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Business Context and Reporting Period

Company: Comcast Corporation
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three months ended March 31, 2005
Business Overview: Comcast operates primarily through two segments: Cable (broadband communications networks providing video, high-speed Internet, and phone services) and Content (national cable television networks including E!, Style Network, and The Golf Channel). Over 95% of revenue is derived from the Cable segment.

Key Financial Metrics

Segment Performance (Operating Income before D&A):

• Cable: $1,995 million (Q1 2005) vs. $1,719 million (Q1 2004).
• Content: $77 million (Q1 2005) vs. $69 million (Q1 2004).

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenues increased 9.3% ($455 million) year-over-year. The Cable segment drove this growth with a 9.8% increase, fueled by digital cable and high-speed Internet subscriber additions. The Content segment grew 20.9%.
• Profitability: Net income more than doubled to $143 million from $65 million. Operating income rose 31.4% to $866 million.
• Subscriber Trends:
  • High-speed Internet subscribers increased 30.4% (1.7 million additions).
  • Digital video subscribers increased 12.7% (998,000 additions).
  • Phone subscribers decreased 1.6%.
• Unusual Items:
  • At Home Litigation: A $170 million charge was recorded in "Other income (expense)" representing Comcast's 50% share of a $340 million settlement with At Home bondholders.
  • Motorola Transaction: A $20 million charge for in-process research and development was recorded in amortization expense related to a new strategic alliance with Motorola.
  • Investment Loss: A $29 million loss was recognized on the conversion of Time Warner preferred stock to common stock.

Guidance, Outlook, and Risks

Management Commentary & Outlook:
Management expects continued growth in video and high-speed Internet revenues. The company anticipates adding phone subscribers as it launches Comcast Digital Voice. Capital expenditures remain high ($892 million in Q1) to support network expansion.

Recent Strategic Developments:

• Adelphia/TWC Deal: On April 20, 2005, Comcast and Time Warner agreed to acquire Adelphia Communications for $12.7 billion and exchange cable systems. This is expected to add 1.8 million subscribers for a net cash investment of $1.5 billion. Closing is expected in 2006.
• MGM Acquisition: On April 8, 2005, Comcast completed the acquisition of Metro-Goldwyn-Mayer, Inc.
• Share Repurchases: The Board authorized a $2 billion increase to the share repurchase program on April 27, 2005. Approximately 9.4 million shares were repurchased in Q1 2005.

Risks and Contingencies:

• Legal Proceedings: Ongoing litigation regarding At Home Corporation, AT&T Wireless, and AT&T Common Stock cases. While management believes outcomes will not materially affect financial position, they could impact results of operations in a single period.
• Competition & Regulation: Risks include increasing programming costs, technological advances, and regulatory changes at federal, state, and local levels.
• Accounting Changes: Adoption of SFAS No. 123R (Share-Based Payment) is required by January 1, 2006, which is expected to have a material impact on earnings.

Investor Verification Checklist

• Adelphia/TWC Transaction Status: Verify regulatory approvals (FCC, HSR) and bankruptcy court approvals required to close the $12.7 billion deal.
• At Home Settlement Payment: Confirm the timing and impact of the $170 million cash outflow expected in Q2 2005.
• Share Repurchase Capacity: Monitor the execution of the newly authorized $2 billion repurchase program and its impact on liquidity.
• Subscriber Churn: Track phone subscriber trends as the company transitions to Comcast Digital Voice.
• Derivative Valuations: Review the fair value adjustments on exchangeable notes and derivatives, which significantly impact "Investment loss, net."