Comcast Corporation 10-Q Summary
Business Context and Reporting Period
Comcast Corporation filed this unaudited Form 10-Q for the three and nine months ended September 30, 2009, filed November 4, 2009. Comcast operated primarily through its Cable and Programming segments; Cable generated approximately 95% of consolidated revenue. At September 30, 2009, Cable served approximately 23.8 million video, 15.7 million high-speed Internet and 7.4 million phone customers, passing more than 51 million homes.
Financial Performance and Position
| Metric | Three Months Ended September 30, 2009 | Nine Months Ended September 30, 2009 |
|---|---|---|
| Revenue | $8.802 billion | $26.575 billion |
| Operating income | $1.711 billion | $5.397 billion |
| Net income attributable to Comcast | $944 million | $2.683 billion |
| Diluted EPS | $0.33 | $0.93 |
| Net cash from operating activities | Not separately provided | $7.725 billion |
- Operating margin was approximately 19.4% for the quarter and 20.3% for the nine months; net margin was approximately 10.7% and 10.1%, respectively.
- Operating income before depreciation and amortization was $3.326 billion for the quarter and $10.305 billion for the nine months, equivalent to margins of approximately 37.8% and 38.8%. This is a management performance measure and is not a GAAP substitute.
- Capital expenditures were $3.508 billion for the nine months, including $3.450 billion in Cable. Cash paid for intangible assets was $383 million.
- Cash and cash equivalents were $862 million at September 30, 2009, compared with $1.195 billion at December 31, 2008. Available borrowings under credit facilities and the commercial paper program totaled approximately $6.2 billion.
- Total debt was approximately $29.447 billion, consisting of $954 million current debt and $28.493 billion long-term debt, compared with approximately $32.456 billion at year-end 2008. Estimated debt fair value was $32.153 billion.
- Total assets were $112.463 billion and total equity was $42.381 billion at September 30, 2009.
Material Changes Versus the Prior Comparable Period
- Nine-month revenue increased 4.3% to $26.575 billion, operating income increased 8.5% to $5.397 billion, and net income attributable to Comcast increased 25.7% to $2.683 billion.
- Third-quarter revenue increased 3.0%, operating income increased 2.4%, and net income attributable to Comcast increased 22.5% versus the third quarter of 2008.
- Cable revenue increased 4.3% for the nine months, while Cable operating income before depreciation and amortization increased 4.8% to $10.221 billion. Programming revenue increased 4.8% and its comparable operating income measure increased 11.9%.
- Revenue growth reflected higher high-speed Internet and phone revenue and rate adjustments and service upgrades in video. Video customers declined by approximately 424,000 year to date, while high-speed Internet customers increased by approximately 755,000 and digital phone customers by approximately 906,000.
- Advertising revenue declined 19.8% in Cable for the nine months, primarily because of weakness in the television advertising market, particularly automotive and housing, and lower political advertising.
- Cable capital expenditures declined 11.0% to approximately $3.4 billion. Comcast repurchased approximately 31.6 million shares for approximately $465 million and paid $568 million of dividends.
- Debt declined primarily through approximately $2.0 billion of scheduled maturities and a $1.3 billion cash tender offer. The company issued $1.5 billion of long-term notes in June 2009 and repaid all $1.0 billion outstanding under its revolving credit facility during the nine months.
Guidance, Outlook, Risks and Unusual Items
- Management stated that it expects to meet current and long-term liquidity and capital requirements through operating cash flow, existing cash and investments, available borrowings and future external financing. No specific earnings or revenue guidance was provided.
- Management expects continued capital expenditures and continued use of cash for debt repayment, business opportunities and shareholder returns. It expects further video-customer declines because of competition and weak economic conditions, while growth in high-speed Internet and phone customers has slowed.
- Income tax expense was reduced by approximately $251 million in the quarter and $436 million year to date, primarily from recognized benefits related to uncertain tax positions, related interest and corporate reorganizations. Management expected the 2009 annual effective tax rate to be below its normal rate of approximately 40%. Unrecognized tax benefits were approximately $1.2 billion at September 30, 2009, with tentative settlements expected to produce additional 2009 benefits.
- Investment income included significant mark-to-market effects from prepaid forward sale agreements. Unrealized gains on underlying securities were $456 million in the quarter and $836 million year to date, partly offset by derivative mark-to-market losses of $357 million and $697 million, respectively.
- Third-quarter interest expense included approximately $180 million of costs, primarily tender-offer premiums associated with the July 2009 debt tender.
- Comcast reported no impairment charge from its July 1, 2009 annual impairment testing of cable franchise rights.
- Key disclosed risks include competition and technological change, increasing programming costs, federal, state and local regulation, economic weakness, technology and network disruptions, intellectual-property claims, litigation, and risks associated with acquisitions and strategic transactions.
- Material litigation includes antitrust class actions, ERISA litigation and patent-infringement matters. Comcast stated that the matters are not expected to materially affect consolidated financial position, but an outcome could be material to results or cash flows for a particular period. A subsidiary also had a $410 million debt-compliance support commitment expiring in March 2011; management did not expect to be required to fund it.
- Management concluded that disclosure controls and procedures were effective and reported no material change in internal control over financial reporting. No significant changes were reported to previously disclosed risk factors.
Important Facts for Investors to Verify
- Whether video-customer losses accelerate and whether high-speed Internet and phone additions continue to offset pressure in video and advertising.
- The sustainability of operating margins as programming expenses rise faster than revenue in portions of the Cable business.
- The effect of the $251 million quarterly and $436 million year-to-date tax benefits on normalized earnings and the outcome of tentative tax settlements.
- Debt maturities, refinancing needs, interest-rate exposure and remaining liquidity after the debt repayments and tender offer.
- The volatility and cash-flow implications of prepaid forward sale agreements, derivatives and investment mark-to-market gains.
- Developments in the antitrust, ERISA and patent litigation and the $410 million support commitment.
- The effect of share repurchases and the planned $0.27 annual dividend on liquidity and capital allocation.