Business Context and Reporting Period
Comcast Corporation filed this unaudited Form 10-Q for the three months ended March 31, 2012. The company operates through Cable Communications and NBCUniversal businesses, including Cable Networks, Broadcast Television, Filmed Entertainment and Theme Parks. Results include NBCUniversal following the January 28, 2011 acquisition and Universal Orlando following the July 1, 2011 acquisition, affecting year-over-year comparability.
Cable Communications served 22.3 million video customers, 18.6 million high-speed Internet customers and 9.5 million voice customers at March 31, 2012. It generated 64% of consolidated revenue and more than 80% of consolidated operating income before depreciation and amortization.
Key Financial Metrics
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Revenue | $14.878 billion | $12.128 billion | 22.7% |
| Operating income | $2.758 billion | $2.224 billion | 24.0% |
| Operating income margin | 18.5% | 18.3% | Expanded modestly |
| Operating income before depreciation and amortization | $4.688 billion | $4.066 billion | 15.3% |
| Net income | $1.447 billion | $1.039 billion | 39.3% |
| Net income attributable to Comcast | $1.224 billion | $943 million | 29.7% |
| Net margin attributable to Comcast | 8.2% | 7.8% | Expanded modestly |
| Diluted EPS | $0.45 | $0.34 | 32.4% |
| Cash flow from operating activities | $4.393 billion | $3.468 billion | 26.7% |
| Capital expenditures | $1.174 billion | $1.106 billion | 6.1% |
Cash flow from operations less capital expenditures and cash paid for intangible assets was approximately $3.035 billion. Cash and cash equivalents were $2.207 billion at March 31, 2012, compared with $1.620 billion at December 31, 2011. Total debt, based on current and long-term debt reported on the balance sheet, was approximately $37.8 billion, compared with $39.3 billion at year-end 2011. The filing reports estimated fair value of debt of $43.5 billion.
Total current assets were $9.355 billion versus current liabilities of $15.632 billion. Comcast reported $6.5 billion of availability under Comcast and Comcast Cable revolving facilities and $1.3 billion under the NBCUniversal revolving facility. These figures exclude broader access to future external financing and other investments.
Comcast repurchased $750 million of Class A Special common stock and paid $304 million of dividends during the quarter. The Board increased the annualized dividend by 44% to $0.65 per share and authorized $6.5 billion of share repurchases; management intended to repurchase $3.0 billion during 2012, subject to market conditions.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven primarily by Cable Communications and NBCUniversal. Cable Communications revenue increased 5.7% to $9.599 billion, with high-speed Internet revenue up 10.3% and business services revenue up 37.0%.
- Cable Communications operating income before depreciation and amortization increased 5.5% to $3.955 billion. Video customers declined by 37,000 during the quarter and totaled 22.294 million, while high-speed Internet and voice customers increased by 439,000 and 164,000, respectively.
- On a pro forma basis, NBCUniversal revenue increased 18.0% to $5.472 billion and operating income before depreciation and amortization increased 34.3% to $813 million. The pro forma comparison is intended to reflect the acquisitions as if they had occurred before the 2011 comparable period.
- Broadcast Television benefited from $259 million of advertising revenue associated with the 2012 Super Bowl. Despite revenue growth, the segment reported a $10 million operating loss before depreciation and amortization, compared with pro forma income of $20 million in Q1 2011, primarily because of higher programming and production costs.
- Filmed Entertainment improved to $6 million of operating income before depreciation and amortization from a pro forma loss of $146 million, helped by releases including The Lorax and Safe House.
- Theme Parks operating income before depreciation and amortization increased 17.1% on a pro forma basis to $157 million, supported by higher per-capita spending and international attendance.
- Operating costs and expenses increased 26.4%, reflecting the inclusion and growth of NBCUniversal, higher programming and production expenses, and Super Bowl-related costs. The prior-year quarter also included $123 million of NBCUniversal transaction-related expenses.
- Net cash provided by operating activities increased $925 million, while investing cash use decreased substantially because Q1 2011 included $5.658 billion of acquisition spending. Financing cash use increased to $2.457 billion from $743 million, primarily because of debt repayments, share repurchases and dividends.
Guidance, Outlook, Risks and Unusual Items
- Management expected the 2012 annual effective tax rate to be between 35% and 40%.
- Management expected further declines in residential video customers during the remainder of 2012, reflecting competitive pressures.
- NBCUniversal exercised an option requiring A&E Television Networks to redeem a substantial portion of NBCUniversal's interest. Closing was expected in the second half of 2012, subject to agreement on value. Comcast may have a last-dollar guarantee related to financing of the redemption.
- GE held a 49% interest in NBCUniversal represented within redeemable noncontrolling interests of $16.158 billion. Potential future redemption of this interest is a significant liquidity consideration.
- Comcast redeemed or repaid $1.116 billion of debt in February 2012; it redeemed the remaining $563 million of its 7% senior notes in April 2012. The March 31 balance sheet classified these notes in current debt.
- Investment income included significant mark-to-market activity: $516 million of unrealized gains on securities underlying prepaid forward sale agreements offset by $470 million of mark-to-market losses on related derivative components and indexed debt instruments.
- Pending antitrust class actions include a Philadelphia Cluster matter with two claims scheduled for trial in September 2012. Comcast states that it cannot predict outcomes or potential loss ranges. It does not expect the matters to materially affect consolidated financial position, but they could be material to results or cash flow in a particular period.
- Principal ongoing risks include competition, changing consumer behavior and technology, rising programming costs, advertising-market weakness, content acceptance, renewal of programming distribution agreements, regulation, litigation, labor disputes, cyber or network disruption, acquisition execution and loss of key talent.
- The filing states that disclosure controls were effective and that there were no significant changes in risk factors from the 2011 Form 10-K.
Most Important Facts for Investors to Verify
- Reconcile reported year-over-year growth with pro forma NBCUniversal results because acquisition timing materially affects reported comparisons.
- Monitor video-customer losses against continued growth in high-speed Internet, voice and business services, including the sustainability of the $143 average monthly total revenue per video customer.
- Assess leverage, upcoming debt maturities, the April 2012 note redemption and available revolving-credit capacity.
- Evaluate the potential cash requirement and timing associated with redemption of GE's NBCUniversal interest and the A&E Television Networks transaction.
- Separate recurring operating performance from Super Bowl benefits, acquisition-related effects, transaction costs and investment mark-to-market gains and losses.
- Review the status and potential exposure of the Philadelphia antitrust trial and other litigation; the filing does not provide a clear loss range.
- Compare cash flow after capital expenditures with planned share repurchases, dividends, debt repayment and content or strategic investment requirements.