Comcast Corporation — Form 10-Q Summary
Business context and reporting period
Quarterly report for the three and six months ended June 30, 2010. Comcast operated primarily through its Cable segment, providing video, high-speed Internet and phone services, and its Programming segment, consisting mainly of national programming networks. Cable represented approximately 94% of consolidated revenue. At June 30, 2010, cable systems served approximately 23.2 million video, 16.4 million high-speed Internet and 8.1 million phone customers.
Key financial metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $9.525 billion, up 6.1% | $18.727 billion, up 4.9% |
| Operating income | $2.078 billion, up 10.9% | $4.013 billion, up 8.9% |
| Operating margin | 21.8%, versus 20.9% | 21.4%, versus 20.7% |
| Net income attributable to Comcast | $884 million, down 8.6% | $1.750 billion, up 0.6% |
| Diluted EPS | $0.31, versus $0.33 | $0.62, versus $0.60 |
| Net cash from operating activities | Not separately provided | $5.332 billion, versus $5.113 billion |
- Six-month cash uses included $2.063 billion of capital expenditures, $237 million for intangible assets, $183 million for acquisitions, $600 million of share repurchases and $535 million of dividends.
- Cash and cash equivalents increased to $4.028 billion from $671 million at December 31, 2009.
- Debt carrying value was $30.992 billion, including $2.308 billion current debt and $28.684 billion long-term debt. Estimated debt fair value was $34.029 billion.
- Available borrowing capacity under credit facilities was approximately $6.4 billion.
- Six-month operating cash flow less capital expenditures was approximately $3.269 billion before intangible-asset purchases and acquisitions.
- The quarterly dividend was $0.0945 per common share; the planned annual dividend was $0.378 per share.
Material changes versus the prior comparable period
- Cable revenue increased 4.3% for the first six months, while Cable operating income before depreciation and amortization increased 4.9% to $7.240 billion.
- Programming revenue increased 12.6% to $839 million and operating income before depreciation and amortization increased 21.5% to $273 million.
- High-speed Internet customers increased by 517,000 and phone customers by 503,000; video customers declined by 347,000.
- Video revenue was essentially stable, while high-speed Internet, phone and advertising revenue increased. Cable video revenue declined 0.5% for the six-month period.
- Capital expenditures decreased 9.2% in the Cable segment to approximately $2.0 billion.
- Interest expense declined to $1.067 billion from $1.121 billion for the six-month period, primarily because of lower average debt and lower rates on variable-rate debt subject to swaps.
- Net investment income was $101 million versus $70 million, but second-quarter investment income was zero versus $57 million in the prior year, reflecting market-value volatility in securities and related derivatives.
- Income tax expense increased to $1.179 billion from $885 million. The prior-year period benefited from approximately $185 million of favorable settlements of uncertain tax positions and related interest.
- Comcast issued $2.4 billion of notes in March 2010, consisting of $1.4 billion of 5.15% notes due 2020 and $1.0 billion of 6.4% notes due 2040.
Guidance, outlook, risks and unusual items
- Management expected the 2010 annual effective tax rate to be approximately 40%.
- Management expected further declines in video customers during the second half of 2010. Video, Internet and phone customer results were weaker than expected in June and July because of expired digital-transition promotions, competition and a weaker economic environment.
- The proposed NBC Universal transaction was expected to close by the end of 2010, subject to regulatory approvals. Comcast would own and control 51%, contribute assets valued at approximately $7.25 billion and pay GE $7.1 billion less specified adjustments.
- NBC Universal had borrowed $4 billion and planned to borrow an additional $5.1 billion before closing. Comcast also committed to fund up to $5.75 billion in aggregate for potential future redemptions of GE’s interest, subject to limitations.
- Comcast recorded $36 million of transaction-related legal, accounting and valuation costs during the first six months and $52 million of shared financing and other costs related to the transaction.
- Comcast reported a $410 million notional commitment supporting debt compliance for an investee cable system; management did not expect funding to be required.
- Material litigation included antitrust class actions, set-top-box tying claims, patent matters and an ERISA action. The ERISA action was agreed to be settled for $5 million. Management stated that the litigation was not expected to materially affect consolidated financial position, although an individual period’s results or cash flows could be affected.
- Principal disclosed risks included competition and technology changes, rising programming costs, regulation, weak economic conditions, network and technology disruptions, intellectual-property claims, litigation, strategic transaction execution and dependence on key personnel.
- Management concluded that disclosure controls and procedures were effective and reported no material changes in internal control over financial reporting.
Facts investors should verify
- Progress, regulatory approval and financing requirements for the NBC Universal transaction, including the potential GE redemption obligations.
- Whether the expected second-half video-customer losses and weaker June-July trends persist, and their effect on revenue and margins.
- Debt maturities, refinancing needs and leverage after the new note issuance and any NBC Universal-related borrowing.
- The sustainability of operating cash flow after capital expenditures, intangible-asset purchases, acquisitions, dividends and share repurchases.
- Exposure and earnings volatility from investment securities, prepaid forward agreements and derivatives.
- Developments and potential costs in the outstanding antitrust, patent and other legal proceedings.