Comcast Corporation: Q3 2013 Form 10-Q Summary
Business context and reporting period
Comcast is a global media and technology company operating through Cable Communications and NBCUniversal. Reported segments are Cable Communications, Cable Networks, Broadcast Television, Filmed Entertainment and Theme Parks. The filing covers the three and nine months ended September 30, 2013, with comparisons to the 2012 periods.
- As of September 30, 2013, Cable Communications served 21.6 million video, 20.3 million high-speed Internet and 10.5 million voice customers.
- Cable Communications generated 65% of consolidated nine-month revenue and more than 80% of operating income before depreciation and amortization.
Financial performance and liquidity
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $16.151 billion | $16.544 billion | $47.731 billion | $46.633 billion |
| Operating income | $3.414 billion | $3.048 billion | $9.916 billion | $8.885 billion |
| Net income | $1.778 billion | $2.978 billion | $5.167 billion | $6.058 billion |
| Net income attributable to Comcast | $1.732 billion | $2.113 billion | $4.903 billion | $4.685 billion |
| Diluted EPS | $0.65 | $0.78 | $1.84 | $1.72 |
| Cash flow from operations | Not separately provided | Not separately provided | $11.679 billion | $11.239 billion |
- Q3 revenue declined 2.4%, while nine-month revenue increased 2.4%. Excluding 2012 London Olympics revenue, management stated that revenue increased 5.2% in Q3 and 5.6% for the nine months excluding the 2012 Super Bowl and Olympics.
- Operating income margins were approximately 21.1% in Q3 and 20.8% for the nine months, versus approximately 18.4% and 19.1% in the comparable 2012 periods.
- Operating income before depreciation and amortization was $5.330 billion in Q3 and $15.789 billion for the nine months, equivalent to approximate margins of 33.0% and 33.1%. This is a management segment measure and is not a GAAP substitute for operating income or cash flow.
- Operating cash flow increased 3.9% year over year for the nine months. Capital expenditures were $4.593 billion, cash paid for intangible assets was $694 million and real estate acquisitions were $1.705 billion.
- Cash and cash equivalents were $1.603 billion at September 30, 2013, compared with $10.951 billion at December 31, 2012. Investments totaled $7.804 billion, including $4.132 billion classified as current.
- Total debt was $46.525 billion, including $2.337 billion current debt, compared with $40.458 billion at December 31, 2012. Consolidated revolving credit availability was $5.7 billion, net of commercial paper and undrawn letters of credit.
- Comcast shareholders’ equity was $49.718 billion and total equity was $50.134 billion at September 30, 2013.
- Dividends declared were $0.195 per common share for Q3; $1.454 billion of dividends were paid during the nine months. Comcast repurchased $1.5 billion of common stock during the nine months.
Material changes versus the prior comparable period
- On March 19, 2013, Comcast acquired GE’s remaining 49% common equity interest in NBCUniversal Holdings for approximately $16.7 billion and acquired related real estate for approximately $1.4 billion. The transaction increased debt and reduced cash, while eliminating most prior noncontrolling interest attributable to GE.
- Cable Communications revenue increased 5.2% in Q3 and 5.8% for the nine months. High-speed Internet revenue increased 7.9% and 8.1%, while business services revenue increased 26.4% and 26.8%. Video customers declined by 129,000 in Q3 and 348,000 year to date.
- NBCUniversal revenue declined 14.2% in Q3 and 3.4% for the nine months because the 2012 comparable periods included the London Olympics and Super Bowl. NBCUniversal operating income before depreciation and amortization nevertheless increased 9.6% in Q3 and 15.6% for the nine months.
- Broadcast Television revenue declined 41.1% in Q3 and 21.1% for the nine months, primarily reflecting the absence of the 2012 Olympics and Super Bowl. Filmed Entertainment operating income before depreciation and amortization improved to $189 million in Q3 from $72 million and to $291 million for the nine months from a $5 million loss.
- Net income attributable to Comcast increased 4.7% for the nine months but declined 18.0% in Q3. The Q3 decline reflected substantially lower other income, including prior-year gains on the sale of A&E Television Networks and lower equity income.
- Investment income included a $443 million pretax gain from the sale of Comcast’s Clearwire investment. Current-period results also included $135 million of equity losses from Hulu and a $236 million impairment related to a regional sports network investment and loans.
- A $74 million pension settlement expense was recorded in Q3 operating and administrative expenses.
Guidance, outlook, risks and unusual items
- Management expects a 2013 annual effective tax rate of approximately 35% to 40%, absent changes in tax law or significant changes in uncertain tax positions.
- Management expects to continue using cash flow for debt repayment, capital expenditures, investments and shareholder returns and believes available operating cash flow, cash and investments, credit facilities and external financing will meet liquidity requirements.
- Comcast expects programming expenses to continue increasing and plans to offset them through pricing, additional services and operating efficiencies.
- Key risks include competition from satellite, telephone and digital providers; changing consumer viewing and technology behavior; rising programming costs; advertising market weakness; regulatory requirements; cybersecurity and network disruptions; content acceptance and programming-rights risks; litigation; labor disputes; and risks associated with strategic transactions.
- Pending antitrust and other litigation remains unresolved. Management does not expect the antitrust matters to materially affect consolidated financial position, but an individual period’s results or cash flows could be materially affected. The filing does not provide a clear range of reasonably possible loss.
- The annual impairment test for cable franchise rights was completed as of July 1, 2013, and no impairment charge was required.
- Forward-looking statements are subject to the risks described in the filing, and management undertakes no obligation to update them.
Important facts for investors to verify
- Reconcile reported revenue and profit trends for the absence of 2012 Olympic and Super Bowl comparisons, including management’s adjusted comparisons excluding those events.
- Assess leverage and refinancing requirements following the NBCUniversal redemption transaction, including $46.525 billion of total debt and $5.7 billion of available revolving capacity.
- Monitor video-customer losses against continued growth in high-speed Internet, voice and business services.
- Evaluate the sustainability of operating-margin expansion given rising programming costs and continued capital expenditures.
- Review the effect of nonrecurring or volatile items, including the Clearwire gain, Hulu losses, sports-network impairment, pension settlement and investment valuation adjustments.
- Verify the assumptions underlying $682 million of contingent consideration related to future tax benefits payable to GE and $1.130 billion of contractual obligations.
- Confirm the status and potential financial impact of pending antitrust, patent and other legal proceedings.