Business Context and Reporting Period
Comcast Corporation filed a combined Form 10-K with wholly owned NBCUniversal Media, LLC for the fiscal year ended December 31, 2016. Comcast operates through Cable Communications and NBCUniversal, which includes Cable Networks, Broadcast Television, Filmed Entertainment and Theme Parks. The filing also reports fourth-quarter 2016 results.
Comcast Cable provides video, high-speed Internet, voice, business and advertising services. NBCUniversal produces and distributes television, film and digital content and operates Universal theme parks.
Financial Performance and Key Metrics
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Revenue | $80.403 billion | $74.510 billion | +7.9% |
| Operating income | $16.859 billion | $15.998 billion | +5.4% |
| Net income attributable to Comcast | $8.695 billion | $8.163 billion | +6.5% |
| Diluted EPS, pre-split | $3.57 | $3.24 | +10.2% |
| Net cash from operating activities | $19.240 billion | $18.778 billion | +2.5% |
| Total debt | $61.046 billion | $52.621 billion | +$8.425 billion |
Consolidated operating income before depreciation and amortization was $26.417 billion, compared with $24.678 billion in 2015. Operating income represented approximately 21.0% of revenue, while net income attributable to Comcast represented approximately 10.8% of revenue.
- Cable Communications: Revenue increased 6.6% to $50.048 billion; operating income before depreciation and amortization increased 5.6% to $20.109 billion. The segment margin declined to 40.2% from 40.6%, primarily because programming costs increased faster than revenue.
- NBCUniversal: Revenue increased 11.0% to $31.593 billion and operating income before depreciation and amortization increased 13.8% to $7.227 billion. Broadcast Television revenue increased 19.0%, Cable Networks increased 8.7%, Theme Parks increased 48.2% on an actual basis, and Filmed Entertainment declined 12.7%.
- Customer metrics: Total customer relationships reached 28.6 million, including 22.5 million video, 24.7 million high-speed Internet and 11.7 million voice customers. High-speed Internet customers increased by 1.4 million; video customers increased by 161,000.
- Cash investment: Capital expenditures were $9.135 billion, including $7.596 billion in Cable Communications and $1.452 billion in NBCUniversal. Cash paid for intangible assets was $1.686 billion.
- Shareholder returns: Comcast repurchased approximately 81 million shares for $5.0 billion and paid $2.601 billion in dividends during 2016. Dividends declared were $1.10 per pre-split share.
Fourth Quarter 2016
| Metric | Fourth quarter 2016 | Fourth quarter 2015 |
|---|---|---|
| Revenue | $21.025 billion | $19.245 billion |
| Operating income | $4.264 billion | $4.002 billion |
| Net income attributable to Comcast | $2.296 billion | $1.971 billion |
| Diluted EPS, pre-split | $0.95 | $0.79 |
Fourth-quarter 2016 net income attributable to Comcast included a $225 million pretax, or $143 million after-tax, benefit from settling amounts owed under an agency agreement involving Verizon Wireless sales of Comcast services.
Material Changes Versus the Prior Comparable Period
- Revenue growth benefited from stronger Cable Communications results and NBCUniversal’s broadcast of the 2016 Rio Olympics, which generated approximately $1.6 billion of revenue.
- Broadcast Television benefited from approximately $1.2 billion of Rio Olympics revenue and higher retransmission-consent fees, advertising prices and political advertising.
- Theme Parks benefited from increased attendance and guest spending, the Hollywood Wizarding World of Harry Potter attraction and a stronger Japanese yen. Approximately one-third of the segment’s 2016 revenue and operating income growth was attributed to foreign currency translation.
- Filmed Entertainment results declined from the unusually strong 2015 slate, which included Furious 7, Jurassic World and Minions.
- Comcast acquired DreamWorks Animation in August 2016 for approximately $3.8 billion. Its 2016 revenue and net income contribution was not material, and the acquisition added approximately $2.7 billion of goodwill in the preliminary purchase-price allocation.
- Total debt increased primarily because of new borrowings used for general corporate purposes and acquisitions. Interest expense increased to $2.942 billion from $2.702 billion.
Guidance, Outlook, Risks and Unusual Items
- Management expected 2017 programming expenses to grow faster than in 2016 because of contract renewals, retransmission-consent fees, sports rights and expanded content distribution. This creates pressure on Cable Communications margins.
- 2017 capital spending was expected to focus on network capacity, business-services line extensions, wireless gateways, the X1 platform, cloud DVR technology, theme-park attractions and development of the Beijing Universal theme park.
- Management expected a 2017 effective tax rate of approximately 35% to 37%, absent tax-law changes or significant changes in uncertain tax positions.
- Comcast anticipated launching a Comcast-branded wireless service in 2017 using a third-party wireless network. Management noted that the launch would require working capital for handsets and other equipment and could negatively affect cash flow if execution is unsuccessful.
- Liquidity remained substantial: cash and cash equivalents were $3.301 billion, and availability under consolidated credit facilities, net of commercial paper and letters of credit, was $5.5 billion. Management stated that it expected operating cash flow, existing liquidity and external financing capacity to meet obligations and planned investments.
- Material commitments included $61.133 billion of debt obligations, $51.649 billion of purchase obligations and $4.007 billion of operating lease obligations. Programming and talent commitments include long-term Olympic, NFL, NHL, soccer, NASCAR and other sports rights.
- A theme-park contractual arrangement had a carrying value of approximately $1.1 billion and gives the counterparty an option beginning in June 2017 to require a cash purchase. The estimated value under the contractual formula was approximately $1.4 billion as of December 31, 2016.
- Principal risks include cord-cutting and online video competition, declining television audience ratings, rising programming costs, dependence on successful content, regulatory changes, privacy and cybersecurity incidents, technology execution, labor disputes, foreign exchange exposure and acquisition integration.
- Comcast’s Class B shares represented a nondilutable 33 1/3% voting interest and were beneficially owned by Chairman and CEO Brian L. Roberts, creating concentrated voting control.
Important Facts for Investors to Verify
- Reconcile reported growth with the temporary impact of the Rio Olympics, political advertising, foreign currency movements and the prior year’s Super Bowl and film slate.
- Monitor Cable Communications programming-cost growth, video penetration, customer churn, high-speed Internet additions and the resulting operating-margin trend.
- Assess leverage, debt maturities, interest expense and the ability to fund acquisitions, capital expenditures, dividends and share repurchases from recurring cash flow.
- Review DreamWorks Animation integration, purchase-price finalization and the performance of the Filmed Entertainment pipeline.
- Evaluate the sustainability of Theme Parks growth, including attendance, guest spending, new attractions and foreign-currency effects.
- Review the terms and potential cash requirement of the theme-park contractual purchase option and the company’s long-term programming commitments.
- Confirm the impact of the 2017 share-based compensation accounting adoption and the announced two-for-one stock split on per-share comparisons.
- Consider the potential effects of changing FCC, privacy, broadband, ownership and retransmission-consent rules, as well as ongoing litigation and regulatory proceedings.