Comcast Corporation — Q1 2010 Form 10-Q Summary
Business context and reporting period
Quarterly report for the three months ended March 31, 2010. Comcast provides video, high-speed Internet and phone services, primarily through its Cable segment, which generated approximately 95% of consolidated revenue. At quarter-end, Cable served approximately 23.5 million video, 16.3 million high-speed Internet and 7.9 million phone customers across 39 states and the District of Columbia. The Programming segment includes national networks and related businesses.
Financial performance and liquidity
| Metric | Q1 2010 | Q1 2009 | Change |
|---|---|---|---|
| Revenue | $9.202 billion | $8.866 billion | 3.8% |
| Operating income | $1.935 billion | $1.811 billion | 6.8% |
| Operating income before depreciation and amortization | $3.565 billion | $3.444 billion | 3.5% |
| Net income attributable to Comcast | $866 million | $772 million | 12.2% |
| Diluted EPS | $0.31 | $0.27 | 14.8% |
| Net cash from operating activities | $2.903 billion | $2.512 billion | 15.6% |
| Capital expenditures | $925 million | $1.160 billion | (20.3%) |
Calculated margins were approximately 21.0% for operating income, 38.7% for operating income before depreciation and amortization, and 9.4% for net income attributable to Comcast. Investment income, net, increased to $101 million from $13 million, substantially reflecting fair-value changes in securities and related derivatives. Interest expense declined to $524 million from $570 million.
Cash and cash equivalents were $3.483 billion at March 31, 2010, compared with $671 million at December 31, 2009. Total debt, including current maturities, was approximately $30.919 billion, compared with $29.096 billion at year-end. Available borrowing capacity under credit facilities was approximately $6.4 billion. Total assets were $115.420 billion and total equity was $43.179 billion.
Investing activities used $1.256 billion, including $925 million of capital expenditures, $117 million for intangible assets and $172 million for acquisitions. Financing activities provided $1.165 billion, including $2.408 billion of borrowings, offset by $612 million of debt repayments, $300 million of share repurchases and $268 million of dividends paid.
Material changes versus the prior comparable period
- Consolidated revenue increased 3.8%, with Cable revenue up 3.5% and Programming revenue up 6.7%.
- Cable high-speed Internet revenue increased 8.5% and phone revenue increased 12.9%; advertising revenue increased 23.5%.
- Video revenue declined 1.8%, and video customers decreased by approximately 82,000. High-speed Internet customers increased by 399,000 and phone customers by 273,000.
- Cable operating income before depreciation and amortization increased 4.1% to $3.542 billion; Programming increased 8.5% to $121 million.
- Video programming expenses increased 5.0%, primarily due to rate increases and additional programming options. Marketing expense increased with direct sales activity and the XFINITY campaign.
- Operating cash flow increased $391 million, while capital expenditures declined $235 million.
- Comcast repurchased 19.2 million Class A Special shares for $300 million and had approximately $3.0 billion remaining under its repurchase authorization.
- In March 2010, Comcast issued $1.4 billion of 5.15% notes due 2020 and $1.0 billion of 6.4% notes due 2040.
Guidance, outlook, commentary, risks and unusual items
- Management expected the 2010 annual effective tax rate to be approximately 40%.
- The NBC Universal transaction with General Electric remained subject to regulatory approvals and was expected to close by the end of 2010. Comcast planned to own and control 51%, contribute assets valued at approximately $7.25 billion and pay GE approximately $7.1 billion, subject to adjustments. Comcast also committed up to $5.75 billion for potential future redemptions of GE’s interest.
- Management expected continued competition and weak economic conditions to cause further video-customer declines during 2010.
- Programming costs, competitive pressure from other technologies and providers, regulation, economic weakness, technology and network disruptions, intellectual-property matters, litigation, acquisitions and the loss of key personnel were identified as material risks.
- Antitrust, ERISA and patent-related litigation remained outstanding. Management did not expect the matters to materially affect consolidated financial position, but stated that an individual matter could be material to results of operations or cash flows in a particular period.
- Comcast had a $410 million commitment supporting debt compliance for an affiliated cable system, expiring in March 2011; management did not expect funding to be required.
- Investment income included significant mark-to-market activity: gains on securities underlying prepaid forward sale agreements of $360 million were substantially offset by $277 million of related derivative losses.
- Transaction costs associated with the NBC Universal transaction included approximately $14 million in operating expenses and $13 million in other expense during the quarter.
Important facts for investors to verify
- Regulatory approval, closing mechanics, financing and final consideration for the NBC Universal transaction.
- Future leverage, debt maturities and the effect of the new notes and NBC Universal-related funding needs.
- Whether video-customer losses accelerate and whether Internet, phone and advertising growth offsets them.
- Sustainability of operating cash flow and the lower capital-expenditure level.
- Volatility and cash-flow effects from fair-value changes in investments and prepaid forward derivatives.
- Developments in the antitrust, ERISA and patent litigation and the $410 million affiliated-system commitment.
- Future share repurchases and dividends, including Board approval of quarterly dividends.