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Comcast 2006 Annual Report

Table of contents

  • Page 1
    Comcast 2006 Annual Report

  • Page 2

  • Page 3
    ... of our customers. Put it all together, and it's a superior experience. And that's simply Comcastic! On the cover: Comcast employees are all smiles these days. Why? Their hard work, dedication and enthusiasm is really paying off. That's why we've decided to feature them in this Annual Report - they...

  • Page 4
    ...one convenient package - and all at a great value. No wonder our phones just keep ringing." Robert Negrete Manager, Call Center Operations Morgan Hill, CA Triple Play has been a phenomenal growth engine for Comcast in 2006. With one call and a single installation, customers get digital cable, high...

  • Page 5
    • • Triple Play is lifting sign-up rates for our three products - they all grew faster than ever in 2006. Triple Play is accelerating revenue and operating cash ï¬,ow growth. 03 03

  • Page 6
    ... viewership has grown exponentially, building customer satisfaction and loyalty with every view. 12.7 million, or 52%, of our video customers take digital services - all of them with access to ON DEMAND. Some 36% also take HD/DVR. ON DEMAND movie purchases increased pay-per-view revenue 27%, to $633...

  • Page 7
    "People want what they want, when they want it. Nothing beats our ON DEMAND service. It gives our customers more than 8,000 viewing options today, most at no additional charge." Denise Higgins VOD Content Supervisor New Castle, DE

  • Page 8
    ... stars of golf on the course, we're delivering great content on television, on demand and online." Suzanne Kolb EVP, Marketing and Communications E! and Style Networks Los Angeles, CA With first-rate content, Comcast appeals to sports fans, kids and even horror ï¬,ick fans. Our networks include:

  • Page 9

  • Page 10
    ...of the unlimited local and nationwide phone service, low international rates and full set of features. Growth continues to accelerate. Five times more Comcast Digital Voice additions in 2006 than in 2005: (subscribers in thousands) • • Comcast Digital Voice is now marketed to 32 million homes...

  • Page 11
    Mohammed Haroon Director, Telephony Operations Twin Cities Region St. Paul, MN

  • Page 12
    ... the speed of our service four times in the last three years, at no extra cost to consumers. • • • In 2006, we introduced PowerBoost, which can burst speeds to 12 or 16 Mbps for large downloads, and we plan to roll out an upstream version in 2007. We launched 65 new features in the last...

  • Page 13

  • Page 14
    ... new career paths to provide better service and a better experience for our customers. "We begin technical training with 'Think Customer First,' emphasizing the skills our people need to make customers comfortable, like avoiding tech jargon, and making things simple." Carl Hansen South Jersey Area...

  • Page 15
    .... • Comcast is a national partner of City Year, which recruits young people to give a year to full-time community service and leadership development. In 2006, the company provided City Year with $1.4 million in grants and in-kind support. • Comcast's Leaders and Achievers® Scholarship Program...

  • Page 16
    Comcastic! is... 14 14

  • Page 17

  • Page 18

  • Page 19
    Dear Comcast Shareholders, Employees and Friends: About 18 months ago, we decided that it was time to launch Comcast's very first nationwide advertising campaign. Surveys showed that customers loved our new products - such as ON DEMAND, highspeed Internet and more. This led us to look for a smart ...

  • Page 20
    .... With one phone call and one installation visit, we become the primary provider of communications and entertainment services to the home - and at an introductory price of $99 a month, our biggest challenge has been to keep up with demand. With the widespread introduction of Triple Play to 70...

  • Page 21
    ... ON DEMAND, primarily movies in high definition. We plan to double that number in 2007 and again in 2008, and continue to expand our linear HDTV channels, so that we remain the HDTV market leader with the most sports and movies in high definition. With our high-speed Internet service, we...

  • Page 22
    ... access point for customers to manage all their communications, or to plan and schedule their TV experience no matter where they are. Our product teams and Comcast Interactive Media are focused on developing integrated services that offer entertainment and communications to consumers across multiple...

  • Page 23
    ... that our company could be serving as many high-speed Internet and digital voice customers as we have video customers today. In 2007, we will focus even more intently on growing RGUs to capture market share and extend our leadership in the market. The first quarter of 2007 marks a bittersweet...

  • Page 24
    ... 300 projects in 34 states in a single day. This extraordinary effort represents one of the largest single corporate days of service in America. 2006 represents a turning point in our history, as we have once again positioned ourselves for growth and success. As you read this year's report in print...

  • Page 25
    ... sales, and non-recurring payments related to income tax and litigation contingencies of acquired companies). Reconciliation of this item appears on page 76. (e) In July 2006, in connection with the transactions with Adelphia and Time Warner, we transferred our previously owned cable systems located...

  • Page 26
    ... Results Cable Segment Overview Cable Segment Revenues Cable Segment Expenses Programming Segment Overview Consolidated Other Income (Expense) Items Income Tax Expense Discontinued Operations Liquidity and Capital Resources Interest Rate Risk Management Equity Price Risk Management Contractual...

  • Page 27
    ... reflect the Stock Split) of our Class A Special common stock pursuant to our Board-authorized share repurchase program for approximately $2.3 billion Refer to Note 5 to our consolidated financial statements for information about acquisitions and other significant events. Comcast 2006 Annual Report

  • Page 28
    ... Detroit 800 San Francisco 1,500 Sacramento 500 Fresno Salt Lake City Albuquerque Memphis Pittsburgh 700 Indianapolis 300 Roanoke Nashville Knoxville Atlanta 800 Chattanooga Jacksonville Houston* 700 Tampa 200 Ft. Myers Orlando 100 West Palm Beach Miami 700 *As of January 1, 2007 The...

  • Page 29
    ... requires the cost of all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values at grant date, or the date of later modification, over the requisite service period. In addition, SFAS No. 123R requires...

  • Page 30
    ... at any time, and pausing, rewinding and fast-forwarding selections); music channels; and an interactive, on-screen program guide (which allows navigating the channel lineup and ON DEMAND library). Digital cable subscribers may also subscribe to additional digital cable services, including DVR...

  • Page 31
    ... Digital Voice, our IP-enabled phone service that provides unlimited local and domestic long-distance calling and includes such features as Voice Mail, Caller ID and Call Waiting. Comcast Digital Voice was available to 32 million homes as of December 31, 2006. We expect that by the end of 2007...

  • Page 32
    .... These networks earn revenue through the sale of advertising time and receive programming license fees paid by cable and satellite distributors. Franchise Fees. Our franchise fee revenues represent the passthrough to our subscribers of the fees required to be paid to state and local franchising...

  • Page 33
    ... growth in the number of subscrib- ers to our cable services, which required additional employees to handle customer service, marketing and other administrative costs. The increase in 2005 was primarily a result of the launch of Comcast Digital Voice, the deployment of digital simulcasting and the...

  • Page 34
    ...fair value and which economically hedge the market price fluctuations in the common stock of substantially all of our investments accounted for as trading securities. The differences between the unrealized gains (losses) on trading securities and the mark to market adjustments on derivatives related...

  • Page 35
    ... 113 million shares of our Class A Special common stock at a weighted-average share price of $20.76 for $2.347 billion (recognized on a settlement date or cash basis and adjusted to reflect the Stock Split). We have made, and may from time to time in the future make, optional repayments on...

  • Page 36
    ... amount to be paid or received upon termination, if any, would be based upon the fair value of those outstanding contracts at that time. MD&A Comcast 2006 Annual Report 34 Equity Price Risk Management We are exposed to the market risk of changes in the equity prices of our investments in marketable...

  • Page 37
    ... related to terminated employees, costs relating to exiting contractual obligations, and other assumed contractual obligations of the acquired entity. (d) Other long-term obligations consist primarily of our prepaid forward sales transactions of equity securities we hold, subsidiary preferred shares...

  • Page 38
    benefits we receive from the right to solicit new subscribers and to market new services such as additional digital cable services, highspeed Internet and phone services in a particular service area. The amounts we record for cable franchise rights are primarily the result of cable system ...

  • Page 39
    ... purposes in accordance with accounting principles generally accepted in the United States. Our internal control over financial reporting includes those policies and procedures that: • Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions...

  • Page 40
    ...management's assessment, and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan...

  • Page 41
    ... B common stock, $0.01 par value - authorized, 75,000,000 shares; issued and outstanding, 9,444,375 Additional capital Retained earnings Treasury stock, 365,460,750 Class A common shares and 70,934,764 Class A Special common shares Accumulated other comprehensive income (loss) Total stockholders...

  • Page 42
    ...share data) 2006 2005 2004 Revenues Costs and Expenses Operating (excluding depreciation) Selling, general...income Diluted earnings for common stockholders per common share Income from continuing ... $ $ 970 0.28 0.01 - 0.29 0.28 0.01 - 0.29 $ $ $ $ $ $ $ $ $ Comcast 2006 Annual Report 40

  • Page 43
    ...Deferred income taxes Proceeds from sales of trading securities Changes in operating assets and liabilities, net of effects of acquisitions and divestitures: Change in accounts receivable, net Change in accounts payable and accrued expenses related to trade creditors Change in other operating assets...

  • Page 44
    ... taxes Cumulative translation adjustments Total comprehensive income Stock compensation plans Repurchase and retirement of common stock Employee stock purchase plan Balance, December 31, 2004 Comprehensive income: Net income Unrealized gains on marketable securities, net of deferred taxes of $11...

  • Page 45
    ... 76ers and two large multipurpose arenas in Philadelphia, and manages other facilities for sporting events, concerts and other special events, and our corporate activities. We also own equity method investments in other programming networks. Stock Split On January 31, 2007, our Board of Directors...

  • Page 46
    ... recognize the fair value of the identified benefit as an operating expense in the period in which it is received. We capitalize direct development costs associated with internal-use software, including external direct costs of material and services, and payroll costs for employees devoting time to...

  • Page 47
    ...subscriber fees received for our video, high-speed Internet and phone services ("cable services") and from advertising. We recognize revenues from cable services as the service is provided. We manage credit risk by screening applicants through the use of credit bureau data. If a subscriber's account...

  • Page 48
    ... is derived from the market value of certain publicly traded common stock. We have also sold call options on some of our investments in equity securities. We use equity hedges to manage exposure to changes in equity prices associated with stock appreciation rights of acquired companies. These equity...

  • Page 49
    ... of the end of the company's fiscal year. Additionally, SFAS No. 158 requires companies to recognize changes in the funded status of a defined benefit postretirement plan in the year that the changes occur and to report these in other comprehensive income (loss). The application of SFAS No. 158 did...

  • Page 50
    ... effect. Diluted EPS excludes the impact of potential common shares related to our stock options in periods in which the option exercise price is greater than the average market price of our Class A common stock and our Class A Special common stock during the period (see Note 10). Diluted EPS...

  • Page 51
    ...), net. The cable systems that TWC transferred to us in the Exchanges included cable systems that TWC acquired from Adelphia in its asset purchase from Adelphia and TWC's Philadelphia cable system. Purchase Price Allocation The cable systems acquired in the Adelphia and Time Warner transactions were...

  • Page 52
    ... represents the purchase price allocation to assets acquired and liabilities assumed, exclusive of the cable systems held by Century and Parnassos and transferred to TWC, as a result of the Adelphia and Time Warner transactions: (in millions) 2006 Property and equipment Franchise-related customer...

  • Page 53
    ... cable companies. The other venture will provide us greater participation in the design and development of conditional access technology for our cable systems. In addition to funding approximately 50% of the annual cost requirements, we have paid $20 million to Motorola and have committed to pay...

  • Page 54
    ... cost, fair value and unrealized gains and losses related to our AFS securities are as follows: Year Ended December 31 (in millions) 2006 2005 Embarq Corporation In May 2006, we received approximately 1.3 million shares of Embarq Corporation ("Embarq") common stock in connection with the spin-off...

  • Page 55
    ... 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. Cost Method AirTouch Communications, Inc. We hold two series of preferred stock of AirTouch...

  • Page 56
    ... Amount 2005 Accumulated Amortization December 31 (in millions) Useful Life Franchise-related customer relationships Cable and satellite television distribution rights Cable franchise renewal costs and contractual operating rights Computer software Patents and other technology rights Programming...

  • Page 57
    ... Statements Guarantee Structures Comcast Corporation (our parent corporation) and a number of our wholly owned subsidiaries that hold substantially all of our cable assets have unconditionally guaranteed each other's debt securities and indebtedness for borrowed money, including amounts outstanding...

  • Page 58
    ... at the holder's option for an amount of cash equal to 95% of the aggregate market value of one share of Sprint Nextel common stock and 0.05 shares of Embarq common stock. We separate the accounting for the ZONES into derivative and debt components. We record the change in the fair value of the...

  • Page 59
    ... Benefits Postretirement Benefits Pension Benefits 2005 Postretirement Benefits Benefit obligation Fair value of plan assets Plan funded status and recorded benefit obligation Portion of benefit obligation not yet recognized as a component of net periodic benefit cost Discount rate Expected return...

  • Page 60
    special or related rights as our Board of Directors shall from time to time fix by resolution. Common Stock Our Class A Special common stock is generally nonvoting. Holders of our Class A common stock in the aggregate hold 66 2 ⁄ 3 % of the aggregate voting power of our common stock. The number of...

  • Page 61
    ... primarily to employees of a previously acquired company. The former option holders received $37 million for their options under the program. A financial counterparty we engaged in connection with the stock option liquidity program funded the cost of the program through the simultaneous purchase by...

  • Page 62
    ... requires the cost of all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values at grant date, or the date of later modification, over the requisite service period. In addition, SFAS No. 123R requires...

  • Page 63
    ...our Board of Directors approved the acceleration of vesting of all unvested options granted prior to January 1, 2003, to purchase shares of our Class A Special common stock having an exercise price of $22.67 (adjusted to reflect the Stock Split) or greater and held by current employees. Options with...

  • Page 64
    ... the IRS's position is sustained, the income tax benefits previously recognized would be disallowed, and interest would be assessed on amounts disallowed. Accordingly, the amounts recorded as deferred taxes would become payable. We do not agree with the IRS's position and have appealed. The ultimate...

  • Page 65
    ...and cash equivalents. The financial statements reflect this revised presentation in prior periods. Accordingly, the reported amounts of our cash and cash equivalents and accounts payable and accrued expenses related to trade creditors increased as of December 31, 2005, 2004 and 2003, by $254 million...

  • Page 66
    ... anniversary of the closing date or the occurrence of certain other defined events, G4 would be required to purchase the minority owner's 15% interest at fair market value (as determined by an appraisal process). The minority owners in certain of our technology development ventures also have rights...

  • Page 67
    ... not be material to our consolidated financial position. AT&T - TCI Cases In June 1998, class action lawsuits were filed by then-shareholders of Tele-Communications, Inc. ("TCI") Series A TCI Group Common Stock ("Common A") against AT&T and the directors of TCI relating to the acquisition of TCI by...

  • Page 68
    ...The Golf Channel, VERSUS, G4 and AZN Television. (d) Corporate and Other includes Comcast Spectacor, a portion of operating results of our less than wholly owned technology development ventures (see "(e)" below), corporate activities and all other businesses not presented in our Cable or Programming...

  • Page 69
    ... Net income Diluted earnings for common stockholders per common share(c) Income from continuing operations Income from discontinued operations Net income (b) Includes refinement to our effective tax rate in the fourth quarter of 2005. (c) Adjusted to reflect the Stock Split $ 5,595 1,004 438 28...

  • Page 70
    ... Financial Information Comcast Corporation and five of our cable holding company subsidiaries, Comcast Cable Communications, LLC ("CCCL"), Comcast Cable Communications Holdings, Inc. ("CCCH"), Comcast MO Group, Inc. ("Comcast MO Group"), Comcast Cable Holdings, LLC ("CCH"), and Comcast MO...

  • Page 71
    ... Adjustments Corporation (in millions) Comcast Parent CCCL Parent CCCH Parent Comcast Holdings Assets Cash and cash equivalents Investments Accounts receivable, net Other current assets Current assets of discontinued operations Total current assets Investments Investments in and amounts due...

  • Page 72
    ...Comcast Subsidiaries Adjustments Corporation (in millions) Comcast Parent CCCL Parent CCCH Parent Comcast Holdings Revenues Service revenues Management fee...$ 2,533 Costs and Expenses Operating (excluding depreciation) Selling, general and administrative ...Comcast 2006 Annual Report 70

  • Page 73
    ...Comcast Subsidiaries Adjustments Corporation (in millions) Comcast Parent CCCL Parent CCCH Parent Comcast Holdings Revenues Service revenues Management fee...Costs and Expenses Operating (excluding depreciation) Selling, general...Comcast 2006 Annual Report Notes to Consolidated Financial Statements

  • Page 74
    ...Comcast Subsidiaries Adjustments Corporation (in millions) Comcast Parent CCCL Parent CCCH Parent Comcast Holdings Revenues Service revenues Management fee...42 $ 970 Costs and Expenses Operating (excluding depreciation) Selling, general and administrative ...Comcast 2006 Annual Report 72

  • Page 75
    ... Corporation (in millions) Comcast Parent CCCL Parent CCCH Parent Comcast Holdings Operating Activities Net cash provided by (used in) operating activities Financing Activities Proceeds from borrowings Retirements and repayments of debt Repurchases of common stock Issuances of common stock...

  • Page 76
    ... Corporation (in millions) Comcast Parent CCCL Parent CCCH Parent Comcast Holdings Operating Activities Net cash provided by (used in) operating activities Financing Activities Proceeds from borrowings Retirements and repayments of debt Repurchases of common stock Issuances of common stock...

  • Page 77
    ... Corporation (in millions) Comcast Parent CCCL Parent CCCH Parent Comcast Holdings Operating Activities Net cash provided by (used in) operating activities Financing Activities Proceeds from borrowings Retirements and repayments of debt Repurchases of common stock Issuances of common stock...

  • Page 78
    ...the Texas and Kansas City cable partnership (effective January 1, 2007). Cable segment results are presented as if the transactions noted above were effective on January 1, 2005. (b) To be consistent with our management reporting, the 2005 Cable segment amounts have been adjusted as if stock options...

  • Page 79
    ... symbol CMCSA and our Class A Special common stock is listed on the Nasdaq Global Select Market under the symbol CMCSK. There is no established public trading market for our Class B common stock. Our Class B common stock can be converted, on a share for share basis, into Class A or Class A Special...

  • Page 80
    ... 5 to our consolidated financial statements). (b) In September 2003, we sold our interest in QVC to Liberty Media Corporation. QVC is presented as a discontinued operation for the years ended on and before December 31, 2003. (c) Adjusted to reflect the Stock Split. Comcast 2006 Annual Report 78

  • Page 81
    ...President Human Resources Kenneth Mikalauskas Vice President Finance Marc A. Rockford Vice President and Senior Deputy General Counsel D'Arcy F. Rudnay Vice President Corporate Communications Joseph W. Waz, Jr. Vice President External Affairs and Public Policy Counsel 79 Comcast 2006 Annual Report

  • Page 82
    ... Advertising Sales Ted Harbert President and CEO Comcast Entertainment Group Gavin Harvey President VERSUS David Manougian Chief Executive Officer The Golf Channel Diane L. Robina President Emerging Networks Rod Shanks President AZN Neal Tiles President G4 Sandy Wax President and General Manager...

  • Page 83
    ... Information Corporate Headquarters Comcast Corporation 1500 Market Street Philadelphia, PA 19102-2148 215-665-1700 www.comcast.com Stock Listings Comcast's stock trades on the Nasdaq Global Select Market under the following trading symbols: Class A common stock: CMCSA Class A Special common stock...

  • Page 84
    1500 Market Street Philadelphia, PA 19102-2148 215-665-1700 www.comcast.com CO-AR-07