Comcast Corporation 2014 Q2 Form 10-Q Summary
Business context and reporting period
Comcast filed a combined quarterly report for Comcast Corporation and its wholly owned subsidiary NBCUniversal Media, LLC for the three and six months ended June 30, 2014. Comcast operates through Cable Communications and NBCUniversal, which includes Cable Networks, Broadcast Television, Filmed Entertainment and Theme Parks. The financial statements are unaudited and interim results are not necessarily indicative of full-year results.
As of June 30, 2014, Comcast Cable served approximately 22.5 million video customers, 21.3 million high-speed Internet customers and 11.0 million voice customers, and passed more than 54 million homes and businesses.
Key financial metrics
| Metric | Three months ended June 30, 2014 | Year-over-year change | Six months ended June 30, 2014 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $16.844 billion | 3.5% | $34.252 billion | 8.5% |
| Operating income | $3.804 billion | 10.7% | $7.372 billion | 13.4% |
| Net income | $2.025 billion | 16.1% | $3.963 billion | 17.0% |
| Net income attributable to Comcast | $1.992 billion | 14.8% | $3.863 billion | 21.8% |
| Diluted EPS | $0.76 | From $0.65 | $1.47 | From $1.19 |
| Operating cash flow | Not separately provided | Not applicable | $7.547 billion | Down from $7.685 billion |
| Capital expenditures | Not separately provided | Not applicable | $3.246 billion | Up from $2.867 billion |
Calculated consolidated margins were approximately 22.6% for operating income and 11.8% for net income attributable to Comcast in the second quarter. For the six-month period, operating and attributable net income margins were approximately 21.5% and 11.3%, respectively. Operating income before depreciation and amortization was $5.804 billion in the quarter and $11.342 billion year to date.
- Cable Communications revenue increased 5.4% in the quarter and 5.3% year to date. High-speed Internet revenue rose 9.7% and 9.4%, while business services revenue rose 22.4% and 23.1%, respectively.
- Cable Communications operating income before depreciation and amortization increased 5.3% in the quarter and 4.8% year to date.
- NBCUniversal revenue increased 0.3% in the quarter and 13.7% year to date. Year-to-date results benefited from the 2014 Sochi Olympics.
- NBCUniversal operating income before depreciation and amortization increased 20.4% in the quarter and 28.0% year to date. Filmed Entertainment profitability improved substantially despite lower revenue, primarily because of lower production, marketing and film-cost expenses.
- Cash and cash equivalents were $1.529 billion at June 30, 2014, compared with $1.718 billion at December 31, 2013. Current investments were $2.325 billion.
- Total debt, including current and long-term portions, had a carrying value of approximately $46.5 billion and an estimated fair value of $52.6 billion. Available borrowing capacity under consolidated revolving credit facilities was $6.3 billion.
- Current liabilities exceeded current assets; total current assets were $12.772 billion and total current liabilities were $17.375 billion. Liquidity also included operating cash flow, investments and committed credit facilities.
- Comcast repurchased $1.5 billion of common stock during the first six months and paid $1.092 billion of dividends. The quarterly dividend was $0.225 per share.
Material changes versus the prior comparable period
- Revenue growth was led by Cable Communications, especially high-speed Internet and business services, and by Olympic-related revenue at NBCUniversal.
- Operating leverage improved: operating income grew faster than revenue, while consolidated operating costs excluding depreciation and amortization increased more slowly than revenue for the quarter.
- Operating cash flow declined modestly despite higher net income, primarily because of changes in operating assets and liabilities, including the timing of film and television production costs, Olympic-related deferred revenue and payments for participations, residuals and programming obligations.
- Capital expenditures increased by $379 million year to date, largely because of customer-premise equipment for the X1 and Cloud DVR platforms and continued network-capacity investment.
- Residential video customers declined by 120,000 in the first six months, while high-speed Internet customers increased by 587,000 and voice customers increased by 279,000. Comcast changed its methodology for counting certain multiple-dwelling-unit customers, which affects comparability of reported customer metrics.
- The 2014 results include $1.1 billion of Olympic-related consolidated revenue. Excluding this amount, consolidated revenue growth for the first six months was 5.0%.
- Corporate and other operating costs included $61 million of Time Warner Cable merger and divestiture transaction costs year to date, compared with no comparable amount identified for 2013.
Guidance, outlook, commentary, risks and unusual items
- Management expected the 2014 annual effective tax rate to be between 37% and 39%, absent changes in tax laws or significant changes in uncertain tax positions.
- Comcast intended to repurchase approximately $3 billion of shares in 2014, subject to market conditions, and intended to repurchase an additional $2.5 billion after shareholder approval of the Time Warner Cable merger, also subject to conditions.
- Comcast entered into an agreement to acquire Time Warner Cable in an all-stock transaction. Time Warner Cable shareholders were expected to own approximately 23% of Comcast common stock after closing. The transaction remained subject to shareholder approval, regulatory review and other customary conditions.
- Under its agreement with Charter, Comcast contemplated divesting cable systems representing a net disposition of approximately 3.9 million video customers through a spin-off, an exchange of systems and a cash sale. The divestitures were subject to the Time Warner Cable merger, regulatory approvals, financing and other conditions.
- NBCUniversal agreed to extend its Olympic broadcast rights from 2022 through 2032 for $7.75 billion, increasing future programming commitments.
- Key operating risks include competition from satellite, telephone and online video providers; changing consumer behavior and technology; rising programming and sports-rights costs; advertising volatility; content acceptance and production risk; regulation; cyber and network disruptions; labor disputes; and execution and regulatory risks related to strategic transactions.
- Pending antitrust and other litigation was not expected to have a material adverse effect on consolidated financial position, although the company stated that individual matters could be material to results of operations or cash flows for a particular period.
- New revenue-recognition guidance will be effective January 1, 2017. Comcast had not yet determined the impact or adoption method.
Important facts for investors to verify
- Verify the status, closing conditions and regulatory consequences of the proposed Time Warner Cable merger and the related Charter divestiture transactions.
- Assess the sustainability of high-speed Internet and business-services growth against continuing residential video-customer losses.
- Review Olympic-related revenue and expense impacts separately from underlying NBCUniversal performance.
- Monitor debt maturities, commercial paper balances, interest costs and the $6.3 billion of stated revolving-credit availability.
- Reconcile share repurchases, dividend commitments and planned additional repurchases with cash flow and transaction funding needs.
- Evaluate the effect of rising programming, sports-rights and content-production costs on future margins and cash generation.
- Review pending litigation, contractual obligations and contingent consideration, including Level 3 fair-value estimates based on projected revenue and tax benefits.