Comcast Corporation Form 10-Q Summary
Business Context and Reporting Period
Comcast is a cable and programming company. Its Cable segment generated approximately 95% of consolidated revenue. As of June 30, 2009, cable systems served approximately 23.9 million video customers, 15.3 million high-speed Internet customers, and 7.0 million phone customers, passing more than 50.9 million homes in 39 states and the District of Columbia. This unaudited Form 10-Q covers the three and six months ended June 30, 2009, compared with the same periods in 2008.
Financial Results and Key Metrics
| Metric | Three Months Ended June 30, 2009 | Three Months Ended June 30, 2008 | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|---|---|
| Revenue | $8,938 million | $8,553 million | $17,773 million | $16,942 million |
| Operating income | $1,875 million | $1,750 million | $3,686 million | $3,305 million |
| Operating margin | 21.0% | 20.5% | 20.7% | 19.5% |
| Net income attributable to Comcast | $967 million | $632 million | $1,739 million | $1,364 million |
| Diluted EPS | $0.33 | $0.21 | $0.60 | $0.46 |
| Net cash provided by operating activities | Not separately provided | Not separately provided | $5,113 million | $4,928 million |
Six-month revenue increased 4.9%, operating income increased 11.5%, and net income attributable to Comcast increased 27.5%. The six-month operating cash flow increased 3.8%.
Cable segment revenue increased 5.1% to $16.825 billion, while Cable operating income before depreciation and amortization increased 6.2% to $6.907 billion. Programming segment revenue increased 2.2% to $745 million, and its operating income before depreciation and amortization increased 11.5% to $225 million.
Six-month capital expenditures were $2.281 billion, compared with $2.731 billion in 2008. Cash paid for intangible assets was $241 million, and acquisitions used $27 million.
At June 30, 2009, cash and cash equivalents were $3.989 billion, compared with $1.195 billion at December 31, 2008. Total debt was approximately $33.037 billion, consisting of $4.167 billion of current debt and $28.870 billion of long-term debt. Estimated fair value of debt was $34.160 billion. Amounts available under credit facilities and the commercial paper program totaled approximately $5.1 billion.
Material Changes Versus the Prior Comparable Period
- Video revenue increased 1.7% in the second quarter and 2.4% for the first six months, despite declines of approximately 214,000 and 292,000 video customers, respectively.
- High-speed Internet revenue increased 7.7% in the second quarter and 8.4% year to date; Comcast added approximately 393,000 high-speed Internet customers during the first six months.
- Phone revenue increased 25.3% in the second quarter and 28.6% year to date; approximately 531,000 digital phone customers were added during the first six months.
- Advertising revenue declined 19.6% in the second quarter and 21.9% year to date because of weak television advertising markets, particularly in automotive and housing, and lower political advertising.
- Video programming expenses increased 9.1% in the second quarter and 9.4% year to date, primarily due to rate increases, additional digital customers, and expanded programming options.
- Interest expense declined to $551 million in the second quarter and $1.121 billion year to date, partly because of lower interest rates and the absence of certain 2008 early-extinguishment costs.
- Investment income was $57 million in the second quarter and $70 million year to date, compared with a second-quarter loss of $70 million in 2008. Results included material mark-to-market changes related to prepaid forward sale agreements and ZONES.
- Income tax expense was reduced by approximately $137 million in the second quarter and $185 million year to date from favorable settlements of uncertain tax positions and related interest. Management expected the 2009 effective tax rate to be below its normal rate of approximately 40%.
- Comcast issued $700 million of 5.70% notes due 2019, $800 million of 6.55% notes due 2039, and $1.0 billion of commercial paper. It also repaid $600 million under its revolving credit facility and $750 million of notes due 2009.
- Comcast accepted tenders for approximately $1.3 billion of notes in a cash tender offer that settled in July 2009. The company expected to recognize approximately $180 million of additional interest expense, primarily tender premiums, in the third quarter of 2009.
- Comcast repurchased approximately 15.5 million shares for $215 million during the first six months and had approximately $3.9 billion remaining under its authorization at June 30, 2009.
Outlook, Commentary, Risks, and Unusual Items
Management stated that it expected to meet current and long-term liquidity and capital requirements through operating cash flow, existing cash and investments, available credit facilities, and future external financing. The filing does not provide formal full-year revenue, earnings, or cash-flow guidance.
Management expected continued use of cash for capital expenditures, business opportunities, debt repayment, and shareholder returns. It also stated that competition and weak economic conditions were expected to cause further video-customer declines and slower growth in high-speed Internet and phone customers.
Principal risks include competition and technological change, rising programming costs, federal, state and local regulation, weakening economic conditions, network and information-system disruptions, hardware and software availability, intellectual-property claims, litigation, and execution risks related to acquisitions and strategic transactions. The filing states that there were no significant changes to the risk factors disclosed in the 2008 Form 10-K.
Comcast reported antitrust, ERISA, and patent litigation. Management believed the claims were without merit and did not expect the matters to have a material adverse effect on consolidated financial position, although individual matters could be material to results of operations or cash flows in a particular period. A subsidiary also supported $410 million of debt-compliance obligations for a cable system in which Comcast held an ownership interest; the obligation expires in March 2011.
The company adopted new noncontrolling-interest presentation requirements in 2009. It was assessing the impact of amended variable-interest-entity consolidation guidance effective January 1, 2010. Disclosure controls and procedures were concluded to be effective, with no material changes to internal control over financial reporting.
Important Facts for Investors to Verify
- Whether video-customer losses accelerate and whether pricing and digital-service upgrades offset subscriber declines.
- The sustainability of high-speed Internet and phone customer additions amid competition and economic weakness.
- Programming-cost growth relative to Cable revenue and operating income.
- The recurring versus nonrecurring nature of the favorable tax settlements and investment-related mark-to-market gains.
- The effect of the July 2009 debt tender offer and the expected approximately $180 million third-quarter interest expense.
- Debt maturities, refinancing requirements, commercial-paper reliance, and available credit capacity.
- The ultimate outcomes and potential cash-flow effects of antitrust, ERISA, and patent litigation.
- Capital-expenditure requirements and the company’s ability to continue dividends and share repurchases while reducing or refinancing debt.