康卡斯特 (CMCSA) 2003 Q4 法說會逐字稿

Good morning and welcome to the Comcast Corporation conference call.

Today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Executive Vice President Mr. John Alchin.

Please go ahead, sir.

Thank you, operator.

I assume you've all read our multiple press releases this morning.

The combination of our year-end results, the guidance for 2004, and our proposal to the Walt Disney Company gives us a lot to cover on this call.

We're going to cover the results first and then go into a review of the merger proposal that we've made to the Walt Disney Company.

We'll hold all questions until the end and we'll try to restrict our formal comments to approximately an hour.

Additionally, we have slides to accompany both segments of this presentation.

Both sets of slides are available on our Investor Relations Web site, either CMCSA.com or CMCSK.com.

Just before we get underway, let me refer everybody to the Safe Harbor disclaimer and remind you that this conference call may contain forward-looking statements subject to risks and uncertainties.

In addition, in this call, we refer to non-GAAP financial measures.

Please refer to our Investor Relations Web site for reconciliation of non-GAAP financial measures to GAAP.

Comcast had a terrific year by any and every measure.

We met all our financial goals and guidance in 2003, as we show on the Slide Number 4.

We met all guidance numbers and the key accomplishments that we achieved for the year was first and foremost improving operating cash flow by $1.4 billion, and dramatically improving the margins in the acquired systems.

There is no reason ultimately that the AT&T Broadband systems over time cannot operate at a level that is similar to our historic properties.

The second key accomplishment was the reversal of basic subscriber losses, gaining 140 net basics for the year, and 70 of those were in the fourth quarter of last year.

Steve is going to review the success that we've had both operationally and on every front with our new product rollouts.

Additionally, our Content Division also had a record year, and a subsequent slide will break out the individual channel results but top line we far exceeded our guidance.

Moving on to the next slide, we highlight the pro forma results.

For the year consolidated results were absolutely outstanding, driven by results for the Cable Division in 2003 where revenue grew 9.1% to $17.5 billion, and pro forma operating cash flow grew 29% to $1.4 billion, sorry, by $1.4 billion to $6.35 billion.

On the next side, we highlight the individual components of revenue growth for our Cable Division.

The revenue of our Cable Division was driven primarily by good solid growth in the core video business, and outstanding growth as a result of the deployment of our high-speed Internet service.

Revenue increased over 51% to reach $2.25 billion, and this reflects an over 45% increase in the customer base while at the same time holding revenue per subscriber for the year very stable at around $42.44.

As we look forward to 2004, we expect continued solid growth in the video category, over 30% growth in high-speed data revenue, and approximately a 10% decline in phone revenue as the reduction in phone subscribers in 2003 impacts the results for 2004.

If you move to the next slide, for the first time we're providing new disclosure here on our programming expenses.

We plan to do this once a year going forward.

Our programming expenses increased approximately 2.3% in 2003, to $3.9 billion.

This is a result of two factors primarily: Resetting the existing contracts and renegotiating primarily the premium category contracts, namely for HBO, Showtime and Starz.

In 2004 we expect to report high single digit growth on an apples to apples basis with approximately another one or two percentage points of growth as a result of channel adds as we complete the rebuild of the acquired systems.

Going forward over time, though, beyond 2004 we expect increases in programming expenses to trend down as renegotiated contracts take effect, and we continue to see the benefits of the scale and scope that we got with the AT&T Broadband acquisition.

Moving on now to our Content Division, we're providing revenue and operating cash flow detail on our national networks for the first time.

We will provide this level of disclosure on an annual basis going forward.

E! had a terrific year.

They report continued growth and as a result of a number of the new shows, Golf Channel also had a great year.

They had successes that were similar to E!

Style, Outdoor Life and G4, and especially with their Big Break series.

For next year, we expect continued growth with guidance of approximately 20% in revenues, and 30% in operating cash flow.

A brief comment on our terrific success with the balance sheet.

As you see on the consolidated debt profile that we present on Slide Number 9, we reduced the debt by approximately $7.1 billion in 2003, primarily as a result of restructuring time Warner Entertainment and the sale of QVC.

Our leverage ratio reduced from approximately six times at the beginning of the year, net of the QVC business, to approximately 3.3 times with about $21.1 billion of net debt excluding exchangables and cash at year-end.

These numbers do not take into account the non-strategic assets that we highlight on Page 10.

Capital expenditures summarized on Slide Number 11, you can see a dramatic reduction in Cap Ex year-over-year from approximately $5.25 billion in 2002, to our projected $3.4 billion in 2004.

As we've segmented on this slide, this is principally driven by the reduction in upgrade capital, which should reduce to about $800 million in 2004.

So finally, in Slide Number 12, we've got a great outlook for 2004.

The strong performance in 2003 gives us tremendous confidence in the prospects for 2004.

Our '04 guidance is detailed on Slide Number 12, culminating in the expectation that we'll generate about $2 billion of free cash flow net of Cap Ex, interest and taxes, resulting in free cash flow of about $2 billion.

Now, I'll ask Steve to review the key operational achievements for '03 and outline why we're so confident and excited about '04.

Thank you, John.

Now that 2003 is officially over, I think it's fair to look back and say it was a wonderful year.

If you turn to Slide 14 in the presentation, you'll see the six priorities that we laid out 18 months ago to measure our success with the new AT&T Broadband systems.

And I think the results speak for themselves although even we were surprised by how well the year went.

You can see each of the performance metrics for the AT&T Broadband systems and how those individual metrics fared in 2002 versus 2003.

And I'll go right down the page.

If you look at basic subscribers, I think the most surprising thing to us was how quickly we were able to arrest the basic subscriber declines.

We actually gained subscribers straight through the year.

And if you look at the difference between 2002 and 2003 in the AT&T Broadband systems, the swing is about 600,000 subscribers.

And obviously this is the foundation of our business and the most important thing that we needed to fix.

We're very pleased with these results.

Moving on to cash flow, what you'll see is that the operating cash flow margins for the ex-AT&T systems have gone from under 20% to about 35% today.

We have always said that we wanted to get the AT&T systems up to industry standard margins, we had given ourselves three years to get there, after a year, we're almost there.

And we're very confident that during 2004 we will get there and have the entire company at a 40% margin level by the fourth quarter of '04.

It was vitally important for us also to accelerate the rebuilds in the AT&T systems, the physical plant was just not ready to compete with the kind of competition that we're seeing from satellite and the Bell operating companies, et cetera.

So during the year we set a target to upgrade 46,000 miles of plant, we ended up upgrading significantly more than that, well over 50,000 miles of plant.

What you'll see is if you just look at the AT&T footprint, the ex-AT&T footprint, 13.5 million subscribers, it is now 93% rebuilt.

So the company is really, across the company, in fighting shape and we'll clean up the remaining rebuild activity in 2004 so we will be completed with the rebuild process by the end of this year.

If you then move on to high-speed data, we think we had a wonderful year in the high-speed data business.

We accelerated the pace of the rollout from 1.2 million to around 1.7 million customers, despite the fact that about halfway through the year, as you all know, the regional Bell companies dropped their price for DSL.

We were able to accomplish this growth while maintaining ARPU over $40 per subscriber.

And I think one of the biggest changes in the way we look at this business versus the way we looked at it a year ago, is we look at it as a combination of units and ARPU.

For the fourth quarter we added 422,000 subscribers which is up from a year ago, slightly lower than we thought it might have been during the fourth quarter, particularly in December, we were a little bit weaker at retail.

We think retailers were distracted with number portability and other things.

But basically in January and the visibility we can see in February, we are continuing to have very good results in our high-speed data business.

ARPU is still strong, and as you look into 2004, we think we're going to have another solid year with 1.5 to 1.6 million subscribers added, ARPU over 40% and growing what has become a very large business at over 30% a year in terms of revenues.

If you then a look at the other new product areas, digital, pay and phone, we've discussed this on previous calls at great length but we felt we had to improve the profitability and reduce the discounting and improve the efficiency of the digital and pay and phone businesses, and we feel like we've made great strides during 2003.

Those businesses are in much better shape than they were a year ago.

And finally, customer service has also made great improvements during the year and we set ourselves a target of opening call centers and reformatting existing call centers so that we could get 100% of the video calls in house by the end of the year, we met that goal.

If you move to the next page, Page 15 at what we're setting for ourselves in 2004, we feel the integration process is over and it's now time to optimize the company, get the remaining benefits of putting the two companies together achieved.

The most obvious one, and sort of notable one, is to get the company to a combined 40% operating cash flow margin which we believe we will do by the end of '04, we're right on track to do that.

Our goal is to continue to gain basic subscribers.

We see no reason why we can't gain basic subscribers in 2004.

And while we're doing that, continue to be very aggressive pushing new products, whether it's Video-On-Demand, high definition television, DBRs, our feeling is we're in a competitive race, we need to get new products out as quickly as possible for both offensive and defensive reasons, and we'll be doing that both on the video footprint where the vast majority of our systems will have all of these products by the end of the year as well as our high-speed data footprint where you will see continued enhancements.

We've increased our speed to three meg down in virtually all of our markets.

Our portal is getting better and we have a number of things that we're working on to further differentiate our high-speed Internet business in 2004.

Finally, I think we've made good progress in 2004 getting ready to more broadly launch Voice Over IP.

We're launching four markets, these are more than tests, these are rolling launches in 2004.

And as importantly, we are readying half of our footprint in 2004 and the other half in 2005 for eventual rollout of Voice Over IP.

So we're in good shape and have positioned ourselves well for 2005 on the telephone side.

I want to mention our ad sales business, we renamed our ad sales business recently Comcast Spotlight.

I continue to believe this remains a wonderful opportunity for us and is going to be a great growth driver over the next five years.

Our ad sales business is showing real signs of picking up after about a 7% increase in 2004.

We think the increase in 2004 is going to be substantially higher than that, and we're off to a good start.

So in general, if you look at 2003, not only did we meet all of our objectives but I think the company entered 2004 in much stronger shape.

I think we're a much stronger competitor, we're now a single company, everybody in the company, I think, is very clear about what our goals are, what our strategy is.

Our margins are now solid and in line with where the cable industry is, although we think there's room to improve them.

Our plant is virtually rebuilt and will be fully rebuilt sometime in the next six to nine months and we've rolled out new products aggressively.

We feel great about 2003, but as importantly, we feel 2003 sets us up to do even better things in 2004 and beyond.

Brian?

Thank you, Steve.

Thank you, John.

I'm just going to quickly wrap up the year-end and talk about the big announcement today, and begin now after this slide to get to a second presentation.

But it would be remiss, and I think it sets up for the next conversation to talk about how pleased I am and thrilled with the performance of the company for the year.

Our goal for '04 is to now take the momentum and get to a combined by the fourth quarter, year-end, a 40% cash flow margin for the company, to continue to gain basic customers, as Steve said, and to now really begin to roll out Video-On-Demand to continue to launch DBRs and we've seen a surge in high definition television all around the Super Bowl and other events.

High-speed Internet continues to be the growth engine, and we see terrific results.

We obviously are thrilled to be at 5.3 million customers with the guidance that John gave you, you can see we're going to have, again, we anticipate a very strong year.

And we're preparing the company for telephony really in '05 by doing four Voice Over IP trials and launches and tests this year.

So I think that other critical point was that we were able to pay off so much debt.

A terrific job by the treasury department.

And the deal department in monetizing non-strategic assets.

We have a lot more there.

We've begun dialog with Time Warner to begin to register the securities from the Time Warner partnership and sell that position here, and so ultimately, our balance sheet is going to continue to get even more strong and the company will get stronger which is what leads us now into the second presentation and on our news today with Disney.

And let me just say that this is a very exciting moment for everyone and myself with today's announcement that we would like to find a way to put our company together with the Walt Disney Company.

A combination of Comcast and Disney would create one of the world's premier entertainment and communications companies, and we believe restore the Disney brand to prominence and the Disney Company to growth through the power of distribution and content.

This is an incredibly compelling combination.

There's simply no doubt that these two companies can achieve things together that neither is able to do on their own.

The new company would have a presence in all of the nation's top 25 markets, truly making us a national company, and I believe propel broadband forward, expanding current services and expiring new ones.

So let's now move to the transaction slides and you click on the link and we continue with Slide 18.

The highlights of the proposed transaction would be a merger between Comcast and Disney.

We've offered all of the Disney shareholders common stock, Class A common stock so that the upside of this great company would be shared both by the Disney shareholders and the Comcast shareholders.

We've offered .78 Class A voting shares for each Disney share.

That represents fully 42% of the combined company tax-free to both sets of shareholders and we would welcome several members from the Disney board to join the Comcast board.

If you look on the next slide, at Comcast today, we have close to 40 million homes passed and 21.5 million cable customers, an additional 5.3 million broadband subscribers and 1.3 million telephone subscribers.

We have some cable channels, but as you know, we're really not a large content company.

We really are, I think, the premier distribution company in the broadband space.

If you flip the chart and look at the Walt Disney Company, they have an incredible array of content starting with Disney, ESPN, Miramax, Family Channel, ABC, all the brands that you can see here.

And if you really look at it, the theme parks and consumer products parts of the company, but the principal way I think to look at the company is imagine turning to the next page and putting these two together into a new company.

That company would have an unmatched technology platform, as Steve just described, pretty as well state-of-the-art with fiber optics to every neighborhood, and we would have the four most important areas of content, in my opinion, are kids, sports, news, and films.

And their company together with our company, it would have a major presence and a potential for a real leadership role in every area that has over the years proven what cable television is all about and what consumers in this country want.

And you'd have, obviously, a strengthened balance sheet, terrific cash flow, or EBITDA, and we would be the leader in sports and kids and with new technologies, such as Video-On-Demand with streaming media, with interactive television, with where we believe the technology is going for consumers.

The opportunity to accelerate what consumers can get by accessing the content they want when they want it, is going to clearly happen quicker and in a consumer-friendly way if you put the companies together.

It's very difficult when you're two separate organizations to be able to figure out how to accelerate these new technologies publicly.

Disney has said they're trying to figure out how to use new technologies, Comcast has said we think we have some of these new technologies, we'll obviously have others that come along in the years ahead and you put all that creative power together in a room and try to figure out how to give customers, and, therefore, shareholder value for both sets of shareholders, it's a company that is just spectacular if we could find a way to make it happen.

We're doubly fortunate in, okay, how would we manage it and are you able to think that through?

Well, Steve Burke, who is President of Comcast Cable worked at the Walt Disney Company for 12 years, has worked in three of the four areas of the company in leadership positions, has done an incredible job, as you just heard with the AT&T integration which is now behind us, and has set the company up for future growth as if we, unlike any other capable transaction we've ever done, and I think has been well-respected in putting that integration together, we believe we have the same opportunity with this company.

And with that, let me kick it over to Steve to talk specifically about some of the areas that we think can be improved by putting these two companies together.

Thank you, Brian.

If you click to the first slide in my section, Compelling Value Creation for all Shareholders, let me start by saying it's clear to us that the two companies are significantly stronger together than they are apart.

When you break it down, there are really two areas of value creation that we can identify.

The first is restoring Disney's operating results toward where they were a number of years ago.

In other words, taking the existing Disney businesses and getting them back to where they were or toward where they were before.

And secondly, the second area of value creation is realizing the opportunities you get from putting these two great companies together.

So this chart is a summary of some of the value we think we could create through this combination.

I'll go through in greater detail each of the elements in subsequent slides but want to point out a couple of things.

First, there are things we've quantified and when you add up that quantification, you get value creation of $800 million to $1.2 billion a year.

But there are also, secondly, things that we have not attempted to quantify.

And some of the most significant opportunities here creating brand new businesses, doing different things in different parts of the company that have been done before, are not even in this analysis.

So what I'm going to now go through primarily in terms of the numbers are the things that we have decided to quantify.

So now in greater detail, if you turn to the next page, this slide shows Disney's actual operating results for 1998 and 2003.

As you can see, Disney's earnings have declined in all four major segments of the company, the decline's about 27% or $1.4 billion in annual EBITDA during this time period.

We think job one is restoring the company to its previous levels of profitability.

We think for a variety of reasons this combination has a better chance of doing that than Disney on a stand-alone basis.

If you look to the next slide, I think the first underperforming area is ABC Broadcasting.

This slide shows rough estimates and I want to underline rough, of the profitability of the four major broadcasters from both their networks and their own television stations.

And as you can see from this slide, ABC lags the other three networks significantly.

You have NBC at $1.4 billion, FOX at around $900 million, CBS at around $800 million and ABC essentially breaking even when you look at networks plus owned stations.

Turning a network around is not easy, but our goal would be to at least breakeven at the network, and with the owned stations making four, five, $600 million, get halfway to where CBS is.

This seems like a reasonable goal over the next few years and so therefore, we put 300 to $500 million into our value creation estimates for this effort.

I think other companies such as GE and Viacom have proven that you can take a very business-like approach to the network business and make money and drive this business in the future.

And what we're trying to do is keep our goal reasonable, breakeven at the network, and we think we can achieve that over the next few years.

If you move to the next slide, the second improvement area that we've identified is cable network performance.

This is a major area for Disney, it's a major area for Comcast, and we would think it would be a key focus of the combined company.

As you can see from this chart, most cable networks have margins around 40%.

This is true for two fully distributed networks that we own, E! and the Golf Channel, it's also true for Viacom Cable Networks and Scripps.

All of these networks have margins in the 40% range.

At the bottom of this chart, you can see Disney's Cable Network cash flow and margins.

We think there are very good reasons why ESPN's margins are 25% and we also believe there's room for improvement in the Disney Cable Network group.

As you can see, the Disney Cable Network group has a 19% margin.

We think the major drag on Disney Cable Networks is the ABC Family Channel.

As most of you know this channel was bought a couple years ago for over $5 billion and we believe today it operates around breakeven.

We think we understand the cable business and we could help address this under-performance.

In addition, we also think we can help some of the Disney cable channels get more distribution, both on our systems and also elsewhere in the cable industry.

In total, we've assumed, if you get halfway to industry margins, plus you get incremental distribution, that there can be an incremental operating cash flow growth of 200 to $300 million a year.

If you then move to the next slide and now we're entering an area which we have not attempted to quantify but we think is vitally important, is that of animation and theme parks.

Ten years ago, Disney was an absolute powerhouse in animation.

It was the undisputed leader in the field, the place where the greatest animators in the world all dreamed of working.

In the last five years, the Disney animation business declined significantly and the biggest hits, as most of you know, have actually come from Pixar.

We think Disney should be number one in animation.

Animated films are the heart and soul of the company.

They are what makes Disney different.

They're also what helps drive success in the consumer products business and at the theme parks.

Our goal would be to again to place Disney animation in the center of the company.

We would empower the Disney animation team to build on its great legacy, we would also look to establish partnerships where appropriate with other animation companies, such as Pixar.

This will take time but we believe restoring Disney animation to its rightful place is critical to Disney's long-term success.

We also think the Disney theme parks can also be revitalized.

While this business does not have the growth prospects of some of the others involved with Disney or Comcast, we think it's a good business and one that can get better.

It's hard to think of another product or service that has a stronger connection with American families than Walt Disney World and Disneyland.

We would work hard to drive more visitors to the parks by advertising and cost promotion throughout the combined company.

We'd also try our best to restore some of the energy and creative spark to Disney's attractions, hotels and concessions.

Obviously restoring Disney animation and the theme parks to glory days will not be simple and it will not happen overnight, but we think it can be done.

We have not quantified the benefits of doing this, however as you can tell, they would be key priorities if we make this transaction a reality.

If you move to Slide 13, we're now talking about the benefits that come by putting the two companies together simply by putting them together.

On this slide you can see we think there would be significant cost savings from eliminating duplicate functions.

We believe Disney's corporate overhead is in the $300 million a year range.

We also think there are some duplicate functions in the cable, Internet and advertising businesses.

Finally, there should be some scale economies that we could realize as we get bigger.

So in total, we think we could save 3 to $400 million per year, different than some of the other slides, we believe these saving would accrue to the company in the first year.

Moving to the next slide, and this is our final and perhaps most important benefit of putting the two companies together, but also another one that we have not quantified or put in our value creation slide, and that is creating new business opportunities.

It's really in many ways the reason why we believe it's so important to put these two great companies together.

With the content Disney has in our distribution, we think new cable channels are a natural.

New channels can be worth billions of dollars and given the assets of the combined companies, this would be a key priority.

We also think technology will create numerous opportunities for consumers to watch television in new and exciting ways.

Cable and satellite companies are racing to roll out interactive features, and we are big believers in Video-On-Demand and just dream of what the Disney library, theatrical releases and other Disney properties could do to our VOD business.

In addition to movies we've been offering time shifted network and cable programming in many of our cable markets.

It's been a huge hit.

We see a real advantage in offering ABC, Disney and ESPN programming to people when they want it, with pause, rewind and forward features on demand at their control.

We have similar plans for another platform that we're very excited about, our high speed Internet business.

We have over 5 million high-speed data customers and as we mentioned that business is growing 30% a year.

We think we could enhance the experience of our high-speed data customers by having ESPN, Disney and ABC product on our portal and we also think there should be a way to create subscription on-demand packages for children with Disney product, for sports fans with ESPN product or for news.

Finally we think there are a lot of cross promotional opportunities.

Just as an example, we own Golf, Outdoor Life and three regional sports networks.

We think we could expand and extend the ESPN brand into each of those products, cross-promote and have all that work for the greater good of the combined entity.

We also like the idea of using our 21 million customer relationships to help drive visits to the Disney theme parks.

Again, we have not included any value for these new businesses in our value creation analysis, but when you step back it's clear there are some very compelling opportunities.

So those are some of our preliminary thoughts about what we could do if we put these two great companies together.

The obvious question is, what makes us so confident that we can produce these benefits?

Part of the answer is where we've set the bar.

We're not talking about taking Disney to unseen heights.

But instead, we're trying to restore some of the operating units to near where they were five years ago.

We believe Disney has great assets, we believe Disney has great people, and there ought to be a way to bring the businesses back to where they were.

That doesn't seem like an unreasonable goal to us.

The other part of the answer is that we've done things like this before.

Our company has been built on acquisitions.

We know how to do them, and we think we're good at it.

The best and most recent example of what we can do is how we've integrated AT&T Broadband into Comcast.

If you move to the next slide, you'll see two years ago, many people doubted we would be successful.

AT&T Broadband was much larger than we were, we had 8.5 million subscribers, they had 13.5 million subscribers and their systems were famous for having real challenges.

Today, as you heard, earlier in this call, we're able to say this deal has proven to be a very successful one by any measure.

We're often asked why we've been so successful with AT&T Broadband, and I think it boils down to a great culture, clear priorities, and a very strong management team.

Because we've been so successful with AT&T Broadband, we think we're ready to take the next logical step today with the Walt Disney Company.

We're also more confident than ever that our team can rise to the challenge.

Thank you.

Brian, back to you.

Steve, I think this was a fantastic summary, and obviously we're going to have an opportunity to do questions, but let me just add a few points.

I can't say enough about what Steve has accomplished with his merger integration efforts and the team at Comcast Cable with AT&T Broadband.

But if you go back in time 10 years ago, Comcast has built the company consistently with integrating operations, trying to create a culture where it's a fun place to work, where people want to join our company, like Steve Burke, like David Cohen, like a number of executives who have joined us in the last couple years and many of the people and the stability of the team that we've had for over 20 years, John Alchin, Larry Smith.

Number two, I think we have a proven approach to working with the best of both companies whenever we take a situation.

I met with thousands of employees at AT&T Broadband who I think are thrilled to now be part of Comcast.

We have a proven track record of being disciplined buyer, disciplined seller, and having great success in content heretofore.

If you turn to the next chart are numerous examples.

The biggest of course is QVC, again a business very different than cable, electronic commerce and retailing, but we have managed to support the great folks at QVC in building the world's premier electronic commerce company.

From a $370 million or so investment, we achieved $7.9 billion in monetizable proceeds for our shareholders which was a 37% compounded rate of return for over the period of time that we invested the money, the cash flow growth at QVC, operating cash flow was up over 18% a year for 10 years compounded, and a combined company had a value north of $14 billion.

Very different business, but finding the experts in their field, taking technology leaps at the time, and the consumer great success.

E!

Entertainment, when we bought it for $500 million from a partnership, it only had about $20 million of cash flow.

Today, our projection, or the forecast for '04, 10 times that to over $200 million.

The Golf Channel, again, when it started, it was a nascent idea, expected to do $100 million in cash flow this year and on and on.

We have had, you know, an approach to finding niche programming, have a relationship with distributors, trying to bring in the best creative folks, give them their opportunity to succeed.

And if you turn the chart, when you put this together, it comes together for creating shareholder value.

We've found a way to grow through acquisitions, be a, you know, focused, fair buyer, using stock in a deal such as this, or in a deal such as AT&T Broadband, where both shareholders enjoy the benefits, and if you said name one thing that defines Comcast when it all comes together, Money Magazine did it for us last year.

It said that of all the stocks in the world to own the last thirty years, the fifth best stock was Comcast.

Close to a 22% compounded rate of return for 30 straight years.

Since the company went public, from day one in 1972, when Ralph Roberts and Julian Brodsky and Dan [inaudible] founded the company, we have more than doubled the S&P 500 on a compounded basis in a $7,000 investment would be $3 million.

And yet we've created hundreds of channels of television, interactive experiences, Video-On-Demand, we've been on the cutting edge with new products.

And we've had many, many shareholders who have been supportive, many, many employees who have made this happen.

So as you look on the next chart at this combined company, we would have, you know, close to $50 billion in revenues, a long way from our humble beginnings but you do it one step at a time.

This seems like the logical next step for a premier distribution company to go and try to get into content.

We think we need to be very focused on finding that balance and we think this offer absolutely does that to create a compelling offer for the Disney shareholders and their board to consider, and we believe that we've done that, that the new company would be spectacular, competitive, a leader in its space, financially solid, and, if you turn to the final chart, you'll see the pieces again, position us for the digital future.

We think we have a management team.

We know we're going to need help.

We would create a culture that would reach out and help make that happen across both companies and across people who want to work at a company such as this, and I think we felt, therefore, it was worth the offer to go ahead and write to the Disney board and see if it's something that they would consider.

With that, let me turn it back over to John Alchin.

Thanks, Brian, thanks, Steve.

Operator, if we could now open for Q&A, please?

Operator, could we open for Q&A, please?

One thing I know, is nobody, that people will have questions, so...

If you just bear with us, we're checking on another line to get the operator.

Mr. Alchin can you hear me?

Yes, we can.

Thank you.

Investors wishing to ask a question may signal us by pressing star one on your touch-tone telephone.

If your question has been answered and you wish to be removed from the queue, please press the pound sign.

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We're not getting any questions.

The first question is from Jessica Reif Cohen from Merrill Lynch.

Please state your question.

Thank you.

Brian, it's an amazingly brilliant combination, makes perfect sense and a lot of us had speculated that you would do this, maybe not quite as soon as you are but you've done a great job with AT&T Broadband.

So the question is, could you walk through the process?

This is not a friendly, or it doesn't look like Disney's taking it as a friendly offer, walk through the process of where you go from here, what the timing might be?

I don't know how to ask the question, but if the bid is considered too low, where would you go with this?

And I guess finally, can you talk about what kind of manpower you have in-house?

I mean, Steve's obviously well-suited to oversee this, but there's been an exodus at Disney and Comcast management has a different set of capabilities.

Where do you get the manpower to run both companies?

Thank you, Jessica.

First of all, I think that question, the last question on the management, I think we have a terrific track record of finding ways to attract people to the company.

Companies such as this with a culture, I think, it would be the most exciting place to work and if we do our jobs right, should be fun, the kinds of properties that the company has, the excitement that we can create and I just think the phone's going to ring off the hook with people inside all companies and outside the company who would like to be part of this and that's something that Steve has been brilliant about finding how best to attract people, promote people, train and recruit.

And I think that's been the hallmark of Comcast for a long time.

By the way, we think there are a lot of wonderful people right now inside Disney, ABC and ESPN who are doing a fantastic job.

I think our goal would be to come in and try to put the two companies together and unleash the creativity that's there and maybe take some fresh look at things and some new risks.

I think when you look at it, you accomplish great things when you have great people.

And that would be job one for us.

Okay.

So now to your first part of your question, I think the ball's in Disney's court.

I think we've made a very wonderful offer because as they consider all of those issues around succession planning, you look at the various things that have been said about that issue for the company, here we not only provide the beginnings of a management team, but 21.5 million subs and a fantastic distribution company.

So I think this is fair for both sets of shareholders when you're doing something like this, you have the to really try to find a sweet spot that people say wow, I want this to happen and it could be great for my shareholders in the short run and in the long run and we expect that the board will do the right thing in considering this proposal.

And we believe looking at other transactions, JP Morgan and Banc One just got done, it seems like the market really found the combination better than either company could do on its own, at the same time, there was a very disciplined approach to making it happen.

And I believe and I'm hopeful that this begins that process and the ball, you know, why the timing now?

We think we are positioned to do it, we think we're able to have paid off, you know, all the issues with AT&T, gotten the company in incredibly good position.

I spoke earlier this week, didn't seem like it was going to happen any other way.

Ultimately, we're seeking to find a way to make this as friendly as possible, as quickly as possible.

And you know, I can't say enough that, you know, that is how this will work best.

And we're hopeful that that will happen, and, you know, what more can you say at this point?

Next question please, operator?

The next question is from Irea Berkhoff from UBS Securities.

Please state your question.

Good morning.

Just two questions.

One is, I'm trying to get a sense from you guys conceptually about what the benefit is in owning this content versus using your scale to negotiate attractive prices like you did with Viacom?

So, is this a statement, so to speak, that you were not that hopeful in terms of negotiating more attractive rates with Disney for content like ESPN?

Just to get a sense of the Viacom deal versus actually owning it.

And then secondly, if you can give us a sense of, you know, the theme parks and studios obviously are not typical businesses that cable has managed in the past.

You said you believe in those, in those businesses right now.

Is there a point or a structure where you would potentially spin that off?

Thanks.

Well, let me, again, today's the first day and I want to, my own belief is you can say what you can, and you know, it's a journey, and what we today believe is that, yeah, you can license content, and we've had great success this year, John reported in greater detail than we ever have before on our success with negotiating content rights.

But when you're two separate companies, you know, you have two separate agendas.

When you work together, you're trying to figure out how to accelerate and work as a team.

Everything we've done had that team approach in the past.

And so as an opportunity to work together to experiment, to be on the cutting edge, it's one thing when you're separate, and it's a wholly different experience when we have a meeting of executives and say, okay, here's the goal, how can we all get there?

And I just don't think there's any comparison between the two.

It doesn't mean we're not having decent successes.

We had a great year and I think we just gave guidance and feel confident about our guidance that we just gave out for 2004, the financial results speak for themselves.

As to the various parts of the company, I think right now, you know, we've got to look at the whole package and try to figure out how the businesses that are different, I mean, we own a sports team in Philadelphia, that we have a partner who is extremely skilled at running the teams and is an expert.

And every business we've gone into, QVC was a very different business, we had the world's experts both founding it and managing it.

And so on in every business that is new and different, and I think that is part of what makes it a great place to partner with and work with.

Because we have an environment that respects individuals and entrepreneurs, Steve, maybe you want to comment a little bit?

I would only just add that we think that both television and the Internet are changing in very fundamental ways, and it's likely that over the next five years the changes in the television landscape are going to be as great as they have been in the last 20 or 30 years.

And I think one of the things you do when you put these assets together is you have the ability to move, and you have the ability to move quickly and you have the ability to be creative without sitting down in a long negotiation.

There are many, many rights which Disney has not fully exploited in our opinion with cable companies, satellite companies, Internet providers and there are many, many new technologies that we are very excited about that we have today, that are real today in our customer's homes that can leverage this content.

So I think it's all about speed to market, it's all about what we can do for them, it's all about what they can do for us, and just seems to us like a perfect combination.

And we're ready for it.

We couldn't have done this 18 months ago, but given what's happened with the AT&T integration process, we think the timing's right.

Next question please, operator?

The next question is from Raymond Katz from Bear Stearns.

Please state your question.

Yeah, good morning.

Have you been in contact with any Disney shareholders specifically Roy Disney or Stanley Gold on use of their proxy?

And would you guys be willing to start an exchange offer as a way to put pressure on Disney?

No we have not been in contact with any particular shareholders.

Have had no discussion and no contacts.

Down the road, I'm not going to comment, we hope the folks will do the right thing here and seriously consider why this is the right deal.

This is a very serious offer, I think a very focused opportunity and we hope to make it happen.

We're not going to speculate down the road.

Next question please, operator?

The next question is from Niraj Gupta at Smith Barney.

Please state your question.

Niraj?

Mr. Gupta, your line is now open, please state your question.

We'll move on to our next question.

The next question is from Doug Mitchelson from Deutsche Bank.

Please state your question.

Thank you.

Obviously you're starting a process today with very broad implications, perhaps even driving Disney into someone else's arms, depending how the process shakes out.

What happens if you can't get the deal done?

Is Disney a unique opportunity for you or would Viacom or NBC or Sony or MGM or Dreamworks, you know, suit your needs, you know, your desires to drive new businesses just as well as Disney might?

I think we're focused on this situation right now.

It's hard to speculate, and theorize.

I think we have been, there are many ways that you could build a company as you've suggested, but as I look at the power of this combination, the opportunity for shareholders or new products, and we love our own company.

If, you know we're not in any way suggesting anything but that, but it's an extraordinary company that would be created, and a chance to bring a brand like Disney, which is so wonderfully powerful in its, with kids, with families, and where it can continue to develop, I think this is where we're focused.

But if it weren't to be, it weren't to be.

I mean, we're going to be disciplined and do the right thing for the Comcast shareholder.

I think we've made a great proposal to Disney shareholders.

We think we have all the tools to make it happen and get it closed.

And hopefully it will be so considered.

Next question please, operator?

The next question is from Douglas Shapiro from Banc of America.

Please state your question.

Yeah, thanks.

I guess I was wondering if you could talk about what kind of regulatory concessions you'd expect or accept in light of what the FCC imposed on News Corp firstly.

And then secondly, just wondering if there's any concern that owning local broadcasts and cable properties in the same market somewhat reduces or cannibalizes the cable advertising opportunity you talked about in the past?

Well, as Steve laid out, it's sort of struck us as surprising how far in fourth place this company is.

When Steve ran ABC's TV stations, there was significantly different cash flow and a different era.

But a number of the other broadcast networks and station groups have continued to find ways to grow their advertising and saw some earnings results this week to that effect and continue to find ways.

And that's one of the reasons we wanted television is going to change here in the next five years, no doubt about it.

But there's no company better positioned to give consumers that change in a way that creates value for the shareholders and gives the consumer what they want than a cable company.

And working together.

As to the regulatory, we believe this is eminently consistent with all laws that guide our space, very consistent with the recent transaction that just got completed by News Corp with they own the distribution locally, as well as broadcast.

There's a number of the same kind of parts to the company, and there was a number of decrees that the government had News Corp enter into, and we're comfortable following that path.

David Cohen, who is Executive Vice President for all this area, for Comcast, do you want to add anything to that?

Brian, I can state quickly that unlike the FOX, the News Corp acquisition of Direct T V, Comcast is already subject to the FCC's program carriage requirements which impose obligations on us with respect to unaffiliated programmers that we deal with, and with respect to our own programming.

And as Disney's programming were brought underneath the Comcast umbrella, those existing regulations would apply in full force to that programming.

In the News Corp situation, those regulations did not apply.

So if you take the current regulatory structure, the conditions that FOX, that News Corp voluntarily put forth at the outset of the transaction, are already applicable to our company and would be applicable to the common company.

Thanks, David.

Could we take one last question please, operator?

Yes.

Our last question for today is from Laurel Werner from Credit Suisse First Boston.

Please state your question.

Good morning.

Obviously, this is a transaction that's going to keep you pretty busy over the next 12 months and give a lot of opportunity for differentiation on the video and the data side.

I was wondering, Brian, if you would comment about the telephony rollout?

It seems to me that while certainly this is an opportunity on the cable side, is it as important as it was to you before, or is there an opportunity maybe to continue to be somewhat measured on that front in order to really push forward the synergies of this merger?

That's the one question we didn't anticipate.

Oh, sure, I bet.

Well, let me say that, I mean, there's a lot of Comcast executives listening in on this call so one of our goals is to take focus this year on our business plan.

We went through the same interesting process with AT&T Broadband, and we had a great year that year.

Cable is a very decentralized business and I don't think we're going to lose our focus at all during the year.

This will certainly take some time for some of the senior executives, but that's what we've been doing for the last 15 years.

As to the phone question, I think that the Voice Over IP is where we have always felt most comfortable.

We have more cable phone customers than any company in the space today thanks to AT&T and to our own phone operations.

So we have a real business, and it's going to evolve.

We've always pointed to taking it in steps.

And other capable companies are going to be getting some real market learning, and some may be more aggressive.

That's always been the way in cable.

Some rolled out HBO faster than others, others rolled out high-speed Internet faster than others, and digital boxes.

In the end, when the consumer likes it and it's a good payback for capital, everybody seems to find the same solution.

And so phone is very much going to continue to be something we're working on.

But we have previously said that our principal focus is high-speed Internet growth, and Video-On-Demand, and high definition television, right now with a very video focus, while we continue to make VOIP a reality.

And I don't think today's announcement in a net-net will do anything to change that.

Let me just say again, this is a very busy day, thrilled with the earnings results, thrilled with how well it's come together.

I think this is a great opportunity for both shareholders and both companies.

We hope to see this happen, and we thank you for the call.

John?

Thanks a lot, Brian.

Thanks, Steve.

You're all aware that we're available through our offices.

We're not in the office but we'll try and get back to you as quickly as we can.

Thank you.

We have no further questions at this time.

There will be replay immediately following today's conference call.

It will run through tomorrow night at midnight central time.

The dial in number is 630-652-3000.

And the passcode is 8239543.

Once again, the number for the replay is 630-652-3000.

And the pass code 8239543.

A recording of the conference call will also be available on the company's Web site beginning at 12:30 p.m. today.

This concludes today's teleconference.

Thank you for participating.

You may all disconnect.