Comcast Corporation 2009 Form 10-K Summary
Business context and reporting period
Comcast filed an annual report for the fiscal year ended December 31, 2009, filed February 23, 2010. The company primarily provides video, high-speed Internet and phone services through its Cable segment, which generated approximately 95% of consolidated revenue. The Programming segment includes E!, Golf Channel, VERSUS, G4 and Style. Comcast served approximately 23.6 million video, 15.9 million high-speed Internet and 7.6 million phone customers at year-end, with systems passing more than 51.2 million homes and businesses.
Financial performance and key metrics
| Metric | 2009 | 2008 | Change |
|---|---|---|---|
| Revenue | $35.756 billion | $34.423 billion | 3.9% increase |
| Operating income | $7.214 billion | $6.732 billion | 7.2% increase |
| Net income attributable to Comcast | $3.638 billion | $2.547 billion | 42.8% increase |
| Diluted EPS | $1.26 | $0.86 | Increase |
| Cash flow from operating activities | $10.281 billion | $10.231 billion | 0.5% increase |
| Capital expenditures | $5.117 billion | $5.750 billion | 11.0% decrease |
| Total debt | $29.096 billion | $32.456 billion | 10.4% decrease |
| Cash and cash equivalents | $671 million | $1.195 billion | Decrease |
Consolidated operating margin was approximately 20.2%, compared with 19.6% in 2008. Net margin was approximately 10.2%, compared with 7.4% in 2008, and operating cash flow margin was approximately 28.8%. Cable segment operating income before depreciation and amortization was $13.694 billion on $33.857 billion of revenue, producing a 40.4% margin, unchanged from 2008. Programming segment operating income before depreciation and amortization increased 7.5% to $389 million on revenue of $1.496 billion.
- Cable revenue increased 3.8%; high-speed Internet revenue increased 7.4% to $7.757 billion and phone revenue increased 23.1% to $3.262 billion.
- Video revenue increased 1.1% to $19.377 billion despite a decline of approximately 623,000 video customers.
- Cable advertising revenue declined 15.5% to $1.444 billion, reflecting weak economic conditions and lower political advertising.
- Video programming expense increased 8.8% to $7.046 billion and remained the largest Cable operating expense.
- Year-end total assets were $112.733 billion and Comcast shareholders’ equity was $42.721 billion.
- Comcast declared $850 million of dividends and paid $761 million during 2009; annual dividends declared per share increased to $0.297 from $0.250.
Material changes versus the prior comparable period
- Profit growth materially exceeded revenue growth, aided by stronger operating performance, lower interest expense, higher investment income and a lower effective tax rate.
- The effective tax rate declined to 28.9% from 37.8%, primarily because of approximately $566 million of tax benefits related to uncertain tax positions, related interest and subsidiary reorganizations. Management expected an approximately 40% effective tax rate for 2010.
- Debt declined by approximately $3.4 billion through scheduled repayments and repurchases of debt securities. Comcast repaid or repurchased $4.738 billion of debt and issued $1.564 billion of new borrowings.
- Capital expenditures declined, while Comcast continued investing in all-digital video conversion, DOCSIS 3.0 wideband technology, online programming and initial 4G wireless deployment.
- High-speed Internet customers increased by approximately 1.0 million and phone customers by approximately 1.1 million, while video customers declined by approximately 623,000. Digital video penetration rose to 78.2% from 70.3%.
- Operating cash flow was broadly stable, but cash declined by $524 million after investing and financing outflows, including debt repayments, share repurchases and dividends.
Guidance, outlook, commentary, risks and unusual items
Management expected further video-customer declines in 2010 and slower rates of phone-customer and phone-revenue growth. Video programming costs were expected to increase because of higher programming and broadcast retransmission fees. Capital spending would depend on acquisitions, competition, technology, regulation and new-service deployment.
In December 2009, Comcast agreed with General Electric to form a company that Comcast would control with a 51% interest and that would combine Comcast programming assets with NBC Universal businesses. The transaction was expected to close by the end of 2010, subject to regulatory approvals. Comcast was required to pay GE $7.1 billion in cash, less specified adjustments, and committed to fund up to $5.75 billion for two potential future redemptions of GE’s interest. NBC Universal was also expected to incur $9.1 billion of third-party debt. These amounts were not fully reflected in the contractual-obligations table.
- Principal business risks include competition from satellite providers, telephone companies, online video and wireless services; weak consumer spending; rising programming costs; technology execution; and regulatory changes affecting franchising, pricing, program access, net neutrality, VoIP, pole attachments and privacy.
- Comcast had $6.4 billion of available credit facilities, including a $6.8 billion revolving facility due in 2013, and was in compliance with its debt covenants.
- Approximately 99.7% of debt was fixed-rate before interest-rate swaps; swaps reduced the effective fixed-rate proportion to 86.9%. The company reported no significant off-balance-sheet arrangements.
- Contractual obligations totaled $52.727 billion, including $29.039 billion of debt, $16.705 billion of purchase obligations and $1.879 billion of operating leases, excluding interest payments and the NBC Universal commitments.
- Significant contingencies included antitrust, program-packaging, set-top-box tying, ERISA and intellectual-property litigation. Management did not expect the final disposition of the disclosed matters to materially affect consolidated financial position, but individual periods’ results or cash flows could be materially affected.
- Cable franchise rights totaled $59.452 billion and were subject to significant impairment-testing judgments. Management reported no significant impairment from its 2009 annual testing, but sensitivity analysis showed potentially large impairments under hypothetical fair-value reductions.
Most important facts for investors to verify
- Whether the NBC Universal transaction closed on the anticipated terms, including regulatory conditions, financing, the $7.1 billion payment and future GE redemption obligations.
- The sustainability of earnings growth excluding the approximately $566 million of 2009 tax benefits and other investment-related gains or losses.
- Trends in video-customer losses, pricing, bundling, churn and the ability of Internet and phone additions to offset video pressure.
- Programming-cost growth, retransmission-consent payments and the effect on Cable margins and free cash flow.
- Debt maturities, funding needs associated with NBC Universal, credit-facility availability and compliance with leverage covenants.
- Potential exposure from regulatory proceedings and litigation, including antitrust claims and proposed changes affecting broadband, VoIP and cable operations.
- Valuation assumptions supporting the $59.452 billion cable franchise-rights balance and related impairment sensitivity.