Comcast Corporation 10-Q Summary
Business context and reporting period
Comcast filed its quarterly report for the three and nine months ended September 30, 2011. The period reflects the January 28, 2011 acquisition of control of NBCUniversal, with NBCUniversal results included from January 29, 2011, and the July 1, 2011 acquisition of the remaining 50% interest in Universal City Development Partners. Reportable segments were Cable Communications, Cable Networks, Broadcast Television, Filmed Entertainment and Theme Parks.
As of September 30, 2011, Cable Communications served approximately 22.4 million video customers, 17.8 million high-speed Internet customers and 9.2 million phone customers across 39 states and the District of Columbia.
Key financial metrics
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $14.339 billion | $9.489 billion | $40.800 billion | $28.216 billion |
| Operating income | $2.641 billion | $1.954 billion | $7.803 billion | $5.967 billion |
| Operating margin | 18.4% | 20.6% | 19.1% | 21.1% |
| Net income attributable to Comcast | $908 million | $867 million | $2.873 billion | $2.617 billion |
| Net margin attributable to Comcast | 6.3% | 9.1% | 7.0% | 9.3% |
| Diluted EPS | $0.33 | $0.31 | $1.03 | $0.93 |
| Operating income before depreciation and amortization | $4.574 billion | $3.578 billion | $13.441 billion | $10.880 billion |
| Operating cash flow | Not separately provided | Not separately provided | $10.206 billion | $7.732 billion |
Operating income before depreciation and amortization represented approximately 31.9% of third-quarter revenue and 32.9% of nine-month revenue. Interest expense was $637 million in the quarter and $1.863 billion year to date.
At September 30, 2011, cash and cash equivalents were $1.806 billion, total current assets were $8.582 billion and total debt was approximately $40.970 billion, consisting of $2.448 billion current debt and $38.522 billion long-term debt. Estimated fair value of debt was approximately $46 billion. Available credit facilities totaled approximately $5.7 billion.
Material changes versus the prior comparable period
- Reported nine-month revenue increased 44.6% and operating income increased 30.8%, primarily because of the NBCUniversal transaction. NBCUniversal contributed $10.1 billion of revenue and $952 million of operating income during the period included in Comcast’s results.
- Nine-month net income attributable to Comcast increased 9.8% to $2.873 billion, while diluted EPS increased to $1.03 from $0.93. Growth was reduced by higher noncontrolling interests associated with GE’s 49% interest in NBCUniversal Holdings.
- Reported operating and net margins declined because the acquired media businesses have different margin profiles and because depreciation, amortization and film and television cost amortization increased substantially.
- Cable Communications revenue increased 5.5% to $27.756 billion, and operating income before depreciation and amortization increased 7.1% to $11.349 billion for the nine months.
- Cable Communications added 823,000 high-speed Internet customers and 586,000 phone customers, while video customers declined by 443,000. Business services revenue increased 43.3% to $1.293 billion for the nine months.
- Nine-month operating cash flow increased 32.0% to $10.206 billion. Investing cash usage increased to $10.661 billion, including $6.407 billion of acquisitions, $3.785 billion of capital expenditures and $505 million of intangible-asset purchases.
- Financing cash usage was $3.723 billion, including $2.813 billion of debt repayments, $1.650 billion of common-stock repurchases and $881 million of dividends, partially offset by $1.642 billion of net short-term borrowings.
Guidance, outlook, risks and unusual items
- Management expected the 2011 annual effective tax rate to be approximately 35% to 40%.
- Management expected further residential video-customer declines during the remainder of 2011 because of competition and economic weakness.
- Management expected overall home-entertainment revenue to remain pressured by declining DVD sales, consumer migration to digital and rental formats, piracy and competition for discretionary spending.
- Programming and production expenses were expected to increase as Comcast and NBCUniversal continued investing in original programming. The NBA lockout could reduce games broadcast and related revenue.
- Comcast committed to approximately $4.38 billion of U.S. broadcast rights for the 2014, 2016, 2018 and 2020 Olympic Games; most related cash payments were expected around the time associated revenue is collected.
- GE held a 49% interest in NBCUniversal Holdings and had future redemption rights beginning in 2014. Comcast could be required to fund up to $2.875 billion for each of two potential redemptions, or up to $5.75 billion in aggregate, if NBCUniversal Holdings could not fund them.
- NBCUniversal and UCDP acquisition accounting remained preliminary. Recorded goodwill, intangible assets, film and television costs, contingencies, deferred taxes, contingent consideration and redeemable noncontrolling interest could change as valuations were finalized.
- Transaction and transaction-related costs totaled $143 million for the nine months, including $127 million in operating costs and expenses.
- Investment income was volatile, with a $147 million loss in the third quarter versus $109 million of income in the prior-year quarter, largely reflecting mark-to-market changes in securities and related derivatives.
- Comcast faced antitrust class actions and other litigation. Management stated that the matters were not expected to materially affect consolidated financial position, but could be material to results or cash flows in an individual period.
Most important facts for investors to verify
- Reconcile reported growth with pro forma NBCUniversal results because year-over-year comparisons are not fully comparable.
- Monitor video-customer losses, Internet and phone additions, pricing, programming-cost inflation and Cable Communications margins.
- Assess leverage, debt maturities, interest expense and the availability of liquidity after acquisitions, capital expenditures, dividends and share repurchases.
- Review the timing, valuation and funding requirements of GE’s potential NBCUniversal redemptions.
- Evaluate the sensitivity of film, television, broadcast and theme-park results to content performance, advertising markets, DVD declines, labor disputes and consumer demand.
- Track final acquisition-accounting adjustments and any resulting changes to amortization, goodwill, taxes and noncontrolling interests.