Comcast Corporation — 2013 Q1 Form 10-Q Summary
Business context and reporting period
Comcast is a global media and technology company comprising Comcast Cable and NBCUniversal. Reported segments are Cable Communications, Cable Networks, Broadcast Television, Filmed Entertainment and Theme Parks. The filing covers the three months ended March 31, 2013, with comparisons to the three months ended March 31, 2012. Financial statements are unaudited.
- As of March 31, 2013, Cable Communications served approximately 21.9 million video, 19.8 million high-speed Internet and 10.2 million voice customers.
- Cable Communications generated 67% of consolidated revenue and more than 80% of consolidated operating income before depreciation and amortization.
Financial results and key metrics
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | $15,310 million | $14,878 million | 2.9% |
| Operating income | $3,067 million | $2,758 million | 11.2% |
| Operating margin | 20.0% | 18.5% | Up approximately 150 bps |
| Operating income before depreciation and amortization | $5,034 million | $4,688 million | 7.4% |
| Operating income before depreciation and amortization margin | 32.9% | 31.5% | Up approximately 140 bps |
| Net income | $1,645 million | $1,447 million | 13.7% |
| Net income attributable to Comcast | $1,437 million | $1,224 million | 17.4% |
| Diluted EPS | $0.54 | $0.45 | 20.0% |
| Operating cash flow | $4,369 million | $4,393 million | Down 0.5% |
Programming and production expense declined 1.6%, while other operating and administrative expense increased 5.2%. Income tax expense rose 23.3% to $925 million. The implied effective tax rate was approximately 36.0% in 2013 versus 34.1% in 2012.
- Cable Communications revenue increased 6.4% to $10,217 million and operating income before depreciation and amortization increased 6.7% to $4,219 million.
- High-speed Internet revenue increased 8.6%; business services revenue increased 27.5%. Video customers declined by approximately 60,000 during the quarter and totaled 21.9 million at quarter-end.
- NBCUniversal revenue declined 2.4% to $5,340 million, but operating income before depreciation and amortization increased 17.2% to $953 million.
- Cable Networks revenue increased 4.6% and operating income before depreciation and amortization increased 6.2%.
- Broadcast Television revenue declined 18.5% and operating income before depreciation and amortization declined to a $35 million loss, primarily because the prior-year period included the 2012 Super Bowl.
- Filmed Entertainment revenue increased 2.0%, while operating income before depreciation and amortization increased to $69 million from $6 million.
- Theme Parks revenue increased 12.2% and operating income before depreciation and amortization increased 10.3%.
Cash flow, balance sheet, debt and liquidity
- Operating cash flow was $4,369 million. Capital expenditures were $1,361 million and cash paid for intangible assets was $182 million.
- Cash used in investing activities was $2,763 million, including $1,311 million for properties at 30 Rockefeller Plaza and CNBC’s headquarters.
- Cash used in financing activities was $10,718 million, including $10,747 million to acquire GE’s remaining NBCUniversal common equity interest, $1,811 million of debt repayments, $500 million of share repurchases and $429 million of dividends paid.
- Cash and cash equivalents declined to $1,839 million from $10,951 million at December 31, 2012, primarily because of the NBCUniversal transaction and related investments.
- Total debt was $47,226 million, including $2,177 million current debt, compared with $40,458 million at December 31, 2012. Long-term debt was $45,049 million.
- Debt had a weighted-average interest rate of approximately 4.89%. Revolving credit availability, net of commercial paper and undrawn letters of credit, was $5.5 billion.
- Total assets were $156,364 million and total equity was $48,651 million at March 31, 2013.
- Comcast repurchased approximately 13.3 million Class A Special shares for $500 million. The company stated that it expected to repurchase approximately $2 billion of shares during 2013, subject to market conditions.
Material changes versus the prior comparable period
- On March 19, 2013, Comcast acquired GE’s 49% common equity interest in NBCUniversal Holdings for approximately $16.7 billion and acquired related properties for approximately $1.4 billion.
- The transaction was funded with $11.4 billion of cash, $4.0 billion of NBCUniversal Enterprise senior notes, $750 million of commercial paper borrowings, $1.25 billion drawn under an NBCUniversal Enterprise credit facility and $725 million of preferred stock.
- The transaction eliminated the previously reported $16,998 million redeemable noncontrolling interest at year-end 2012 and reduced it to $854 million, representing redeemable subsidiary preferred stock and other interests.
- Debt increased by approximately $6.8 billion from year-end 2012, while cash declined by approximately $9.1 billion.
- NBCUniversal was added to Comcast’s cross-guarantee structure. Comcast and certain cable subsidiaries guarantee NBCUniversal debt, and NBCUniversal guarantees certain Comcast and cable subsidiary obligations.
- The prior-year comparison was affected by the 2012 Super Bowl, which increased Broadcast Television revenue and expenses in Q1 2012.
Guidance, outlook, commentary and risks
- Management stated that it expects to meet current and long-term liquidity and capital requirements through operating cash flows, cash and investments, available credit facilities and future financing.
- Management expects a 2013 annual effective tax rate of 35% to 40%, absent changes in tax laws or significant changes in uncertain tax positions.
- The company expects to continue using substantial operating cash flow for debt repayment, capital expenditures, business investments and shareholder returns. Quarterly dividends remain subject to Board approval.
- Key operating risks include intense competition, changing consumer behavior and technology, rising programming costs, regulation, economic weakness, advertising-market declines, uncertainty regarding consumer acceptance of NBCUniversal content, technology and cybersecurity disruptions, intellectual-property matters, labor disputes, litigation and risks associated with acquisitions and strategic transactions.
- Comcast faces antitrust class actions concerning cable-provider exchange transactions and set-top-box and premium-service practices. The company cannot predict the outcome or potential loss range; it does not expect a material adverse effect on consolidated financial position, but an outcome could be material to results or cash flow in a particular period.
- A California waste-disposal investigation could seek injunctive and monetary relief; management does not believe the outcome will materially affect results, financial condition or cash flows.
- Film production cost adjustments were $66 million in Q1 2013 versus $25 million in Q1 2012.
Most important facts for investors to verify
- Whether the NBCUniversal ownership consolidation produces the expected long-term earnings and cash-flow benefits relative to the substantial transaction funding and higher leverage.
- Debt maturities, refinancing requirements, interest costs and the availability of the $5.5 billion in revolving credit capacity.
- Trends in video-customer losses, broadband and business-services growth, pricing, churn and programming-cost inflation.
- The sustainability of NBCUniversal segment performance, particularly Cable Networks, Broadcast Television, Filmed Entertainment and Theme Parks results.
- Cash generation after capital expenditures, dividends, share repurchases, content investment and debt repayments.
- Potential exposure from antitrust, patent, waste-disposal and other litigation or regulatory matters, including the absence of a disclosed loss range for the antitrust cases.
- The assumptions underlying fair values for contingent consideration and contractual obligations, which depend substantially on future revenue, tax benefits and discount rates.