CMCSA

Comcast Corporation: Q2 2004 Financial Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2004, for Comcast Corporation. The company operates primarily through two reportable segments: Cable (broadband communications networks) and Content (programming content). The filing notes that QVC, Inc. was sold in September 2003 and is presented as a discontinued operation. Comcast also completed the acquisition of TechTV in May 2004 and entered into a significant transaction with Liberty Media in July 2004 to resolve litigation and acquire additional equity interests.

Key Financial Metrics

Note: Operating income before depreciation and amortization for the six months ended June 30, 2004, was $3,685 million.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenues increased 10.1% for the six months ended June 30, 2004, compared to the same period in 2003. The Cable segment drove this growth with a 10.1% increase, while the Content segment grew 23.4%.
• Profitability: Net income for the six months ended June 30, 2004, was $327 million, a significant turnaround from a net loss of $319 million in the same period in 2003. Operating income for the six months doubled to $1,511 million from $719 million.
• Subscriber Trends: High-speed Internet subscribers increased by 36.8% (1.6 million new subscribers), while phone subscribers decreased by 10.4% as the company focused on profitability over growth in that segment.
• Amortization: Amortization expense decreased by $162 million for the six-month period compared to 2003, primarily due to updated valuations of franchise-related intangible assets in late 2003.

Guidance, Outlook, and Risks

Management Commentary: Management highlighted strong growth in digital cable and high-speed Internet services. They noted that efficiencies from the integration of the AT&T Broadband acquisition are contributing to margin expansion. The company expects continued revenue growth in video and high-speed Internet services.

Liquidity and Capital: Comcast refinanced its credit facilities in January 2004 with a new $4.5 billion revolving credit facility. As of June 30, 2004, $3.898 billion remained available. The company repurchased approximately 18.5 million shares of Class A Special common stock for $523 million during the six-month period.

Risks and Contingencies:

• Legal Proceedings: Significant litigation remains regarding the former investment in At Home Corporation. Comcast is contractually liable for 50% of certain AT&T liabilities related to At Home. While management believes the outcome will not materially affect financial position, it could be material to results of operations in a single period.
• Market Risk: The company is exposed to fluctuations in the fair value of investments (e.g., Liberty Media, Sprint) and derivative instruments used to hedge these positions.

Investor Verification Checklist

• Discontinued Operations: Verify the impact of the QVC sale on year-over-year comparisons; QVC results are excluded from continuing operations.
• Investment Volatility: Review Note 5 and Note 6 regarding the fair value adjustments of trading securities and derivative components of debt (ZONES and Exchangeable Notes), which significantly impacted investment income.
• Legal Exposure: Assess the potential financial impact of the At Home Corporation litigation and the AT&T-TCI cases, specifically the 50% liability share for At Home.
• Segment Reporting: Note the change in segment reporting in Q1 2004, where the Content business is now disclosed separately as a reportable segment.
• Debt Structure: Confirm the details of the new $4.5 billion credit facility and the status of the commercial paper program ($304 million outstanding).