Comcast Corporation 2011 Form 10-K Summary
Business Context and Reporting Period
Comcast filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed February 22, 2012. The company operates Cable Communications and, following the January 28, 2011 transaction with General Electric, a 51% controlling interest in NBCUniversal. Reportable segments are Cable Communications, Cable Networks, Broadcast Television, Filmed Entertainment and Theme Parks.
Because NBCUniversal was consolidated beginning January 29, 2011, year-over-year consolidated comparisons are not fully comparable. The filing also provides unaudited pro forma information assuming the NBCUniversal and Universal Orlando transactions occurred at the beginning of 2010.
Key Financial Metrics
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Revenue | $55.842 billion | $37.937 billion | 47.2% |
| Operating income | $10.721 billion | $7.980 billion | 34.3% |
| Net income attributable to Comcast | $4.160 billion | $3.635 billion | 14.5% |
| Diluted EPS | $1.50 | $1.29 | 16.3% |
| Operating cash flow | $14.345 billion | $11.179 billion | 28.3% |
| Capital expenditures | $5.307 billion | $4.961 billion | 7.0% |
| Total debt | $39.309 billion | $31.415 billion | 25.1% |
| Cash and cash equivalents | $1.620 billion | $5.984 billion | Decrease of $4.364 billion |
Operating margin was approximately 19.2% in 2011, compared with 21.0% in 2010. The decline reflects the consolidation of NBCUniversal and increased depreciation, amortization and operating costs. The Cable Communications segment reported revenue of $37.226 billion and operating income before depreciation and amortization of $15.288 billion, representing a 41.1% segment margin.
- Cable Communications represented 67% of consolidated revenue and 83% of consolidated operating income before depreciation and amortization.
- Cable Communications revenue increased 5.3%; high-speed Internet revenue increased 9.8%, voice revenue increased 6.2%, business services revenue increased 41.4%, and video revenue increased 1.3%.
- At December 31, 2011, Comcast served 22.3 million video customers, 18.1 million high-speed Internet customers and 9.3 million voice customers.
- Video customers declined by 460,000, while high-speed Internet and voice customers increased by 1.159 million and 732,000, respectively.
- NBCUniversal segments generated $19.260 billion of reported revenue and $3.462 billion of operating income before depreciation and amortization for the post-acquisition period.
- Fourth-quarter 2011 revenue was $15.042 billion, operating income was $2.918 billion, net income attributable to Comcast was $1.287 billion and diluted EPS was $0.47.
Material Changes Versus the Prior Comparable Period
- The NBCUniversal transaction added $14.5 billion of revenue and $1.4 billion of operating income in 2011, but also added substantial debt, amortization and noncontrolling interests.
- Comcast paid GE approximately $6.2 billion at closing and consolidated $9.1 billion of NBCUniversal senior debt. GE retained a 49% redeemable noncontrolling interest, recorded at $16.014 billion at year-end.
- NBCUniversal acquired the remaining 50% of Universal Orlando for approximately $1 billion on July 1, 2011. Universal Orlando contributed $712 million of revenue and $42 million of net income attributable to Comcast in 2011.
- On a pro forma combined basis, NBCUniversal segment revenue increased 3.7% to $21.124 billion and operating income before depreciation and amortization increased 2.3% to $3.769 billion.
- Pro forma Cable Networks revenue rose 10.6% and operating income before depreciation and amortization rose 5.4%. Theme Parks revenue rose 24.3% and operating income rose 46.6%, supported by attendance and spending at Universal attractions.
- Pro forma Broadcast Television revenue declined 7.1%, primarily because 2010 included the Vancouver Olympics. Excluding the Olympics, advertising revenue increased modestly.
- Pro forma Filmed Entertainment operating income before depreciation and amortization declined 89.7% to $24 million, despite essentially flat revenue, reflecting higher marketing costs and weaker home-entertainment trends.
- Comcast repurchased 95 million Class A Special shares for $2.141 billion, exhausting the prior authorization. The board subsequently authorized a new $6.5 billion repurchase program.
Cash Flow, Debt and Liquidity
| Cash flow or liquidity item | 2011 |
|---|---|
| Net cash provided by operating activities | $14.345 billion |
| Net cash used in investing activities | $12.508 billion |
| Net cash used in financing activities | $6.201 billion |
| Comcast and Comcast Cable revolving availability | Approximately $6.5 billion |
| NBCUniversal revolving availability | $934 million |
Total debt was $39.309 billion, including $1.367 billion of current maturities. Debt increased primarily because of NBCUniversal and Universal Orlando. Approximately 87.1% of debt was fixed-rate after interest-rate derivatives. Management stated that Comcast and NBCUniversal complied with their leverage covenants by a significant margin.
Contractual obligations totaled $91.198 billion, including $39.277 billion of debt obligations, $39.690 billion of purchase obligations and $3.447 billion of operating leases. Comcast may be required to fund up to $5.75 billion in cash or common stock if NBCUniversal cannot fund two potential GE redemptions scheduled for 2014 and 2018.
Guidance, Outlook, Commentary, Risks and Unusual Items
- Management expected 2012 annual effective tax rate to be approximately 35% to 40%.
- Management expected further declines in residential video customers during 2012, while continuing to emphasize broadband, voice, business services, advanced video and technology initiatives.
- Programming costs, particularly sports and retransmission-consent fees, were expected to continue increasing and remain Cable Communications’ largest expense category.
- SpectrumCo agreed to sell advanced wireless spectrum licenses to Verizon Wireless for $3.6 billion, with Comcast’s expected share of proceeds approximately $2.3 billion, subject to regulatory approval. Related agency agreements provide for cross-selling of Comcast and Verizon Wireless services.
- The filing identified significant commitments for sports and entertainment rights, including the Olympics through 2020, NFL and Super Bowl rights through the 2022-23 season, NHL rights through 2020-21 and FIFA World Cup rights through 2022.
- Reported 2011 results included $171 million of NBCUniversal transaction-related costs, including $155 million in operating costs and expenses and $16 million in other expense.
- Film and television cost impairment charges were $57 million in 2011. The filing also highlights sensitivity of cable franchise valuations, film ultimate-revenue estimates and acquisition-related fair values.
- Key risks include video subscriber losses, streaming and wireless competition, rising programming costs, advertising volatility, weak economic conditions, content acceptance, technology execution, regulation, litigation, labor disputes, cybersecurity and international operations.
- Pending legal and regulatory matters include antitrust class actions, program-carriage disputes, retransmission-consent issues, FCC requirements and tax examinations. Management did not expect these matters to materially affect consolidated financial position, but acknowledged that an adverse outcome could materially affect results or cash flow in a particular period.
Important Facts for Investors to Verify
- Reconcile reported 2011 growth with the partial-year consolidation of NBCUniversal and distinguish reported results from pro forma results.
- Assess Cable Communications video churn and whether broadband, voice and business-services growth offsets video subscriber declines.
- Review NBCUniversal’s operating performance by segment, especially the sharp decline in Filmed Entertainment profitability.
- Evaluate debt maturities, interest expense, revolving-credit availability and the potential $5.75 billion GE redemption funding obligation.
- Monitor programming, sports-rights and retransmission-consent commitments, which totaled substantial future purchase obligations.
- Confirm the status and proceeds of the SpectrumCo wireless-spectrum sale and the associated Verizon Wireless agency arrangements.
- Review the impact of noncontrolling interests, including GE’s 49% NBCUniversal interest, on earnings available to Comcast shareholders.
- Consider the sensitivity of franchise rights, goodwill, film assets and acquired intangible assets to changes in operating performance and valuation assumptions.
- Verify the outcome of pending antitrust, program-carriage, tax and other legal proceedings and any resulting cash or earnings effects.