Comcast Corporation — 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. This unaudited Form 10-Q covers the three and six months ended June 30, 2013, with comparisons to the corresponding 2012 periods.
As of June 30, 2013, Cable Communications served approximately 21.8 million video customers, 20.0 million high-speed Internet customers and 10.3 million voice customers, and passed more than 53 million homes and businesses. Cable Communications generated approximately 65% of consolidated six-month revenue and more than 80% of operating income before depreciation and amortization.
Key financial metrics
| Metric | Three months ended June 30, 2013 | Three months ended June 30, 2012 | Six months ended June 30, 2013 | Six months ended June 30, 2012 |
|---|---|---|---|---|
| Revenue | $16.270 billion | $15.211 billion | $31.580 billion | $30.089 billion |
| Operating income | $3.435 billion | $3.079 billion | $6.502 billion | $5.837 billion |
| Operating margin | 21.1% | 20.2% | 20.6% | 19.4% |
| Operating income before depreciation and amortization | $5.425 billion | $5.004 billion | $10.459 billion | $9.692 billion |
| Pre-D&A operating margin | 33.3% | 32.9% | 33.1% | 32.2% |
| Net income attributable to Comcast | $1.734 billion | $1.348 billion | $3.171 billion | $2.572 billion |
| Diluted EPS | $0.65 | $0.50 | $1.19 | $0.94 |
| Cash flow from operating activities | Not separately provided | Not separately provided | $7.685 billion | $7.815 billion |
Revenue increased 7.0% in the quarter and 5.0% year to date. Operating income increased 11.6% and 11.4%, respectively, while net income attributable to Comcast increased 28.6% and 23.3%. Interest expense was $636 million in the quarter and $1.289 billion year to date.
At June 30, 2013, cash and cash equivalents were $1.389 billion, compared with $10.951 billion at December 31, 2012. Total debt was $46.649 billion, including $2.535 billion current debt and $44.114 billion long-term debt. Available capacity under consolidated revolving credit facilities, net of commercial paper and undrawn letters of credit, was $5.7 billion.
Six-month capital expenditures were $2.867 billion, compared with $2.461 billion in 2012. Cash used in investing activities was $4.960 billion and cash used in financing activities was $12.287 billion. The company paid $942 million of dividends and repurchased $1.000 billion of common stock during the first six months.
Material changes versus the prior comparable period
- Comcast acquired GE’s remaining 49% common equity interest in NBCUniversal Holdings on March 19, 2013, for approximately $16.7 billion. The transaction included $11.4 billion of cash, $4.0 billion of senior debt, $750 million of commercial paper borrowings, $1.25 billion drawn under a credit facility and $725 million of redeemable preferred stock.
- NBCUniversal also acquired properties at 30 Rockefeller Plaza and CNBC’s headquarters for approximately $1.4 billion, including $1.311 billion of cash paid during the first six months.
- Following the transaction, redeemable noncontrolling interests and redeemable subsidiary preferred stock declined from $16.998 billion at year-end 2012 to $853 million, while debt increased by approximately $6.2 billion.
- Cable Communications revenue increased 5.8% in the quarter and 6.1% year to date. High-speed Internet revenue increased 8.0% and 8.3%, and business services revenue increased 26.4% and 26.9%, respectively.
- Video customers declined by 159,000 in the quarter and 219,000 year to date, while high-speed Internet customers increased by 187,000 and 620,000, and voice customers increased by 161,000 and 372,000.
- NBCUniversal revenue increased 8.9% in the quarter and 3.3% year to date. NBCUniversal pre-D&A operating income increased 21.3% and 19.5%, driven particularly by Cable Networks and improved Filmed Entertainment results.
- Broadcast Television year-to-date revenue declined 4.8% because the prior-year period included the 2012 Super Bowl. Excluding $259 million of prior-year Super Bowl revenue, management stated that year-to-date revenue increased approximately 3%.
- Operating cash flow declined modestly year to date, primarily reflecting higher tax payments, while cash investment and financing outflows increased substantially because of the NBCUniversal transactions, property purchases and shareholder returns.
Guidance, outlook, commentary, risks and unusual items
Management expects the 2013 annual effective income tax rate to be approximately 35% to 40%, absent changes in tax laws or significant changes in uncertain tax positions. No broader revenue or earnings guidance is provided in the filing.
Management believes liquidity is sufficient to meet current and long-term requirements through operating cash flow, existing cash and investments, available credit facilities and future external financing. The company expects to continue using cash for debt repayment, capital expenditures, business opportunities and shareholder returns. The Board increased the annualized dividend by 20% to $0.78 per share and management expects to continue quarterly dividends subject to Board approval. Comcast expects to repurchase an additional $1 billion of shares during the remainder of 2013, subject to market conditions.
Notable unusual items include the $108 million gain on the sale of wireless spectrum licenses in January 2013, substantial fair-value volatility related to prepaid forward sale agreements and indexed debt instruments, and $113 million of adjustments to capitalized film production costs during the first six months. The company expects to recognize a $443 million unrealized gain on its Clearwire investment in third-quarter 2013 following the July 2013 sale.
Key risks include intense competition, changing consumer behavior and technology, rising programming costs, advertising-market weakness, content acceptance and licensing risks at NBCUniversal, regulatory exposure, cybersecurity and network disruptions, labor disputes, litigation, intellectual-property claims, international operations and execution risk associated with acquisitions and strategic transactions. The filing states that there were no significant changes to previously disclosed risk factors.
Comcast is involved in antitrust class actions and other litigation. A comprehensive settlement agreement covering 23 antitrust cases was submitted for preliminary approval in June 2013. Management does not expect these cases to have a material effect on consolidated results, cash flows or financial position, although a resolution could be material to results or cash flows in an individual period. The ultimate outcome and potential loss range are not predictable.
Most important facts for investors to verify
- Assess the effect of the NBCUniversal redemption transaction on leverage, interest expense, preferred-stock obligations, tax liabilities and future cash flows.
- Monitor video-customer losses against continued growth in high-speed Internet, voice and business services.
- Verify whether programming-cost inflation continues to outpace revenue growth and pressures Cable Communications margins.
- Evaluate the sustainability of operating cash flow after higher taxes, capital expenditures, debt service, dividends and share repurchases.
- Review the assumptions underlying fair values for prepaid forward sale agreements, contractual obligations and contingent consideration payable to GE.
- Track the Clearwire gain, the planned fourth-quarter 2013 contract transaction and other unusual items for their effect on subsequent-period earnings.
- Follow the antitrust settlement approval process and any developments in other litigation, regulatory matters or contingent liabilities.
- Confirm that the stated 35% to 40% tax-rate outlook and planned shareholder distributions remain applicable in subsequent filings.