more fully described elsewhere in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2003, 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, to Liberty Media Corporation. Accordingly, financial information related to QVC is presented as a discontinued operation in our financial statements.
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
2004
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
| September 30, 2004 | December 31, 2003 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in millions, except share data) | |||||||||
ASSETS | ||||||||||
CURRENT ASSETS | ||||||||||
Cash and cash equivalents | $ | 685 | $ | 1,509 | ||||||
Investments | 81 | 139 | ||||||||
Accounts receivable, less allowance for doubtful accounts of $66 and $74 | 470 | 453 | ||||||||
Other current assets | 209 | 179 | ||||||||
Total current assets | 1,445 | 2,280 | ||||||||
NOTES RECEIVABLE FROM AFFILIATES | 4,851 | 3,310 | ||||||||
DUE FROM AFFILIATES, net | 1,970 | 943 | ||||||||
INVESTMENTS | 2,165 | 3,363 | ||||||||
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $5,201 and $4,456 | 6,485 | 6,571 | ||||||||
FRANCHISE RIGHTS | 16,617 | 16,620 | ||||||||
GOODWILL | 5,750 | 5,663 | ||||||||
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $1,196 and $1,022 | 1,881 | 1,350 | ||||||||
OTHER NONCURRENT ASSETS, net | 273 | 302 | ||||||||
$ | 41,437 | $ | 40,402 | |||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
CURRENT LIABILITIES | ||||||||||
Accounts payable | $ | 376 | $ | 303 | ||||||
Accrued expenses and other current liabilities | 1,992 | 2,014 | ||||||||
Deferred income taxes | 5 | 26 | ||||||||
Current portion of long-term debt | 27 | 373 | ||||||||
Total current liabilities | 2,400 | 2,716 | ||||||||
LONG-TERM DEBT, less current portion | 7,487 | 7,828 | ||||||||
NOTES PAYABLE TO AFFILIATES | 648 | 61 | ||||||||
DEFERRED INCOME TAXES | 8,321 | 8,288 | ||||||||
OTHER NONCURRENT LIABILITIES | 2,637 | 2,289 | ||||||||
MINORITY INTEREST | 384 | 316 | ||||||||
COMMITMENTS AND CONTINGENCIES (NOTE 8) | ||||||||||
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 | 12,359 | 12,353 | ||||||||
Retained earnings | 6,268 | 5,623 | ||||||||
Accumulated other comprehensive loss | (14 | ) | (19 | ) | ||||||
Total stockholders' equity | 19,560 | 18,904 | ||||||||
$ | 41,437 | $ | 40,402 | |||||||
See notes to condensed consolidated financial statements.
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2004
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | 2004 | 2003 | ||||||||||
| (Dollars in millions) | |||||||||||||
REVENUES | $ | 2,148 | $ | 1,882 | $ | 6,385 | $ | 5,703 | ||||||
COSTS AND EXPENSES | ||||||||||||||
Operating (excluding depreciation) | 767 | 661 | 2,267 | 2,054 | ||||||||||
Selling, general and administrative | 604 | 491 | 1,705 | 1,469 | ||||||||||
Depreciation | 333 | 330 | 967 | 965 | ||||||||||
Amortization | 55 | 49 | 146 | 136 | ||||||||||
1,759 | 1,531 | 5,085 | 4,624 | |||||||||||
OPERATING INCOME | 389 | 351 | 1,300 | 1,079 | ||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||
Interest expense | (147 | ) | (161 | ) | (452 | ) | (500 | ) | ||||||
Interest income (expense) on affiliate notes, net | 54 | (10 | ) | 136 | 2 | |||||||||
Investment income (loss), net | 96 | (166 | ) | 190 | (198 | ) | ||||||||
Equity in net losses of affiliates | (14 | ) | (15 | ) | (33 | ) | (45 | ) | ||||||
Other income (expense) | 82 | (1 | ) | 86 | 1 | |||||||||
71 | (353 | ) | (73 | ) | (740 | ) | ||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST | 460 | (2 | ) | 1,227 | 339 | |||||||||
INCOME TAX (EXPENSE) BENEFIT | (219 | ) | 84 | (555 | ) | (48 | ) | |||||||
INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST | 241 | 82 | 672 | 291 | ||||||||||
MINORITY INTEREST | (2 | ) | (14 | ) | (21 | ) | (33 | ) | ||||||
INCOME FROM CONTINUING OPERATIONS | 239 | 68 | 651 | 258 | ||||||||||
INCOME FROM DISCONTINUED OPERATIONS, net of tax | 39 | 168 | ||||||||||||
GAIN ON DISCONTINUED OPERATIONS, net of tax | 3,290 | 3,290 | ||||||||||||
NET INCOME | $ | 239 | $ | 3,397 | $ | 651 | $ | 3,716 | ||||||
See notes to condensed consolidated financial statements.
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2004
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | ||||||||
| (Dollars in millions) | |||||||||
OPERATING ACTIVITIES | ||||||||||
Net income | $ | 651 | $ | 3,716 | ||||||
Income from discontinued operations | (168 | ) | ||||||||
Gain on discontinued operations | (3,290 | ) | ||||||||
Income from continuing operations | 651 | 258 | ||||||||
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities from continuing operations: | ||||||||||
Depreciation | 967 | 965 | ||||||||
Amortization | 146 | 136 | ||||||||
Non-cash interest expense, net | 33 | 22 | ||||||||
Non-cash interest (income) expense on affiliate notes, net | (136 | ) | (2 | ) | ||||||
Equity in net losses of affiliates | 33 | 45 | ||||||||
Losses (gains) on investments and other (income) expense, net | (217 | ) | 213 | |||||||
Non-cash contribution expense | 23 | |||||||||
Minority interest | 21 | 33 | ||||||||
Deferred income taxes | 423 | 128 | ||||||||
Proceeds from sales or exchanges of trading securities | 553 | 85 | ||||||||
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures | ||||||||||
Change in accounts receivable, net | (4 | ) | 32 | |||||||
Change in accounts payable | 70 | (176 | ) | |||||||
Change in other operating assets and liabilities | 7 | 327 | ||||||||
Net cash provided by operating activities from continuing operations | 2,570 | 2,066 | ||||||||
FINANCING ACTIVITIES | ||||||||||
Proceeds from borrowings | 4 | 1,260 | ||||||||
Retirements and repayments of debt | (573 | ) | (2,293 | ) | ||||||
Net transactions with affiliates | (1,659 | ) | (1,598 | ) | ||||||
Other | 2 | |||||||||
Net cash used in financing activities from continuing operations | (2,226 | ) | (2,631 | ) | ||||||
INVESTING ACTIVITIES | ||||||||||
Acquisitions, net of cash acquired | (296 | ) | (22 | ) | ||||||
Proceeds from sales (purchases) of short-term investments, net | (6 | ) | 4 | |||||||
Proceeds from sales of investments and assets held for sale | 197 | 4,563 | ||||||||
Purchases of investments | (62 | ) | (68 | ) | ||||||
Capital expenditures | (928 | ) | (1,038 | ) | ||||||
Additions to intangible and other noncurrent assets | (73 | ) | (61 | ) | ||||||
Net cash (used in) provided by investing activities from continuing operations | (1,168 | ) | 3,378 | |||||||
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (824 | ) | 2,813 | |||||||
CASH AND CASH EQUIVALENTS, beginning of period | 1,509 | 400 | ||||||||
CASH AND CASH EQUIVALENTS, end of period | $ | 685 | $ | 3,213 | ||||||
See notes to condensed consolidated financial statements.
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2004
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
Comcast Holdings Corporation ("Comcast Holdings") and its subsidiaries (the
"Company") has
We have prepared these unaudited condensed consolidated financial statements based upon Securities and Exchange Commission ("SEC") rules that permit reduced disclosure for interim periods. The Company isWe are an indirect wholly owned subsidiary of Comcast Corporation ("Comcast"). Our presentation differs from the consolidated financial statements of Comcast by excluding both Comcast's corporate operations and certain cable operations, primarily those acquired from AT&T in November 2002 (the "Broadband acquisition"). Subsequent to the Broadband acquisition, all of our and Comcast's cable operations are operated as a single integrated cable business unit. Our condensed consolidated financial statements reflect the assets, liabilities, revenues and expenses directly attributable to us, as well as allocations deemed reasonable by management, to present our financial position, results of operations and cash flows on a stand-alone basis. These allocations are further described in Note 10. All significant intercompany accounts and transactions within our financial statements have been eliminated.
These financial statements include all adjustments that are necessary for a fair presentation of the Company'sour financial condition and results of operations and financial condition for the interim periods shown, including normal recurring accruals and other items. The results of operations for the interim periods presented are not necessarily indicative of results for the full year.
Effective in the first quarter of 2004, we changed the unit of accounting used for testing impairment of our indefinite-lived franchise rights to geographic regions and performed impairment testing of our cable franchise rights. We did not record any impairment charges in connection with this impairment testing.
For a more complete discussion of the Company'sour accounting policies and certain other information, refer to theour annual financial statements included in the Company's
Annual Report on Form 10-K for the preceding fiscal year ended December 31, 2002.as filed with the SEC.
On September 17, 2003, the Companywe completed the sale of itsour approximate 57% interest in QVC, Inc. ("QVC"). Accordingly, QVC has been presented 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 3).
Assets."
The results of operations of QVC included within income from discontinued operations, net of tax are as follows (in millions):
| Three Months Ended September 30, 2003 | Nine Months Ended September 30, 2003 | ||||
---|---|---|---|---|---|---|
Revenues | $ | 752 | $ | 2,915 | ||
Income before income taxes and minority interest | $ | 123 | $ | 496 | ||
Income tax expense | $ | 47 | $ | 184 |
Both periods presented above include QVC's operations through August 31, 2003, as reported to us by QVC.
Reclassifications
Certain reclassifications have been made to the prior year financial statements to conform to those classifications used in 2003.
2004.
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2004
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 143
The
FIN 46/FIN 46R
In January 2003, the Financial Accounting Standards Board ("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. The Company adopted SFAS No. 143 on January 1, 2003, in accordance with
the new statement. The adoption of SFAS No. 143 had no impact on the Company's
financial condition or results of operations.
SFAS No. 148
The FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure," in December 2002. SFAS No. 148 amends SFAS No. 123
to provide alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock-based employee
compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123
to require disclosure about the effects on reported net income of an entity's
stock-based employee compensation in interim financial statements. SFAS No. 148
is effective for fiscal years beginning after December 31, 2002. The Company
adopted SFAS No. 148 on January 1, 2003. The Company did not change to the fair
value based method of accounting for stock-based employee compensation.
Accordingly, the adoption of SFAS No. 148 would only affect the Company's
financial condition or results of operations if Comcast elects to change to the
fair value method specified in SFAS No. 123. The adoption of SFAS No. 148
requires the Company to disclose the effects of its stock-based employee
compensation in interim financial statements beginning with the first quarter of
2003 (see Note 7).
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. The Company adopted SFAS No. 149 on July 1, 2003
on a
5
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
prospective basis in accordance with the new statement. The adoption of SFAS No.
149 had no material impact on the Company's 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. SFAS No. 150
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise was effective July 1, 2003. The adoption of SFAS No. 150 did
not have a material impact on the Company's financial condition or results of
operations.
The FASB is addressing certain implementation issues associated with the
application of SFAS No. 150. On October 29, 2003, the FASB decided to defer
certain provisions of SFAS No. 150 related to mandatorily redeemable financial
instruments representing noncontrolling interests in subsidiaries included in
consolidated financial statements. The Company will monitor the actions of the
FASB and assess the impact, if any, that these actions may have on its 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. The Company adopted the disclosure provisions of FIN 45 in the fourth
quarter of 2002 and adopted the initial recognition and measurement provisions
of FIN 45 on January 1, 2003, as required by the Interpretation. The impact of
the adoption of FIN 45 will depend on the nature and terms of guarantees entered
into or modified by the Company in the future. The adoption of FIN 45 in the
first quarter of 2003 did not have a material impact on the Company's financial
condition or results of operations (see Note 9).
FIN 46
The Company adopted the provisions of FASB 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, clarifies the application of Accounting Research Bulletin 51 to certain
entities, defined as variable interest entities ("VIEs"), in which equity
investors do not have characteristics of a controlling financial interest or do
not have sufficient equity at risk for the entity to finance its activities
without additional subordinated support from other parties. At the time of the
initial application, FIN 46 had no impact on the Company's financial condition
or results of operations because the Company previously consolidated all VIEs in
which it was the primary beneficiary. Since the Company's initial application,
the FASB has been addressingaddressed various implementation issues that could
potentially broadenregarding the application of FIN 46 to entities outside its originally interpreted scope, and has issued and proposed severalfocusing on Special Purpose Entities, or SPEs. In December 2003, the FASB Staff Positions.revised FIN 46 ("FIN 46R"), which delayed the required implementation date until March 31, 2004 for entities that are not SPEs. The Company doesadoption of FIN 46R did not expect that these FASB Staff Positions will have a material impact on itsour financial statements.
6
EITF 03-16
In March 2004, the Emerging Issues Task Force ("EITF") reached a consensus regarding Issue No. 03-16, "Accounting for Investments in Limited Liability Companies" ("EITF 03-16"). EITF 03-16 requires investments in limited liability companies ("LLCs") that have separate ownership accounts for each investor to be accounted for similar to a limited partnership investment under Statement of Position No. 78-9, "Accounting for Investments in Real Estate Ventures." Investors are required to apply the equity method of accounting to their investments at a much lower ownership threshold than the 20% threshold applied under Accounting Principles Board ("APB") No. 18, "The Equity Method of Accounting for Investments in Common Stock." EITF 03-16 is effective for the first period beginning after June 15, 2004. We adopted EITF 03-16 on July 1, 2004. The adoption of EITF 03-16 did not have a material impact on our financial condition or results of operations.
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
TechTV
On May 10, 2004, we completed the purchase of TechTV Inc. ("TechTV") by acquiring all outstanding common and preferred stock of TechTV from Vulcan Programming Inc. for approximately $300 million in cash, funded with borrowings under a note payable to affiliate. Substantially all of the purchase price has been recorded as an intangible asset pending the completion of a formal valuation. The results of TechTV are not material for pro forma presentation. On May 28, 2004, G4, our wholly-owned subsidiary, and TechTV began operating as one network called G4techTV, which is available to approximately 44 million cable and satellite homes nationwide. We have classified G4techTV as part of our content business segment (see Note 9).
Liberty Exchange Agreement
On July 28, 2004, we exchanged approximately 120 million shares of Liberty Media Corporation ("Liberty") Series A common stock that we held (see Note 4), valued at approximately $1.022 billion based upon the price of Liberty common stock on the closing date of the transaction, with Liberty for 100% of the stock of Liberty's subsidiary, Encore ICCP, Inc. ("Encore"). Encore's assets consisted of cash of approximately $547 million, a 10.4% interest in E! Entertainment Television, Inc. ("E!") and 100% of the International Cable Channels Partnership, Ltd. ("International Channel Networks"). We also received all of Liberty's rights, benefits and obligations under the TCI Music contribution agreement (an agreement between another Comcast cable subsidiary and Liberty), which resulted in the resolution of all pending litigation between Liberty and Comcast regarding the contribution agreement. The Liberty exchange increased our portfolio of programming investments because we now own 60.5% of E! and 100% of International Channel Networks. The exchange was structured as a tax free transaction. We allocated the value of the shares exchanged in the transaction between cash, our additional investment in E!, International
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
2004
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Continued)
(Unaudited)
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Sale of QVC
On September 17, 2003,
Channel Networks and the Company completed the sale to Liberty Media
Corporation ("Liberty") of all shares of QVC common stock held by a number of
indirect wholly-owned subsidiariesresolution of the Company, for an aggregate amountComcast litigation related to the contribution agreement. The values 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. The
consideration received, net of transaction costs, over the Company's 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.
The Liberty Notes and shares of Liberty Series A common stock received in the
transaction have been registered with the SEC. On September 24, 2003, the
Company, through its wholly-owned indirect subsidiaries, sold an aggregate of
$3.0 billion principal amount of the Liberty Notes for net proceeds of
approximately $3.0 billion. The remaining Liberty Notes held by the Company,
which bear interest at LIBOR plus 1.5%, are classified as available for sale and
the shares of Liberty Series A common stock received by the Company in
connection with the sale of QVC are classified as trading securities (see Note
4).
The current and noncurrentcertain assets and liabilities are based on preliminary valuations and are subject to adjustment as the valuation reports and any additional information are obtained. The effects of QVC included withinour acquisition of the related discontinuedadditional interest in E! and the acquisition of International Channel Networks have been reflected in our consolidated statement of 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 assetsfrom the date 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
===========
7
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)the transaction. The results of operationsInternational Channel Networks and the impact of QVC prior to its dispositionour additional interest in E! are included within
income from discontinued operations, net of tax in the following periods (in
millions):
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
--------- --------- --------- ---------
Revenues................................................... $752 $1,012 $2,915 $3,000
Income before income taxes and minority interest........... $123 $146 $496 $419
The 2003 periods include QVC operations through August 31, 2003 as reported to
the Company by QVC. The amount of income from discontinued operations and gain
on discontinued operations is subject to reallocation as additional information
is obtained from QVC, which will have no effect on net income.
not material for pro forma presentation.
4. INVESTMENTS
September 30, December 31,
2003 2002
-------------- --------------
(in millions)
Fair value method
AT&T Corp.................................................... $ $287
Liberty...................................................... 3,212 43
Sprint Corp. PCS Group....................................... 354 369
Other ....................................................... 23 24
-------------- --------------
3,589 723
Equity method..................................................... 316 284
Cost method....................................................... 109 104
-------------- --------------
Total investments............................................ 4,014 1,111
Less, current investments......................................... 1,138 517
-------------- --------------
Non-current investments........................................... $2,876 $594
============== ==============
| September 30, 2004 | December 31, 2003 | |||||
---|---|---|---|---|---|---|---|
| (in millions) | ||||||
Fair value method | |||||||
Liberty Media Corporation | $ | 872 | $ | 2,644 | |||
Liberty Media International | 366 | ||||||
Sprint | 574 | 349 | |||||
Other | 43 | 41 | |||||
1,855 | 3,034 | ||||||
Equity method | 260 | 331 | |||||
Cost method | 131 | 137 | |||||
Total investments | 2,246 | 3,502 | |||||
Less, current investments | 81 | 139 | |||||
Noncurrent investments | $ | 2,165 | $ | 3,363 | |||
Fair Value Method
The Company holds
We hold unrestricted equity investments, in certain publicly traded
companies, which it accountswe account for as available for sale or trading securities.securities, in certain publicly traded companies. The net unrealized pre-tax gains on investments accounted for as available for sale securities as of September 30, 20032004, and December 31, 20022003, of $29$10 million and $70$42 million, respectively, have been reported in the Company'sour consolidated balance sheet principally as a component of accumulated other comprehensive income (loss),loss, net of related deferred income taxes of $10$4 million and $25$15 million, respectively.
On June 7, 2004, we received approximately 11 million shares of Liberty Media International, Inc. ("Liberty International") Series A common stock in connection with the spin-off by Liberty of Liberty International. In the spin-off, each share of Liberty Series A and Series B common stock received 0.05 shares of the new Liberty International Series A common stock. We have classified all of the shares of Liberty International Series A common stock that we received as trading securities recorded at fair value within noncurrent investments. Approximately 5 million of these shares collateralize a portion of the ten-year prepaid forward sale of Liberty common stock that we entered into in December 2003.
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2004
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The cost, fair value and unrealized gains and losses related to the Company'sour available for sale securities are as follows (in millions):
September 30, December 31,
2003 2002
----------- -----------
Cost...................................... $1,024 $269
Unrealized gains.......................... 34 71
Unrealized losses......................... (5) (1)
----------- -----------
Fair value................................ $1,053 $339
=========== ===========
8
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
| September 30, 2004 | December 31, 2003 | |||||
---|---|---|---|---|---|---|---|
Cost | $ | 20 | $ | 44 | |||
Unrealized gains | 10 | 43 | |||||
Unrealized losses | (1 | ) | |||||
Fair value | $ | 30 | $ | 86 | |||
Investment Loss,Income (Loss), Net
Investment loss,income (loss), net for the interim periods includes the following (in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | 2004 | 2003 | |||||||||
Interest, dividend and other investment income (expense) | $ | (4 | ) | $ | 5 | $ | (12 | ) | $ | 13 | |||
Gains on sales and exchanges of investments, net | 35 | 34 | 23 | ||||||||||
Investment impairment losses | (7 | ) | (10 | ) | (69 | ) | |||||||
Mark to market adjustments on trading securities | (59 | ) | (166 | ) | (113 | ) | (98 | ) | |||||
Mark to market adjustments on derivatives related to trading securities | 139 | (1 | ) | 297 | (66 | ) | |||||||
Mark to market adjustments on derivatives and hedged items | (8 | ) | (4 | ) | (6 | ) | (1 | ) | |||||
Investment income (loss), net | $ | 96 | ($166 | ) | $ | 190 | ($198 | ) | |||||
Other Income
On September 30, 2004, we sold our 20% interest in DHC Ventures, LLC (Discovery Health Channel) to Discovery Communications, Inc. for approximately $149 million in cash and recognized a gain on the sale of approximately $94 million to other income.
5. GOODWILL
The changes in the carrying amount of goodwill by business segment (see
Note 10) for the periods presented are as follows (in millions):
Corporate
Cable and Other Total
------------ ------------ ------------
Balance, December 31, 2002...................... $4,693 $918 $5,611
Intersegment transfers...................... 20 (20)
------------ ------------ ------------
Balance, September 30, 2003..................... $4,713 $898 $5,611
============ ============ ============
The Cross-Guarantee Structure
To simplify Comcast's capital structure, effective with its acquisition of AT&T
Corp.'s broadband business ("Broadband") on November 18, 2002, Comcast and certain of its cable holding company subsidiaries, including the Company'sour wholly owned subsidiary Comcast Cable Communications, Inc.LLC ("Comcast Cable"), fully andhave unconditionally guaranteed each other's debt securities (the
"Cross-Guarantee Structure").and indebtedness for borrowed money. As of September 30, 2004, $20.588 billion of Comcast's debt securities were entitled to the benefits of the cross-guarantee structure, including $6.350 billion of Comcast Cable's debt securities.
Comcast Holdings Corporation is not a guarantor, and none of its debt is guaranteed. As of September 30, 2003, $22.568 billion2004, $905 million of Comcast's
debt securities were entitled to the benefitswas outstanding at Comcast Holdings Corporation.
Repayments of the Cross-Guarantee Structure,
including $6.932 billion of Comcast Cable's debt securities.
Repayments and Redemptions of DebtSenior Notes
On March 31, 2003, in connection with the closing of the restructuring of Time
Warner Entertainment Company L.P., an investment accounted for under the cost
method by Comcast, Comcast received $2.1 billion in cash which was used to repay
debt, including $8002004, we repaid all $250 million of amounts outstanding under Comcast Cable's
revolving credit facility.
In May 2003, the Company redeemed, at its scheduled redemption price, the $154
million outstanding principal amount of its 8 1/4%our 8.875% senior subordinated notes due 2008. The Company2007. On May 1, 2004, we repaid all $300 million principal amount of our 8.125% senior notes due 2004. These repayments were both financed the redemption with amounts available under its
existing credit facilities.
9
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
2004
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Continued)
(Unaudited)
Repayments of Debt with Proceeds from Sales of QVC and Liberty Notes
In September 2003, in connection with the sale of QVC and the sale of the
Liberty Notes, the Company received an aggregate of approximately $4.35 billion
in cash (see Note 3). In September 2003, the Company used a portion of the cash
proceeds to repay $550 million on the Comcast Cable revolving credit facility
due 2005 and also repaid $1.130 billion outstanding on certain of Comcast's bank
credit facilities.
ZONES
At maturity, holders of the Company'sour 2.0% Exchangeable Subordinated Debentures due 2029 (the "ZONES") are entitled to receive in cash an amount equal to the higher of the principal amount of the ZONES of $1.807 billion or the market value of Sprint PCS 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 September 30, 2003, the number of Sprint PCS shares held by the
Company exceeded the number of ZONES outstanding.
The Company splitcommon stock.
We separated the accounting for the ZONES into derivative and debt components. The Company recordsWe record the change in the fair value of the derivative component of the ZONES (see Note 4) and the change in the carrying value of the debt component of the ZONES as follows (in millions):
Nine Months Ended
September 30,
2003 2002
----------- -----------
Balance at Beginning of Period:
Debt component................................ $491 $468
Derivative component.......................... 208 1,145
----------- -----------
Total 699 1,613
Increase in debt component
to interest expense........................... 18 17
Increase (decrease) in derivative component
to investment loss, net....................... 64 (1,053)
Balance at End of Period:
Debt component................................ 509 485
Derivative component.......................... 272 92
----------- -----------
Total $781 $577
=========== ===========
| ZONES | |||||||
---|---|---|---|---|---|---|---|---|
| Nine Months Ended September 30, | |||||||
| 2004 | 2003 | ||||||
Balance at Beginning of Period: | ||||||||
Debt component | $ | 515 | $ | 491 | ||||
Derivative component | 268 | 208 | ||||||
Total | 783 | 699 | ||||||
Change in debt component to interest expense | 19 | 18 | ||||||
Change in derivative component to investment income (loss), net | (139 | ) | 64 | |||||
Balance at End of Period: | ||||||||
Debt component | 534 | 509 | ||||||
Derivative component | 129 | 272 | ||||||
Total | $ | 663 | $ | 781 | ||||
Interest Rates
Excluding the derivative component of the ZONES whose changes in fair value are recorded to investment loss,income (loss), net, the Company'sour effective weighted average interest rate on its total debt outstanding was 7.49%7.48% and 7.07%7.56% as of September 30, 20032004 and December 31, 2002,2003, respectively.
Derivatives
The Company uses
We use derivative financial instruments to manage itsour exposure to fluctuations in interest rates and securities prices. The Company hasWe have issued indexed debt instruments and prepaid forward sale agreements whose value, in part, is derived from the market value of certain publicly traded common stock.
Lines and Letters of Credit
As of September 30, 2003,2004, we and certain subsidiaries of the Companyour subsidiaries had unused lines of credit of $2.508 billion$287 million under theirour respective credit facilities.
As of September 30, 2003, the Company2004, we and certain of itsour subsidiaries had unused irrevocable standby letters of credit totaling $42$13 million to cover potential fundings under various agreements.
10
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
2004
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Continued)
(Unaudited)
7.
6. STOCKHOLDERS' EQUITY
Stock-Based Compensation
The Company accounts
We account for stock-based compensation in accordance with Accounting
Principles BoardAPB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123") as amended. Compensation expense for stock options is measured as the excess, if any, of the quoted market price of the stock at the date of the grant over the amount an employee must pay to acquire the stock. The
Company recordsWe record compensation expense for restricted stock awards based on the quoted market price of the stock at the date of the grant and the vesting period. The Company recordsWe record compensation expense for stock appreciation rights based on the changes in quoted market prices of the stock or other determinants of fair value.
The following table illustrates the effect on net income (loss) if the Company
had appliedthat applying the fair value recognition provisions of SFAS No. 123 to stock-based compensation (dollarswould have had on net income. Upon further analysis during 2003, it was determined that the expected option lives for options granted in millions):
| | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2004 | 2003 | 2004 | 2003 | ||||||||||
Net income, as reported | $ | 239 | $ | 3,397 | $ | 651 | $ | 3,716 | |||||||
Add: | Total stock-based compensation expense included in net income, as reported above | 2 | 2 | 10 | 4 | ||||||||||
Deduct: | Total stock-based compensation expense determined under fair value based method for all awards relating to continuing operations, net of related tax effects | (20 | ) | (23 | ) | (59 | ) | (64 | ) | ||||||
Deduct: | Total stock-based compensation expense determined under fair value based method for all awards relating to discontinued operations, net of related tax effects | (5 | ) | (12 | ) | ||||||||||
Pro forma, net income | $ | 221 | $ | 3,371 | $ | 602 | $ | 3,644 | |||||||
The pro forma effect on net income (loss) for the interim periods by applying SFAS No. 123 may not be indicative of the 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 sincebecause additional awards in future years are anticipated.
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2004
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Comprehensive Income (Loss)
The Company's
Our total comprehensive income (loss) for the interim periods was as follows (in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | 2004 | 2003 | |||||||||
Net income | $ | 239 | $ | 3,397 | $ | 651 | $ | 3,716 | |||||
Unrealized losses on marketable securities | (1 | ) | (19 | ) | (2 | ) | (44 | ) | |||||
Reclassification adjustments for losses (gains) included in net income | (8 | ) | (14 | ) | 7 | 7 | |||||||
Unrealized losses on the effective portion of cash flow hedges | 1 | 1 | |||||||||||
Foreign currency translation gains | 3 | 5 | |||||||||||
Comprehensive income | $ | 230 | $ | 3,368 | $ | 656 | $ | 3,685 | |||||
7. STATEMENT OF CASH FLOWS—SUPPLEMENTAL INFORMATION
We made cash payments for interest and income taxes related to
continuing operations during the interim periods as follows (in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
--------- ---------- --------- ----------
Interest............................................. $90 $101 $420 $441
Income taxes......................................... $12 $2 $56 $11
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | 2004 | 2003 | ||||||||
Interest | $ | 86 | $ | 90 | $ | 374 | $ | 420 | ||||
Income taxes | $ | 39 | $ | 12 | $ | 141 | $ | 56 |
During the nine months ended September 30, 2004, Comcast received a federal income tax refund of approximately $536 million.
During the nine months ended September 30, 2004, property, plant and equipment allocations were made with another Comcast subsidiary through non-cash intercompany transactions resulting in net transfers out of $57 million. During the nine months ended September 30, 2004, we recorded additional liabilities of approximately $35 million relating to a subsidiary of Comcast, a transaction that is considered a non-cash financing activity. This additional liability resulted in a corresponding increase to due from affiliates, net, in our consolidated balance sheet.
During the nine months ended September 30, 2004, in connection with the saleacquisition of QVC
areTechTV (see Note 3), we issued shares in G4techTV with a value of approximately $70 million, which is considered a non-cash financing and investing activity.
During the nine months ended September 30, 2004, in connection with the Liberty Exchange Agreement (see Note 3), we received non-cash consideration of approximately $475 million, which is considered a non-cash investing activities (see Note 3).
12
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
2004
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Continued)
(Unaudited)
9.
8. COMMITMENTS AND CONTINGENCIES
Contingencies
At Home.
- --------Home
Litigation has been filed against the Companyus as a result of our alleged conduct of
the Company with respect to itsour investment in and distribution relationship with At Home Corporation. At Home was a provider of high-speed Internet services whichthat filed for bankruptcy protection in September 2001. Filed actions are: (i) class action lawsuits against the Company,us, Brian L. Roberts (the Company's(our President and Chief Executive Officer and a director), AT&T (the former controlling shareholder of At Home and also a former distributor of the At Home service) and other corporate and individual defendants in the Superior Court of San Mateo County, California, alleging breaches of fiduciary duty on the part of
the Company and the other defendants in connection with transactions agreed to in March 2000 among At Home, the Company, AT&T, and Cox Communications, Inc. (Cox is also an investor in At Home and a former distributor of the At Home service); and us; (ii) class action lawsuits against Comcast Cable Communications, Inc.,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 the Company,us, Brian L. Roberts, Cox and others, alleging breaches of fiduciary duty relating to the March 2000 transactions and seeking recovery of alleged short- swingshort-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 the Companyus 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.York, and we have moved to dismiss the Section 16(b) claims. The Company deniescourt dismissed the Section 16(b) claims against us, leaving only the claim for breach of fiduciary duty.
We deny any wrongdoing in connection with the claims whichthat have been made directly against the Company, itsus, our subsidiaries and Brian L. Roberts, and intendsintend to defend all of these claims vigorously. In management's opinion, theThe final disposition of these claims is not expected to have a material adverse effect on the Company'sour consolidated financial position, but could possibly be material to the Company'sour consolidated results of operations of any one period. Further, no assurance can be given that any adverse outcome would not be material to suchour consolidated financial position.
Starz Encore.
- -------------
Some of the entities formerly attributed to Broadband which
Other
We are now subsidiaries
of Comcast were parties to a 1997 affiliation term sheet with Starz Encore Group
LLC ("Starz Encore"), an affiliate of Liberty, which was the subject of a
lawsuit by Starz Encore against Broadband in Colorado State Court that preceded
Comcast's acquisition of Broadband. In November 2002, the Company and Comcast
filed suit against Starz Encore in the United States District Court for the
Eastern District of Pennsylvania relating to that term sheet.
In January 2003, Starz Encore filed an amended complaint in its lawsuit against
Broadband in Colorado state court. The amended complaint added the Company and
Comcast as defendants and added new claims against the Company, Comcast and
Broadband asserting alleged breaches of, and interference with, a standstill
agreement relating to the lawsuit filed by the Company and Comcast in federal
District Court in Pennsylvania. On September 19, 2003, Comcast, Starz Encore and
certain of their affiliates entered into a confidential settlement agreement
that provided for the dismissal with prejudice of both the Colorado lawsuit and
the Pennsylvania lawsuit, subject to the execution of a contemporaneous
amendment to an existing affiliation agreement between Comcast and Starz Encore
13
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
that originally applied only to the cable systems of the Company. The amended
affiliation agreement now applies to all Comcast owned and operated systems,
including the former Broadband systems, and provides for: (i) payment on a
per-subscriber basis rather than the flat fee arrangement that formerly existed
under the 1997 term sheet between Broadband and Starz Encore; (ii) elimination
of the pass-through of any of Starz Encore's incremental programming costs, such
as there had been under the 1997 term sheet between Broadband and Starz Encore;
and (iii) enhanced joint marketing efforts promoting Starz Encore products. The
parties have filed stipulations of dismissal of both the Colorado and
Pennsylvania lawsuits with prejudice.
Other.
- ------
The Company is subject to other legal proceedings and claims whichthat arise in the ordinary course of itsour business. In the opinion of management, theThe amount of ultimate liability with respect to such actions is not expected to materially affect theour financial condition,position, results of operations or liquidityliquidity.
9. FINANCIAL DATA BY BUSINESS SEGMENT
Our reportable segments consist of the
Company.
In connection with a license awarded to an affiliate, the Company is
contingently liableour cable and content businesses. Beginning in the eventfirst quarter of nonperformance by the affiliate2004, we elected to reimbursedisclose our content businesses separately as a bank which has provided a performance guarantee. The amount of the performance
guarantee is approximately $165 million; however the Company's current estimate
of the amount of expenditures (principally in the form of capital expenditures)
that will be made by the affiliate necessary to comply with the performance
requirements will not exceed $50 million.
14
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
2004
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Continued)
(Unaudited)
10. FINANCIAL DATA BY BUSINESS SEGMENT
not meet the quantitative disclosure requirements of SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." Our content segment consists of our national networks E! Entertainment, Style Network, The Golf Channel, Outdoor Life Network, G4techTV and International Channel Networks. As a result of this change, we have presented the sale of QVC,comparable 2003 content segment amounts. In evaluating our segments' profitability, the Company's only reportable segment is
"Cable." The Company's other business segments, including the Company's content
operations, do not meet the quantitative guidelines for segment reporting. The components of net income (loss) below operating income (loss) before depreciation and amortization are not separately evaluated by the Company'sour management on a segment basis (in(amounts in millions).
| Cable(1) | Content | Corporate and Other(2) | Total | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Three Months Ended September 30, 2004 | ||||||||||||
Revenues(3) | $ | 1,889 | $ | 207 | $ | 52 | $ | 2,148 | ||||
Operating income (loss) before depreciation and amortization(4) | 777 | 62 | (62 | ) | 777 | |||||||
Depreciation and amortization | 333 | 42 | 13 | 388 | ||||||||
Operating income (loss) | 444 | 20 | (75 | ) | 389 | |||||||
Capital expenditures | 304 | 4 | 2 | 310 | ||||||||
Three Months Ended September 30, 2003 | ||||||||||||
Revenues(3) | $ | 1,718 | $ | 158 | $ | 6 | $ | 1,882 | ||||
Operating income (loss) before depreciation and amortization(4) | 742 | 58 | (70 | ) | 730 | |||||||
Depreciation and amortization | 333 | 32 | 14 | 379 | ||||||||
Operating income (loss) | 409 | 26 | (84 | ) | 351 | |||||||
Capital expenditures | 324 | 3 | 16 | 343 | ||||||||
Nine Months Ended September 30, 2004 | ||||||||||||
Revenues(3) | $ | 5,609 | $ | 582 | $ | 194 | $ | 6,385 | ||||
Operating income (loss) before depreciation and amortization (4) | 2,362 | 208 | (157 | ) | 2,413 | |||||||
Depreciation and amortization | 956 | 116 | 41 | 1,113 | ||||||||
Operating income (loss) | 1,406 | 92 | (198 | ) | 1,300 | |||||||
Capital expenditures | 899 | 14 | 15 | 928 | ||||||||
Nine Months Ended September 30, 2003 | ||||||||||||
Revenues(3) | $ | 5,079 | $ | 462 | $ | 162 | $ | 5,703 | ||||
Operating income (loss) before depreciation and amortization(4) | 2,155 | 155 | (130 | ) | 2,180 | |||||||
Depreciation and amortization | 957 | 96 | 48 | 1,101 | ||||||||
Operating income (loss) | 1,198 | 59 | (178 | ) | 1,079 | |||||||
Capital expenditures | 1,009 | 10 | 19 | 1,038 | ||||||||
As of September 30, 2004 | ||||||||||||
Assets | $ | 36,880 | $ | 2,549 | $ | 2,008 | $ | 41,437 | ||||
As of December 31, 2003 | ||||||||||||
Assets | $ | 34,952 | $ | 2,048 | $ | 3,402 | $ | 40,402 |
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
2004
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Continued)
(Unaudited)
(1) Other includes segments not meeting certain quantitative guidelines for
reporting and elimination entries related to the segment presented.
10. RELATED PARTY TRANSACTIONS
Our related party transactions for the interim periods presented are as follows (in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | 2004 | 2003 | |||||||||
Content affiliation agreement revenue | $ | 13 | $ | 9 | $ | 41 | $ | 26 | |||||
Comcast management fees | 41 | 39 | 120 | 109 | |||||||||
Comcast cost sharing charges: | |||||||||||||
Cable-related costs | 56 | 47 | 161 | 129 | |||||||||
Other costs | 48 | 40 | 145 | 116 | |||||||||
Software licensing fees | 2 | 5 | |||||||||||
Interest income (expense) on affiliate notes, net | 54 | (10 | ) | 136 | 2 |
Our content businesses generate a portion of their revenues through the sale of subscriber services under affiliation agreements with cable subsidiaries of Comcast. These amounts are included in service revenues in our consolidated statement of operations. Amounts related to similar affiliation agreements between our content businesses and our wholly owned subsidiaries are eliminated in our consolidated financial statements.
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 are included in selling, general and administrative expenses in our consolidated statement of operations.
We reimburse Comcast for certain cable-related costs under a cost sharing agreement. These charges are included in selling, general and administrative expenses in our consolidated statement of operations.
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2004
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
(Unaudited)
We purchase certain other services from Comcast under cost sharing arrangements on terms that reflect Comcast's actual cost. These charges are included in selling, general and administrative expenses in our consolidated statement of operations.
Comcast has purchased long-term, non-exclusive patent and software licenses to use on Comcast's and our interactive program guides. Comcast charges us a licensing fee for use of this software. This charge is included in selling, general and administrative expenses in our consolidated statement of operations.
Comcast Financial Agency Corporation ("CFAC"), an indirect wholly owned subsidiary of ours, provides cash management services to certain cable subsidiaries of Comcast. Under this arrangement, Comcast's and these subsidiaries' 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 this cash was not significant during the 2004 or 2003 interim periods.
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 September 30, 2004 and December 31, 2003, due from affiliates, net in our consolidated balance sheet primarily consists of amounts due from Comcast and from certain cable subsidiaries of Comcast for advances we made for working capital and capital expenditures in the ordinary course of business. Also, included within accrued expenses and other current liabilities as of September 30, 2004 and December 31, 2003 is approximately $603 million and $568 million, respectively, related to other Comcast subsidiaries.
QVC, a discontinued operation, has an affiliation agreement with certain cable subsidiaries of Comcast to carry QVC's programming. In return for carrying QVC programming, QVC pays these Comcast subsidiaries an allocated portion, based upon market share, of a percentage of net sales of merchandise sold to QVC customers located in their service areas. These amounts are not significant and are included in income from discontinued operations in our consolidated statement of operations. Amounts related to a similar affiliation agreement between QVC and our wholly owned subsidiaries are not significant and are included in service revenues and income from discontinued operations in our consolidated statement of operations.
As of September 30, 2004 and December 31, 2003, notes receivable from affiliates and notes payable to affiliates consist of notes receivable from and notes payable to Comcast and certain cable subsidiaries of Comcast. Our notes receivable and notes payable, whose interest receivable and payable are included in our condensed consolidated balance sheet, have the following characteristics (amounts in millions):
| September 30, 2004 | December 31, 2003 | ||||||
---|---|---|---|---|---|---|---|---|
| Notes Receivable | Notes Payable | Notes Receivable | Notes Payable | ||||
Principal balance | $4,799 | $627 | $3,284 | $58 | ||||
Interest receivable (payable) | $52 | ($21) | $26 | ($3) | ||||
Interest rate range | 5.0% to 7.5% | 5.0% to 7.5% | 5.0% to 7.5% | 5.0% to 7.5% | ||||
Maturity date range | 2009-2014 | 2012-2014 | 2012-2013 | 2012-2013 |
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2004
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information for this item is omitted pursuant to SEC General Instruction H to Form 10-Q, 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 broadband communications networks (our cable segment) and in the management of programming content over cable and satellite television networks (our content segment). During the nine months ended September 30, 2004, we received over 87% of our revenue from our cable segment, primarily through monthly subscriptions to our video and high-speed Internet services, as well as from 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 content segment 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 common stock, borrowings of long-term debt, sales of investments and from existing cash, cash equivalents and short-term investments.
Business Developments
On July 28, 2004, we exchanged approximately 120 million shares of Liberty Media Corporation ("Liberty") Series A common stock that we held, valued at approximately $1.022 billion, with Liberty for 100% of the stock of Liberty's subsidiary, Encore ICCP, Inc. ("Encore"). Encore's assets consisted of cash of $547 million, a 10.4% interest in E! Entertainment Television, Inc. ("E!") and 100% of International Cable Channels Partnership, Ltd. ("International Channel Networks"). We also received all of Liberty's rights, benefits and obligations under the TCI Music contribution agreement, which resulted in the resolution of all litigation pending between Liberty and Comcast regarding the contribution agreement.
Comcast and Time Warner have agreed to work together to explore submitting a joint proposal to acquire cable assets of Adelphia Communications Corporation, the fifth-largest cable television company in the United States.
Refer to Note 3 to our financial statements included in Item 1 for a discussion of this transaction.
Results of Continuing Operations
Revenues
Consolidated revenues for the three and nine month interim periods in 2004 increased $266 million and $682 million, respectively, from the same periods in 2003. Of these increases, $171 million and $530 million relate to our cable segment, which is discussed separately below. The remaining increases are the result of our content segment, which achieved combined revenue growth of 30.6% and 26.0%, respectively, during the three and nine month interim periods in 2004 compared to the same periods in 2003. These increases in our content segment were the result of increases in distribution revenue and advertising revenue, as well as to our acquisition of TechTV. The remaining increases are the result of our corporate and other segment, which includes the operating results of Comcast-Spectacor.
Operating, selling, general and administrative expenses
Consolidated operating, selling, general and administrative expenses for the three and nine month interim periods in 2004 increased $219 million and $449 million, respectively, from the same periods in 2003. Of these increases, $136 million and $323 million, respectively, relate to our cable segment, which is discussed separately below. The remaining increases are the result of growth in our content segment, principally due to
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2004
our acquisition of TechTV. The remaining increases are the result of our corporate and other segment, which includes the operating results of Comcast-Spectacor.
Depreciation
Depreciation expense for the three and nine month interim periods in 2004 is consistent with the amounts reported for the same periods in 2003.
Amortization
Amortization expense increased $6 million and $10 million, respectively, for the three and nine month interim periods in 2004 compared to the same periods in 2003. These increases are primarily attributable to amortization associated with intangibles acquired in the TechTV and Liberty exchange transactions.
Cable Segment Operating Results
The following table presents our cable segment operating results (dollars in millions):
| Three Months Ended September 30, | Increase/(Decrease) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | $ | % | |||||||||
Video | $ | 1,316 | $ | 1,249 | $ | 67 | 5.4 | % | |||||
High-speed Internet | 325 | 244 | 81 | 33.2 | |||||||||
Advertising sales | 121 | 102 | 19 | 18.6 | |||||||||
Other | 70 | 71 | (1 | ) | (1.4 | ) | |||||||
Franchise fees | 57 | 52 | 5 | 9.6 | |||||||||
Revenues | 1,889 | 1,718 | 171 | 10.0 | |||||||||
Operating, selling, general and administrative expenses | 1,112 | 976 | 136 | 13.9 | |||||||||
Operating income before depreciation and amortization(a) | $ | 777 | $ | 742 | $ | 35 | 4.7 | % | |||||
| Nine Months Ended September 30, | Increase | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | $ | % | |||||||||
Video | $ | 3,945 | $ | 3,735 | $ | 210 | 5.6 | % | |||||
High-speed Internet | 925 | 677 | 248 | 36.6 | |||||||||
Advertising sales | 355 | 304 | 51 | 16.8 | |||||||||
Other | 212 | 206 | 6 | 2.9 | |||||||||
Franchise fees | 172 | 157 | 15 | 9.6 | |||||||||
Revenues | 5,609 | 5,079 | 530 | 10.4 | |||||||||
Operating, selling, general and administrative expenses | 3,247 | 2,924 | 323 | 11.0 | |||||||||
Operating income before depreciation and amortization(a) | $ | 2,362 | $ | 2,155 | $ | 207 | 9.6 | % | |||||
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2004
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 this measureoperating 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.
Revenues
Video revenue consists of our basic, expanded basic, premium, pay-per-view, equipment and digital cable services. The increases in video revenue for the interim periods from 20022003 to 20032004 are primarily due to the effects of increases in monthly average monthly revenue per basic subscriber as a result of rate increases in our traditional analog video service and growth in digital subscribers.subscribers, reflecting increased consumer demand for new digital features. From September 30, 20022003 to September 30, 2003,2004, we added approximately 437,000428,000 digital subscribers, or a 20.7%16.8% increase in digital subscribers. During the three and
nine months ended September 30, 2003, we added approximately 133,000 and 304,000
digital subscribers respectively.We expect continued growth in our video services revenue.
The increases in high-speed Internet revenue for the interim periods from 20022003 to 20032004 are primarily due to the addition of approximately 733,000595,000 high-speed Internet subscribers from September 30, 20022003 to
21
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003 September 30, 2003,2004, or a 54.8%28.7% increase in high-speed Internet subscribers. During the three and nine months ended September 30, 2003, we added
approximately 190,000 and 546,000We expect continued high-speed Internet subscribers, respectively.revenue growth as overall demand for our services continues to increase.
The increases in advertising sales revenue for the interim periods from 20022003 to 20032004 are primarily due to the effects of growth in regional/national advertising as a result of the continuing success of our regional interconnects, and growth in a softstronger local advertising market.market and an increase in political advertising.
Other revenue includes phone revenues, installation revenues, guide revenues, commissions from electronic retailing, revenues ofrevenue from our regional sports
programming networks, andcommercial data revenue, revenue from other product offerings.
The increases inofferings and phone revenues.
Expenses
Total operating, selling, general and administrative expenseexpenses increased for the interim periods from 20022003 to 2003 are2004 primarily due to the effects of
increases in the costs of cable programming, high-speed Internet subscriber
growth, and, to a lesser extent, increases in labor costs and other volume
related expenses.
Our cost of programming increases as a result of changeshigher operating and marketing expenses associated with the growth in rates,
subscriber growth, additional channel offeringsour high-speed Internet and our acquisitions. We
anticipate the cost ofdigital cable programming will increaseservices, and increases in the future as cable
programming rates increase and additional sources of cable programming become
available.
charges from cost-sharing arrangements.
Consolidated Analysis
Income (Expense) Items
Interest Expense
The decreases in interest expense for the interim periods from 20022003 to 20032004 are primarily attributabledue to the effects of our lowerdecreased amount of debt outstanding
debt as a result of our net debt repayments.
We anticipate that,reduction during 2003 and 2004.
Interest Income (Expense) on Affiliate Notes, Net
The changes in interest income (expense) on affiliate notes, net for the foreseeable future, interest expense will be
significant. We believe we will continueinterim periods from 2003 to be able2004 are principally due to meetan increase in our obligations
through our ability both to generate cash flownotes receivable from operationsaffiliates during 2003 and to obtain
external financing.
_______________________
2004.
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2004
Investment Loss,Income (Loss), Net
Investment loss,income (loss), net for the interim periods includes the following (in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | 2004 | 2003 | |||||||||
Interest, dividend and other investment income (expense) | $ | (4 | ) | $ | 5 | $ | (12 | ) | $ | 13 | |||
Gains on sales and exchanges of investments, net | 35 | 34 | 23 | ||||||||||
Investment impairment losses | (7 | ) | (10 | ) | (69 | ) | |||||||
Mark to market adjustments on trading securities | (59 | ) | (166 | ) | (113 | ) | (98 | ) | |||||
Mark to market adjustments on derivatives related to trading securities | 139 | (1 | ) | 297 | (66 | ) | |||||||
Mark to market adjustments on derivatives and hedged items | (8 | ) | (4 | ) | (6 | ) | (1 | ) | |||||
Investment income (loss), net | $ | 96 | ($166 | ) | $ | 190 | ($198 | ) | |||||
We have entered into derivative financial instruments whichthat we account for at fair value and which limit our exposure to and benefits fromeconomically hedge the market price fluctuations in the common stock of certain of our investments accounted for as trading securities. Investment loss,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 of the Liberty Series A common shares, was substantially offset by the changes in the fair valuesvalue of the related derivatives. Thederivatives, except for the mark to market adjustments on our investment in Sprint and on 6 million shares of Liberty Series A commonInternational for the three and nine months ended September 30, 2004, on 116 million shares we receivedof Liberty for the three and nine months ended September 30, 2004, until they were exchanged with Liberty on July 28, 2004, and on 218 million shares of Liberty for the three and nine months ended September 30, 2003. See Note 3 to our consolidated financial statements included in Item 1 for further discussion about the Liberty exchange.
During the three and nine months ended September 30, 2004, investment income (loss), net includes $83 and $139 million, respectively, of investment income related to the decrease in the salefair value of QVC have been classifiedthe derivative component of the ZONES debt. A portion of the fair value adjustment in the nine month interim period results from the change in the common stock underlying the ZONES debt from the non-dividend paying Sprint PCS tracking stock to the dividend paying Sprint FON common stock as a result of the elimination by Sprint of its tracking stock in April 2004. In the future, we expect that changes in the fair value of the derivative component of the ZONES debt will be partially offset by changes in the fair value of the Sprint FON common stock we hold and account for as a trading security.
We were exposed to changes in the fair value of 218 million shares and 116 million shares of Liberty common stock during the 2003 and 2004 interim periods (through July 28, 2004), respectively. We will continue to be exposed to changes in the fair value of 6 million shares of Liberty International common stock we hold and account for as trading securities; however, currently there is nosecurities because we have not entered into a corresponding derivative to hedge this market exposure. As such,
Investment income (loss), net for the declinethree and nine months ended September 30, 2004, includes losses of $80 million and $198 million, respectively, related to these financial instruments compared to losses of $165 million during each of the same periods in value in these shares during
the quarter is included in investment
22
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
loss, net. Accordingly,2004
Other Income
On September 30, 2004, we sold our future results of operations may be affected by
fluctuations20% interest in the fair value of the Liberty Series A common stockDHC Ventures, LLC to Discovery Communications, Inc. for approximately $149 million in future
periods.
Equity in Net Losses of Affiliates
The increase in equity in net losses of affiliates for the three month
interim period from 2002 to 2003 is primarily attributable to the effects of our
additional investmentscash and to changes in the net income or loss of our equity
method investees. The decrease in equity in net losses of affiliates for the
nine month interim period from 2002 to 2003 is primarily attributable to
decreases in the net losses of certain of our international equity method
investees, offset, in part, by the effects of our additional investments and to
changes in the net income or loss of our equity method investees.
Other Income (Expense)
The change in other income (expense) for the nine month interim period from
2002 to 2003 is attributable to the lossrecognized a gain on the sale of one of our equity method
investees in the first quarter of 2002.
approximately $94 million to other income.
Income Tax Benefit (Expense)Expense
The changes in income tax benefit (expense)expense for the interim periods from 20022003 to 20032004 are primarily the result of the effects of changes in our income (loss) from continuing operations before taxes and minority interest and the effects of the resolution of
certain tax contingencies.
interest.
Minority Interest
The changes in minority interest for the interim periods from 20022003 to 20032004 are attributable to the effects of changes in the net income or loss of our less than wholly owned consolidated subsidiaries.
Discontinued Operations
The decrease in income from discontinued operations for the three month
interim period from 2002 to 2003 is primarily attributablesubsidiaries and to the 2003 period
including QVC's results through August 31, while the 2002 period includes
results for the full three month interim period. The increaseminority interests in income from
discontinued operations for the nine month interim period from 2002 to 2003 is
primarily attributable to a decrease in investment loss, net, offset in part by
the 2003 period including results through August 31, while the 2002 period
includes results for the full nine month interim period. As a result of the
sale, we recognized a $3.290 billion gain, net of approximately $2.865 billion
of related income taxes.certain subsidiaries acquired or formed during 2004.
We believe that our operations are not materially affected by inflation.
23
COMCAST HOLDINGS CORPORATION
ITEM 3. QUANTITATIVE AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30,QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes to the information required under this Item from what was disclosed in our 2003 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Our chief executive officer and our co-chief financial officers, after evaluating the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this quarterly report, have concluded, 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.
effective.
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 isare reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
- ------- -----------------
Refer to Note 98 to our condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent developments related to our legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)
Exhibits required to be filed by Item 601 of Regulation S-K:
10.1 Amended and Restated Stock Purchase Agreement dated as of June
30, 2003 among Comcast QVC, Inc., Comcast Corporation, Liberty
Media Corporation, and QVC, Inc. (incorporated by reference to
Exhibit 10.1 to Comcast Corporation's Current Report on Form 8-K
filed on October 1, 2003).
COMCAST HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
2004
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
COMCAST HOLDINGS CORPORATION
-------------------------------------
/S/ LAWRENCE J. SALVA
-------------------------------------
Lawrence J. Salva
Senior Vice President and Controller
(Principal Accounting Officer)
COMCAST HOLDINGS CORPORATION | ||
/S/ LAWRENCE J. SALVA Lawrence J. Salva Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) |
Date: November 13, 2003
25
12, 2004