Comcast Corporation — Form 10-Q Summary
Business context and reporting period
Comcast is a diversified communications, media and entertainment company operating through Cable Communications and NBCUniversal segments, including cable networks, broadcast television, filmed entertainment and theme parks. The filing covers the three and nine months ended September 30, 2012, with comparisons to the corresponding 2011 periods. Results include NBCUniversal following its January 2011 acquisition and Universal Orlando following its July 2011 acquisition.
As of September 30, 2012, Cable Communications served approximately 22.0 million video, 19.0 million high-speed Internet and 9.8 million voice customers, passing more than 52 million homes and businesses in 39 states and the District of Columbia.
Key financial metrics
| Metric | Three months ended September 30, 2012 | Three months ended September 30, 2011 | Nine months ended September 30, 2012 | Nine months ended September 30, 2011 |
|---|---|---|---|---|
| Revenue | $16.544 billion | $14.339 billion | $46.633 billion | $40.800 billion |
| Operating income | $3.048 billion | $2.641 billion | $8.885 billion | $7.803 billion |
| Operating margin | 18.4% | 18.4% | 19.1% | 19.1% |
| Net income | $2.978 billion | $1.166 billion | $6.058 billion | $3.572 billion |
| Net income attributable to Comcast | $2.113 billion | $908 million | $4.685 billion | $2.873 billion |
| Diluted EPS | $0.78 | $0.33 | $1.72 | $1.03 |
| Cash flow from operating activities | Not separately provided | Not separately provided | $11.239 billion | $10.206 billion |
- Consolidated operating income before depreciation and amortization was $5.008 billion in the third quarter and $14.700 billion for the nine-month period, representing margins of approximately 30.3% and 31.5%, respectively.
- Capital expenditures were $4.043 billion for the first nine months, compared with $3.785 billion in 2011. Cash paid for intangible assets was $605 million.
- Cash and cash equivalents were $8.899 billion at September 30, 2012, compared with $1.620 billion at December 31, 2011. Current assets were $18.066 billion versus current liabilities of $17.335 billion.
- Total debt was approximately $38.590 billion, consisting of $2.799 billion current debt and $35.791 billion long-term debt. Estimated debt fair value was $46.1 billion.
- Available borrowing capacity was $5.8 billion under Comcast’s $6.25 billion revolving facility and $1.4 billion under NBCUniversal’s $1.5 billion facility.
- Comcast repurchased $2.250 billion of common stock during the first nine months and paid $1.176 billion of dividends. The quarterly dividend was increased 44% to $0.1625 per share, or $0.65 annualized.
Material changes versus the prior comparable periods
- Third-quarter revenue increased 15.4% and nine-month revenue increased 14.3%. Operating income increased 15.4% and 13.9%, respectively.
- Net income attributable to Comcast increased 132.8% in the third quarter and 63.0% for the first nine months. The improvement was substantially affected by nonrecurring or unusual investment-related items.
- Investment income improved to $70 million in the third quarter and $170 million for the nine months, compared with losses or minimal income in 2011, primarily due to changes in the value of securities underlying prepaid forward sale agreements and related derivatives.
- Equity in net income of investees included an $876 million gain from SpectrumCo’s sale of AWS spectrum licenses to Verizon Wireless. SpectrumCo distributed $2.3 billion to Comcast.
- Other income included a pretax gain of approximately $1.0 billion from NBCUniversal’s redemption of its 15.8% interest in A&E Television Networks for $3.0 billion.
- Broadcast Television benefited from the 2012 Super Bowl and London Olympics. The Olympics generated approximately $1.2 billion of third-quarter revenue and $120 million of operating income before depreciation and amortization; these events materially affect comparability and are seasonal.
- Cable Communications revenue increased 6.9% in the third quarter and 6.2% for the first nine months. High-speed Internet and business services were significant growth drivers, while video customers declined by 117,000 in the quarter and 330,000 year to date.
- Filmed Entertainment improved but remained slightly unprofitable before depreciation and amortization for the first nine months, with results affected by film performance, including the underperformance of Battleship.
Guidance, outlook, commentary and risks
- Management expected a 2012 annual effective tax rate of approximately 33% to 35%, partly because a portion of the A&E gain was attributable to noncontrolling interests.
- Management stated that operating cash flow, existing cash and investments, available credit facilities and future financing should be sufficient to meet liquidity and capital requirements, including debt repayments, capital expenditures, investments, shareholder returns and potential future redemptions of GE’s NBCUniversal interest.
- NBCUniversal issued $2.0 billion of senior notes in October 2012. Proceeds were expected to support redemption of $406 million of Universal Orlando debt in November 2012. NBCUniversal also expected approximately $50 million of additional tax distributions to GE in the fourth quarter related to the A&E transaction.
- Key risks include intense competition, changing consumer behavior and technology, rising programming costs, advertising-market weakness, dependence on successful NBCUniversal content, renewal of programming distribution agreements, regulation, cyber or network disruption, labor disputes, litigation, international operations and acquisition integration.
- The NHL lockout could reduce the number of games broadcast and affect Cable Networks and Broadcast Television results.
- Comcast was defending significant antitrust class actions and other litigation. Management could not predict the outcomes or reasonably estimate potential losses; it did not expect a material adverse effect on consolidated financial position, although individual-period results or cash flows could be materially affected.
- Fair value adjustments of $155 million were recorded for film or stage production costs during the first nine months. No impairment charge was recorded in the July 1, 2012 annual testing of cable franchise rights.
- Disclosure controls were deemed effective, and the filing reported no material changes in internal control over financial reporting.
Important facts for investors to verify
- Separate recurring operating performance from the $1.0 billion A&E gain, $876 million SpectrumCo gain and Olympics and Super Bowl effects.
- Reconcile reported cash growth with the $2.3 billion SpectrumCo distribution, $3.0 billion A&E proceeds, debt activity and shareholder returns.
- Monitor video-customer losses against continued high-speed Internet, voice and business-services growth.
- Review total leverage, upcoming maturities, NBCUniversal debt issuance and potential GE noncontrolling-interest redemption obligations.
- Assess the sustainability of programming, sports-rights and content-production costs relative to revenue growth.
- Track antitrust proceedings, the California waste-disposal investigation and other litigation for potential cash or earnings impacts.
- Confirm subsequent results against the stated 33% to 35% 2012 effective tax-rate expectation and the company’s liquidity assumptions.